Regular correspondent, Terry Field of England and France unleashes his key board from his sojourn in Florida. I have carefully read Terry's analysis of the why of economic and political confusion of today, and his answers. He is a London School of Economics graduate and successful English businessman.
The rigor of his thinking reflects not only his scholarly training and career, but a keen mind that steps back and looks not only where we are as a global economy, but also where we can go. Terry offers some answers to his questions. This is a long but good read. Find some time in your busy life to slowly read and reflect, especially as our learned correspondent moves toward his prescriptions for the future.
Thanks Terry for your perceptive observations. Now I am going to slowly reread your tome especially the last paragraphs. - Glenn N. Holliman
Brexit and Trump
Are they the same thing? Do they arise from the same pressures, and if so what are those pressures? Can there be a success by radically changing the course the world has undertaken over the past half-century and more? Why have these events come to pass? What are the implications for the future not just of economic success, but climate resources and environment?
In all of this, has there been a retreat from the respect for science for analysis, for the truth that decision-making is always confronting complex pressures and choices, from which there can be only partial solutions.
In the West, it has long been policy to employ the technologies of communication and control to facilitate the transfer of manufacture to low cost regions of the world. This process has accelerated, and produced massive concentrations of capital in the nation states where the new industrial activity has been located. To facilitate this, China changed policy from autarky to ‘letting a thousand flowers bloom’ under Deng, whereby rapid industrial development would be achieved. China and America had developed a mutually beneficial agenda – capital would flow east, goods at low prices would flow West.
Surplus funds would cycle from China to the West via the US banking system. A new ‘oil cycle’, beneficial to both economies. Britain joined in, and Germany dragged Europe in as well.
For decades, the sun shone, the beach went on forever, the sea shimmered. Relatively few people lost their jobs, and those that did were socially marginalized – they were process and manufacturing workers, middling in intellect, not to be seen, expected to be disposable.
This is not a harshly unreasonable characterization of societal attitudes. Blue collar, ‘red neck’ people were a price worth paying for the spectacular gains being experienced by most others.
SO what changed?
In 2008 the roof fell in on those who held stocks and real estate, with mortgages and debt burdens attached. The owners were not in fact owners at all. They just thought they were. The real owners were - via the banking system - the bond-holders of the Middle East sovereign wealth funds and China itself.
Suddenly the ‘middle class’ family in Arkansas or Detroit found they were out of their home, out of their car, in a trailer-park, or bunked up with family somewhere else. Their part-owned assets had gone. They had joined the ranks of the industrially dispossessed.
Obama said he would fix it.
They lived in hope and elected him. SO what did he ( and Gordon Brown in Britain) do???
The made the nation state buy the debt burden of the valueless assets from the banks and put them on the national debt. They engaged in vast deficit finance to support the living standards of the hordes of un-working and un-productive people. They did the very opposite of the actions of the economic managers of the 1929 Great Depression.
Then, they paid down debt, now we expanded debt beyond anything previously imaginable.
Then they engaged in gigantic public works programs to ‘soak up’ the immense spike in unemployment, now no such public works programs have been undertaken
Then, the banks were allowed to fail – vast numbers of US ‘corresponding ‘ banks failed – many thousands of them – and the bond and equity holders were wiped out. Now, the corporate bondholders (mostly foreign sovereign wealth funds) were fully protected, the equity holders took the strain, and the depositors were sacrificed only to a very limited degree.
Why?
In part because Bernanke was a student of the Great Depression, and wished to avoid its social effects this time round.
The outcome of the two approaches, however, radically different, and explains much of what is being experienced, economically, socially, and now politically.
In contrast to the 1930s, where a sharp, indeed vicious V-shaped depression was seen, with a massive rise in unemployment, and an equally sharp and rapid recovery, now we see a sharp but limited fall in employment followed by a shift in employment practice to massive numbers employed on call-off remote terms, and a radical shift from secure employment to insecure part-time and constrained employment. At the same time, the growth available to the economy now is highly restricted for decades to come – because the interest rates chargeable on the gigantic debt burden must perforce be extremely low. This restricts bank activity – already inappropriately controlled ‘after the horse has bolted’ and the result is the ‘reserve army of the unemployed’ can not be helped. Socialism offered balm in the form of social welfare payments, but the hopelessness of poverty on welfare is no substitute for work.
Now Trump suggests stimulatory economic activity in the form of immense public works – utterly lunatic in a world that has already had gigantic stimulus form quantitative easing. He will stoke inflation, cause a cost-of capital crisis, and destroy the budget as interests rates explode. As for the currency. A further retreat from reserve currency status is guaranteed. Buy the present with the future, Mk 2.
Across America, and across Britain, those people spoke over Brexit and the Trump experience.
Prior to their desperation being expressed, the journalists and the ‘political class’ considered them not at all. In Britain the socialists used them as vote-fodder.
The progress of global integration was engaged in at all levels, most pleasurably and productively at the highest intellectual levels. Cultural, linguistic, economic, philosophical ties and fruitful comparisons yielded wonderful new fruits.
All of this meant nothing to those abandoned.
Add to this mix, a social phenomenon predicted by economists a century go, but only now able to be realized. The whole of the world would morph into a condition where a controlling class of super-billionaires would appear – dissociated from any particular ‘nation’, with local, insecure technical ‘middle classes appearing to do its bidding, whilst everywhere the poor and part-excluded would mushroom. There would be no more ‘first world’.
Only a world of serf and masters.
That this has happened is obvious to all, but what is not so obvious is the developing capacity of technology to remove the human Brain from all and every commercial, industrial, healthcare and other direct-service function. We are only starting to see the removal of lawyers, doctors, engineers, teachers, lawyers, the list is endless, from the pursuit of their established worlds. That process will accelerate as silicone based systems rapidly remove carbon based systems from more and more activities we consider our own to perform.
What does this mean for our lives, and our thinking? For our politics? For the shape of our human societies.
We have already arrived at the point where productive output- in volume, quality, variety and location, is, to all intents and purposes, unlimited. As a trivial example, BMW some years ago said they could produce their superb products in unlimited numbers, but constrain output to maintain brand exclusivity and thus pricing power.
If output is unlimited, from factories and systems that no longer require other than trivial human employed input, how is the product of those factories to be ‘allocated’ to global society?? Will other, compensating new activities replace the old ones no longer needed? Experience to date suggests that has happened only slightly – and the immense wealth of the factory owners and the banks who process their ‘surplus’ as Mr Marx may have described it, is more and more concentrated.
Certainly economic inequality is more pronounced than it was at the time of both the Russian and French revolutions. But unlike then, it is based on a global economic scene, and thus not susceptible to corrective radical action. Does this mean, therefore, that the situation is hopeless, that serfdom, repression, poverty and misery will increase, and persist.
To answer that question it is necessary to look at two things. The first is an old idea, of modest name, but much more powerful than anything Mr. Marx came up with in its implications. That simple idea says that the profits will be maximised when output is increased in volume to the point when the last and latest unit of output yields no marginal profit to the enterprise. Thus two things are made imperative – to seek to maximize output, and to do so by searching for willing customers. No customers, no sales, no sales no profits, no maximized output, no maximized total cumulative profit. That is the essence of unconstrained capitalism.
The United States has most perfectly epitomized this form of life. Other societies put restrictions in the way of this particular economic behaviour, for lack of understanding and/ or acceptance of its collateral social consequences.
What has changed in recent years?
The capital deployed has in part migrated to China and India to do the same thing but with greater profitability per unit of output. Equally importantly, process and control improvements allow for vastly greater output with a tiny fraction of the people previously employed.
Therefore, from a strictly national viewpoint, the system exports consumption and prosperity. Or it appears to do so. In reality globalization has a number of phases, the one most commented upon by politicians – particularly Mr. Trump and left-wing local protectionists – is the one that involves the loss of long held jobs, but in reality, that process is at an end in China as concerns the United States and Britain, not because there are not many millions of peasants available for work in Chinese factories, but because the Chinese currency rises to a level that both chokes off its exports, thus excluding those potential workers in the short term, but also causes imports to become affordable – our exports – before local Chinese brands and products are developed to service domestic demand. We should expect our goods to be rebranded as Chinese brands for local Chinese consumption before long.
In other words, these old and new economies behave like cells of the body – the cell walls harden and activity becomes internalized and largely self-contained.
That is where the United States and China are moving to now. A symptom is the return of some industrial activity from China to the United States.
What does this mean for the promises of Mr. Trump? What for the hopes and beliefs of his ‘movement’???
As with all politics, the mass of the people respond to events and ideas that have long passed and become irrelevant. The idea that a control over site location for factories by tariff controls between the US and China is laughable. The threshold for working in most plants is high in terms of intellect, education and skill set. Grunt work is not done anywhere apart from assembly work. The highest technology plants are not location dependent.
Of those who were desperate and voted for Trump, of those who were desperate and voted for Poles to be expelled from Britain – I would place a safe bet that very many lack the personal resources to be able to be employed in modern high tech manufacturing facilities. Even if those facilities need large numbers of people, which they do not.
Thirty years ago Boeing described an aluminum fuselage as a commodity product. Now composite and compound frames are made, by way of highly integrated capital equipment and only highly skilled technicians and engineers needed. Similarly with auto production – a final assembly operation combines subcomponents made in similar fashion to a composite airframe in terms of the intellect and skill levels needed.
In other words, Trump asks the wrong question, his acolytes also ask the wrong question, and Trump’s resultant absurd ideas that are bound to fail pour forth. The sort of stuff a child would have suggested.
Had this been 1960, an argument against globalization and protectionism could have been made – a flawed one, granted, but at least then a chance at stopping or slowing the leeching of capital abroad could have been tried. Then all capital of consequence was in the USA. Now it is everywhere.
Now it is FAR too late for such a question.
The hard reality for the West- and for the United States today – is not how to recover what once was – that cannot be done – the conditions that allowed for it are gone for good – but what shape society must take on in order to reflect infinite output with no human input- where ‘constrained demand’, as the economists now say, is the major problem.
Trumps schoolboy world involves command and control – tariffs, barriers, 19th century stuff. Big man In Charge stuff.
All utterly irrelevant.
Trump, his advisers, all know this. As does Farage in Britian. Hence they offer the puffed up militarized national glory and nostalgia, together with utterly bogus ‘self-determination of the people’ wind as a smoke-screen for the economic failure they are already planning to deliver even before they have started their enterprise.
The United States is built on the testosterone of swaggering and immense success – the ‘taming’ of an entire continent, competition and winners. Losers fail because of inadequacy. The great success goes to the admirable person.
The very definition of Yankee freedom. Free to succeed; free to fail.
That worked well until people became less needed in the economy. It will not work at all when people, in general become utterly irrelevant to the functioning of the economy.
The search for mechanisms that heal the isolation and fear of the individual need to be found. They will go hand in hand with the search for the values that make for human happiness. Those values were known before industrialiation, became perverted by it, and now are submerged and further distorted by the experience of the militarized, super-violent nation-state which grinds people to dust or enriches them simply as need and circumstance arises. The state puts a gentle child behind a rifle in a trench in 1914, or decides to honour him and protect him as a citizen in Detroit in the boom years of the 1950s. Chance. Either way, the individual has had no real control- only the pretence of control.
The socialist would say he (or she) wishes the State to protect all individuals, but the reality of socialism is that it needs a super-powerful State apparatus to interpret need, and organize delivery. Again the individual has no say. Just like those in the US who voted against welfare and hoped in Trump.
No. Other solutions must be searched for if there is genuine motivation to help the poor, the lost, the isolated, the excluded. Part of the mix should include some of the following, none of which did I hear in Britain or the United States.
- Focus on the human being should be designed to re-establish fair access to resources.
- Asset owners should have less, workers more.
- The individual should be encouraged to be surrounded by family, not strangers as he moves across the landscape as ‘economic need’ arises.
- Personal financial stability should be developed, and to do this, the power of the corporation should be curbed.
- Pension structures should no longer be personal in design, performance and out-turn. That can not work, and we see it does not work.
- Asset ownership should be priced to reinforce safety of ownership as long as an the individual wishes, and priced to not offer windfalls to one generation, and excluded poverty to another. This is a matter of economic structure constraining corporate distortion prices at will.
- Healthcare should enjoy some of the following characteristics, as a minimum. Capacity should be sufficient, available to all in need, but able to impose reasonable disciplines on individual responsibility on all concerned.
- Insurance companies should be unable to offer cover at prices reflecting mortality and morbidity statistics, whilst the rigging their profits by loading part of the demand side should ‘pre-existing conditions’ be experienced.
In America, none of this is in place. To put it in place, the distorted and super-profit-inducing rigged mini-markets of the kaleidoscope of healthcare ‘providers’ and ‘consumers’ should be removed by rational actions by legislators. This would not be a removal of the free market. That does not exist in healthcare at present; it is a rigged system. A fully functioning market should be designed and legislated for.
No sign of any of that from the juvenile Mr Trump.
And in all of this, and so much more, the expectations of the individual should change. For the better. An economy growing at a couple of percent a year will- if it permits billionaires and multimillionaires – and that IS a social choice - as night follows day, result in hordes of the dirt poor.
Therefore, we must revisit, in this new world of infinite output but armies of serfs unable to share in the abundance – the question Mr Marx asked, how do we offer what is needed for a good life for the many, from the gigantic resources of the few, who hold the assets, but do not ‘need’ them?
‘From each according to his means, to each according to his needs’. The success of the Theory of the Firm makes it imperative to ask that question.
It did not work with communism, for reasons we all understand.
That does not mean the question has gone away. It has returned with immense force.
But the election in the United States, and lunacy of Brexit, means it HAS to be addressed. And that requires high sophistication. Elites, the super-educated, philosopher kings, if you like.
Flowers from Terry and Fina's Normandy garden
But HUMBLE ones who LOVE their less well intellectually endowed fellow creatures.
This used to have a name.
We called it Chritianity.
We need to find it again, but in a form that does not support privilege. There is no Caeser to have anything rendered unto now.
And this time really make it work. For people. Not for concepts.
And in case you ask, yes, Hillary is closer to the real questions to be asked than Trump. Not much closer, but closer. - Terry Field
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