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Tuesday, 24 January 2012

Back to Basics: Political Economy 2: Maribou Weed

The Maribou weed was introduced to Cuba for use as a hedgerow plant: to mark the boundaries of fields and gardens. The plant thrived excessively, it has spread wildly over the landscape. It is a very hardy growth with woody stems: and it has proved very hard to eradicate. The story has been unrelievedly depressing for several decades.

However, very recently, researchers from the University of Strathclyde [in Glasgow] have found that when it has been burned to produce charcoal the wood forms an amazing form of carbon. On early examination it appears to have the capacity to store electricity more effectively than Lithium batteries - at a fraction of the cost. The discovery will take a considerable time to verify, and applications can be developed only step-by-step; but it is so far an extremely promising concept. A huge range of applications, not least more practicable electrically-powered vehicles, can quickly be envisaged for new cheap super-batteries and by exploiting the carbon's high conductivity. .

Such an example shows that no possibility should be ignored in looking for uses for the most unattractive forms of waste and for the most damaging weeds [a weed having been described as any plant that is in the wrong place]. Innovative experimentalists must be allowed - and, where feasible, funded - to pursue hunches. For many centuries British innovators [often solitary part-time inventors] have produced new products and concepts in profusion: yet nowadays only a very small proportion of the new ideas are funded in a way that enables the product to be sold to the world as a British-made quon [defined in my book, PPE, accessible via the link] that purchasing managers all over the world will need to buy. Many new concepts are stillborn because the inventor lacks capital to implement them. In other cases inventors and their families and friends invest in the development of the product but do not generate enough revenue and publicity to fund viable growth so that their investment is lost, the idea is shelved and the family and friends are worse off than they were when the business was started. Not infrequently, bold risk-takers lose the homes that they have pledged against business loans. Almost equally dispiriting from the perspective of the national economy are instances where a new concept attracts sufficient publicity to interest overseas investors who buy the intellectual property vested in the concept: which takes the potential profits into another state's balance of payments. Athough the inventor  who sells her patents may be left with a pot of money to spend within their home economy the major part of the benefit from the invention is lost; and demand may develop so that importing the product becomes another strain on the national blance of payments.

The political class frequently say that they have got the message: that investment in new products must be encouraged. Modest tax concessions are offered for investors in start-up businesses. But the prospect of some future tax relief might not be enough to encourage an innovator to risk his family's comfort by depositing his house deeds with a capricious bank in order to secure a short-term business loan. Attempts by politicians to force banks to lend money to small and start-up enterprises invariably fail, because the banks' responsibility to avoid excessively risky lending is paramount in the perception of the bank's owners and of its regulators. This inhibition applies especially in the current circumstances when all banks have been ordered to build up secure reserves to meet  tightening regulatory standards. In addition to that general limitation on banks' lending there is the structural factor that banks no longer employ authoritative local managers who could make lending decisions on the basis of the family history, career record and reputation of customers requesting business loans. The majority of lending to small and medium-sized businesses in Britain in recent years has been to roll forward existing loans to firms that have shown themselves reliable in servicing their debt, often from a lacklustre but solid performance in distributing imported brands or in providing entertainment, catering and other leisure services.

The discoveries about Maribou weed by the Strathclyde team have relatively good chances of attracting investment, compared to inventions or discoveries by English individuals, for a clutch of special reasons. The University in question is a mature and respected research institution with special strength in applied sciences and engineering: and as such it is geared up for providing 'seed corn' funding for promising innovations. Universities are also sufficiently media-savvy  to publicise discoveries, after the crucial itellectual property has been secured. Secondly the Scottish government is willing to use its powers to provide extra resources for Scottish innovation, over and above those that are available for regional development throughout the UK. The essential task facing the university is to create some product or process that can quickly become the subject of a patent application. The wood is found in Cuba, and other countries but not the UK. Therefore the way a British academic team can turn the discovery into a marketable asset is by creating intellectual property in the means of converting the raw material into desirable products that can be protected from competitors.Thus there is going to be a period of stressful competition between scientific teams trying to capture the potentially huge value of the patents that may be capable of development.

What has this tale to do with the basic facts of Political Economy?

As has been stated often in this series of blogs, one of the two Laws of Political Economy is the Iron Law of  Wages: the proposition that a nation cannot distribute for consumption more than the net output of the economy, after allowing appropriately for capital investment and the legitimate costs of government. Imports must be balanced by exports. If the country owes debts accrued in past years, these must be repaid and the cost of doing that is automatically deducted from the amount of wealth that is available for distribution to the population in the years while repayment is going on. If the country cuts investment in order to maintain or increase consumption that inescapably results  in the national product being lower than it should have been in subsequent years.

Higher technology products and  highly fashionable brands earn the most income to the companies that supply them, compared to the material costs incurred in producing the goods. So a country that exports highly priced goods and services, and imports only cheap commodities and products, is most likely to be able to repay debts [or to avoid becoming indebted] to foreigners. The potential earning power of technologies exploiting maribou carbon is immense, and could give a significant fillip to the balance of payments of a country that was able to enforce the exclusivity of its ownership of the relevant ik or intellectual property. A constant flow of highly valued inventions was the basis on which Britain gained global economic leadership between 1780 and 1850: since 1870 there has been a pattern of relative decline that has now reached its nadir. 1870 was the marker year for the replacement of Political Economy by Economics, which marked the beginning of the obfuscation of the basic truths that formed the core of the older [and sounder] subject. The truth must now be confronted, as the central concept on which economic recovery can be based; and opportunities such as may be offered by maribou carbon must be optimised. By such means, real economic growth can be consolidated.

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