China's Premier has announced his expectation that economic growth this year will fall below the amazing 8% average of the past 25 years: to about 7.5%. Behind the raw number - which is still massively greater than the world's average rate of growth - is the important fact that this is a period of consolidation and change in patterns of consumption.
In the terms of Personal Political Economy the great shift is that there is an increasing number of empowered consumers each year: people with greater disposable income [and in some cases borrowing power that enables them to make bug purchases] are able to move from subsisting only on marcoms [basic commodities that meet needs] t being able to enjoy the experience of consuming quons. Just a few western Economists, including notably Harry Johnson, recognised in broad terms the difference between quons and marcoms. Johnson called quons 'positional goods' but he did not live long enough to develop any significant theory; and it remains probable that the mainstream of his 'profession' would not have accepted the concept. In the decades since that aborted airing of the issue, naive Economists have continued to treat 'goods' as a whole; while Chinese economic planners - in particular - have recognised the significance of the differentiation and the importance of fostering a shift of consumption from having more 'essentials' [which in excess can make people obese] to being able to acquire quons which embody consumer experiences that invoke a different sense of satisfaction.
As Chinese consumers gain flexibility over spending their increased wages they acquire the power to make a different sort of choice. In their millions they have opted to acquire different sorts of meat as well as computer games and, more recently, a whole range of 'aps'. Higher up the income scale, people have bought hundreds of thousands of quintessential quons: new apartments. Financing the boom in property has led to a huge extension of borrowing, both overt and illicit, and the authorities have not been completely successful in controlling that expansion. In periods when restraints on funding property purchases have really bitten, the market has lost momentum; then measures have been found for expanding credit again and restarting the building and the sales - and confounding the western Economists who have seen the 'property crunch' as evidence of the fundamental instability of the Chinese economy and an imagined 'need' to move to a neo-marginalist market model.
China is a much more rational system than those Economists can understand. People rising from abysmally low standards of living have been brought in their hundreds of millions into a market economy, where at first they receive subsistence wages [which a majority of urban workers still receive]. Then their productivity rises to enable them to be paid enough to become highly selective consumers of quons. The first little luxuries are the most highly prized, as they open up a new horizon for the individual. The payment made for them is sacrificial, and the satisfaction received is incalculable. Of course, if the buyer is cheated and receives consumption that is not what they had been led to expect, the anger and disappointment experienced by the consumers is also incalculable: which justifies significant control of products and markets.
The best way to raise workers' productivity in an already-industrialised country is by adding quon production to marcom production. If China can produce the majority of the quons that spread over the country from its own industries, that is the best way of combining the dissemination of quons with spreading around the incme that enables more people to consume more quons. This is precisely what is happening: and the slight reduction in reported economic growth while an increasing commitment to quon .is implemented will be followed by a period of rapidly rising productivity and then of incomes. Once Chinese quons are well proven in the home markets they will be ready for export: often under established western trade marks, which the Chinese have assiduously been buying over recent years.
Those who choose not to recognise what is happening will suffer when the development of the Chinese economy faces them with further reductions in their western standards of living. The sadness is, that Economists will not bear the brunt of the impact: that fate, as usual, falls to the poor who have been so appallingly deceived by the politicians who remain deluded by market models.
Showing posts with label Personal Political Economy. Show all posts
Showing posts with label Personal Political Economy. Show all posts
Monday, 5 March 2012
Monday, 28 November 2011
Market Failure and Democratic Deficit
Adam Smith has been identified as the 'father' or the 'founder' of Political Economy [and of its more modern aberration, Economics] since soon after he produced his most famous book, An Inquiry into the Nature and Causes of the Wealth of Nations, which was published in 1776 - the year of some British American Colonies' Declaration of Independence. It was - and it remains - a campaigning book. He opposed the 'Political Economy' that prevailed at the time [as recently systematised by a fellow Scot, Sir James Steuart], which assumed that the government had a duty to support, control and regulate the economy. This well-established doctrine followed the political philosophy that had been set out in the previous century by Thomas Hobbes, who had argued that when there was no political system the life to which primitive men and women were condemned was 'nasty, brutish and short'. Unless there was a power that could compel all humans to behave according to common rules there could be no security for people's bodies and no guarantee that any preservable asset that anybody created would be safe in their possession: so neither civilised relationships nor the economy could develop.Hobbes assumed that at some time enough people would have recognised the gap between human creative abilities and the life that people lived while they remained in a 'state of war' with each other. So they had elected a Sovereign: to whom they gave the right to 'make war' against everybody else whenever violence may be necessary to establish and preserve the rule of law and order.
Adam Smith did not dispute the need for a government and he explicitly recognised that some non-military public works such as coastal defences could only practicably be afforded by the state; and he became a Commissioner of Customs. But his core argument about the creation of material assets [and of the intellectual capital that supported the creative process] was that state interference and the government's protection of interest groups - such as closed trades and merchants who were granted monopolies - usually restricted economic growth and the beneficial spread of wealth among the community at large. Karl Marx was to build on that proposition, which he extended into an assertion that monopoly capitalism would so develop that it would become a system of total oppression of the proletarian majority of the population.His Communist Manifesto, published in 1848, brought global attention to the ideas that he spent the next few decades elaborating.
After the publication of Smith's book formal Political Economy accommodated the 'Principle' that Free Trade should be supported by governments, in preference to monopoly, whenever feasible. But the professors stressed that governments, businessmen and commentators on the economy should always recognise Malthus' Principle of Population and the two Laws of their science: the Law of Diminishing Returns and The Iron Law of Wages [for definitions see blogs passim or my Personal Political Economy]. When these laws were combined with Marx's predictions the resulting scenario was alarming: productive technologies would inescapably reach an entropic inevitability as output-per-input of additional capital declined. If the Law of Wages was maintained, so that the government insisted that the total economy must always remain in balance [and could not indulge in net borrowing], and the capitalists were demanding ever more of the national output to put into additional equipment that was achieving only diminishing returns, the increasing population would face declining living standards - reaching starvation-point - and the crisis of capitalism would explode into revolution.
This prospect scared the professors of Political Economy, so by the middle eighteen-sixties advanced thinkers in several countries started presenting a new approach that treated Marx in the same way as Adam Smith recorded he dealt with Steuart: they tried to demolish Marx's intellectual system "without once mentioning him". Their alternative involved shelving the Iron Law of Wages, pushing the operation of the Law of Diminishing Returns into the indefinite future, asserting that Malthus' Principle was unproven [and may be invalid]; instead emphasising Smith's proposition that competitive free trade optimised economic growth: this led to a theory of market Economics. Until the nineteen thirties that form of Economics became increasingly prevalent in the universities, worldwide: then in the depression protectionism - interventions by governments to protect their economies, at the expense of firms and individuals in other countries - became significant. It was ruinous for everybody because it just made the depression more intense as world trade slumped further. In these circumstances Keynes's timely publication of his propositions for macro-economic intervention by the state became popular, and was adopted by democratic governments during the second world war as one of the promised methodologies by which a better world would be built on the fruits of victory.
The crass adaptation of Keynes's principles after his death led through increased indebtedness to the nineteen seventies that were characterised by inflation, the risk of collapsing currencies and the possibility of hyperinflation. Keynes had attacked the behaviour of people in the stock and bond markets, and in banks: he referred to them making decisions on a basis of 'animal spirits' rather than of reason, which led to irrational herd behaviour triggered by 'waves of irrational psychology'. People who were supposedly developing and implementing his ideas could not ignore those assertions, so alongside macroeconomic intervention it was dogma between 1940 and 1970 that markets [and especially financial markets] must be controlled. Once Bowdlerised Keynesianism had been proven not to be the panacea for perpetual prosperity, an alternative set of ideas was adopted. At rock bottom, behind obfuscatory argument and seductive mathematical models, the new core proposition was that [though people in markets were, indeed, prone to irrationality] markets themselves were rational entities. Instead of being seen as dangerously constructed creations that were likely to be abused, to the disadvantage of outsiders and of the economy at large, rational markets were presented as intrinsically beneficial. Therefore all restraints on markets would serve as limitations on the optimisation of wealth.
This was the leitmotiv of the Reagan-Thatcher era, which briefly seemed to offer perpetual prosperity. But reckless market behaviour far worse than Keynes had condemned was unseen by the majority of Economists and commentators, who were beguiled by the figures that governments chose to collect and publicised. The Clinton-Blair-Brown-Chirac period seemed prosperous: but alongside de-industrialisation there were massive and unsustainable increases in personal and public indebtedness, uncontrolled and incomprehensible developments of money-markets in cyberspace, an appalling expansion of international trade in sex slaves and indigenous exploitation of child prostitutes, the unrestricted growth of a vicious drugs trade; and - largely funded by those outrageous activities - the gap between the incomes of rich and poor became more significant than that between peasants and feudal aristocrats.
That was the final, abject and total failure of academic Economics: and over the four years since it became obvious I have not noticed any press reports of ritual suicides, formal statements of regret or self-conscious resignations from professorial chairs. It is a well-used adage that con-men can only succeed if they con themselves first: and by extension the professors could be those who were so deluded by their studies that they have not yet seen the scope of the disaster that they have collectively produced. After all, they are the girls and boys who faithfully learned what their professors taught them; and got their promotion by peer-reviewing each others' fantasising within an intellectual bubble that has not yet been burst by reality. If that is a fair assessment, the professors are to be pitied: but their time has come!
And the politicians just followed them. They swallowed Rational Market theory hook, line and sinker: though it is unlikely that many of them ever really understood it. By adopting an appallingly limited and profoundly defective version of Economics they ensured that whatever was delivered would not be beneficial to the people at large. Thus they engineered a simultaneous failure of Economics and Politics. The public justification for both Politics and Economics is that they should serve the common good. In the 'democratic west', they have not done so.
Adam Smith did not dispute the need for a government and he explicitly recognised that some non-military public works such as coastal defences could only practicably be afforded by the state; and he became a Commissioner of Customs. But his core argument about the creation of material assets [and of the intellectual capital that supported the creative process] was that state interference and the government's protection of interest groups - such as closed trades and merchants who were granted monopolies - usually restricted economic growth and the beneficial spread of wealth among the community at large. Karl Marx was to build on that proposition, which he extended into an assertion that monopoly capitalism would so develop that it would become a system of total oppression of the proletarian majority of the population.His Communist Manifesto, published in 1848, brought global attention to the ideas that he spent the next few decades elaborating.
After the publication of Smith's book formal Political Economy accommodated the 'Principle' that Free Trade should be supported by governments, in preference to monopoly, whenever feasible. But the professors stressed that governments, businessmen and commentators on the economy should always recognise Malthus' Principle of Population and the two Laws of their science: the Law of Diminishing Returns and The Iron Law of Wages [for definitions see blogs passim or my Personal Political Economy]. When these laws were combined with Marx's predictions the resulting scenario was alarming: productive technologies would inescapably reach an entropic inevitability as output-per-input of additional capital declined. If the Law of Wages was maintained, so that the government insisted that the total economy must always remain in balance [and could not indulge in net borrowing], and the capitalists were demanding ever more of the national output to put into additional equipment that was achieving only diminishing returns, the increasing population would face declining living standards - reaching starvation-point - and the crisis of capitalism would explode into revolution.
This prospect scared the professors of Political Economy, so by the middle eighteen-sixties advanced thinkers in several countries started presenting a new approach that treated Marx in the same way as Adam Smith recorded he dealt with Steuart: they tried to demolish Marx's intellectual system "without once mentioning him". Their alternative involved shelving the Iron Law of Wages, pushing the operation of the Law of Diminishing Returns into the indefinite future, asserting that Malthus' Principle was unproven [and may be invalid]; instead emphasising Smith's proposition that competitive free trade optimised economic growth: this led to a theory of market Economics. Until the nineteen thirties that form of Economics became increasingly prevalent in the universities, worldwide: then in the depression protectionism - interventions by governments to protect their economies, at the expense of firms and individuals in other countries - became significant. It was ruinous for everybody because it just made the depression more intense as world trade slumped further. In these circumstances Keynes's timely publication of his propositions for macro-economic intervention by the state became popular, and was adopted by democratic governments during the second world war as one of the promised methodologies by which a better world would be built on the fruits of victory.
The crass adaptation of Keynes's principles after his death led through increased indebtedness to the nineteen seventies that were characterised by inflation, the risk of collapsing currencies and the possibility of hyperinflation. Keynes had attacked the behaviour of people in the stock and bond markets, and in banks: he referred to them making decisions on a basis of 'animal spirits' rather than of reason, which led to irrational herd behaviour triggered by 'waves of irrational psychology'. People who were supposedly developing and implementing his ideas could not ignore those assertions, so alongside macroeconomic intervention it was dogma between 1940 and 1970 that markets [and especially financial markets] must be controlled. Once Bowdlerised Keynesianism had been proven not to be the panacea for perpetual prosperity, an alternative set of ideas was adopted. At rock bottom, behind obfuscatory argument and seductive mathematical models, the new core proposition was that [though people in markets were, indeed, prone to irrationality] markets themselves were rational entities. Instead of being seen as dangerously constructed creations that were likely to be abused, to the disadvantage of outsiders and of the economy at large, rational markets were presented as intrinsically beneficial. Therefore all restraints on markets would serve as limitations on the optimisation of wealth.
This was the leitmotiv of the Reagan-Thatcher era, which briefly seemed to offer perpetual prosperity. But reckless market behaviour far worse than Keynes had condemned was unseen by the majority of Economists and commentators, who were beguiled by the figures that governments chose to collect and publicised. The Clinton-Blair-Brown-Chirac period seemed prosperous: but alongside de-industrialisation there were massive and unsustainable increases in personal and public indebtedness, uncontrolled and incomprehensible developments of money-markets in cyberspace, an appalling expansion of international trade in sex slaves and indigenous exploitation of child prostitutes, the unrestricted growth of a vicious drugs trade; and - largely funded by those outrageous activities - the gap between the incomes of rich and poor became more significant than that between peasants and feudal aristocrats.
That was the final, abject and total failure of academic Economics: and over the four years since it became obvious I have not noticed any press reports of ritual suicides, formal statements of regret or self-conscious resignations from professorial chairs. It is a well-used adage that con-men can only succeed if they con themselves first: and by extension the professors could be those who were so deluded by their studies that they have not yet seen the scope of the disaster that they have collectively produced. After all, they are the girls and boys who faithfully learned what their professors taught them; and got their promotion by peer-reviewing each others' fantasising within an intellectual bubble that has not yet been burst by reality. If that is a fair assessment, the professors are to be pitied: but their time has come!
And the politicians just followed them. They swallowed Rational Market theory hook, line and sinker: though it is unlikely that many of them ever really understood it. By adopting an appallingly limited and profoundly defective version of Economics they ensured that whatever was delivered would not be beneficial to the people at large. Thus they engineered a simultaneous failure of Economics and Politics. The public justification for both Politics and Economics is that they should serve the common good. In the 'democratic west', they have not done so.
Saturday, 19 November 2011
Work and Wages
With total unemployment in the United Kingdom well in excess of six million, including one in five of under-twenty-fives, the cost of maintaining them all - even at a low standard of living - is a major cause of the still-growing budget deficit. It is highly desirable that at least two million of those people should get jobs, raising their standard of living and paying taxes. There is much talk of creating those jobs; but staff are being shed from the civil service, the armed services and the health service, so it is hoped that other sectors of the economy should generate employment. The private sector - business - is showing little sign of major job creation. In the few segments of the market where there is opportunity for employment there is an evident employer preference for immigrant labour. The available jobs are mostly in entertainment, hospitality and services, where emphasis is placed on personal attributes of clean appearance and willingness to work hard at peak periods. Native British unemployed products of comprehensive schools are perceived by employers not to possess these characteristics. It is even reported that many graduates do not meet employers' requirements for literacy, articulateness. smartness and diligence.
Manufacturing industry has been through half a century of decline: many skills have died out and 'habits of industry' that used to be cited as a great attribute of British artisans have become extinct. There is a fashion for people to be given 'apprenticeships'. For many centuries apprentices used to work alongside craftsmen and learn skills on the job. In the twentieth century industrial apprenticeship took on a more institutional form, where apprentices [including graduate apprentices] were put through a sequence of jobs in the works in parallel with study part-time of relevant technical subjects. As industry diminished the good schemes attracted more applicants and now the few surviving exemplars [like that at Rolls-Royce] stand out as remarkable opportunities for employment. The 'real' schemes are highly competitive and attract excellent candidates: they bear no relationship - other than the use of the word apprentice - with the charade that is in mind for the masses. Without access to the appropriate industrial plant, or to experienced trainers, or to skilled supervisors the new apprenticeships will largely be classroom based, with simulated work situations and rare factory visits. Candidates will recognise it as a sham, and there is no chance of such a scheme creating a mass supply of skilled women and men who could operate new factories: even if the necessary capital and desirable patented product concepts could be conjured into existence.
The present government is following its predecessor in looking to 'the third sector' - not-for-profit firms, and charities - to create jobs, with financial assistance from the government. At a cost of billions of pounds, this will enable a few people to get useful job experience; and it will condemn hundreds of thousands to disillusion and cynicism. Unemployment is a horrible experience, even for a few months: when it lasts for years its psychologically and morally destructive. If the surrounding circumstances include fake apprenticeships, subsidised non-jobs in charity and a penal attitude by the state to claimants for benefits, the destructive impact of unemployment is enhanced. Only 'real' jobs in 'real' industry and commerce - and genuinely useful roles in charity and the public services - give job satisfaction. Such jobs are only created by the investment of capital and the engagement of protected intellectual property ik as defined in Personal Political Economy. Tragically, there is no sign that this is in the offing for the British people.
The USA also has a huge problem of unemployment, and many failed schools. Hundreds of thousands of the unemployed are dysfunctional from an employer perspective. But most of the employed in the USA work hard: and those who are seeking employment expect to work hard. The average US employee has many fewer days per years of annual holiday than do Britons or continental Europeans; and the torrent of Latino immigration ensures that employers can expect to get a full days work for the pay that they offer. Despite very significant de-industrialisation, the US remains a formidable centre of manufacturing, especially in high-value-added sectors. Nobody on the eastern shores of the Atlantic should read into America's unemployment statistics the same dire picture as is to be inferred from British data. The relationship of work to wages in the USA is an example from which Britain can learn beneficial lessons: any idea that 'they are in the same boat as we are' is deeply mistaken. Americans are right to be deeply concerned about the current state of work in their country; but they have the means to ameliorate their relatively benign situation far more readily than we do in Britain.
Manufacturing industry has been through half a century of decline: many skills have died out and 'habits of industry' that used to be cited as a great attribute of British artisans have become extinct. There is a fashion for people to be given 'apprenticeships'. For many centuries apprentices used to work alongside craftsmen and learn skills on the job. In the twentieth century industrial apprenticeship took on a more institutional form, where apprentices [including graduate apprentices] were put through a sequence of jobs in the works in parallel with study part-time of relevant technical subjects. As industry diminished the good schemes attracted more applicants and now the few surviving exemplars [like that at Rolls-Royce] stand out as remarkable opportunities for employment. The 'real' schemes are highly competitive and attract excellent candidates: they bear no relationship - other than the use of the word apprentice - with the charade that is in mind for the masses. Without access to the appropriate industrial plant, or to experienced trainers, or to skilled supervisors the new apprenticeships will largely be classroom based, with simulated work situations and rare factory visits. Candidates will recognise it as a sham, and there is no chance of such a scheme creating a mass supply of skilled women and men who could operate new factories: even if the necessary capital and desirable patented product concepts could be conjured into existence.
The present government is following its predecessor in looking to 'the third sector' - not-for-profit firms, and charities - to create jobs, with financial assistance from the government. At a cost of billions of pounds, this will enable a few people to get useful job experience; and it will condemn hundreds of thousands to disillusion and cynicism. Unemployment is a horrible experience, even for a few months: when it lasts for years its psychologically and morally destructive. If the surrounding circumstances include fake apprenticeships, subsidised non-jobs in charity and a penal attitude by the state to claimants for benefits, the destructive impact of unemployment is enhanced. Only 'real' jobs in 'real' industry and commerce - and genuinely useful roles in charity and the public services - give job satisfaction. Such jobs are only created by the investment of capital and the engagement of protected intellectual property ik as defined in Personal Political Economy. Tragically, there is no sign that this is in the offing for the British people.
The USA also has a huge problem of unemployment, and many failed schools. Hundreds of thousands of the unemployed are dysfunctional from an employer perspective. But most of the employed in the USA work hard: and those who are seeking employment expect to work hard. The average US employee has many fewer days per years of annual holiday than do Britons or continental Europeans; and the torrent of Latino immigration ensures that employers can expect to get a full days work for the pay that they offer. Despite very significant de-industrialisation, the US remains a formidable centre of manufacturing, especially in high-value-added sectors. Nobody on the eastern shores of the Atlantic should read into America's unemployment statistics the same dire picture as is to be inferred from British data. The relationship of work to wages in the USA is an example from which Britain can learn beneficial lessons: any idea that 'they are in the same boat as we are' is deeply mistaken. Americans are right to be deeply concerned about the current state of work in their country; but they have the means to ameliorate their relatively benign situation far more readily than we do in Britain.
Monday, 14 November 2011
China, Europe and Quons
Over the past month Chinese ministers and bankers have been quoted a lot in the European press as they have used increasingly uninhibited terminology in which to decline the privilege of putting billions of their dollars into various bail-out funds for the euro. It has been 'understood' that Chinese see many Europeans as workshy, many European products as imperfect or outdated, and European standards of living as excessive when set against national productivity and per capita output.
Economists, bankers and politicians have reportedly bought-in to the 'idea' that Britain and other laggard countries in the EU should increase their exports to China. More nuanced thinkers among these elites have particularised that the exports should be of 'manufactures': perhaps of the kinds that Germany's successful sales to China have comprised for the past few decades. The primitivism of that thinking is pathetic to behold. China has been the global powerhouse in manufacturing for two decades: it has no need to import those commodities that it has been so successful in exporting. On the basis of that success China has grown thousands of billionaires and hundreds of millions of 'middle class' consumers. These people don't think in terms of consuming 'manufactures': they want brands.
Economists' models of markets have never coped with the concept of brands: with the palpable fact that capable buyers do not haggle about prices for those consumer experiences that are most highly desired. The dogmatic theoretical framework that was developed in Europe [and adopted in the USA] between 1863 and 1875 - and is now seen by the Chinese as the flawed and failing 'European business model' - is a huge inhibition on the post-industrial economies in trying to plot a course for the future. Although they do not yet know the term, the Chinese know that they want to buy quons: more quons per head per year as their purchasing power increases. To find out what quons are, and to see that they are the key to Europe's recovery, read Personal Political Economy: accessible by the link from this blog..
Economists, bankers and politicians have reportedly bought-in to the 'idea' that Britain and other laggard countries in the EU should increase their exports to China. More nuanced thinkers among these elites have particularised that the exports should be of 'manufactures': perhaps of the kinds that Germany's successful sales to China have comprised for the past few decades. The primitivism of that thinking is pathetic to behold. China has been the global powerhouse in manufacturing for two decades: it has no need to import those commodities that it has been so successful in exporting. On the basis of that success China has grown thousands of billionaires and hundreds of millions of 'middle class' consumers. These people don't think in terms of consuming 'manufactures': they want brands.
Economists' models of markets have never coped with the concept of brands: with the palpable fact that capable buyers do not haggle about prices for those consumer experiences that are most highly desired. The dogmatic theoretical framework that was developed in Europe [and adopted in the USA] between 1863 and 1875 - and is now seen by the Chinese as the flawed and failing 'European business model' - is a huge inhibition on the post-industrial economies in trying to plot a course for the future. Although they do not yet know the term, the Chinese know that they want to buy quons: more quons per head per year as their purchasing power increases. To find out what quons are, and to see that they are the key to Europe's recovery, read Personal Political Economy: accessible by the link from this blog..
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