Steady State economics

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A few days ago I started a discussion on the dangers of downsizing/austerity measures/small government, and this could almost be a second part to that discussion. The first job I had when I left school was with a medium sized family run engineering firm in Sydney, Australia. It was not atypical of the time, and my next job was in a very similar company. The workforce comprised in some cases three generations of a family, grandfathers, fathers and mothers, sons and daughters. Each year the owners, themselves a family, set a profit mark, and if it passed that mark, as it most often did, a portion of the excess profit went to the workers as a Christmas bonus. It was a good place to work, and the workers were not only loyal, they had pride in their work and productivity was high. Each year the profit would get a little higher, but so would the costs, and the wages kept pace with this growth, so the family got its adequate annual profit and all was well with the world. This is what classes as “static” wealth, that is, wealth that remains relative to costs and employment rates. Since their workers, like those of most other businesses of the time, were decently paid, they had money to spend on consumer goods, and the whole economy prospered as a result. The government had a fairly stable tax base to work with, which allowed them to keep the taxes at a reasonable level and meant they could count on balancing the budget each year, except perhaps in times of war, and still manage to provide the society with the things it needed from its government, such as efficient emergency services, good free education, government owned utilities like power and communications, even banks, excellent health care and hospitals, and so on. Once the effects of the Korean war passed, the 60’s unemployment rate was less than 4%, and inflation was around 1.2%. Then came the rise of the economic rationalists, who took a somewhat reptilian view of the social aspects of economics and stated that all that matters is the bottom line. This was a radical departure from the capitalist theoretical base that had existed since the days of Ricardo and Smith et. al. in the 19th Century who believed that economics could not be considered separate from human needs and concerns. Under this economic rationalism, companies were encouraged to rationalise staff and costs, lower prices enough to become ultra competitive, and if their competitors did not follow suit they would go to the wall. We see the results of this now in the twin concepts of outsourcing labour to the Third World and downsizing the domestic work force. Unemployment soared to extraordinary levels in some countries: Britain under the Iron Lady reached as high as 12%, in the US it got to 10.8%, and in Australia a fraction over 9%. Many factors were involved in this, but most of them were at least in part due to the new economic rationalism, including the privatisation of utilities and government agencies. Economic rationalism destroyed the social base of the economy, which is why so many British, for example, still consider that Thatcher ruined their country with her insistence on small government and privatisation. Now we seem to be approaching the point of diminishing returns that must almost inevitably occur when untrammelled growth is encouraged, and the shrinkage that must follow will not only throw the world into a major recession, perhaps depression, it may also destroy Capitalism as a concept. As I said in that other discussion, even the bastion of economic globalisation, the IMF, has come to suspect that austerity measures are not a viable answer to the world’s economic woes. Just as an individual company could not fight against economic rationalism and survive, neither can countries, unless radical steps are taken. I suggested some more conservative possibilities in that other discussion, like printing money and increasing rather than decreasing government employment, both ways to stimulate the local economy, but I doubt that these will work; it’s too late. I find it quite extraordinary that I am now thinking that isolationism, in the form of delinking from the global economy, will work, as I have never supported the concept in the past, but I fear it may be necessary. Heavy import tariffs to stimulate the rebuilding of local industries which were destroyed by cheap foreign labour; delinking the local currency from global money markets by tying it to an arbitrary standard, like the old gold standard or as a proportion of whatever the strongest world currency is at the time; the re-creation of government owned utilities and services. I’m sure this will raise howls of horror from those who have not yet conceded that the system is broke and needs fixing, but there it is for what it’s worth. Lash