Economic reform policy: Some views and proposals

[Trond Andresen <trond.andresen@xxxxxxxxxxx>]

(Gary Santos suggested that I send this message, posted yesterday to another
list, also to PKT. Here it is, somewhat modified.)

--o0o--

I think that progressive academics  in the field of economics are too
passive in formulating and putting forward alternative economic policy
proposals. This seems to be something that one believes should be left to
political parties and movements. The most common academic practice is
instead to criticise neoliberalism for its shortcomings and (at most) argue
for higher public spending, in a general way. (But there are exceptions to
this rule: people formulating specific policy proposals, f.inst. Paul
Davidson with his IMCU concept to stabilise the world monetary system.)

I will here present some of my own favourite arguments and proposals, for
what they are worth:

1. Automated manufacturing and a very large public sector is the way to go

2. More exchange of recipes, less of goods

3. Stabilising the stock market long wave.

4. Paring down the financial sector.


Before I go into details, note that what I say may be coloured by my
Norwegian experiences and concerns. But I do believe a lot of this could apply
in many countries.

Now to the first topic:

1. AUTOMATED MANUFACTURING  _TOGETHER_  WITH A VERY LARGE
PUBLIC SECTOR, IS THE WAY TO GO

I think increased public employment in health, child- and elderly-care,
education, research, culture, ecological rebuilding, ecological agriculture
is good. _These_are_all_activities_that_will_remain_labour-intensive_, since
this is work where humans relate to, or care for, other humans -- or for
nature. An advanced society should then have a strategy of automating all
that may be humanly automated, which essentially means manufacturing and
process industry (and finance, see section 4 below), and transfer the
superfluous labour generated by this to meaningful labour-intensive service
employment and/or to cut down on the hours worked.

By *both* recognising the enormous potential in automation and where it may
be applied, *and* relating this to less hours worked and the possibility for
increased meaningful public employment, we contribute to resolve the
political-economic deadlock (at least that is the way it is here in Norway)
between the left and the public sector unions (who demand more public
spending), and the centre/right + private sector employers and some of the
unions there (who say that a large public sector is harmful to "what we all
live off, the private sector"). As long as the left and public sector unions
may be portrayed as just irresponsibly craving more funds, the neoliberals
and the capitalists have it easy. So the left and public sector unions
_must_acquire_an_industrial_policy_  -- which among other things means a
positive and competent view on automation. In this context it is crucial to
recognise the fact that the living standards of any society is basically
dependent on the degree of automation in its industries, the level of
education, and the technological sophistication of its communications and
transport infrastructure.

If the developed countries instead continue to increase the share of
"junk job" activity in the workforce, instead of channeling a
minority of workers into highly automated manufacturing and a majority into
meaningful (public) service jobs, then these societies will become worse off
than they need to be. They could today have a 30-hour work week, tax-funded
state-of-the-art health care, schooling, kindergartens, homes for the
elderly, and incomes after tax that were quite high, IF the number one
industrial policy was automation where automation was possible and
meaningful, and where most of the scrape-along labour-intensive pizza
delivery type jobs were considered to be a waste of human potential. The
double standards of the anti-public sector pundits become clear when one
contrasts their hostility here with their silence, or even uncritical
support of, increased labour-intensive (low productive) private sector
service activity (usually of low utility compared to the alternative of
meeting
existing shortcomings in f. inst. education and healthcare).

Another interesting point in this connection is the extreme eagerness from
capitalists to take over tasks done in the public sector -- like education,
health, caretaking, cleaning and renovation. This is by many in our circles
attributed to "ideology": it is beacuse capitalists and their supporters in
politics
_believe_  so fervently that things will be so more cost-effective in private
hands. I think this is secondary, mostly for public consumption. The primary
reason for this eagerness are instead  the following:
- These activities are neccessary, and they will therefore be in demand and
safely funded by the state for the foreseeable future.
- The demand is domestic and local, not dependent on the uncertainties
of the world market.
- These tasks must due to their nature remain fairly labour-intensive for the
foreseeable future. Since a large share of costs then will be wages and not
fixed
costs, there are good possibilities to get a high profit rate by squeezing
the staff (contrast this to a highly-automated process plant with few staff
and investments in the order of hundreds of millions of dollars).



2. MORE EXCHANGE OF RECIPES, LESS OF GOODS

(I believe this slogan was launched by Herman Daly, don't have the precise
quote or reference.)

The cost of research, knowledge and marketing needed to bring forth and get
the
market to know a new product increases persistently. This means that
economies of scale become increasingly important, since the big initial
outlays will not be paid off before a lot of units are sold. On the other
hand, when large amounts are sold, further manufacturing becomes very
profitable, since an automated and knowledge-intensive industry can churn
out additional units at a very low (variable) cost per unit. This seemingly
is an argument for most countries to concentrate on a few industries where
they have a very large initial advantage, and scrap the rest of domestic
production, instead importing these products. The result is what we see
worldwide: Increasing unemployment, and overcapacity in the more protected
domestic service sector, with a lot of insolvencies and general desperation.
(This trend of increasing returns to scale is objective and unavoidable,
with effects such as lock-in to inferior products, see W. Brian Arthur for
interesting writing on this.)

An alternative way of meeting the unavoidable increasing trend of
knowledge-based production is the following: Licensing of production for
domestic sale, as long as the country in question has reasonable
preconditions for making/assembling the product in question. Of course this
implies to a certain degree using semifinished products as input,
one doesn't have to make everything domestiaclly.

My point is that in a country with high unemployment (and because of this a
lot of additional quasi-employment in meaningless low-utility scrape-along
"service" activity), a government should ask itself: What sort of products
do we import that we should be perfectly able to (at least partly) make
ourselves? And instead of inventing the wheel anew ("Hoxha strategy"), one
could contact the leading world producers in different fields, and negotiate
licensing agreements. The country could then employ its own unemployed
workforce in state-of-the-art facilities making modern and competitive
producs for domestic sale. The foreign firm behind the technology is
compensated for loss of exports to the country by a (license) fee on each
unit sold.

An interesting aside here from Norway is the asymmetrical way the derogatory
label "protectionism" is invoked when it comes to export promotion as
opposed to promotion of import substitution: Norway has for many years had
an "Export council" which is partly gvt. and partly privately funded. In
2001 the budget was 341 million NOK, 207 mill. from the gvt. (1NOK = 0.23
AUD. Norway has 4.5 million inhabitants). To the degree this council
succeeds in promoting Norwegian export overseas, this obviously happens to
the detriment of foreign competitors. This of course is a type of
protectionism, but not branded as such since neoliberal doxa is that "export
activity is good -- period". Imagine that Norway created a symmetric
institution -- "the Norwegian import substitution council", with a budget of
the same order. With that sort of funding they could effectively map the
situation in the country, and help and advise entrepreneurs about activities
that would stand a good chance to succeed, among these production based on
license agreements mediated with the help of the same council.

Of course the idea will be branded as "protectionist", but neoliberals would
have trouble defending their double standards on this in a public debate.



3. DAMPING THE STOCK MARKET LONG WAVE.

I won't say much about it here, but refer to an earlier nessage
to another forum, archived on
http://www.itk.ntnu.no/pipermail/she_forum/2002-December/000002.html

But to put it shortly, the point is that the stock market is inherently
very-long-range (decades) cyclical with very large swings (for empirical
data see f. inst. Robert Shillers book: "Irrational exuberance"), and these
cycles have a big destructive impact on the rest of the economy. My modeling
and simulation results indicate that an anti-cyclical fee implemented on
stocks held (note: not a transaction tax) can completely iron out this
long-range cycle. This fee may be adjusted in commitee meetings about as
frequently as the board of a Central bank when they meet to adjust the
overnight rate. If one accepts that the overnight rate may be adjusted the
way it is done today, one hardly can deny that a similar procedure for
adjusting an anti-cyclical fee on stocks by comittee is perfectly feasible.
Such a fee will give a much more precise tool to curb an economy in the
irrationally exuberant phase (which is usually due to a boom in the stock or
property market) , without all the damaging side effects on the whole of the
economy that interest rate hikes have. Thus the existence of such an
instrument will make it more difficult to justify brutal CB interest rate
changes, and by this we should have a more stable interest rate and more
predictability.



4. PARING DOWN THE FINANCIAL SECTOR.

I would like to automate and pare down the financial sector to a fraction of
what it is now. Treat it the same way manufacturing and process
industry are treated. It is perfectly feasible with today's computer
and net technology. Unions in the financial sector should be convinced to
transfer to more useful jobs (this again presupposes that there is a
program for employment).

In Norway the double standard is very clear when you compare the pundits'
attitude towards finance vs the public sector. The public sector -- which
objectively must remain  fairly labour-intensive due to the nature of its
tasks --
is continually criticised for not curbing labour growth, while the
financial sector
which has grown dramatically -- and which objectively has a very large
lobour-reduction and automation potential -- is exempt from all such criticism.

Finance should also be _simplified_, with a much smaller spectrum
of "financial instruments" for trade. My conjecture is that the
increasing complexity of financial markets and the increasing plethora of
"instruments" (all justified by the seemingly reasonable argument of "risk
reduction") makes it increasingly politically difficult to argue for reform
of financial
markets. The more complexity, the less even the informed public understands.
And if you understand something only partly, you are less able to criticise it.
Financial over-complexity thus protects the system from criticism and
needed reform.

Progressive economics should cut through this Gordian knot and ask:
What minimum set of instruments is truly needed? And I will add: to the
degree "risk" is a truly legitimate argument and not only a convenient
defense against reform proposals, I believe that more esoteric financial
instruments increase volatility and instability, thus generating more risk
than neccessary. The medicine makes the patient more ill, which then is
used to argue for more medicine and additional types of medicine.

--o0o--

(There are other proposals too, like legislation for and facilitation of
worker ownership and local ownership, and alternative organisation of large
firms as networks of autonomous units as opposed to today's hierarchical and
dictatorial transnational structures. Possibly more on that later.)

So far, some reform ideas. Is all this trivial, so that I have only stated
the obvious? Any comments?

Could we here -- in an academic forum outside party politics -- start
constructing a comprehesive progressive macroeconomic program, feasible for
most modern countries with a market economy?


Trond Andresen

--
Trond Andresen
The Norwegian University of Science and Technology
Faculty of Information Technology, Mathematics and Electrical Engineering
Department of Engineering Cybernetics
N-7491 Trondheim, NORWAY

+47-7359 4358, ---4399 (fax)
+47-7353 0823 (home), +47-9189 7045 (mobile)