Re: Economic reform policy: Some views and proposals

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Trond Andresen wrote:
> At 10:32 26.04.03 -0700, William F Hummel wrote:
>
> > My general reaction to Trond Andresen's proposals is that they
> > deal mainly with ends rather than means.
>
>
> I partly disagree with that interpretation of what I wrote.
> For instance: An automated industry is a means to an end:
> A society where people can use their time for more meaningful
> activity -- work or free time.

Atuomation does not happen automatically. A great deal of design and
manuficturing is neccessary to product an automatic factory.  The
automatic shifts labor input to the premanufacturing phase of production
rather than the reducing it.  Automation also upgrades labor skill to
the level of engineering from the level of unskilled assembly.  The
total labor cost of automatic production often exceeds laboe intensive
production, which expalin why automatic occurs only in high laboe cost
locations.  There has been a great of reverse automatic in neoliberal
free trade, by relacating production to lowest labor cost areas.
Manufacturing jobs in the US have not been lost to automation as much as
they have been lost by a shift to more labor intensive manufaacturing in
low labor costs areas, popularly known as sweatshops where the only
automation is confined to the light switch.

To promote automation, there is no option besides a rising wage policy.

> > I have a hard time
> > visualizing how a democratic republic with an entrepreneurial
> > free market economy could implement his proposals.  Private
> > interests would have to somehow converge on policy objectives,
> > and legislation would be required to create the framework under
> > which the system would evolve toward his ends.  Perhaps in a
> > small country with far more homogeneity than in the US, a
> > political consensus could be developed favorable to those ends.
>
>
> The bigger the country, the more difficult it is. And the more hostile
> to macroeconomic reform, regulation and legislation, the more difficult it is.
> So, yes, the U.S. is not what I had foremost in mind.

Size of a country dos not as much to do as ideology.  The US
enterprenneurs are not really free will market participants.  Their
decsisions are constrained profitability as affected by laws,
regulations, tax policies, and financial infrastructure.

Americans tend to use the uS system as the norm for "democracy", a word
that never appears in the US  Constitution, not the Declaration of
Indpendence.  Just as the US ideas of free markets and free trade add to
to merely US national opinion that somehow the US now promotes as
universal values, imposed by war if neccessry, the link between US
democracy and economic efficicay is also merely a US national opinion.

> > Considering the proposals individually, first the automation of
> > manufacturing goal is proceeding naturally as the result of free
> > market competition.
>
>
> It is of course proceeding, but could proceed more smoothly with political
> consensus about the means and goals I described in my "program
> proposal".

Automation requires consolidation and conentration, the very antithesis
of truly free market competition.  Again, American tend to regard the
American market system is the universal norm for free market, a view
unsustained by facts or logic. Markets have large measures of cultural
determinants in them which most neo-liberals ignore.

> > It is already far along in the more
> > industrialized countries.  The relative size of the manufacturing
> > sector has been steadily shrinking and will continue to do so.
> > The services sector is now far larger.
>
>
> But as long as these "services" to a large degree means low-utility
> low-quality jobs, society as a whole is worse off.

The service sector is not also beginning to shrink in the advance
economies. Service sector job export, such as IT, comunication,data
processing jobs, is the largest component in globalization at this
moment.  80% of all software is being written in Asia, mostly in India,
and increasingly in China. The linkage between Sanskrit and computer
languages is a big factor in India's programming boom.


> > An even more dramatic
> > example of automation is seen in US agriculture where the
> > fraction employed has dropped over the last century from well
> > over 50% to only a few percent of the total population.  Even so,
> > the US is a major exporter of agricultural goods.
>
>
> I deliberately avoided talking about agriculture in my first message not to
> introduce to many threads ar once. I believe that agriculture should be
> treated differently form manufacturing because of its ecological and
> environmental aspects. In the future society I sketched, agriculture is
> *more* labour-intensive than today. Food is therefore relatively more
> expensive, but it is to a larger degree ecologically sound and more locally
> produced.

Agriculture is the sector least affected by free markets.  The world's
agriculture is still trapped in government subsidies, price support and
protectionist measures by all governments.

> > Second, more exchange of recipes rather than goods involves
> > primarily cross-border issues, and appears to require a rather
> > altruistic stance of those involved.
>
>
> Altruism is no prerequiste here. If a corporation receive a license fee
> for a unit locally produced and sold in another country, this may in fact be
> preferable to trying to export the same unit to the country and hoping to
> profit by this.

This issue needs to be addressed through reform of intellectual property
rights.   On a deeper level, the real threat on long-term economic
growth for the global economy is not the price of commodities but the
tyranny of mostly Western intellectual property rights.

When a firm such as Microsoft has market power, it tends to restrict
production in order to drive up prices and increase profit margins. This
results in too few goods and innovation being produced in
non-competitive markets. The recent rejection of the GE/Honeywell merger
by the EU was primarily based on GE's financial market power in vendor
financing. The world is awash with overcapacity in manufacturing and
telecommunication because finance capitalism promotes monopolies in
finance that thrive on ruinous over-investment in manufacturing and
telecommunication. It also means that income is concentrated in the
hands of those who have market power at the expense of those who do not.
Under financial capitalism, dollar hegemony is a fundamental monopoly
that permeates all sectors of the global economy.

Another market failure economists have identified is the underprovision
of public goods. Examples of public goods range from national defense to
street lights. Public goods will either be underprovided or not provided
at all by the market. Because the benefits from a public good enjoyed by
any individual are almost always less than the cost of producing the
public good, the market does not provide them. The market has tended to
under supply insurance for particular kinds of activities or risk
(especially health insurance).

The post-September 11 insurance crisis surrounding the US airlines and
the property casualty sector is another example. AIG, Citigroup and GE
are selling their property casualty units. The US market, on its own,
also fails to supply adequate loans for education and small-business
ventures, as well as urban development for black neighborhoods. In each
of these cases, government programs to complete or supplement the
naturally incomplete markets are the only solution. Medicaid and
Medicare are government financed "insurance" programs for the poor and
the elderly.

The Department of Education and state and local student loan agencies
find it necessary to underwrite or guarantee loans to students attending
accredited colleges and universities. And the Small Business
Administration helps individuals secure the funding they need to start
their own businesses. Globalization based on the rules of market
fundamentalism in the past decade has grossly underprovided public
goods. The mostly obvious examples are environmental protection and
poverty elimination.

When someone other than the recipient of a benefit bears the costs for
its production, the costs of the benefit are external to its enjoyment.
Economists call these external costs negative "externalities". These
amount to a market failure to distribute costs and benefits efficiently.
Globalization is basically a game of negative externalities, as
evidenced by the infamous Summer World Bank memo on the immaculate logic
of locating pollution in the poorest countries. Inhuman wages and
working conditions, together with unfunded environmental protection and
cleanup, are other negative externalities that benefit the US inflation
rate.

Another market failure stems from the market's inadequate provision of
information. The effect of asymmetrical information on the proper
functioning of the market has been well recognized, having been cited as
the basis for selecting last year's Nobel Prize on Economics. But the
real information market failure is Western domination of the world
media. Thirty years after developing countries first called for a new
world information order, Western media are still being faulted for
distorting and ignoring much of the world around them. Even as Western
media bolster their domination of global news, Western news content
seems less and less informative, particularly about issues not central
to Western concerns.

Another form of information monopoly is structurally built into TRIPS
(Agreement on Trade-Related Aspects of Intellectual Property Rights),
which is Annex 1C of the Marrakesh Agreement Establishing the World
Trade Organization, signed in Marrakesh, Morocco, on April 15, 1994.
Under TRIPS, the less developed nations will be condemned to
intellectual feudal serfdom perpetually.


Henry C.K. Liu