ECONOMIC LIGHT, POLITICAL SHADOWS
ECONOMIC LIGHT, POLITICAL SHADOWS
If the events of the past several years have demonstrated anything, it is that it is time for the nations of the world to stop playing politics and start playing economics. The virtual economic collapse of the former communist societies of Europe due to the preeminence of politics over economics has been a stark example of the dangers inherent in trying to run an economy on political, not economic, principles. It is possible to have a seemingly successful society in the short run by choosing to run an economy on political ideology, but in the long run economic forces overwhelm the political structures which have tried to control and channel them to political, not economic, ends. It is this short-term success that continues to make attractive the notion that a government can manipulate the economy to achieve that which an economy left to run on its own devices could not.
The collapse of the communist societies is only the most obvious example of a politically run economy failing to meet its promise, there are many others of different political ideologies scattered across the world, including those ostensibly believed to be “laissez faire”. For it is within the power of any government to so skew the political parameters of an economy that even an economy thought to represent the purest form of capitalism, and thus most purely driven by economic forces, may only be performing at a short-term peak and not long-run success. The long-term health of an economy requires investment, not only in factories and the like, but in the people of that country. A well-educated, well-fed, and well-housed population will be far more productive, innovative, and successful than a like population that is not invested in.
Too often in the political calculus that passes for informed thought on economic success, the role that the populace plays in the process of economic growth is either ignored or, worse, actively rejected. Without the inclusion of the costs of disinvestment in some or all of a nation's population, the judgment made as to the wisdom of an economic policy is faulty. Worse yet, the decisions made will in the long-run be less than optimal for the maximum benefit of that society and result at some point in the future in the overthrow of the political structures by the economic forces which have been incorrectly channeled. As can be seen from the European nations, this can take an intolerably long time, but it will happen.
The root of this problem lies in the Platonic view that all things are political in nature and it is to the political arena that our efforts should be directed. The economic underpinnings of society are seen as manipulable through political processes and since politics is the root of human behavior, that is the correct arena to be addressed. It is only recently that the notion that economic, not political, fundamentals underpin human behavior has gained prominence. Due to the often conservative nature of those who have championed this belief, the notion that economic principles are more important than political ones has occasioned enormous controversy. The theory has also been used to justify a rather rigid cost/benefit analysis approach to problems and its overuse and misuse have led to a belittlement of the concept. This is unfortunate since it has much to offer and would appear to be a better approach than the political one.
There is no principle that says economics is the province of the conservatives and that their misuse of the view of economics as the true source of human behavior should deter us from using this insight or blind us as to its power and potential. The conservative argument can be turned on its head to justify the needed approaches that are too often opposed that there is a fundamental driving force that makes necessary the investment in people. This also does not mean that private is automatically better than public, that is an unwarranted assumption. Each area of society must be examined to determine whether public, private, or a mixture is needed to provide a particular aspect. If everything were to be privatized, the needed infrastructure of roads, schools, protection, and the like would be much poorer than if public participation were involved. And our economy would be poorer and narrower than otherwise. By the same token, we have seen what overuse of the public sector has wrought.
How then to determine the correct economic approach? If it is not to merely allow capitalism to run its rampant, Darwinian course, then at what point should government step in to ensure that actions are taken to maximize the abilities of each citizen to bring about the most productive society? The answer is at once both simple and complex; each citizen must be provided with a minimal level of services to meet their needs and a maximum ability to achieve to their fullest ability. This means that no one should be kept from achieving decent housing, medical care, education, employment, and success however that might be defined. That should be the overriding goal of any economic policy developed through a political process.
Why is the political approach so much more popular than the economic? The main reason is probably that politics is much more exciting and fulfilling for the practitioners. It is easier to effect ones goals using politics than economics at least in the short-term and that it is generally the most important criterion. Using economics is a long, hard process. It requires a long-term view with many, often very unpopular, steps needed to reach the goals. Economics requires discipline and sacrifice with stable political structures and in times of crises or hysteria those are very difficult to accomplish. The rewards for choosing economics over politics must be enhanced to promote the difficult steps needed.
It is popular now to weigh costs and benefits when deciding on a particular approach to a problem, but too often the calculations are deficient in their scope. The full costs and benefits are rarely included, political blinders reduce the ability of the decision-makers to fully gauge the consequences of their actions. How else can one argue that it is better to spend the equivalent of a Harvard education to keep a felon in prison than to address the root causes of his incarceration? Is it prudent that we do not provide now for all pregnant women and young children only to have to deal with premature births, birth defects, lowered intelligence, health problems, criminal activities, and more later and at a much higher price? Or that not all children are vaccinated and we pay for the resultant epidemics? Or that our public schools are often providing inferior educations that cripple the learning and earning potential of large segments of our population? Smaller sums spent at an earlier point would have led to productive, not destructive, citizens. None of these make any economic sense, but they do political.
The world at this moment stands at a juncture, one that can lead many ways. Choosing the right path will not be easy, especially to get everyone moving in the same direction. Obtaining agreement among the nations of the world just as to the correct path may be more than can reasonably be expected, much less actually moving along that path together to a better future. To that end the fact that the world is now entering a phase where economic and not political competition is most important should not be viewed as overly negative. The real roots of our competitiveness are now emerging where they can be dealt with in a more open manner, not obfuscated by the political machinations of the few in power. The working out of our international economic problems will not be easy, but we are at last moving closer to addressing the real source of our problems and not dealing with the political shadows.
There are many things which need to be done to give nations the security to change their societies to better pursue economic growth. The first of these is to lessen the felt need for ever larger military forces and equipment to protect the nation from aggression both internal and external. So much of the resources of all countries, developed and developing, are tied up in meeting security concerns that the areas of human investment that need more are held hostage to the insecurity of the nation. Until this insecurity is reduced military spending will continue to grow and snuff out the investment needed to achieve maximum, sustained economic growth. With the virtual collapse of the Soviet Union as a military threat, the West can afford to reduce its armed forces and redirect those funds to both internal and external problems.
The other nations of the world have to reduce their spending as well, however, both to reduce regional tensions and redirect their purchase of weapons of mass destruction. As long as the smaller nations of the world continue to present an ever growing threat to the developed countries, the developed countries will continue to remain over armed and willing to intervene to preclude the possible acquirement of weapons of mass destruction that are in danger of being used. Proliferation of these weapons in unstable regions with unreliable governments represents a clear and present danger that will be addressed in one form or another. The developed countries must be willing to reduce their weapons of mass destruction to convince the other nations that these weapons will not be needed. A start has been made on all of these fronts, but much still remains to be accomplished.
Second, spending must be increased on investment in human beings, in all countries. The disparities in starting points for the citizens in a society must be addressed and those on the bottom rungs given the needed boost to raise their ability to achieve their true potential. This does not mean dragging down those on the top rungs of the society, but to make the playing field more equitable. There will always be those who are more gifted in intellect, position, wealth, and any other aspect of life that can be measured and they will tend to achieve at a higher level than the average person. The key is to open up the competition as widely and fairly as possible to allow each person to achieve their maximum potential, not to close out those who start out at a higher level than some others or keep down those who start at the bottom.
The third aspect for maximum economic growth is to allow for greater investment and trade between nations. Many developing countries, and not a few rich nations, are hesitant to open up their economies to outside investors for fear of losing control of their economies to those outsiders. Expanded trade is worrisome to many nations for fear of becoming dependent on outside suppliers of critical items such as food and energy. These fears must be lessened to allow the full potential of economic prosperity. The fact remains, however, that almost every country, if not every country, has already lost control of their economy to outsiders and, barring a world-wide collapse that leads to a return to the days of isolation, will not ever regain control over their economy. Closing off an economy now only perpetuates the impoverishment of a nation and limits the growth potential of that country. The restructuring in these countries will be painful, but necessary. The fact remains, too, that investments in a country's physical assets cannot be taken outside. There is a degree of codependence created that adds to the pressures for all to work together toward a common goal.
In the developed countries this will take the form of many changes in the private sector as companies restructure to meet increased competition. This can already be seen in the downsizing at many large corporations. This is hard for those that have lost their jobs, but in many ways it was necessary to unleash the latent entrepreneurial energies that were hoarded by these corporations. Over the last few decades as these organizations expanded and sucked in many of the nations' brightest and most ambitious, they depleted the ranks of those needed to carry on in the smaller firms of a nation that really provide the growth impetus for an economy. Where before many of these middle-level managers would have gone into the family business and kept alive many small manufacturing and service firms, they were instead horded by the large firms, thus withering the small businesses of that nation. What is needed now is for the means of investment to be made available to them to buy these small firms and create the economic growth necessary. In the developed countries it is very expensive to do so and failure carries a very high personal cost, such as depleted savings and even lost homes. A method to meet the financing needs of this segment of the workforce is needed to revitalize the economies of the developed world.
In less developed countries quite often it is the government that has stockpiled these entrepreneurs and the governments of these countries must be reduced in order to make the abilities of these people available. Financing again is a consideration, although the sums are not nearly as large. Programs such as Trickle Up have shown that it is possible in many areas to push individuals and groups into business for rather small sums.
None of these prescriptions are easy, and none will be quickly instituted. The irony is that it will require a measure of political will not evident in the world today to address the inequities created by the failed political practices of the past. The need for political will may be greatest precisely in those nations where political structures are weakest - developing countries with a host of external and internal problems. These countries must receive special attention to lessen regional tensions and allow them to address internal needs. This will ask of these countries a degree of trust as to the motives of outside nations, especially the rich and powerful ones, which they have not heretofore evidenced. It will also require of the helping nations a degree of trust as to the ability of the nations they are assisting to address their needs and not squander the resources, as has happened so many times in the past.
Practicing economics, not politics, is the key to our future success and to our ability to address the problems of the world. Good economics requires good politics, however, and that is always the most difficult part of the recipe for the cooks to agree on. They may all agree on the ingredients, but not on how much of each nor how best to prepare the meal.
March 1, 1993
If the events of the past several years have demonstrated anything, it is that it is time for the nations of the world to stop playing politics and start playing economics. The virtual economic collapse of the former communist societies of Europe due to the preeminence of politics over economics has been a stark example of the dangers inherent in trying to run an economy on political, not economic, principles. It is possible to have a seemingly successful society in the short run by choosing to run an economy on political ideology, but in the long run economic forces overwhelm the political structures which have tried to control and channel them to political, not economic, ends. It is this short-term success that continues to make attractive the notion that a government can manipulate the economy to achieve that which an economy left to run on its own devices could not.
The collapse of the communist societies is only the most obvious example of a politically run economy failing to meet its promise, there are many others of different political ideologies scattered across the world, including those ostensibly believed to be “laissez faire”. For it is within the power of any government to so skew the political parameters of an economy that even an economy thought to represent the purest form of capitalism, and thus most purely driven by economic forces, may only be performing at a short-term peak and not long-run success. The long-term health of an economy requires investment, not only in factories and the like, but in the people of that country. A well-educated, well-fed, and well-housed population will be far more productive, innovative, and successful than a like population that is not invested in.
Too often in the political calculus that passes for informed thought on economic success, the role that the populace plays in the process of economic growth is either ignored or, worse, actively rejected. Without the inclusion of the costs of disinvestment in some or all of a nation's population, the judgment made as to the wisdom of an economic policy is faulty. Worse yet, the decisions made will in the long-run be less than optimal for the maximum benefit of that society and result at some point in the future in the overthrow of the political structures by the economic forces which have been incorrectly channeled. As can be seen from the European nations, this can take an intolerably long time, but it will happen.
The root of this problem lies in the Platonic view that all things are political in nature and it is to the political arena that our efforts should be directed. The economic underpinnings of society are seen as manipulable through political processes and since politics is the root of human behavior, that is the correct arena to be addressed. It is only recently that the notion that economic, not political, fundamentals underpin human behavior has gained prominence. Due to the often conservative nature of those who have championed this belief, the notion that economic principles are more important than political ones has occasioned enormous controversy. The theory has also been used to justify a rather rigid cost/benefit analysis approach to problems and its overuse and misuse have led to a belittlement of the concept. This is unfortunate since it has much to offer and would appear to be a better approach than the political one.
There is no principle that says economics is the province of the conservatives and that their misuse of the view of economics as the true source of human behavior should deter us from using this insight or blind us as to its power and potential. The conservative argument can be turned on its head to justify the needed approaches that are too often opposed that there is a fundamental driving force that makes necessary the investment in people. This also does not mean that private is automatically better than public, that is an unwarranted assumption. Each area of society must be examined to determine whether public, private, or a mixture is needed to provide a particular aspect. If everything were to be privatized, the needed infrastructure of roads, schools, protection, and the like would be much poorer than if public participation were involved. And our economy would be poorer and narrower than otherwise. By the same token, we have seen what overuse of the public sector has wrought.
How then to determine the correct economic approach? If it is not to merely allow capitalism to run its rampant, Darwinian course, then at what point should government step in to ensure that actions are taken to maximize the abilities of each citizen to bring about the most productive society? The answer is at once both simple and complex; each citizen must be provided with a minimal level of services to meet their needs and a maximum ability to achieve to their fullest ability. This means that no one should be kept from achieving decent housing, medical care, education, employment, and success however that might be defined. That should be the overriding goal of any economic policy developed through a political process.
Why is the political approach so much more popular than the economic? The main reason is probably that politics is much more exciting and fulfilling for the practitioners. It is easier to effect ones goals using politics than economics at least in the short-term and that it is generally the most important criterion. Using economics is a long, hard process. It requires a long-term view with many, often very unpopular, steps needed to reach the goals. Economics requires discipline and sacrifice with stable political structures and in times of crises or hysteria those are very difficult to accomplish. The rewards for choosing economics over politics must be enhanced to promote the difficult steps needed.
It is popular now to weigh costs and benefits when deciding on a particular approach to a problem, but too often the calculations are deficient in their scope. The full costs and benefits are rarely included, political blinders reduce the ability of the decision-makers to fully gauge the consequences of their actions. How else can one argue that it is better to spend the equivalent of a Harvard education to keep a felon in prison than to address the root causes of his incarceration? Is it prudent that we do not provide now for all pregnant women and young children only to have to deal with premature births, birth defects, lowered intelligence, health problems, criminal activities, and more later and at a much higher price? Or that not all children are vaccinated and we pay for the resultant epidemics? Or that our public schools are often providing inferior educations that cripple the learning and earning potential of large segments of our population? Smaller sums spent at an earlier point would have led to productive, not destructive, citizens. None of these make any economic sense, but they do political.
The world at this moment stands at a juncture, one that can lead many ways. Choosing the right path will not be easy, especially to get everyone moving in the same direction. Obtaining agreement among the nations of the world just as to the correct path may be more than can reasonably be expected, much less actually moving along that path together to a better future. To that end the fact that the world is now entering a phase where economic and not political competition is most important should not be viewed as overly negative. The real roots of our competitiveness are now emerging where they can be dealt with in a more open manner, not obfuscated by the political machinations of the few in power. The working out of our international economic problems will not be easy, but we are at last moving closer to addressing the real source of our problems and not dealing with the political shadows.
There are many things which need to be done to give nations the security to change their societies to better pursue economic growth. The first of these is to lessen the felt need for ever larger military forces and equipment to protect the nation from aggression both internal and external. So much of the resources of all countries, developed and developing, are tied up in meeting security concerns that the areas of human investment that need more are held hostage to the insecurity of the nation. Until this insecurity is reduced military spending will continue to grow and snuff out the investment needed to achieve maximum, sustained economic growth. With the virtual collapse of the Soviet Union as a military threat, the West can afford to reduce its armed forces and redirect those funds to both internal and external problems.
The other nations of the world have to reduce their spending as well, however, both to reduce regional tensions and redirect their purchase of weapons of mass destruction. As long as the smaller nations of the world continue to present an ever growing threat to the developed countries, the developed countries will continue to remain over armed and willing to intervene to preclude the possible acquirement of weapons of mass destruction that are in danger of being used. Proliferation of these weapons in unstable regions with unreliable governments represents a clear and present danger that will be addressed in one form or another. The developed countries must be willing to reduce their weapons of mass destruction to convince the other nations that these weapons will not be needed. A start has been made on all of these fronts, but much still remains to be accomplished.
Second, spending must be increased on investment in human beings, in all countries. The disparities in starting points for the citizens in a society must be addressed and those on the bottom rungs given the needed boost to raise their ability to achieve their true potential. This does not mean dragging down those on the top rungs of the society, but to make the playing field more equitable. There will always be those who are more gifted in intellect, position, wealth, and any other aspect of life that can be measured and they will tend to achieve at a higher level than the average person. The key is to open up the competition as widely and fairly as possible to allow each person to achieve their maximum potential, not to close out those who start out at a higher level than some others or keep down those who start at the bottom.
The third aspect for maximum economic growth is to allow for greater investment and trade between nations. Many developing countries, and not a few rich nations, are hesitant to open up their economies to outside investors for fear of losing control of their economies to those outsiders. Expanded trade is worrisome to many nations for fear of becoming dependent on outside suppliers of critical items such as food and energy. These fears must be lessened to allow the full potential of economic prosperity. The fact remains, however, that almost every country, if not every country, has already lost control of their economy to outsiders and, barring a world-wide collapse that leads to a return to the days of isolation, will not ever regain control over their economy. Closing off an economy now only perpetuates the impoverishment of a nation and limits the growth potential of that country. The restructuring in these countries will be painful, but necessary. The fact remains, too, that investments in a country's physical assets cannot be taken outside. There is a degree of codependence created that adds to the pressures for all to work together toward a common goal.
In the developed countries this will take the form of many changes in the private sector as companies restructure to meet increased competition. This can already be seen in the downsizing at many large corporations. This is hard for those that have lost their jobs, but in many ways it was necessary to unleash the latent entrepreneurial energies that were hoarded by these corporations. Over the last few decades as these organizations expanded and sucked in many of the nations' brightest and most ambitious, they depleted the ranks of those needed to carry on in the smaller firms of a nation that really provide the growth impetus for an economy. Where before many of these middle-level managers would have gone into the family business and kept alive many small manufacturing and service firms, they were instead horded by the large firms, thus withering the small businesses of that nation. What is needed now is for the means of investment to be made available to them to buy these small firms and create the economic growth necessary. In the developed countries it is very expensive to do so and failure carries a very high personal cost, such as depleted savings and even lost homes. A method to meet the financing needs of this segment of the workforce is needed to revitalize the economies of the developed world.
In less developed countries quite often it is the government that has stockpiled these entrepreneurs and the governments of these countries must be reduced in order to make the abilities of these people available. Financing again is a consideration, although the sums are not nearly as large. Programs such as Trickle Up have shown that it is possible in many areas to push individuals and groups into business for rather small sums.
None of these prescriptions are easy, and none will be quickly instituted. The irony is that it will require a measure of political will not evident in the world today to address the inequities created by the failed political practices of the past. The need for political will may be greatest precisely in those nations where political structures are weakest - developing countries with a host of external and internal problems. These countries must receive special attention to lessen regional tensions and allow them to address internal needs. This will ask of these countries a degree of trust as to the motives of outside nations, especially the rich and powerful ones, which they have not heretofore evidenced. It will also require of the helping nations a degree of trust as to the ability of the nations they are assisting to address their needs and not squander the resources, as has happened so many times in the past.
Practicing economics, not politics, is the key to our future success and to our ability to address the problems of the world. Good economics requires good politics, however, and that is always the most difficult part of the recipe for the cooks to agree on. They may all agree on the ingredients, but not on how much of each nor how best to prepare the meal.
March 1, 1993
posted by BNitemoves at 7:20 PM
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