The History of the Future:
The Keys to Wealth:
The first prerequisite for economic well being is the rule of law.
Some 10 % or three to four trillion dollars has "disappeared" from the global economy because of lawlessness both in major economies but also in the international financial system.
While the facts are complex the description explaining the causes and finding the cures are simple in theory but hard in practice - honest and efficient international regulation to apply to public and private paper a clear set of Universal Accounting Standards.
Paper assets MUST be based on some realistic and HONEST productive capacity - work and saving of a well educated work force using modern tools, communications, transportation supported by a modern banking system and civil governmental structure such as Taiwan, Singapore, but very weak in Russia, Malaysia, Indonesia, etc. These overvalued paper assets, including currencies, invite a crash such as the US’s S&L crash, the great Wall Street Crash, etc.. The solution is clear and simple - the Securities and Exchange Commission, The Federal Reserve, The Comptroller of the Currency, A saving and loan board not dominated by the industry, honest, efficient regulation.
REGULATION and TAXES are the CORE of civilized society - and the right wing barbarians at the gate would undermine their own well being and the prosperty of civil society by attacking "government" with the largely but not completely FALSE antigovernment slogans - It is but widely believed that Governments don’t create wealth but are only parricides that take wealth away from rich people and buy votes from the great unwashed. NOT TRUE - the bases of prosperity and wealth is secular (non-theological or ideological ) regulations and bureaucracy - the principle enemy of the "know-nothing" right - and a second cause is free trade, a third, free and universal education - they are wrong on all counts.
The four principles:
The Information Economy:
The "new world order" requires systems of international regulation of global commerce. A rule of law for communications - rapid systems for deployment of new technologies and reasonable conditions for enterprise.
The International Monetary Fund (IMF or Fund) and the International Bank for Reconstruction and Development (IBRD or World Bank) were both established at the United Nations Monetary and Financial Conference, held at Bretton Woods, New Hampshire, on July 1-22, 1944. The two were created to oversee stability in international monetary affairs and to facilitate the expansion of world trade. Membership in the World Bank requires membership in the IMF, and they are both specialized agencies of the United Nations. The World Bank was given domain over long-term financing for nations in need, while the IMF's mission was to monitor exchange rates, provide short-term financing for balance of payments adjustments, provide a forum for discussion about international monetary concerns, and give technical assistance to member countries. These functions are still generally true of both organizations, although the policies determining how they are carried out have been modified and amplified over time.
The Fund's legal authority is based on an international treaty called the Articles of Agreement (Articles or the Agreement) which came into force in December 1945. The first Article in the Agreement outlines the purposes of the Fund and, although the Articles have been amended three times in the course of the last 47 years prior to 1998, the first Article has never been altered.
http://www.cftech.com/BrainBank/FINANCE/IMFHistory.html
There needs to be a new expansion and agreement including standards of Free Trade The WTO is the only international body dealing with the rules of trade between nations. At its heart are the WTO agreements, the legal ground-rules for international commerce and for trade policy. The agreements have three main objectives: to help trade flow as freely as possible, to achieve further liberalization gradually through negotiation, and to set up an impartial means of settling disputes.
http://www.wto.org/
Let’s take Russia as an example and compare them with the situation with the developed West and Japan, and the undeveloped economies of China and other economies in Asia. The rule of law, in the modern world depends on the consent but not the active participation of the governed. Work and saving are only rational when the benefits can’t be easily stolen or subject to regular destruction due to natural or political. or military disasters.
The second requirement is work and saving BUT with the critical third: the human and material resources provided by government infrastructure and the taxing system. The rule of law requires courts, police, civil administration, transportation, communications, energy distribution, schools, insurance, banking, financial markets, and all the structure of modern society. Character does matter but good behavior is the result of civil society as well as religious and cultural traditions.
Russian reform started on the wrong foot. Poland had a civil and commercial code from before the soviet era as did the other societies of central Europe. Reform was started with legal reforms the took the best models of Western codes in order to assure investors of their rights and duties. The lack of a commercial and property code was Russia’s great problem - not balance of trade, currencies, and political instability. When they created the new legal system and constitution a tax code, business, banking and copyright, ownership of intellectual and physical property laws with the administrative system should have been in place.
The "Asian crisis" was largely due to the weakness of commercial reporting requirements - what is called "transparency" - the ability to know the "real" assets of banks, business and the government in order to make a realistic assessments of their value. The value of the currencies were not "real" and based on phony accounts, more blue smoke and mirrors than standard accounting standards.
What Lincoln Saving and Loan - Ketting and other did in America’s Saving and Loan crisis is the same phony accounting process due to the same cause - weakness in the system of supervision, the independence of inspectors, and political corruption. Empty buildings and dry forsaken land was vastly overvalued - so "real" assets were not there but new investors were paid premiums from older investors - in a classic ponzo scheme all guaranteed by the U.S. Government. It can’t go on for ever but quite a while until something, usually excessive greed, blows on the house of cards and the whole structure comes tumbling down.
Japan is a somewhat special case - where insider dealing is the name of the game. Japan is built on traditional combines of companies and banks. These become trading families of dozens of interlocking ownerships and associations which is Japan Inc. The insiders includes government treasury, trade, and diet officials in the networks. The ‘system" works wonderfully to provide vast low cost capital and export power. The problem comes when this capital was directed to real estate and other "non-productive" investments which become wildly overvalued paper. The paper values were used to back more paper etc. and it looks like 1928 and the great crash - not really in industrial and commercial activity but in paper assets and the loads made on devalued paper. The government can replace the paper with new and better paper because the economy is really quite sound because of a strong balance of trade and foreign reserves. Indonesia and other over inflated economies can not produce the quality of paper needed and have to borrow it from the IMF. The IMF was the good paper because of the real strengths of American and European economies.
Third, we need to be global
fourth, we need to be moral and have love for the earth, high hope and aims for mankind.
The capitalist economies suffered from booms and busts most of the 19th and half of the 20th century. People learned from the great depression and hyper inflation how to run central banking so there were not a continuing crisis in banking, credit, bonds and currency supply. International stability and growth were promoted by private arrangement among central bankers and international institutions - the IMF for international settlements and the so-called "World bank" really a multi-lateral development fund.
International institutions are not regulators and can not stop the party but only try to clean up the mess after fits of unreasonable rapturous protuberance. The principle function of central banking is to take way the punch bowl before the party gets out of hand. International institutions need early warning systems that can at least warn - talk down or caution investors in over heated markets. The IMF and the club of central bankers along with the rating agencies do too little too late, clearly because they don’t want to hurt anyone’s feeling and are subject to political pressure. A further step is to state clearly that further debt and expansions will not be protected when it fails - notice that certain economies have gone beyond the pale and are on their own, when the bubble pops.
The European community set standards for national debts and limits of the national budget going to debt payments. Standards such as debt up to 150 % of GNP and debt payments of 20 % of national revenues is protected and maybe reasonable due to rapid growth or pump priming during a depression, up to 200 % of GNP limited protection to sovereign debt, over 300 % not protected at all. A debt insurance scheme with increasing premiums seems in order. Total national debts ( public and private ) need limits - because the ability to repay is limited as are real investment opportunities. Debt going into corruption, consumption, welfare and monuments should be very limited. The GNP can drop by ½ in a few months so the standard is less than clear.. but some standards are clearly needed. Some reasonable level of national accounts must be a requirement to join the international financial system.
How is this to happen ? The leadership required has to come from Europe which now understands rational international systems and institutions - becasue of the history of the 20th century as follows:
1.) August 1914 and a long a useless war caused by misapprehension of others intentions.. and a run away military technology..
2.) A great depression caused by narrow minded meanness, and excessive nationalism, following the great unnecessary war - along with the "red" scare caused by the Russian revolution which was a direct result of the great stupid war...
3.) A Second great war caused by the depression, hyper-inflation in Germany and the failure of leadership following the First Great War ..
4.) The creation of the Atomic bomb because of misapprehension of others intentions that Germany was building a bomb - which they could not and were not doing ..
5.) But the American bomb made the Russians feel they had to have the bomb. Misapprehension of others intentions with atomic weapons caused a great Cold War which wasted trillions of dollars is useless arms and silly international tensions driving Western attachments to nasty, corrupt people and governments and undermining all rational efforts and a functional world order such as..
6.) The creation of the European Union, United Nations, IMF, the Marshall Plan, NATO, in order not to repeat the errors of omission and commission following the first great war but international order and reason could not work very well in a cold war climate..
7.) The second "red scare" blinded America to the realities of the emerging world and led to misapprehension of others intentions by Russia and China in Korea and America in Vietnam.
A rapid disconnect from rational thinking and reality based decisions caused by Televisions false images of reality, propaganda, and general dumbing down of complex issues into sound bits, began big time with the JFK mythologies, the marketing of power to the highest bidder and the decline in American political, educational, and cultural institutions.
Leadership at the end of the 20th century clearly rests in the European Community, China, Japan, and the rest of the "international community" without great obstruction but also without meaningful leadership from a dysfunctional American governmental process. So on to the financial crisis - more than a year and ½ in the making and without a rational response from the great "super power". Too little, too late, no vision, no new initiates, hopeless nonsense about socialism, states rights, low taxes and less government from the ideological right that endangers public safety and welfare just as much as it did in the 1920’s and 1950’s, and the "liberals" paralyzed by ill-relevant 19th century concepts of labor, technology, trade and social democracy further unlinking the new deals fragmented remains from any concept of political theory or reality.
At such times, new leadership may emerge, from somewhere else. MAYBE.. or maybe not. The international business community depends - sometimes - on realistic thinking and some knowledge of the facts. The new libertarian technological elite is capable of new insights. Even the universities and the press are not totally useless.
First we need to fix the problem not the blame.
Second, we need to deal with facts, realities not myths and false images
Third, we need to be global
fourth, we need to be moral and have love for the earth, high hope and aims for mankind.
The History of the Future:
What has worked no longer is working very well, what was success is now fading and dying. The new success is in the process of being born and growing up and doesn’t work very well yet.
For example: The U.S. constitutional system of divided powers, Japan Inc. of powers not divided enough, old and new international combines, the USS-was, from too much power to too little authority. The power elite everywhere are in denial, which will soon become anger, in the slow realization of the death and dying of the "old ways". The English crown discovered, tradition doesn’t cut it with new ways requiring new kinds of people and systems.
The nature of change only becomes real when the effects are painfully apparent. It’s extraordinary rare for people or their institutions, to change behavior because it’s necessary, rational or prudent. Behavior changes, if at all, only under coercion and crisis. The American political system, the Japanese economy - corporate administrative state - called Japan Inc., the Soviet Union - USS-was, IBM, GM, et al are all examples of where things have to get worse before they get better.
1997 - There is a financial crisis is South East Asia - a currency and market crisis caused by "bubble economies" and patterns of insider trading and special privileges called crony capitalism.
1998 - Japan, which is 2/3 of Asia’s economy and China which is more than ½ of the remaining third, suffer from basic structural problems augment by the continuing crisis in Asia and Russia. Japan’s basic problem is the same as the reasons for its success - an administrative state where the political process does not have control of the critical levers, tillers and maps. Control is in the hands of interlocking networks of corporations, banks, and bureaucrats that would have to change. The basic facts of modern Japanese life would have to be different, and real market capitalism given more space to operate.
1998 second half - The world markets are flooded with saving and low cost goods from Asia, speculation fed upon speculation, pushing the world into a global bubble, boom and bust cycles. The real economy declines, commodity prices decline, while asset prices increase. The U.S. political system is unable to provide leadership or respond in any rational way to a growing world crisis and growing trade deficit, Attention is distracted by meanness, pointless political squabbles about scandals, spoils, money and power without focus. The people who find they can not use the democratic process to gain satisfaction turn toward extreme emotional appeals or drop out.
1999 - The beginning of a Global Depression, counter-revolutionize Eastern Europe, extremism and nationalism in Japan, a closing of the European Union into a defensive block, chaos in the Balkans, spreading unrest in Mexico and Latin America.
Complex system are slow when adapting to changing environments and subject to periods of rapid degeneration and extinction.
Inter-connections:
Direct connection on complex networks. The number of connections increases exponentially on a global basis. Almost everything connects to almost everything else. What you see is that the most outstanding feature of life’s history is a constant domination by bacteria. Very complex systems decrease rapidly in times of environmental instability and sudden change.
The Internet Revolution: disintermedation
The future of established institution to control economic, social and political events is very limited. The Political process everywhere, national and international, can not keep pace with the rapid, changing, complex, counter-intuitive, non-ideological, global policy problems and issues. Among these issues are global warming, international finance, trade, ethnic and class conflict, population, education, health, welfare, pollution, warfare etc..
https://www.lycos.com/cgi-bin/pursuit?query=disintermedation
The direction of these forces is the fractured global society, made up of patterns of smaller, more temporary organizations. The percentage of the economy controlled by the top 500 firms continues to decline, the average time firms stay on the list, the number of new entries increases and on a global basis most are non-American and trans-national. Little countries such as Finland, Israel, Singapore, Hong Kong, Netherlands, have important international firms.
Japan can not solve most of its basic economic problems.
Bank reform requires a fundamental shift from combines of firms centered
around banks and holding each others shares to corporate capitalism within
trading groups and well as between trading groups. This requires a change
from the way Japan Inc. has worked since the beginnings of modernization.
The government is a committee of high level administrators that work within
the system and have very little control of the system. There is no way to pay the costs of social security
and medicare for those currently in the labor force. The shift from income and payroll taxes to VAT ( consumption taxes
) will help, the nationalization of education and medicine could help.
What would make a real difference is politically unlikely, what is politically
possible is unlikely to do any good. The American political system can
not take fundamental decisions in advance of crisis and slow to respond
to important changes in the society. Alan Greenspan, in his recent testimony to congress, repeated a lesson
in basic economics. The economy welfare of any nation depends on three
factors: The skill and educational character of the labor force, The capital stock the company and the society provides
to make work productive The ratio of fixed to variable costs of social overhead. In a fully developed industrial society the costs of social security
and health care are transferred to workers and the overhead of everything
produced. As the population shifts from a pyramid to a column the social
overhead costs become very high. The relative costs of work shifts to less
developed, labor rich areas. The long term investment in human and physical capital is the reason
for increases in productivity - better trained people working smarter with
better tools are the reasons for wealth or poverty. At the same time the
cost of payroll taxes alone becomes higher than world wide base hourly
wages. How much each person, each hour’s labor, how much each unit of input
produces in goods and services is directly related to the income from work
and the return on investment. The machine that digs increases digging productivity
and the wages of people with hand shovels or power equipment, airplanes
increase travel productivity and the wages of wagon drivers or pilots,
the word processor increases writing productivity, the Internet increases
communication productivity. The cost per unit of computer power declines
by half every 18 months ( Moore’s Law ) increases the whole of the economy’s
efficiency. The current period of growth with low inflation, where the labor
force has growth by 300,000 a month, 4 million a year ( 3 % ) has been
possible because of better trained women’s wide participation, more
women are now in college than males and minority workers acting as a reserve
along with moving jobs to lower costs areas of production and immigration. The larger labor force has new and improved tools provided by the
"information" revolution. Productivity in some areas of high technology
have been very impressive. As we become more global, the labor force becomes
global. Low skilled occupations move to low wage areas - China being the
great labor pool.
Networks of product design, original equipment manufacture (OEM),
distribution and marketing become more complex and integrated.
How do these tie together ?
First we need to fix the problem not the blame.
Second, we need to deal with facts, realities not myths and false imagesThree central concepts:
Punctuated Equilibrium In Action!
Three central concepts:
Punctuated Equilibrium In Action!
Complex system are slow when adapting to changing environments
and subject to periods of rapid degeneration and extinction.
Inter-connections:
Direct connection on complex networks.
The number of connections increases exponentially on a global basis. Almost everything connects to almost everything else. What you see is that the most outstanding feature of life's history is a constant domination by bacteria. Very complex systems decrease rapidly in times of environmental instability and sudden change.
The Internet Revolution:
disintermedation
The future of established institution to control economic, social and political events is very limited.
The Political process everywhere,
national and international, can not keep pace with the rapid, changing,
complex, counter-intuitive, non-ideological, global policy problems and
issues. Among these issues are global warming, international finance, trade,
ethnic and class conflict, population, education, health, welfare, pollution,
warfare etc..
The demographics of the industrial world project a rapid decline in the proportion of people in the labor force.
The large differences between rich and poor countries is becoming complex with higher income pockets dispersed around the world. We need to focus on global growth rates and interdependencies and how they play out in any market for labor or products and services. A tight labor market for skilled computer labor creates service centers in Barbados, India, Ireland, and elsewhere.
While the average age in the developing world is in the teens, the average ratio of workers to retired persons is moving in the industrial world from 1:15 to 1:3 or even less as the average age goes over 35.
The average years of retirement have grown from less than 5 to over 15. Required education and training keeps more young people from the labor market - highly skilled occupations such as medicine takes 12 years of higher education ( including specialties and internships ) so the productive years start in their 30s. If they retire after 30 years - at 62 ( 70 % of Social Security retirement is at 62 ) they have an average 2/3 of their adult life or 20 years as consumers without production being supported by earning from saving and/or income transfers.
There is no way to provide the wealth that can support large numbers of retired from a fewer number of workers even with better public policies, even with an historic increase in long term productivity. Individuals and firms can do well with increased saving and investment in even smarter systems and tools provided to a even more highly skilled work force.
A highly developed economy such as Japan has fewer way to maintain rapid growth.
They are better educated, are very competitive and clever, they are cooperative and maintain a reasonable level of fairness and stability, but face the same basic structural problems that faces all developed nations.
Their population is aging, productivity gains are harder and harder to come by because all the clear options have already been used.
There is a increasing high wall on the left of any distribution of complex systems.
What has worked no longer is working very well, what was successful is now fading and dying.
The new success is in the process of being born and growing up and also doesn't work very well yet.
For examples of complex systems hitting a wall:
The U.S. constitutional system of divided powers,
Japan Inc. of powers not divided enough,
old and new international combines,
the USS-was, from too much power to too little authority.
The power elite everywhere are in denial, they will soon become angry, in the slow realization of the death and dying of the "old ways".
The English crown discovered, tradition doesn't cut it with new ways requiring new kinds of people and systems.
The nature of change only becomes real when the effects are painfully apparent. It's extraordinary rare for people or their institutions, to change behavior because it's necessary, rational or prudent. Behavior changes, if at all, only under coercion and crisis.
The American political system, the Japanese economy - corporate administrative state - called Japan Inc., the Soviet Union - USS-was, IBM, GM, et al are all examples of where things have to get worse before they get better.
1997 -
There is a financial crisis is South East Asia - a currency and market crisis caused by "bubble economies" and patterns of insider trading and special privileges called crony capitalism.
1998 - Japan, which is 2/3 of Asia's economy and China which is more than 1/2 of the remaining third, suffer from basic structural problems augment by the continuing crisis in Asia and Russia. Japan's basic problem is the same as the reasons for its success - an administrative state where the political process does not have control of the critical levers, tillers and maps. Control is in the hands of interlocking networks of corporations, banks, and bureaucrats that would have to change.
The basic facts of modern Japanese life would have to be different, and real market capitalism given more space to operate.
1998 second half -
The world markets are flooded with saving and low cost goods from Asia, speculation fed upon speculation, pushing the world into a global bubble, boom and bust cycles.
The real economy declines, commodity prices decline, while asset prices increase.
The U.S. political system is unable to provide leadership or respond in any rational way to a growing world crisis and growing trade deficit, Attention is distracted by meanness, pointless political squabbles about scandals, spoils, money and power without focus.
The people who find they can not use the democratic process to gain satisfaction turn toward extreme emotional appeals or drop out.
1999 -
The beginning of a Global Depression, counter-revolutionize Eastern Europe, extremism and nationalism in Japan, a closing of the European Union into a defensive block, chaos in the Balkans, spreading unrest in Mexico and Latin America.
The direction of these forces is the fractured global society, made up of patterns of smaller, more temporary organizations.
The
percentage of the economy controlled by the top 500 firms continues
to decline, the average time firms stay on the list, the number of new
entries increases and on a global basis most are non-American and trans-national.
Little countries such as Finland, Israel, Singapore, Hong Kong, Netherlands,
have important international firms.