Market Economy.

The future of the worlds Market Economy – is it viable - can it survive?

Backdrop.
We have had a jolly little ‘war’ spark off recently, wars cost money, now lets see how it affects the economy of the USA and us. That there will be knock-on effect, possibly negative, seem certain, for some simple reasons. The US is currently carrying a huge deficit, about to pump billions of tax dollars back into the undeserving rich part of its economy, committed to increase budget on new ‘defence toys’’ is doing very little to counter its environmental waste and energy consumption which (as the largest user of oil and its derivatives) is forecasted to increase, has progressively more degraded and unsupported social structures and is increasingly under competitive. These are expanding economic and social problems in their own right, yet with these handicaps it would seem the suspicion is prevalent that the reason the USA is promoting the current Iraq problem is more to do with (1) finishing unfinished business (2) are looking to the long team stability of its own raw material supplies (3) possibly seeking vengeance from soft target for nine eleven. All useful diversionary arguments but still imply a huge debilitating economic drain for any country to carry at a time when its own internal strength is questionable.

The outcome of the conflict with Iraq will be obvious but the long team future of the western world economy and its security could be in some doubt, within the fracturing stability of the Middle East states. The current discomfort to be felt by western interest is not being made any easier by the continuing aggravations of Israel, its intransigent attitude and illegal occupation and actions towards Palestine issues. There is a small window of opportunity just now to bring this difficulty to a conclusion however it is only a matter of time before a forced solution is to be bought about. There could be peaceful solution if the US wields a stick on its dependant Israeli state but it is more likely to be via a harsh conflict in 2015 possible erasing Israel. This though is a minor issue in so far as Israel is currently gatekeeper to the Middle East with its importance measured as the only tithed ‘friendly’ face in part of the world adjacent to countries with massive oil taps and undercurrents of extreme Muslim tendencies.

If it is true that there is in Iraq undiscovered elements of WMD (unlikely) then the inherent danger is not just with the current conflict itself but also with the follow-on fall out that will arise from a drawn out conflict. Iraq could well be an instigator of disquieting factors that will occur, leading to the unsettling of the stability of ‘friendly’ states. The ‘war’ as it was euphemistically called, which by any historic means could not be accurately described as a war, presupposes that combatants are both capacity capable, and are actively sparing up to each other and are or have applied overt signs of unilateral acts of aggression directly on the other. Sadly the justification for the attack on Iraq for harbouring WMD was and still is by many people seen as an unmitigated mistake. Such invasive action may have been loosely justified as legitimate for ignoring UN mandates or rather taking forceful action on humanitarian grounds and also learning something from the apathy and belated action against the Balkan genocides. Covert acts of terrorism are of course very effective at taking the head lines, are difficult to control for both sides of any conflict and are hard to trace culprits or place blame. Stopping terrorism, state sponsored or otherwise without resorting to draconian solutions, is not possible in a free, democratic, outright market driven economy. Draconian solutions will lead to an erosion of ‘free rights’ despotic self-interest actions and increased instability with economic markets, in all this America is taking the lead.

Economically the European / west situation is better albeit that it has been bumping along the bottom of recession for some years, it too has been caught up in the focus point of the Iraq conflict which is diverting attention from the growing economic world problem. In addition (as with the US) the state of the European Union and its economy shows all the signs of an economy that is reaching the bounds of its ability to expand, given that expansion is product of exploitation, exploitation which is becoming more limited as ‘third world’ competition becomes sharper and with this limitation of expansion the social and economic problems of faulted progression will become increasingly exacerbated by the same resource, economic, social and populist (oil?) problems.

The current unstable problem of the market economy must centre on the fact that the US is the big game just now. Here we have a dominant military and economic power, which is seen as systematically seeking to control the world’s economy for its own ends. Can it be trusted? Perhaps yes in the short term however not without developing more internal rationality and a greater awareness of world opinion to moderate its growing intense views. However as it stands now and with the increasing difference in the European and eastern world outlook, it will become less trusted in the long term. This parting of existing relationship will have a profound impact on the view of economic development.

The justification for the conclusion of this dichotomy (yes it can be trusted – no it can not) is that the strength of the US has been its economic power built out of its state unity, natural resources, its expansive opportunistic growth and the close role that the internal economic generators have played in the shaping of politics and policy of the country. This has generally been without regard to the longer-term requirements of diverse internal social cohesion or an equitable fair-minded distribution of wealth or engaging world opinion. There is an argument that this last point is irrelevant, as the USA is superficially the only remaining super power, it need not now pay any attention to ‘world opinion’ just as other possessors of the title have done in the past and used their own power base to control and exploit a market opportunity. However now that communication is much more efficient and world wide, so a truer and more vociferous ‘world opinion’ can be formed more effectively that can now propagate resistance to the continuance of hegemonic states.

The opportunistic growth situation has been most beneficial to its self (USA) and its building of strength has been used in helping to engage in stabilising past ‘external’ conflicts. It is in periods of ‘good’ times and stability where reasonableness has been possible in decision making, it could be trusted to listen to opinions and to maintain a sensible stance. Up until recently (late 80’s) stability and reasonableness has been in fashion, even though ‘the cold war’ period was a catalyst for a measure of overt reasonableness, built on the fear of communistic ideology. Opportunely this post war period was also matched by unparalleled economic expansion and growth for the west.

Unfortunately what is little recognised is that the ability to expand an economy via the use of prime economic generators and exploit markets with the application of corporate 'carte blanch' mechanisms for the benefit of the generators, is only possible in an overall expansionist environment. Once the ability to exploit has diminished, expansion is limited – or if it faces natural restrictions, severe and unappealing pressures to continue growth and maintain the mainly US and European standards of living, come about. It will be at this difficult phase that differences in country political opinions will increase, corporate action will become more self serving leading to the realisation that the capacity for economic growth is stagnating and that the economic generators cannot be willingly untangled from the US political policy nor will it be easy to instigate corrective action of laissiz faire attitudes to internal social differences.

The myth of the American dream and the supposed generous attitude of the poor to the rich will explode (The American dream being that in American no one objects to ostentatious wealth and everybody has the opportunity to be rich).

With the clear superiority of military might, as in other historical cases, it will be used to attempt to force through its own self-interest objectives and with that, nation trust will evaporate.

At some stage the EU, having once gained a unified voice that may comprise elements of the Muslim kingdoms and will logically / geopolitically have to be combined with the Russian Republic, it will at that time become a viable scenario that the dominance of the US will be shadowed and this will lead to one consequence, the unspoken threat and the unthinkable, that war between three economic power blocks could become possible. A likely precursor to this will be increased incidents of trade blocks.

Why should such a situation potentially lead to conflict between power blocks? This for the moment seems unlikely, with Britain for obvious reasons, continuing acting as the Atlantic bridge port.

Contemporary outlook.
There are growing global pressures that cannot be avoided. Historically Europe has been for so long a splinter of country groupings that of late is beginning to mutate beyond its early superficial verbal consensus into a stronger cohesiveness. This developing of an active consensus will bring about some joint strategies, with steps to combine a single ‘voice’ that will gain power to act as a draw for other preparations to erase some elements of archaic ‘sovereignty’ to gain a world strategic presence. It is likely that this amalgamation process will consolidate more by merger of the largest countries in Europe first, such as France, Germany, Spain, Italy and Poland. Russia will lean towards the EU but not play an active part at this time in the formation of a new united union of EU states, it will be ‘asked’ to join and start discussions by 2013.

Historically, the UK has so far been a miscreant member of the union – not being wholly in or going out. The fact is that at some stage soon it will be impossible for the UK to continue its balancing act connecting the two states of economic liability between the US and the EU.

There is little doubt that the EU has reached the potential of superseding the US as the dominant financial player within the financial world with it eventually using the Euro over the dollar as the trading currency of the world. To many this seems unlikely but lately there are signs that oil, currently priced in dollars has in some cases been preferable priced in Euros, and as the dollar slides due to the US blooming deficit this tendency is likely to expand. Given the comparative economic strength of the European continent, with its strong social and developed infrastructures and if it can sustain a respectable fiscal ‘euro’ trusted across the whole EU countries, then by way of its new developing mutuality, there is no reason to suppose that it cannot over take the dollar.

It is obvious that world trade growth factors are affected, they have been stagnant for the past 10 years, GDP in all western economies are of concern and this is stimulating discussions in political circles about how to start pump priming the economies. Western government are surreptitiously worried about this trend and cannot find any easy solution within the existing free market economy philosophy. They cast around for a means of resolving the lack of growth ‘problem’ via GATT through which it is becoming increasingly difficult to assuage the natural concerns of poorer provider nations as they also are looking to obtaining a greater and fairer share of markets. In Europe at least and in the face of cheaper competition, the seemingly rigidity in the labour / trade markets, the rise in social spending on pensions, health and education, is becoming an issue, afflicted with the argument that this social growth is not affordable by via increase heavy public spending. This funding difficulty is being fudged with the fanciful desire to transfer responsibility to the private providers and personal responsibility. There is also in Europe an underlying demographics birth/death/age element, with largely unchallenged economic immigration pressures. In the name of ‘flexibility’ governments look to ‘freeing up’ the labour markets, dismantling corporate controls and privatising social assets.

This is not the time to be ‘rolling back the state’ involvement, abrogating responsibility to jeopardise social stability and cohesion in the race to the lowest economic denominator to compete with cheaper developing world output.

The US seems not to be too concerned with the same issues as the prime proponent of free trade albeit with covert and in some cases blatant, protectionism. Although mighty in current economic and military terms, it has a number of serious weaknesses that will bring it to the point of recognition to show that it: -
(a) Is loosing its economic dominance,
(b) Is not engaging the world opinion on a vision of fairness,
(c) Has done too little to mitigate its own energy consumption, its environmental degradation and
(d) Crucially ignored completely its own terminal social fragmentation and poor social strategic infrastructure ‘Achilles' heel.
(e) It will also be increasingly concerned with a cohesive strengthening of European Community presence.

The first weakness is its cost / benefit blindness to the overwhelming resources being poured into the military machine that propagates the image of might-strength and prosperity enjoyed by all. Without doubt this is a constructed race to the top of the global weapons tree to secure by force its current and future position.
The second issue it has, is the increasing corrosive weakness in its efficiency of production ability that cannot match the cost of imported goods linked with the wide divide between those that have and those that have not whom are being excluded from the existing prosperity via spurious illusion in the createability of wealth for their own use, under their own efforts and the continuous fondness for the mythical American dream.

As the recognition that it is loosing it dominance bites and that the far right market attitudes no longer serves a fruitful purpose, corporate action will become more corruptly self serving with its socially inbuilt limitations that will adversely effect more of its population. Because it has such a huge demand for resources and the need to maintain its position, it will attempt to out secure, initially with trade (agreements) blocks, threats, and force to sustain its position. In an overall falling global market this will not be acceptable as its aim is to weaken opposition to allow the continuance of its own US hegemony.

The inexact EU/US economic maxim (i.e. market forces rule OK) are so much more of a perversion in the US economy that that in the EU. The EU has an economy that is as big, and on some measures, bigger than the USA but it neither has nor carries to the same extent the disengaged social core. The economic drivers of the EU have been moderated by a greater element of social well-being as the bedrock of its stability for the majority, with a willingness to be inclusive and open. This to some extent has been reflected in the tax structures, individually and corporate to fund the social constructs albeit that it has had to adopt a competitive stance over the past 36 years.

The US is the archetype of the market economy with scant regard for governmental structured social involvement, designed not to secure and serve a humanistic social majority and has for decade’s cosseted itself with cheap energy and a huge protected home market. This lack of social responsibility has helped drive its economic growth yet delayed the need to be ‘competitive’ in a much more vibrant world market. However it has found recently that cheaper rising imports lead to company closures and expose the weakness of its social core and corrupt corporate hegemonies. Its social spending as a proportion of its GDP is apparently lower than many EU countries. It has demonstrated lax corporate controls and its political policies are owned by the multi nationals and supported by the strange, strong, right wing tendencies. Although it may seem that it is a powerful county it has, at its core, a terrible vulnerability – it lacks real social cohesion, it would find it difficult to face a major disaster as it lacks integrated emergency systems, it has misplaced belief in the power of individual social independence and the government does little to build support networks. When times get tough it could fragment.

Blue Sky
By the year 2005 the fragility of the US economy will be most evident. Although its asset base is extensive, with great resources, it will not be able to disguise its growing deficit and its reliance on foreign exchange to support its financial proliferation. By 2010 the world economy will be under extensive pressure from growing trade and power issues. The distress caused to the poorest will become endemic and a flash back will occur. The tide of economic / environmental migrants will be of such a magnitude that draconian measure will be put in place to attempt to reduce the flow. In August 2013 the distress of the west / asian ability to prop up market conditions and the effect of reduced oil flow will move power blocks to move onto a likely war footing.

The backdrop to this and its precursor is that the ‘modernised’ world economy, as currently constructed, is not sustainable. Its production of waste and consumption of materials has been dependant on key factors.

Key factors in my estimation are the subsidies extracted from the poorest countries in providing assets that undervalues their intrinsic value at a loss to the provider, yet providing immense benefits to the consumer markets. In addition, the unhindered ability to foster exploitation, the consumption of energy with little regard to the replacement ability and a comparatively quiet and benign environment period, all of which are now under the pressure of change. These factors are additionally challenged by the increased competition for a better share of world resource by poorer countries and the desire for a higher quality of life by them, which can mitigate their poverty.

An additional factor is the growth of the Chinese and Indian economy. These are largely built on the availability of cheap labour and the undeveloped state social structures with little environmental management, which is taken advantage off by the demands of western producers. Both have loose communism & democratic processes and look to be in strong positions to expand their world influence as the west looses manufacturing processes as it is out sourced, looses economic strength and becomes more preoccupied with the decline in home stability. China’s politics will forcibly take over Taiwan in an effort to keep control of its own structures and avoid westernisation of the mainland. All will be in competition for a share of world resources.

Prospect
The application of energy forms such as, steam, coal, gas, and oil has been the driving force of the world’s modern economy. A slide into a zero sum effect will be difficult to avoid without the introduction of a new form of energy. Revival of economic fortunes cannot be achieved without it. On current trends the modern world has hit a tertiary, social, and productive down spiral. The west relies on its dominant position as a trading military powers and largely dictates terms for raw material and produce, i.e. to being subsidised. It will not be possible to rely on this continuing subsidy from the developing world, as they increase their market penetration with their use of cheaper labour and no or very low social cost and helped with the investment gains from imported IT & RD. This dominance of the west is being eroded by the ability of the ‘developing world’ to manufacture and provide services, whilst exacerbating diminishing resources with their need draw in more resources to support their own improvements.

To offset the cost effect of this competitive development, there is the British cry with the EU for greater labour market “flexibility” with concerted pressure in support of this stance applied by the multi nationals. Loose immigration to provide cheap labour and top up low indigenous birth rates will eventually add to the social fragmentation. The complicating factor is that the western multi nationals compound the issue with their continuous drive for higher profits and lower cost. A financial position which so far is being funded by the drive to force down the European mean labour cost, out sourcing, downsizing, exported investment into cheap un regulated overseas markets that produce goods, that are then imported back into the main consumer markets. At the same time forcing exploitation on countries to accepted indefensible products dumping and restricted market options!

Consumerism is only possible within the bounds of need, affordability, distressed purchases and availability. Once a disposable income stream is reduced by the deteriorating of paid employment within the major consumer markets as production and service is moved / exported ‘outsourced’, there will be a disposable income void which then cannot fund the consumption of imported or internally produced goods. The only avenue then for multi national companies will be to maximise the ‘new’ external manufacturing / service markets but it is difficult to see how the loosing economy, with its ingrained high living standard and expectations, can accept an economic shift that hurts it.

There is little at the moment to point to any global factor that will demonstrate the possibility to avoid economic and social fragmentation without actual conflict being the eventual outcome. No westernised country will place itself solely at a disadvantage in favour of a greater good. It has been fortunate that in the past the mechanism for a period of enlightenment and the major social improvements that have occurred have always been sort after a conflict and in periods when resources were readily available, plentiful, and in an expansionist time period. The difficulty this time is that saps may be running out of cheap (subsidised) resources and time.

A paradigm shift in thinking is required about the use of current viable resources and to be able to invest in new clean renewable energy in transmittable and liquid form, with low generating and waste cost, for the benefit of all countries away from military / space / corporate carpet bagging. Included in this will be the requirement for the transformation of the market economy.

The creation of an unfettered market economy has been the building block of the rapid expansion of the west. It has globally been a useful tool for the monitoring, control and the transmission of the value of all commodity and labour energy. It has been an economic development process generating innovation and prosperity that may not have been possible via an old barter systems and it has been successful (for a privileged third of the world) for a period while expansion has been available via exploitation, but its time is now done. The longer the west holds onto the sacred ideology of the market economy, that the market will correct itself, that it has to be free and unfettered can only mean that eventually it allows many to become poorer as wealth flow elsewhere.

If one viewed the world as a closed economy it seem strange to consider that expansion as currently viewed by a market economy could continue. Where does growth derive from? Who looses while others gain? If one faction controls all the resources how is enlargement possible? What is supplementary to a closed system to forestall entropy? If there is no additionality to the system, survival may become the prime tenet of a powerful few at the expense of the many. The effect of the much-vaunted global market is that eventually the rich exports its wealth to the provider of consumables that are not produced in the consumer market and it ceases to invest in technology. There is no such thing as a free market economy, unless it is in due course controlled, then somewhere someone pays more while other gain.

So I would conclude that the future of the worlds Market Economy is very tenuous. There can be little doubt that energy and its availability is the one and only future saving aspect that individual countries and the world has. To achieve some element of sustainable self sufficiency, with the ability to have their own energy source, that is plentiful, must become an urgent objective. To break out of the entropic downward spiral, ultimately with the ability to make the conversion and recycling of material into new produce will require a different energy source (not wholly carbon based) and to provide such energy to offer the power / energy to gain free desalination and minimisation of waste must be seen a ultimate prize. Fusion and hydrogen seem to be able to point the way but will they be available in time and without the straight jacket of the fabulous market forces philosophy?

P 31.10.03 FIED.