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Philosophical Thought
In other articles on this website, the word “jobs” has been repeated many times in all sorts of context. For after all, jobs are the basic building blocks of ANY and ALL economies. Be they simple or elaborate; large or small in size, the domestic economy of any and all countries cannot exist without the basic existence of jobs. What one may need to know or understand, is how many jobs are needed to sustain an economy. This also is perhaps as well a basic and fundamental “need-to-know” requirement in order to sustain any economy. There is a simple story told elsewhere in one of our articles, which bears repeating in order to make a point. A small village exists somewhere that has a population of 400 people, equally made up of males and females. We then presume that the males require having a haircut once a month at a cost of $10 (or any currency cost). The village has one barber, and thus his livelihood is that 200 x $10 per month, totaling $2000. This is sufficient for his needs within this rural environment. One day an itinerant barber comes to town, and seeing that the town only has one barber, decides to set up in business for himself. The moment this happens, both barbers find out that there is insufficient income for the two of them to live comfortably. As a result they are faced with a choice. One goes or they both “starve.” The point to this simple tale is that there are limits to job sustainability. There is as well the point that for any given function or service, “pursuit” or profession there is a need for someone to provide it. So two factors arise here, the one being the “need” or availability, and the other being the: limitations placed upon that need. If we were to pursue this line of thought further, the very existence of any type of job is reliant upon a given volume of people to support it. Thus in order for this support to be available, it follows that each and every entity of that support has to have the economic where-with-all to maintain it. In other words the income or currency has to be in existence. Because this exists, to an extent, all jobs sustain each other. Any loss of jobs thus weakens the entire economic structure or fabric of society. This could very well be demonstrated were we able to “mark” the entire disposable currency of just one individual and follow its path through he whole fabric of society, in order to show that just that one currency package contributes its share to maintain many hundreds of jobs within the economy. In a manner of speaking, we support each other. It is then vital that we protect the existence of the jobs we have, apart from growing an economy to create job income for growing populations. Perhaps an example of the reliance and relationship of the “job income support” requirement within an economy should be given. Let us examine the case of a motor mechanic whose labour cost is “billed” out at a charge of say $60 per hour (or any other currency used). Of this charge, $25 is the direct labour cost and the balance to cover overhead costs and profit margin. At a 40-hour week for a four-week month, this would amount to $4000 per month, or $48000 per year. Thus if an individual only required the use (time) of a mechanic once per year, that one mechanic requires the income support of 1600 other working folk to support his job. If utilized twice per year, it requires 800 others in support, and if three times per year, then the requirement drops down to approximately 533 other people. This is not to deny that within any economy there is a constant change in the type and availability of specific jobs. As an example, a change from the canning of food products in tins to doing it in glass containers changes a whole sequence of events and job category. Less tin is either mined or imported, and more ingredients to manufacture glass jars would be needed and perhaps more glass manufacturers needed as well. Were the exact opposite to take place, the changes to job type would change, and if the method of “can-opening” alter from the use of can-openers to the use of “pull-tabs”, the manufacture of can openers would no longer be required. Because of the constant changes occurring to the needs or desires of society, so too will changes take place to fulfill those needs. There is little that can be done to alter these constant changes. There is however a subtle difference between meeting the needs of one’s domestic society which results in a change in job type requirement, and the intentional moving of production “off-shore”, resulting in intentional job loss. While both “operations” are driven by a profit motive, there is a vast difference to the effect each may have on the domestic economy. One cannot stop expressing that “mantra’ that the basic structure of ALL ECONOMIES is the existence of jobs. To this one has to add the words “sufficient” ---- “varied” and “expanding.” These are the basic “building blocks” of an economy, and no matter what the type “government” that exists, be it a Democracy, Socialist, Fascist, Communist or a dictatorship, the one common element to all is the requirement of the existence and the maintenance of jobs. There are two elements that today exert the major pressure on all economies. These are the concept of Globalization and Free Trade. Perhaps better said as THE IMPLEMENTATION OF GLOBALIZATION AND FREE TRADE! The driving force behind these two elements is not specifically targeted towards the expansion of one’s domestic job needs, so much as it is for personal profit gratification, no matter that it be either “individual” or “company” driven. That it may result in some extra domestic job creation is possibly an unintentional bi-product of the exercise. The basic or underlying reasons to seeking export markets for one’s products or services are usually resultant upon having “satisfied the needs” of the domestic market. Or if not in satisfying the needs, then possibly that there no longer be the possibility of an increasing share of the domestic market. However the job losses to the domestic economy are a hundredfold more than any possible creation of new jobs within the economy if the extra production requirement is satisfied by the creation of offshore facilities. The basic philosophy to globalization and free trade is the desire to capture and control a greater share of WORLD MARKETS for one’s products and/or services, and has perhaps little to do with so-called “national desires.” Any national desires that exist stems from the political forces brought into play at the coercion of major conglomerates vying for International market share dominance. Which brings us to ---- Short Term Gain ---- For Long Term Pain! We pride ourselves that Democracy is the finest means of “governance.” Not only that, but it has to comprise of the greatest degree of “freedoms.” Freedom of expression, free and unfettered press. The freedom to do this, that and the other. Little or no constraints. A sacrosanct “Charter of Rights and Freedoms.” The desire to have all of these is admirable, but the use to which we put some of those “freedoms” is often not to the benefit to any or all within our various societies. It is the exercise of these freedoms when used within the context of Globalization and Free Trade that concerns us most. FOR THE COMMON GOOD. Four little words ---- with a great deal of meaning. What do they mean to us? Perhaps one word may aptly describe the whole: PATRIOTISM. That --- is not a dirty word! When the final analysis is made of the success or otherwise of Globalization and Free Trade, it may rest upon the exercise of that one word by many, if not most of the World’s trading nations. Perhaps a few examples should be given of the problems that arise within economies when globalization and free trade is practiced. We have written a number of articles on these two subjects, and it is not our intention to repeat these at length, so we will confine ourselves to but two aspects of it that already applies within a single country, and as well to an economic cohesion of a number of countries. So we will start with the economy of the United States of America. The economy of the United States is spread across fifty “states” (provinces). While they in total comprise the economy of their country, they vie (or compete) with each other for as great a share of the whole that they are economically capable of doing so. While in the process of doing so, this is by no means “friendly rivalry.” Bitterness and resentment is often present, not only generated between or against each other, but with “Central Government” as well, where it is often felt that “politics” has intruded to favour one state against another. The shift of particular types of long established industries from “North to South” and “East to West” not only generates animosity, but the resultant economic effects have often been both dramatic and disastrous as a result. The basic economies of many states are or have been based on both particular types of industrial activity and the job stability that results there from, and as well all the ancillary industries that were reliant on the presence of the major industrial base. State taxes and monetary incentives, as well as a differential in wage and salaries paid, plays a large part in determining the destiny in the shift of manufacture from one state to another. This factor is a mirror image of what is unfolding, and which will continue to unfold internationally, were we to pursue Globalization and so-called Free Trade. While examining the economy of the United States, one may as well take the opportunity to remark on the efforts made by the Federal Reserve Bank and the Federal Government to “kick-start” the economy in the year 2003 as a result of the 3 year recession of the years 2000 to 2001 and 2002. The basic economic philosophy used is that of cheap money (low interest rate borrowing) and the lowering of tax rates to propel consumer expenditure in order to create job requirement. Setting aside the resultant increase in debt load, the lowering of taxes result in budget deficits. While the Federal Government may lawfully run deficits and compensate for these by using debt instruments to cover the so-called shortfall, this is decidedly not the case for “State” or “Municipal” budget needs. Deficits are not “legal” and thus while the Central Government lowers taxes, a proportion of the added income in the hands of the citizens are “sucked back” in additional tax takes in State and Municipal budgets, negating most of that “supposed” extra spending power of the citizenry. Taking this a stage further, the examination of NAFTA, which comprises of trade agreements between the United States, Canada and Mexico demonstrates the difficulties of pursuing the ideal of Free Trade. Within two years of its inception there were difficulties encountered resulting in bitterness and resentment between long established friendly neighbors and trading partners. In every case these have stemmed from the fear of job loss within each respective country, which results in political pressure to alter the terms of these trade agreements. This resultant political activity, while trying to protect domestic jobs, has had the end result of destroying jobs in the economies of the other trading partners. Our third and last example is that of the European Union. Here we have a microcosm Of Free Trade in practice as if it were on a global scale. The greater the growth in the trading partnership, the greater has been the economic friction where each partner vies against the other in the creation of job growth. The shift in job opportunity within the economic partnership weakens one economy while another thrives. This imbalance will in the end prove to be the greatest problem this union of economies will be faced with. Despite economic union, ethnic pride and ethnic cultures and language differences are a barrier to any union, which may not obviate eventual animosity and resentment. The primary strength or weakness of each individual economy is based on job availability, job stability and job growth, and it is these alone that dictate the fate of their individual economies. Surely he day has long gone where we can leave the creation and preservation of jobs to “circumstance and destiny.” The three ‘P’s” --- Pride --- Prejudice and Patriotism will surely dictate whether job protection will eventually dictate the futures of Globalization and Free Trade. If jobs are the basic foundation of all economies, then how are these to be protected while still engaging in international trade? A HARD QUESTION --- and A DIFFICULT ANSWER. As we see it, there are not that many solutions. Every facet of economic activity has its competitive aspect, both domestically as well as internationally. Putting aside quality and quantity, there is price with its connotation of exchange rates; subsidies and genetic engineering to name just a few of the imponderables that have to be solved. There are the weaker and the smaller economies that are not only unable to compete with the larger and stronger economies, but at the same time are vulnerable to job loss due to a reliance on a very small variety of job categories on which their weak economies are reliant on. The World is intent on dismantling barriers to trade, yet these are perhaps the only factors that stop these smaller and weaker economies from collapsing. If job protection is required to preserve an economy, then the signs are ominous. There is presently little hindrance to Conglomerates shifting production “off-shore” and this applies as well to any ancillary service requirement or technological support such as “software” programming. While this may not entail closing existing domestic facilities, it precludes additional job creation. Should domestic production be diminished or plants closed entirely, then job losses occur. There is that trite answer given that new “other jobs” will be created to replace those lost, or people will be educated to acquire new skills where job opportunities still exist. While this might hold for certain service industry categories to a very minor degree, it may not do so for manufacturing in the “high tech” or non hi-tech job categories. Which brings us back to our trite reply --- “what if they are wrong?” Will it be TOO LATE FOR TEARS! Within the philosophy of “job protection” there is an anomaly. This arises where countries that have smaller and weaker economies appeal for “International Investment.” Here there is the invitation to invest in the production of goods and services in order to create new jobs for these smaller and weaker economies. It signifies that there is an absence of domestic wealth to create these facilities within these economies. Yet while appealing for assistance, the desire to still protect existing jobs remains paramount. To add to the conundrum, the wealthier economies decry the fact that these selfsame economies hinder the free flow of investment capital into and out of their country; apply barriers to local government procurement programs and protect specific domestic industries and agricultural output by means of quotas and tariffs. That invitation for international investment is perhaps as well an invitation to be subjugated to “economic bondage.” To being beholden to foreigners for the creation of jobs that the local economy seems incapable of supplying. To add to all this, is the possibility that these smaller or weaker economies have to supply various incentives such as differentials in labour law and wage differential application, taxation as well as cheaper land and/or energy costs as an enticement to invest in job creating productive entities. All of these may not be available to local industry, with the resultant build-up of animosity between indigenous producers and foreign owned facilities. To an extent, for these smaller and weaker economies, it is sometime not so much “job protection” as it is to them “self preservation.” In reality, at the time of writing this article (September 2003), there are three distinct types of economies in existence. The first is that of the major strongest economies experiencing job losses due to a shift in productive output to productive economies where lower wage costs exist. The second are those particular economies that are the recipients of these job-creating shifts in production output. And finally there are the economies that experience little or no economic growth, yet who are the larger numerically as a percentage of the total World Economy. Broadly “speaking” the major economies are those of the North American Continent, Western Europe encompassing the European Union, and Japan --- when it finally returns to its former place as the Worlds second strongest economy. The second category encompasses China, Hong Kong, Taiwan, Singapore, and India and a few other Far East emerging economies where wages are low, yet productive output is relatively high. With a few exceptions, the third category is situated either in the African Continent, the South American Continent, or scattered about elsewhere in the world. To add to all the imponderables in finding an answer to an “Impossible Solution” is the fact that population growth works contra to economic growth. The weakest economies have the highest population growth rates. China long ago realized that there had to be a change to this phenomenon, and instituted laws to slow their growth in population. While this has not as yet been the case in India, Africa and within the Indonesian archipelago, sustainable growth may eventually dictate otherwise. Because these difficulties exist, it is no use “shrugging one’s shoulders” and leaving it to “FATE” to sort it out eventually. That is “taking the easy out” in attempting to ignore this problem. The World Trade Organization: The World Bank and The International Monetary Fund seem incapable of providing workable solutions. Concepts such as Globalization and Free Trade seem not to work in their present format of both their ideals and their operation. Perhaps a workable solution, be it even just a “compromise” of what already exists, may ultimately be the logical way to go towards finding a way to share the total economic wealth that the Worlds economies generate. It is not so much the distribution of “Money” that is required, but the opportunity to create ones own internal “wealth” to support one’s own economic growth and in consequence that of their individual peoples. The “cry” will go forth that this can only logically occur when Globalization and Free trade exists. This is partially true, but it is the manner in which this is unfolding, that one questions. Free access to World Markets denotes the free flow of goods and services without hindrance, yet nowhere does this enable economies to gain an equitable share of what is required to sustain individual growth. Until such time as “an equitable share” is defined and instituted and maintained --- it cannot work. Among many other imponderables, is that of Trade Union Activity. Its presence or absence and/or its activities if present. For many so-called “emerging nations” or economies, there is often that “affirmative action” factor where local business is required to have senior executives in their employ derived from the local population if they expect to do business with government departments. This is often despite their unsuitability or skills required by these companies and could possibly be a stumbling block to foreign investment. How then do we see some sort of solution or “compromise” to the problem of job preservation? There are any numbers of possibilities, depending on who applies them and in the manner in which these may be applied. One feels that a premise to all this, is the status of those Importers and/or Exporters and their relationship to politicians and “government”. The “political clout” that each of these may yield. Essentially these two have diametrically opposing philosophies if they are not one and the same entity. At government level, where the political decisions are made that affect job preservation, they may have to weigh up the “common good” in the end when the “chips are down” and trade decisions have to be made. Looking dispassionately at the global economic philosophy of so-called globalization and Free trade, each and every country will have to determine what is in their best interests in the manner in which they attempt to protect their economies while still hopefully participating in international trade. The greater their scope of operations, or the greater their wish for trade expansion, could determine how successful they will be in protecting their own economies while still being able to expand their export markets. Surely it must be self-evident that those who seek “open borders” and “unfettered trade” are powerful enough not to fear competition --- or so they make this out to “look so.” However when examining “the fine print” of trade agreements, and thereafter the manner in which these subsequently unfold, one often finds a differential between “thought and deed.” With this last thought in mind, we do not see how globalization and Free Trade can be fair to all who participate, without some provisions that enable smaller and weaker economies to both survive and prosper. Because of this, the possible best solution to this problem, is an expanding “bi-lateral” trade in the form of blocks of trading partners who have one type of an agreement with each other that serves their common purpose, and other trade agreements, either individual or global, in dealing with all other nations. Any concept requires either laborious explanation or a “set example” --- or both. For this we choose the African Continent where generally speaking the smallest and weakest economies reside. They not only have the smallest and weakest economies, but as well large impoverished populations in relation to their economic wealth, and who as well suffer a lack of monetary reserves to bolster their currencies and foreign trade capacity. While many are incapable of generating meaningful wealth, due to drought, impoverished soil, a lack of a consistent water supply and/or other environmental shortfalls, some of these do have various deposits of “mineral wealth” that can or are exploited in order to export in exchange for what may be lacking within their domestic economies. An “ideal” example --- if one may use this word in a non derogatory manner in order to put forth a concept which may be a workable model for how international trade could work without endangering what already exists and what is needed to protect weaker economies. Because of a lack of foreign exchange, to a large extent the interchange of commodities, goods and services may have to be offset in some manner that it not require a physical transfer of currencies, or as little of this as possible, in order for “settlement” to be made. A type of “barter system” based on both the current World market value of minerals or produce, or an acceptable valuation of whatever it is that is imported or exported. Whether tariffs or duties or quotas exist between parties, is solely for them to exist or be established, and not imposed upon them by outside parties or trade institutions. This in all probability requires the establishment of marketing boards to control the production and foreign export sales of whatever it is that exported, and that the government control both the payment to --- and the receipt of foreign exchange that results from these transactions. Thus government arranges the payment of either currency and/or offset values between exports and imports between COUNTRIES ---and NOT BETWEEN INDIVIDUALS OR COMPANIES. We do not intend to “dot all the “i’s” and cross all the “t’s” to control all these actions, but merely to broadly state the concept. Where cash is required, respective governments reimburse exporters by paying the exporter in the local currency, and any foreign currency payments in like value is paid to the government concerned. Where continual trade exists between trading partners, a large volume of reciprocal trade can be offset by accumulating “book values” of this inter-trade at either world market prices, or prices agreed upon between trading partners. This obviates either of them to have to provide a foreign currency payment, or as little of it as it is possible to derive between them. Where government has no need to get in between exporter and importer, government-to-government quota arrangements can be imposed, agreeable to both parties. Sales outside the trading block can be conducted as it presently exists, at best it could possibly be conducted by as many bi-lateral trade agreements as is needed between two or more parties. Tariffs and duties could exist and/or quotas applied where this is desired between the parties concerned. They could differ between nation–to-nation and be of little concern to others. Where any two nations wish to promote trade between themselves, they may impose any or all of whatever means they think applicable to protect specific industries or occupations, or they may have none of these present between some trading partners, while having a few of these with others. One sees no necessity for international uniformity, as is expected of Globalization and Free Trade. The mere desire for “uniformity” ensures that the present concept of these two universal trade entities cannot work. Bi-lateral and multi-lateral specific trade agreements can and do work. A given quota arrangement between France and the United States would allow for the importation of “so many “tonnes” annually of American frozen chickens into France for a specific quota allowance of “so many” liters of French wines. No need for any animosity, threat or subterfuge. A quota for the import of sugar from Africa or South America, in exchange for a given quota of fruit, vegetables or agricultural product, coffee or specific manufactured goods or a particular mineral. That can and does work without the need for tariffs and duties at times. Quotas between nations are fairer in trade, than the use of subsidies. One could even go a stage further and use the words “more desirable if making a choice between the two methods presently adopted in foreign trade relations. Subsidies are unfair. They not only create animosity, but as a practice it skews the price and values of the domestic price to that of export price or that of a competing import. If protection is needed then tariff or quota is a preferable alternative, because a reciprocal arrangement would balance these differentials. This is even a more effective, honest and reasonable an arrangement when all other countries are competing for the export/import of the same or similar product. One cannot see a “brain drain” of any consequence between strong and weak economies. They do take place between two similar economies for monetary or life-style purposes. However there is presently unfolding a fairly large “job drain” relating to production moving off-shore from high wage cost countries to low wage cost countries. The ultimate effect of this is a lowering of the economic potential of those strong economies by diminishing the domestic purchase of domestically produced goods and services. While it may enhance the trade potential of those low cost economies, the lowering of the potential of the strongest economies, lessens their capability to absorb imports from economies that exist in between these two extremes. How then can one find a balance between the two? The primary shift is not at the behest or the instigation of government. It certainly is NOT FOR THE COMMON GOOD. It is undeniably done for the enhancement of individual or company wealth, with little thought given to the consequences. Apart from enacting laws to control or penalize this phenomenon, what can government do to either diminish or stop this potential job loss? The only thing that comes to mind is incentives; and the only incentive that comes to mind is profit and taxes. Our mind dwells on these possible alternatives. The lower the taxation on companies, the greater should be their profits. The greater the job creation, the lower that taxes should be for those companies, big and small who create and sustain those jobs. In other words, reward the people who employ people domestically. Quite possibly, alternatively or additionally tax or tariff that offshore produced goods and services that emanate from domestically owned companies that are re-introduced directly or through subsidiaries into the domestic market! If you go offshore, then sell those products offshore! Export those goods to other countries, or into that domestic market into which your offshore facilities were placed. Domestically one should strengthen the domestic consumer market. Sales taxes should either not exist or be minimal. To an extent this could be balanced by greater “sin” taxes or “luxury” taxes on specific high cost non-essential goods. Wealth taxes such as Capital Gains taxes should gradually be abolished, for it is that wealth that in the end creates jobs and a strong economy. There should be little need to diminish income tax, especially if it be equitable and reasonable, for in the end individual taxation within an expanding economy will replace all those sales and wealth taxes that have been done away with. Other avenues could or should be explored, such as diminishing dividend taxation, and specific investments that are declared to be “tax free investments.” In other words, steering investment into specific channels that could be “job creating.” All of these are surely far more preferable to lowering income taxes dramatically; lowering interest rates in order to create “cheap money” and additional debt. For in the end that increasing debt load will either slow any economic growth eventually, or even devastate it by it spiraling back into recession or from recession into stagflation. A final point has to be made, and it is a repeat of the words used on the Home Page of this website. It is these --- “No country can today live or should we say exist in isolation.” It is meant to be read, as no economy can exist in isolation. On a global scale, whatever is done within any one economy, or happens to any economy, will eventually impact on all others, to either a minor or major extent. This article is being concluded within the first week of October 2003. It will be the last, as the author of these has the feeling that in many cases it is starting to be “repetitive.” There is a limit to what can be said about “Finance and Economics” other than starting to write about “ how economics affects Doctors, School teachers, the Environment, Agriculture or rats, mice and whatever else comes to mind.” The subject matter is too broad to be demeaned by trying to be too specific. Yet with it all, every article is a part of “a whole” as each is a part of what constitutes, or is consistent to all economies in some way or another. Perhaps that is why one has the feeling of repetition at times. Yet, having said that, while the same subject matter may have been mentioned many times, the specifics of these have been expressed within a different perspective. The Home Page distinctly stated that these articles were not to be regarded as a treatise on Finance and Economics. We repeat those words as well. “None of these articles are meant to be treatises or a lesson in economics.” The intention was not to “teach,” but to look for a different perspective to what may be propounded by others. To see thing in another way, or in another dimension. One hopes that at it’s least, some of these comments become “food for thought.” That final analysis is left to those readers who from time-to-time come upon this website.
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This
article is a “philosophical thought” about what constitutes an economy.
Ruminating about the make-up of a diverse economy. Why it exists, how it exists,
or even if it does or should or will continue to exist. How diverse it should be
and how it should be protected; or even protected at all. Casting as wide a net
as possible of the “thought process” to study the basic structures of
an economy. It’s strengths and weaknesses and all else that may come to mind
as we range over the spectrum of what we would term any country’s domestic
economy.