Higher Minimum Wages in the Developing World

Higher Minimum Wages in the developing world will increase prosperity everywhere.

G20 & WTO should lead

The G20 and the WTO have dropped the ball on trade. They should be taking the lead in “forcing” downtrodden nations go for higher minimum wages. But they don’t – the G20 and WTO just hand all such matters over to the leaders of global industries, aka “the market.”

While increased trade has resulted in some improvement in living standards in some developing nations, in general the gap between the developing world and the rest has not narrowed very much, especially if you leave China, Taiwan and South Korea out of the picture. The difference in those places is that the leaders of these nations didn’t believe the more trade would be enough: they also decided to control the situation more tightly.

These two “organizations” congratulate themselves on having done a good job in increasing the standard of living in the developing world.

They congratulate themselves too much. China has been the biggest beneficiary from free trade with the West. They have done this by keeping much of their own protective regime in place, and closely managing their own economy vis-à-vis the rest of the world. They call this “communism with Chinese characteristics.” There is no way that the Chinese will put themselves in the hands of global capital, but this exactly what the G20 and the WTO are advocating. At the same time they take much of the credit for the improvement in China’s economic situation. Well, good for them! I hope it keep them happy at night, as their own constituents lose their own standard of living at the same time.

Mexico needs a higher Minimum Wages

Take Mexico as an example. Many commentators believe that Mexico has benefited from NAFTA. Certainly the Mexican government believes this to be the case. However, Mexican workers receive $15 day, whereas their wage competitors in the USA receive $15 hour. This is not because Mexican workers are only one eighth as productive as US domiciled workers, as someone has ridiculously suggested.

Don’t expect global corporations to encourage developing nations to introduce higher minimum wages. They love low wages. They won’t fix them, and indeed, they can’t. To pay more for labor than the market requires would be a breach of their governance standards.

WTO could support Higher Minimum Wages

A real fix would be for the G20 and the WTO to introduce a rule that says something like this: “Country based tariffs can be introduced where the effective minimum wage built into the goods being imported is less than half the effective minimum wage in the importing country.”

Taking Mexico as an example, if higher minimum wages were introduced the Mexican government would be compelled to introduce a minimum wage that was equal to half the effective minimum wage in the USA. Such an action would see real benefits being achieved from that nation’s increased export activity.

Nevertheless, while the G20 will have to backtrack on its impotent rage against Trump’s trade rhetoric following his election, it will do nothing of any use in fixing the trade problems of the world. Apparently, the G20 leaders do not understand that crushing the wages of ordinary workers actually reduces national wealth. They do not understand how global corporations work, and that they are not a force for improving the wages of ordinary workers. Perhaps they should read George Cooper’s Money, Blood & Revolution.

Fake News – What is happening?

In his recent Press Conference, Donald Trump implied that mainstream Media were continuously pumping out “Fake News.” Was this a fair assessment or not?

There is an general assumption that mainstream Media have a code of conduct that results in news being presented in an objective manner. That is what media outlets operating in this space think that they are doing. Therefore they are gob-smacked that the President would say that they are pumping out “Fake News.” Their surprise is understandable, given the assumptions they are making about their own behavior.

Defining “Fake News”

Among an audience of journalists, “Fake News” would imply that a story is fabricated. On this standard, it is unlikely that mainstream media is pumping out “Fake News.”

Despite this, a large part of the wider audience can see that the presentation of news about Donald Trump is biased against him, even if the media are too blind to see it. In fact, this is not a matter of “Fake News” per se, but rather a matter of selection of the material, and the way questions are framed.

We are all aware of “Fake News” element of a question like, “When will you stop beating your wife,” implying that the person asked is actually beating his wife, even if it has not yet been established as a fact. While mainstream media are probably not asking questions as blatant as that, there is an ever-present danger, with a hostile media, that questions are designed to demonstrate that the person asked has committed some offense, yet without giving the interviewee a chance to address the implied substance of the question. If that were done, it certainly could be classified as “Fake News.”

Fake Reporting

It is more likely that Donald Trump is facing a different phenomenon, namely “Fake Reporting.”

“Fake Reporting” can be defined as reporting that purports to be objective, but is not. It is when reporters become partisan players, and not objective observers.

While many in the media think, “Surely everyone knows that the media play a vital role in the running of a democracy.”

If mainstream media want to be considered to play “a vital role in the running of a democracy,” they have to be more than partisan players: they have to be objective. Also, if they are really going to be constructive players they should give some thought to the end result of their forays into political agitation. It is expected that politicians will think about the long-term consequences of what they say – that is why some of Donald Trump’s pronouncements provoked such a reaction: he didn’t do this as he was expected to do. Yet now the media’s reckless behavior is considered to be normal and doesn’t provoke any self-examination at all.

An objective media is not supposed to act as a second opposition party, running a defacto counter-government line on every question. What is needed is balanced consideration of both sides of every question. Instead, what is delivered is something that can be described as “Fake Reporting.”

Every media outlet is entitled to deliver news in whatever way they consider serves their own objectives. This has always been the case, with papers that have served a Communist ideology on the one hand, and magazines that have particularly served a Capitalist ideology of the other hand. Also other papers have done well by publishing material that have served the reading needs of less educated readers. All that is OK, with no reason for this situation to be changed. However, most educated readers will turn to the mainstream media to get their news, and they trust that it will be objective.

So it is particularly offensive for media outlets that think that they are being objective to have departed so far from their own charter, yet keep up the charade that they have not changed. Elsewhere I have listed one fairly mild example of such behavior: I am sure that there are many worse cases. We even have been able to observe an invited journalist shouting out in a partisan way as the President was leaving his press conference.

I know for a fact that there is a continual stream of non-objective commentary on the Australian government funded “our ABC” on Donald Trump, which I find particularly offensive. (Make me a king for a day and I would cut their funding, immediately.) If reporters want to be partisan, let them at least not be government funded, and certainly do not claim to be objective.

Selection of Material

The brouhaha over the Russian scandal is a case of “Fake Reporting” partly due to the selection of material, and partly due to the way the material is handled.

Here is a summary of the situation as I see it from Australia:

  • John Podesta, the chairman of Hillary Clinton’s campaign, revealed his email password to a Russian hacker, either through his negligence or through incompetence in the DNC administration (if they failed to detect a phishing email – not hard to detect).
  • The Russians, who could see no hope for an improved relationship with USA via Hillary Clinton, released the content of the emails to the press, which the press duly reported, thus damaging Clinton’s prospects, as Russia hoped.
  •  John Podesta’s emails were interpreted to show that Hillary Clinton belonged to liberal elite, and did not have great concern for her nominal base, the working men and women of the USA. This turned voters against her.
  • Donald Trump was very pleased to have this negative information about Hillary Clinton circulating and, at a rally, encouraged the Russians to keep doing it. This was one of many cases of Donald Trump’s stepping outside of the established norms of public behavior. Even though voters recognized that this was not a normal response (and many didn’t like it), they voted for him anyway, and he won the electoral college.
  • Then, in this interregnum before inauguration, Trump’s National Security Adviser designate talked to the Russian ambassador about future relationships with the Trump administration. Some claim that this is not permitted under the US constitution, even though this interpretation would be particularly unworkable. It also is based upon a clause in the constitution that has never been prosecuted and therefore has never been subjected to judicial review. (In addition, taken to this extreme, an incoming President would be particularly hamstrung.)

What is achieved by pursuing this matter endlessly? Hillary Clinton lost because she failed to convince sufficient voters in sufficient states that she should be elected president.

Unless I have missed something, the whole “Russian thing” is a storm in a teacup. It is case of “Fake Reporting;” partisan reporting pretending to be objective.

Fake News or Fake Reporting – who cares?

The “positive” outcome that the mainstream media seem to want is the impeachment of Donald Trump, and the consequential restoration of the former ascendancy of the liberal elite. The latter will not happen: it has had its day. If the former does happen, heaven help the USA. Surely a democratically elected president should not be impeached because he offends the liberal elite. Does anyone really think that such action will heal the divisions in the USA? Rather, the divisions in the USA will be healed by restoring the jobs and wages of ordinary workers, which is Donald Trump’s agenda.

Liberal Elite – A Song of Despair

The liberal elite were happy in their little worlds, the London metropolitan crowd and the Washington Beltway crowd.

They peered out of their ivory tower from time to time and monitored the headline statistics, everything was fine.

The liberal elite were unaware of the working poor. The Washington Ivy League graduates and the London privately educated just don’t mix with these sort of people.

They want an inclusive society, but don’t really want to include themselves in it, they are the liberal elite; sure of their values and relevance; dismissive of those without their degrees and high-flying jobs.

The working poor don’t even show up in the unemployment statistics. The other statistics show all the rewards going to the 1%, and rising exponentially within the 1%.

Suddenly they ask, “BrExit and Trump, how did that happen?” It was out of the blue.

The liberal elite were unaware of the problems that were developing outside their ivory towers.

While the working poor don’t show up in the statistics, but, surprise, surprise, they do vote.

The Conservatives found the working poor after BrExit, together with a new truly conservative leader, who wants the country to work for everyone.

Trump has appealed to those abandoned by the liberal elite. Surprise, surprise, he now runs the country.

He even fights back against selective reporting in the press that is designed to bring him down. The press say, “Surely he can’t now be punching back – it’s our place to punch him. The rules say that he should only defend himself from our blows!”

The liberal elite now peer out of their ivory tower, and feel the pain of their new irrelevance.

Still unaware of the working poor, they say, “BrExit and Trump, how did that happen?”

The liberal elite are not happy in their little worlds, the London metropolitan crowd and the Washington Beltway crowd.

Adapted from Sound of Suburbs

Media Bias – The Challengers don’t like to be Challenged

Media bias reflects the fact that most of the major media organizations have their own agenda. It starts with unrestrained free trade and ends in the hope that everyone will benefit. Donald Trump has pricked their balloon, and they don’t like it. In fact, they are highly embarrassed that their complicity in the current economic malaise is being exposed by an “outsider.”

Media Bias – A Western Pattern

I listen to PBS, France24 & the Australian ABC. Also I read the (UK) Financial Times, the Australian Fairfax press and the Australian. All except for the later, which has a reasonably 2-sided presentation, treat Donald Trump as a punching bag (especially the government funded national broadcaster, “our ABC”). None of them like it when Donald Trump punches back. I say, it is about time that the media is held accountable for their biased reporting.

Media bias is obvious to any objective observer. As an historian, I know that history is a matter of selection – what will be included – what will be excluded. We know what the media are including. Today I listened to the NewsHour “debate” between Mark Shields and David Brooks. As today’s show demonstrates, the two contributors and the host were keen to highlight anything that puts Donald Trump in a bad light. Here are just a few examples:

  • “Not enough positions with confirmable candidates have been confirmed.” That is not Donald Trump’s fault. It reflects more directly on the action of Democratic Senators, not a failure on Donald Trump’s part. If the Democrats are holding up appointments (for good or spurious reasons), the delay cannot be put solely at Donald Trump’s feet, but that is what the 2 debaters and the host did today.
  • The disgraceful situation where leading figures in the intelligent community are openly passing on confidential information to press was not criticized once in this discussion. These leakers should be prosecuted as Obama tried to do with Snowden, and has done with Manning. Yet this was not mentioned as a caveat to the discussion on the “Russian situation.”
  • The implication that Trump is a boy in a man’s job, which came from Mark Shields, will be shown to be a nonsense. It is just out of the current Media Bias play-book. Rather than Donald Trump not being up to the job, he is willing to address the ridiculous situation when US workers on $7.50 and hour or more have to compete for their jobs with Mexican workers on $15 day, whereas neither the Democrats or the pre-Trump Republicans even thought this was an issue that could be addressed.
  • Trump was willing to bell the cat on the impossible situation in the West Bank, which cannot be solved via a 2-state solution (since that region has been permanently cantonized by settlements for over 20 years), despite official UN approval of this ridiculous approach. Diplomacy has failed the world here and also in Syria, with the attempt to replace a stable government with one that is likely to be led by Saudi-influenced Sunni radicals.

Where is the discussion of the breath of fresh air that Donald Trump has brought to such matters? Nowhere to be seen on PBS, France24, Aust ABC, Aust Fairfax or in the Financial Times. Apart from resistance to his necessary and economically compelling agenda, we just have complaints about Donald Trump pushing back against a constant media onslaught. Certainly the media do not want anything like a level playing field and are not willing to even think about the possibility of Media Bias from their own organizations.

End Media Bias for your own good

My advice to the so-called Main Stream Media, is “Grow up.” Learn from the election result. Donald Trump won the electoral college by a thumping majority. Surprise, surprise: the liberal elites lost the election. Their mutual love-in, led by Barack Obama and for which Hillary Clinton was their default candidate, which has seen ordinary working people lose their jobs while others earn an extraordinary rate of pay, has been dispatched by democratic forces.

In addition, we can say that the expectation of Mark Shields that Trump will lose electoral support is a dream. The US economy has already turned the corner, and that has been just on the anticipation that Trump will put his plans into operation. Just be aware that when the numbers on the economy come in at the end of this year, the media will change their clothes, because if they do not, they will be all out of job and new media will take the place of the current media.

Prosperity, Insecurity and Poverty

We live in a time of great prosperity, unparalleled plenty, variety, health and peace. We also live in a period of intense and global competition, where not one job has even a scrap of the security that a job might have had 50 years ago.

Unparalleled Prosperity, with increased Insecurity

We are more prosperous than ever before, but would any ordinary working person willingly accept that getting everything 20% cheaper is really worth the employment insecurity that the current free trade arrangements are causing? I doubt it.

Automation is NOT the problem

For those who argue that it is automation, not unrestrained free trade, that is causing increased employment insecurity, I say, “Balony!” I spent a large amount of my working life implementing automation, and it didn’t lead to widespread unemployment. That is because the governments of the world hadn’t yet handed over power to global corporations, via unrestrained free trade.

Prosperity provides an opportunity to fix poverty

We can use the world’s prosperity to lift nations out of poverty, via trade, but we have to do it differently. It is no good just using our prosperity to lift the incomes of the top 20%.

We have given up the opportunity that prosperity has provided, since the great democracies of the world have surrendered their authority and power to global corporations. Shame, shame and more shame upon them all.

How to fix

There is a fix. It is in the hands of voters. It is also in the hands of the world leaders, via the WTO. It is Donald Trump who has provided the catalyst. Those who condemn him are among the worst offenders in regard to causing the current malaise. So I support Trump’s abrupt and counter-cultural rhetoric! Shock, horror!

We will be the poorer if we don’t pick up the baton that he has placed in the next runner’s hand.

Lower Company Tax Rates will NOT fix Economic Malaise

Company Tax Rates are not the reason that economic growth is sluggish in the current global economy. Lowering Company Tax is not a priority

While cutting company tax rates to attract and keep businesses in the country is currently an attractive idea, it is without proper theoretical justification.

Company tax on Domestic Earnings

If I can earn 2% profit on domestic sales of $1b = $20m, and pay 10% tax, then the net income I can earn is $18m. However, if I can earn 5% profit on sales of $1b = $50m, and pay 25% tax, then the net income I can earn is $37.5m. I am much better off if I can increase my profit margin, rather than seeking lower company tax rates.

If imports are subjected to a 5% tariff, then this situation is more than possible.

Furthermore, if I need a 5% profit in order to profitably invest, then I won’t invest in a high-cost country. This is closer to the real situation in the world, where there is not a problem with corporate tax rates, but there is nothing in which to invest in the West. Competition from the East is driving away all investment opportunities, which is actually also hurting the East, since it markets are drying up.

The current situation is both appalling and lacking in a theoretical justification, despite the dominance of this ideology among the elites. If they don’t wake up, they will lose all influence in the West, as is beginning to happen in the USA, France, and even in Australia.

Global Trade Reform is required

As Donald Trump has demonstrated, the West’s voters are calling for a trade realignment. None of the main-stream parties are really on board (even the Republicans are running on Trump’s coat-tails and are not “true believers”). Indeed, President Trump has created a catalyst for global trade reform. The USA could use this opportunity to implement reform via WTO that will work for both developed and developing nations. Yet it remains to be seen whether Global Trade Reform will happen.

Company Tax on Export Earnings

In regard to exports, why would I set up in any high-cost country to export to the world? The reason must be the quality of the staff that I could employ, and the higher export sales (or lower final costs) I can achieve. Let us follow that scenario.

If I can earn 2% profit on export sales of $1b = $20m, and pay 10% tax, my net income will be $18m. However, if I can earn 2% profit on export sales of $2b = $40m, and pay 25% tax, my income will be $30m. If this were the situation, my decision to move my business to a high-cost country would be entirely rational on the grounds of higher potential net profit after tax, even with a higher rate of tax.

Surely, few can dispute the significant advantages of more skilled staff. If anyone wishes to do so, please explain why tech companies are located in high wages, high taxes, California, rather than in Bangladesh, with low wages, and a tax holiday.

Domestic Demand drives most Business Income

Most businesses primarily service domestic demand. If that fact were given more attention, the current economic malaise would be fixed overnight.

Nevertheless, mainstream leaders like to mix with the (export) winners, not with domestic players. Their obsession with a particular economic ideology will see the world being changed, but not in the direction they are planning. Lowering company tax should NOT be a first priority.

Steven Keen on Democracy and Capitalism

The radical Australian economist, Steven Keen, has somewhat surprisingly “come out” as an opponent of Free Trade, at least as currently practiced.

In an breakthrough interview published in The Epoch Times, Steven Keen explains how Donald Trump could revive American manufacturing. This article is tellingly entitled, “Why Free Trade Doesn’t Work for the Workers.”

Steven Keen argues Ricardo’s (1820) theory is flawed

Keen pointed out that the argument by classical economist David Ricardo (1772–1823) about wine and clothes involved the workers in one industry losing their jobs. Ricardo assumed, as do modern neoclassical economists, that workers in the losing industry can get a job in the winning industry. So it’s assuming full employment, everybody who wants a job gets a job, which is not the real world. And they also assume you can move resources from one industry into another. Certainly, workers can be retrained. While it takes time, it can be done.

Drawing an example from China, Keen noted that China now produces more of everything, and that it is not possible is turning a weaving machine into a steel furnace. And that’s why you have the rust-belt. In the case of China and the United States, the steel plants in the United States won’t become weaving machines; they just turn into rust. So what you have is absolute destruction of physical resources in one country. Or they ship the capital to the place where the low wage workers are, like China or Mexico, and what you get is a class redistribution of income. The workers in the developed country lose, the capitalists in that country gain.

Steven Keen argues that Free Trade gives Capitalists a “Free Kick”

Keen observes that in this scenario, capitalists in the developed country still own the machinery and employ people but in a different country and at lower wages. Then they sell the products back into the American markets at the same prices but at lower costs. So they gain, and the working class has to finance their consumption with increased levels of debt because they don’t have the income anymore. The workers in the developing country also gain, so it’s also a wealth transfer from the developed to the developing country.

Why BrExit “won” & why Trump won

Steven Keen comments that in a democracy you get to the point where the workers have lost so much because of globalization, they get sick and tired of hearing the fairy tale that they won’t suffer and that it’s all for their own good. And they look at their decayed streets and factories and dismal jobs and lower share of income, and they say: “You know what, I’m going to vote against this.” And that’s what we are seeing globally now with Trump and Brexit, this revolt against globalization and financialization. The absolute losers of all of this are the working class of the first world. The winners are the multinational corporations.

Welfare vs Work

In an interesting and perceptive comment on human nature, Steven Keen says that humans get their sense of self-worth by contributing to a community. If you are human and you are being paid for staying alive, you are not particularly happy about it, your sense of self-worth is pretty low. But if you have a job and can contribute to a community, that’s where your sense of self-worth is going to come from. All this welfare is replacing work which is the case in the rust-belt areas makes people angry and resentful. Their self-worth is challenged and they are not going to be happy with the establishment.

He believes that is why Trump has such an appeal, and they don’t care about him being politically incorrect. They like the fact he is like a human hand grenade. They threw the human hand grenade into Washington.

Automation

Getting closer to a nuanced view on automation than most commentators, Steven Keen begins by arguing that part of the motivation for American businesses to move production offshore was cheap labor. But with better and better robots, you can have machines you can retrain for different assembly processes. And you have 3-D printing turning up, which has become mainstream. So it means you can produce onshore without cheap labor. But it also means you can produce without labor at all.

Although he does not define what “a well-functioning human society” would look like, he thinks that in such a society producing without any labor at all would not be a problem. He believes that the problem in a neoclassical capitalist system is that the workers lose out because their only source of income is wages. If there is no need for wages anymore, you don’t have an income anymore.

My Response

Steven Keen’s analysis of the modern economic dilemma is first class, however he does not offer anything substantive in the way of a solution.

A declared opponent of “neoclassical economics,” Steven Keen is quite happy to make comments like, “In a neoclassical capitalist system [in this scenario] the workers lose out because their only source of income is wages.” However, when he goes on to say, “If there is no need for wages anymore, you don’t have an income anymore,” but “in a well-functioning human society, that wouldn’t be a problem.” In this he is contracting his own point that welfare-dependency is a self-defeating solution to current economic problems.

From the full text of this interview, we know that he is still an opponent of tariffs as a way of achieving balance within an economy, and still hankers after the socialist ideal of a world without artificial borders.

In this area, this site is closer to Donald Trump on the need for tariffs supporting national objectives. Nationalism is deeply rooted in human psychology (beginning with a mother’s care for her child). This cannot be claimed for internationalist objectives of Ricardo’s Free Trade ideology or Marxist ideology. While Keen sees the future as being “post capitalist,” I see the future being in capitalism being brought (again) under the control of national parliamentary democracy, thus reflecting the needs and interests of the people.

I am confident that Steven Keen would agree with me in the proposition that an objective of the political system should be to deliver a result that is in the interests of ordinary people (the top 1%ers are quite able to look after themselves). I am not so sure he would agree with me in seeing a nationalist capitalist system as the basis of that model. Time will tell on that point.

I promote Democratic Capitalism because I believe it will serve the majority of people quite well. Indeed, the current trend is in support of the principles of Democratic Capitalism. As evidence for this, I can cite Theresa May in the UK (“Democracy that works for everyone”), and Donald Trump in the USA (“Make America great again”).

Global Trade Reform

President Trump has created a catalyst for global trade reform. The USA could use this opportunity to implement reform via WTO that will work for both developed and developing nations.

The Problem with Global Trade

Even though the push towards globalization has done much to reduce poverty in those nations able to exploit the changes for the benefits of their own citizens, it has presented three easily identifiable problems;

  1. Zero tariffs do absolutely nothing to remove the first-mover-advantage of Western nations. Without tariff protections, developing nations are severely limited in their ability to develop diverse economies. Each nation should seek a diversified economy, despite the benefits of specialization. Providing a diversified economy is the only way in which a nation can utilize all the skills of all their people.
  2. Western nations are unable to provide sufficient work for ordinary workers in the face of very low wages that are being offered in developing nations. A skilled worker in the USA on $15 an hour cannot compete with a skilled worker in Mexico on $15 a day. It will never work out well for the ordinary workers of the West, who actually represent the majority of voters. (Elites: watch out, your day of reckoning has come!)
  3. Globalization has failed to deliver the real equalization of incomes between developed and developing nations that has been promised by its advocates. The pressure to keep wages down in developing nations is maintained by global corporations. They are only too willing to move operations from one country to another in search of the lowest possible cost of labor. Of course, they are only operating in the way the situation requires. If it is to be changed, it will have to be changed by changing the situation, not by requiring corporations to act in ways that conflict with their own charters.

Implementing Global Trade Reform

Having defined the problem with global trade, reform of its operation becomes self evident. Here is a simple two-part fix, which Donald Trump could initiate and virtually force the whole world to adopt.

  1. The WTO rules to be changed so that any nation can introduce and maintain a high level of tariff in order to offset an identified first-mover-advantage. It is suggested that a tariff of 25% would be a good starting point for a discussion on this aspect.
  2. The WTO rules to be changed so that any nation can implement a country-by-country tariff on goods coming from another country, where the minimum wage (actual or official) is less than 50% of the minimum wage of the importing country.

Only item 2 of this program for global trade reform really applies to the USA, and pending a WTO agreement, Donald Trump could implement that aspect immediately.

In regard to NAFTA, Mexico could be encouraged to raise the minimum wage in all factories exporting to the USA to 50% of the USA minimum wage.

Under these arrangements for global trade reform, the pressure to move work from nation to nation in the search for the lowest possible wage levels would come to an end. It would also end the waste of national resources that comes from starting a factory in one country and moving it to another.

Global trade reform along these lines would see the incentive for nations (like Bangladesh) to be the work-house of the West coming to an end. Indeed, the wages of ordinary workers throughout the world would be increased.

Super-low prices will end

Yes, it is true that the prices of some very low-priced, but valuable goods, like clothing, would increase significantly over time. This would reflect the fact that the workers of the world were not continuing to be impoverished in order to meet the needs of the developed world.

For those who do not like that prospect. Suck it up! It is coming!

Open Markets – not Free Trade

Free Trade is supposed to enhance Open Markets, but the facts shows that Free Trade kills competition. It makes oligopolies and destroys truly open markets.

Open Markets require many players

It is axiomatic in economics that an open market requires many players, and that competition only works for maximum effect when there are open markets.

The experience of the last 30 years has shown a trend towards agglomeration, with smaller firms being swallowed up. This is done in an attempt to achieve a level of market power and cost efficiency resulting in a firm being of sufficient size that it can compete with all comers, and dominate a market.

If economists were not blinded by their own theories, they would realize that this trend is antithetical to their “ideal world” of perfect competition. Instead of combating this trend, they are prepared to explain it away as a limitation to their micro-economic theories.

Open Markets deliver mixed results

The effect of open markets is clearly seen in the agricultural sectors especially in subsistence economies. Here the farmers deliver their products to the market and receive whatever the customers will pay – they are entirely price-takers.

No-one wants to be a price-taker in an open market. We all want to be price-setters. In the agricultural sector this can only be achieved if the producers gather together in a collective, and only deliver to the market those goods that must be sold, because they will perish, or those goods that will receive the best price that the market is likely to pay (in the medium term).

The ideal situation is where the market sets the price, based on supply and demand, but where both buyers and sellers have equal power. Yet this never can be achieved under Free Trade. This is because the lowest-cost producer has virtual monopoly power.

The end result under Free Trade, is that open markets for many goods and services become a virtual fiction, with a few operators holding an unconscionable level of monopoly power, by virtue of operating in an oligolopolistic space.

Restoring Open Markets in the US via a Cash Destination Tax

The US Republican proposal for a Cash Destination Tax has the potential of restoring a more competitive market situation in the United States. This is because US producers will gain a slight advantage over those producing goods and services overseas. This will arise because only the costs incurred in the United States will be deducted from income when assessing income tax payable by corporations.

The slightly higher prices that United States firms will be able to charge for sales within the United States will encourage additional producers to enter the market. As well as improving the Open Market status of the US economy, wage rates for US workers will rise, bankruptcies will reduce, and the neglected cities of the US will revive again.

However, one aspect of the Republican proposal for a Cash Destination Tax is totally unacceptable. This is the proposal not to charge Income Tax on any revenue earned by exporting outside of the United States. Surely, the proponents of this aspect of the tax know that importing countries will be entitled to treat all US firms as if they were dumping their goods. One thing is for certain, the EU will impose countervailing dumping penalties on all imports from the US. It is also the way of such things, for dumping tariffs to include a penalty component.

If the Republicans insist on “no Income Tax on Export revenue”, we can look forward to a full-throated trade war. Good luck with that! It won’t end well.

Too much Competition is Too Much!

Who is too thick not to realize that getting imported goods at a price 20% cheaper is not worth the social dislocation that the current Free Trade ideology is creating?

Apparently, most of the people protesting against the Donald Trump agenda are as thick as bricks.

Yes, the Obama years saw the US economy recover, albeit ever-so-slowly, from the sub-prime induced difficulties. However, the EU and the Obama administration were too thick to realize that the Global Financial Crisis merely exposed the soft under-belly of the economies of the Western world. Radical changes are required to fix this situation, and the world can thank God that the US electoral college decided to elect the radical Donald Trump, rather than Hillary Clinton, who would have continued Obama’s failed policies.

There can be no investment where there is nothing in which to invest. For most industries, this is a problem caused by Free Trade. Who will invest in the developed world when  almost everything can be made more cheaply in Asia. Yet the irony is that these cheaper goods have to be exported back to the developed world, with the markets in the developed world drying up because the jobs supporting them have gone.

Undeveloped economies need trade reform

Undeveloped nations should give their utmost efforts to making the farmers more prosperous, with higher prices being achieved for their produce. This will require a modification of their own Open Market theories, such as discussed above, so that their markets work for the good of their own nations, not for the benefit of global capital.

Look after yourselves! Capitalists are required to look after their shareholders, not to look after the nations in which they operate. Oxfam may fulminate, but its pleas will achieve nothing if national governments do not look after their own people.

 

Elite Capitalism – It is NOT the Future

Elite Capitalism has been running the world’s governments for 30 years, but it has failed to deliver for ordinary voters.

Elite Capitalism and Free Trade

The ideology of Free Trade is built on the premise that each nation should concentrate of those things upon which it has comparative advantage. It is a static theory, which has not changed much in over 200 years. Nor have the advocates been willing to learn from the downsides of the theory that have been experienced over the last 200 years.

The ideology of Free Trade began with the theory that, in 1820 and forever afterwards, Portugal should continue to concentrate on wine, and the UK should continue to concentrate on textiles. It is theory that is based on a static world, and actually one in which entrenched poverty should be endured forevermore. And so it has happened.

Free Trade is also built on the premise that getting goods 20% cheaper is worth whatever disruption is caused by open trade borders, even to the extent that it can cause 10% more unemployment than before. Given the loss of social cohesion of such a policy, it should never have been accepted.

Even though it was not the intention of the original theorists, Free Trade has led to intolerable levels of inequality within nations, and between nations. This is because Free Trade puts too much power in the hands of global corporations, since they are able to move operations to the cheapest place in the world, and to wherever government regulations and taxation are the weakest.

Phony arguments of Elite Capitalism – Trade

In Australia, we have a government that was elected on a mix of the ideologies of Democratic Capitalism and Elite Capitalism. In simple terms, the Nationals support the principles of Democratic Capitalism (the economy must serve the interests of the voters), and the Liberal Prime Minister, Malcolm Turnbull believes the nation is best served by following a model of Elite Capitalism.

Turnbull approach has some appeal, since it can lead to a higher overall national GDP. Yet in defending his theory, it is appalling that he has decided to follow the UK example of “Project Fear” (in opposing BrExit). In the last Weekend Australian he made the claim that “Protectionism leads to Poverty.” This is an absurd claim that has no foundation in history or theory.

Of course, there are sufficient examples from history to show “Isolationism leads to Poverty!” If that were Turnbull’s position, there would be no problem in accepting it, but that was not what he claimed. Turnbull is ideologically committed to Free Trade. He proves to everyone that he does not have a rational argument in favour of unrestrained Free Trade, since he resorted to this pathetic argument in its favour. Don’t stand in the way of an ideologue when he (or she) is in full flight!

Rather than being hurt by protectionism, Australia’s egalitarian society was built on protectionism: it cannot be said that it led Australia into poverty. Australia had unemployment running at around 2%  until the Labor government, blinded by ideology, decided to revalue the currency upwards and reduce tariffs over-night. Since then, unemployment has reverted to world’s average of about 5%, and global capitalists have had a freer hand to control Australia’s economic life.

The world-ranking US economy was built on protectionism in the 19th century. If the Free Traders had won the argument in the middle of that century, the US would have remained an economic backwater, mostly growing cotton and other agricultural products, and the UK’s industrial base would have kept on growing and growing. Is that what Free Traders want for the developing nations of the world? Fortunately for China (and to a lesser extent India), it thumbs its noses at the Free Trade rhetoric of the West, while taking advantage of the ideological blindness of its trading partners.

Phony arguments of Elite Capitalism – TPP

The most objectionable part of the TPP is entrenching the power of global corporations via ISDS clauses. These clauses allow global corporations to sue national governments if those national governments pass laws to reduce their ability to make a profit (even at the expense of the interests of ordinary voters). These clauses are the greatest threat to national democracy in the modern world.

Even if the TPP becomes enforceable, it will be a Pyrrhic victory for Elite Capitalism. This attempt to use the rule of law to enhance the interests of corporations over voters will not be tolerated by ordinary voters. In Australia, the first sign of difficulties to come can be seen in the attempt of Philip Morris to use the ISDS clauses of a Free Trade agreement between Australia and Hong Kong to overthrow Australia’s plain-paper cigarette packaging legislation. It was the first sign of problems to come. Success would not have led to the abandonment of the rule of law in international trade, but it would have sown the seeds of that outcome.

TPP is designed to entrench the power of Elite Capitalism forever, putting ISDS clauses into law, so they cannot be overthrown by future governments. It is the enemy of Democratic Capitalism. If the current Australian government cannot see that, they are inviting other parties to take up the ground of democracy that they are abandoning. Already the Liberals are losing ground with the electorate, and it is only the complete unacceptability of the ALP opposition that is keeping the Liberals within reach of re-election to government.

Phony Arguments of Elite Capitalism – Angela Merkel

Angela Merkel has said the economic and political problems can best be solved via global solutions. She opposes Donald Trump’s proposition that nation states should solve their own problems. In this, Merkel is wrong: most problems are local, and are best solved with local solutions. Donald Trump is right.

20 years of the Euro has shown that, even in Europe, region-wide solutions don’t work. Portugal, Spain and Greece are still struggling, while Germany is going very well. It is not surprising that Donald Trump correctly says that the EU gives Germany hegemony (at least in economic matters). At least we can agree with Merkel’s response, namely that the EU can look after itself (implying that it doesn’t need Trump’s gratuitous advice). Exactly, the EU problems don’t need a global solution, they need a EU solution. It is a pity that Merkel won’t consider the obvious solution – abandoning the Euro.

Most developing nations have a dominant agricultural sector. One thing is certain from a study of economic history – global trade in agriculture has mostly led to impoverishment of the agricultural sectors of less developed nations. It has led to the over-development of single crop economies (the so-called banana republics, etc.), which has made those nations vulnerable to global price movements. Yet the agricultural sector is something that national governments could enhance, as has been done in Australia for about 100 years, starting with government funded and run storage and pricing schemes. Now, in Australia, these are often run by individual farmers, who store crops on their own farms. Such is the nature of dynamic local solutions, designed to solve local problems.

Elite Capitalism is the problem – not the solution

It is time we recognized that Elite Capitalism is the source of the world’s problem with increasing inequality. It is inevitable it will lose its hegemony. It is also ironic: Donald Trump is the only one willing to call out, “The Emperor has no clothes!”