How Can We Build a Better Economy?

How can we build a better Economy?

by Linus Ziltener

Introduction

We are living in a very dynamic economic situation. Change is everywhere and not reversible. The recent developments are a consequence of a decrease of national powers and constantly growing global interconnections which led us to an extended free trade, liberalisation of the financial markets, more competition on commodity markets, introduction of new technologies. Because of all this the way we live and work has alterated a lot, at least for people living in western countries for whom I like to speak. On the one hand we are living in a much exciting and challenging world of globalisation, on the other hand we are endangered by numerous risks which frighten people and are about to destabilise our societies. Already today a lot of problems are perceptible and should alert us.

Problems

A lot of people were excited about the upcoming globalisation because they thought this development could be beneficial for every one. But now there are winners and losers. Our economic system has switched more than ever to a survival-of-the-fittest capitalism, governed by the ideas of big company boards. On the one hand there are huge globally orientated companies having unbelievable profits, on the other hand there is a large workforce which has been deprived to own a stake in all this. The managers of those multinationals blame this situation on emphasising too much on the so called shareholder value, but in fact there is a big lack of common sense and social responsibility in numerous executive boards. If the only goal is considered to be cutting down expenditures to achieve profit maximisation it is obvious that some other aspects which are related to the function of a company within a society are neglected. Companies are embedded in the society and are badly advised if they reduce their care to the shareholders only. Having the aim to downsize, they easily lay-off people and delegate the costs for them to the governments. In addition, they pay taxes in the country where it is the cheapest what puts the governments under pressure because of lacking tax revenues. Thus, we are in the middle of a vicious circle. It seems to me that we are living in a very decadent society who has forgotten where our welfare is coming from. In the Eighties and at the beginning of the Nineties governments in the western world increased expenditures excessively and spent more money than they earned by taxes. The budget deficits rose and rose. Nobody cared about this dangerous development because everybody believed the economic boom would further go on and refinance the debts. Now, at the end of the Nineties, we are still about to solve the sins of the Eighties. E.g. by cutting down the budget turn-over. Governments who are forced to do so don‘t put the right emphasis in cutting expenditures. Having those high social security cost because of unemployment, more ill or handicapped people and above all retired people, they forget to think about investing in education, health care of young people and infrastructure. Most people including the governmental technocrats forget that these are the basic needs of society and economy . The current youth- disadvantaging attitude is a consequence of the fact that elderly voters are (or soon will be) in majority for the first time in history of humanity. They are unwilling to improve a system which is beneficial for themselves.

Consequences

For those reasons, the interest of the youth in politics is very weak. They are very conscious that after all their politic activity can not lead to any change. They are outnumbered by the older generations voters. This short-sighted attitude will lead us to lose our competitive advantages in business areas which are crucial for the growth of our economies. The result is a stagnant economy and a hard struggle to catch up again with countries who better dealt with those problems or actually don‘t have them because of another demographic background. In some countries this downturn which will hit poorer people very hard, will initiate major upheavals which will cause a climate of political instability. This won‘t become crucial tomorrow, but some when in the next 50 years.

Conclusions/Solutions

How can we leave this vicious circle? Even if the mentioned problems seem to be quite complex and difficult to solve, we can not postpone a new orientation of governmental policies any longer. Governments will have to fight on several battlefields. Firstly, they are forced to harmonise and to improve tax legislation, controlling and monitoring. Like this they can better estimate tax revenues. Secondly, they should rethink their expenditures policy and their role as an economic player. Instead of subsidies they could think of long-term investment programs everywhere projects can not be financed privately. E.g. to sustain entrepreneurs who already today invest in a technology which will be important in ten or twenty years time. In addition there are some industries which are constantly laying off people and still get subsidies. Governments should sustain prosper sunrise-industries and let die more quickly old-fashioned sunset-industries. What we furthermore need is commitment to our society to foster new visions and goals for our society. In my opinion the current laissez-faire policy is by its nature not the ideal device. Governmental leadership has to be reshaped and rethought. There is no place for communist or socialist egalitarian policies, but a government which is able to set the pace and give direction to the society among other players in a non- dominant way. However, it remains a matter of interpreting and balancing it the right way.