On the Continued Economic Decline of the West

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Jon Moynihan, Executive Chairman of PA Consulting Group, made a presentation at the London School of Economics in July 2012 titled The Continued Economic Decline of the West. He dissects the problems we face, taking a deep dive into the stagnating Western world, and proffers some possible solutions.

It is worth noting that Moynihan comes to this from a non-Keynsian perspective. Indeed, I found his characterization of neo-Keynesians as the true inheritors of Fabian Socialism amusing. And he castigates the Western government’s general disregard for running surpluses and their affection for deficits.

This changing economic landscape that we in the West will inhabit must be contemplated by our leaders and citizens. It is sobering to consider the data that he presents.  Yet within the challenges there must be opportunities.

Moynihan outlines a sombre future. A future where young people cannot reasonably expect to get jobs or be well paid; one where xenophobia and discontent may well become the norm.

As Niall Ferguson has argued: “If the young knew what was good for them they’d join the Tea Party”. Thus we can expect to see shifts in political allegiances arising from the social disruptions we can expect from the economic disruption evolving in the West.

As Moynihan sees it some of the issues that loom large for Western nations include:

  • Inability of the West to protect existing IP due to counterfeiting or piracy by the Developing world
  • Inability of the West to innovate and create new IP on large scale due to inadequate capital available
  • China is rapidly increasing their number of patents registered – supported by their 10,000 science PhD graduates per annum
  • Number of adults in West who leave school unable to read – 1 in 5  Western school leavers are functionally illiterate
  • The West has a low propensity to invest new capital into new ventures and infrastructure
  • Western nations have a growing hostility towards high income earners and lack of encouragement for entrepreneurs and VCs
  • Western wages will fall – low paid workers to suffer most and this means that demand will decrease – it will lead to a global equalization of wages
  • Entitled groups – banks, CEOs, public sector, benefit claimants – mean that funds are not available for investment (NB: there is an interesting example of what happens when a government downsizes the public sector happening right now in Queensland)

What is to be done?

According to Moynihan the solution lies in what many would view as fairly radical steps:

  • Reorient government spending away from entitlements and towards new infrastructure (like an NBN)  and education
  • Reform the banks so that they do not make excess profits
  • Move taxation away  from corporate and personal income taxes and towards consumption and property taxes
  • Develop new technologies, support new forms of manufacturing, and support ecosystems that provide job multipliers – he cites the Rational Optimist for ideas
  • Accept immediate cuts in living standards by increasing retirement age and reducing entitlements

It’s worth taking the time to watch the entire presentation, even if you don’t agree with his ideas there are lots of interesting data.

If you don’t have time to watch the entire video then it’s worth viewing the slide deck from Moynihan’s talk on Business Insider. It is food for thought. I hope that our politicians are taking time to get their heads around these issues that we face.

However, I suspect that these issues that we face will not be addressed at a national, regional, or global level. The political cost of doing something will paralyze many governments from taking action until too late.

It is time to think about localized solutions and building resilient communities. It is time to reboot capitalism and find new and sustainable economic approaches.

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Robert Kiyosaki drops in to visit @ValerieKhoo & shares some insights

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It always delights me when friends get to meet interesting people. Thus I was pleased to see that Valerie Khoo, founder of the Sydney Writers’ Centre, recently had a visit from Robert Kiyosaki.

It is worth watching the entire video as Kiyosaki shares his thoughts on business, the economy, and some possible responses (and he does talk about his new book, Midas Touch: Why Some Entrepreneurs Get Rich – And Why Most Don’t).

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Labour, forced labour, and capital – is the ground shifting?

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Free people offering their labour in exchange for monetary reward has been fundamental concept for western society. Since the mid-nineteenth century we have not really used forced labour for production.  But two examples in recent times make me wonder if that assumption still holds true:

  1. Prisoners painted room for former UK Home Secretary, Jacqui Smith
  2. Wisconsin Union Workers Replaced With Prison Labor Under Scott Walker’s Collective Bargaining Law [HT: @umairh and @johnrobb for this link]

We’ve blithely assumed that we will always be able to sell our labour on the free market and that there will be some (more or less depending upon the economic situation) buyers of our labour – hence much xenophobia on the part of many.

We’ve also assumed that our only competitors for selling our labour on the free market are other free people – either native to our lands or foreigners.

Forced labour used to be an important component of the labour market in Australia, after all we were founded as a penal colony for the UK. However, for the most part, in the west we have not had indentured labour since the nineteenth century.

There also appears to be a growing idea that we should also apply ‘user pays’ principles to people who receive support from society. This means that there is a growing notion that prisoners (and the unemployed) owe society something in return for the support that they receive from society.

I wonder how long until western industry works out how they can use the nexus of this ‘user pays’ ideology, the the need to reduce costs, and the adoption of forced labour? It’s interesting to consider this idea given the continued drive to reduce costs and while the prison population is not in a good position to protest their treatment.

UPDATE: And now I see that the redoubtable Douglas Rushkoff is asking Are jobs obsolete? it seems that I’m not the only one with questions about the shifting relationship between labour and capital. Also it appears that in the US the Unemployed face tough competition: underemployed.

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What kind of zombies have we created?

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I was reading Bill Bonner’s recent post Zombies Born of Government Spending where he posits the notion of zombies in our economy. As Bill defines it:

“In economic terms, a zombie is a parasite. He contributes less to the economy than he takes from it. He lives at the expense of others.”

His argument is that social welfare programs as practised by most of the developed world only work during good times. As he argues:

“It’s relatively easy to turn people into zombies. And it’s fairly easy to support them when an economy is healthy and expanding. But when an economy goes into a contraction, you can no longer afford to give the zombies their meat. Then what?”

This is an interesting question. Western societies have created a group of people with few skills and no means by which they might generate value to exchange.  Nor do many in this group appear to have bonds to the society within which they exist and they exhibit few loyalties to ideas or ideals outside of mere existence and consumption.

But the real issue is how we create a new economy, one that is founded on creation of real value and its exchange, and not ephemeral things (like hybrid securities and CDOs). One that sustains and nurtures community rather than destroying it through extreme competition and crazy ideas like the priority of shareholder value above all other things.

This raises some important questions:

  • If the government can no longer sustain them (or us) then what happens?
  • How do we create ways of connecting people with skills to share with those who want to learn?
  • By what mechanism can we develop shared values that support the creation of valuable skills?
  • How do we create communities of people that choose to contribute and collaborate for the common good?

We don’t have to let what’s happening in other places happen here. We have the choice. We can create communities where real value is exchanged between real people. Not what passes for value in the some places – faux celebrity, immediate gratification, and continuous consumption – but sustainable and sustaining value.

There used to exist such things as commons in the past – commonly held land and other resources. But we have few of these remaining to us nowadays.  It might be times to create some new common resources to share in a fair and equitable manner?  We have already seen the rise of new forms of sharing and common ownership through Creative Commons on the internet. It makes me wonder what other things for which this approach will work. I suspect that Mark Pesce’s work on his Plexus innovation is a beginning in this quest.

It is worth considering how we can each begin to nurture collaborative behaviour and thinking in our local spheres to work against the zombie world view.

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How do we create and share value in a jobless economy?

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Jeff Jarvis sparked my thinking on this recently with his post on The Jobless Future. As Jeff so bluntly stated:

“We’re not going to have a jobless recovery. We’re going to have a jobless future.

Holding out blind hope for the magical appearance of new jobs and the reappearance of growth in the economy is a fool’s faith.”

If that is the case in the US, and we have riots on the streets in the UK, Spain, Greece, north Africa and the middle east, then things are not looking good in large portions of the world. There will likely be flow on economic and social effects around the world, especially since Richard Florida is pondering if riots could come to Canada too.

Nouriel Roubini may be right in his assertion that “Karl Marx had it right. At some point, Capitalism can destroy itself.”

The inherent instability of markets in the US and Europe mean that jobs are going to be harder to come by, especially for the less educated and the less skilled.

All of this got me thinking about what skills are really useful in this new world that is developing before our eyes? What kinds of businesses and communities will be more resilient in the face of changing economic verities? How do we need to recast our expectations and aspirations for this new world that is unfolding?

That kind of thinking led me over to John Robb’s blog and one of his recent posts, Entrepreneurs and Open Source Hardware. Perhaps we are all about to become open source entrepreneurs?

The kind of economic environment that is emerging is one where sustainable and ethical business models can come into their own. Not large scale, top-down, industrial operations. Rather there is an opportunity to develop peer-to-peer and networked organisations. Social innovation, social enterprise and ideas like collaborative consumption become significant, and a return to older ways of organising businesses – like co-operatives and mutual associations – become critical.

We also need to find ways to create and exchange value in an environment where traditional mechanisms might no longer be available to us. This means creation of new means of value exchange, or even new kinds of currencies. Reverting to gold is not really feasible, after all it’s rather heavy to tote around. Thus virtual currencies might even come to replace some of the existing ones

If you consider it unbelievable that major currencies can fail then it’s time to go read some history. Just to put it in perspective there’s a great visual post by Jeff Clark over at The Daily Reckoning that illustrates the risk rather neatly: A Thousand Pictures Is Worth One Word.

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