Wednesday, May 23, 2012

Global trends in an era of diminishing returns

In 1996, Lester Thurow's book entitled 'The Future of Capitalism' was published.  I found his book a very interesting read in the context of the global financial crisis which is continuing to unfold since 2007.  On pages 8-10 Thurow describes, what he terms as, 'five economic tectonic plates' crashing together and providing an ominous trend that helps to foretell capitalism's crisis.  They are:

  1. The end of Communism (leading to an increase of one third of humanity operating under capitalism's umbrella, "with a very different set of criteria for success and failure..."
  2. Technological shift to an era dominated by manmade brainpower industries which "don't have natural predetermined homes.  They are geographically free - capable of being located anywhere on the face of the earth..."
  3. A demography never before seen.  "Population is booming in the poorest countries [leading to] "the pull of higher standards of living abroad" where "unskilled labour is not needed". Thurow also mentions the development of "a new 'class' of human beings - a very large group of elderly, relatively affluent people, most of whom do not work, and who are dependent upon government social welfare payments for much of their income."
  4. A global economy.  "Shifts in technology, transportation and communications are creating a world where anything can be made anywhere on the face of the earth.....Thurow notes that this creates a 'disconnect' between "global business firms with a worldview" and national governments.
  5. An era where there is no dominant economic, political or military power.  How (Thurow asks) is the economic world to be designed or organised in a multipolar world?
By looking at the trends outlined above one is able to predict a few other things occuring simultaneously in the global economy.  With the very large increase in the world's workforce it is probable that the global unemployment would rise significantly, and wages would decline.  The deepening of globalisation would, in turn, lead to difficulties for national governments to secure a big enough tax (revenue) base from the incomes of dominant corporations (who can flit money across national boundaries at the tap of the keyboard.) I would also expect financial regulation to become almost impossible under the laissez-faire mentality created by the emergence of powerful global (self-interested) corporate giants.

Indeed, on page one of Thurow's book he writes: "In all of Western Europe not one net new job was created from 1973 to 1994."  And the International Labor Organisation reported a few years back that in Europe between 1970 and 2005 the financial sectors share of corporate profits climbed from 21% to 42% [1].

But why are the trends that Thurow outlines above happening in the first instance? Have we entered an historical era of 'diminishing returns'?

It looks quite possible that, for decades now, global economic growth has actually coexisted with a steadily declining general standard of living. 

Brenda J Rosser, 23rd May 2012.

[1]  World of Work 2009.  Snapshot of the European Union


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