Reaganomics, Supply-Side, Free-Market, Monetarist, Neo-Liberal, Washington Consensus – All Gone with the Wind!

1 10 2008

In the space of one week (in October, 2008), the supply-side, free-market dogmatists went from “Government is the problem,” to “Government is the solution.”  They went from “There is No Alternative” – Margaret Thatcher’s remark that global markets rule – to ‘hurry up and let’s find some alternatives.’

What happened?

What happened was that an imaginative, but thoroughly ungrounded ideology ran into hard reality. Reality won.

The ideology is that ‘government’ is not necessary. The reality is that humans are social beings, and that we are all on this earth together. And, until we go elsewhere, we inhabit this earth as a group, not as a bunch of warring individuals.

Whenever two or more people live in proximity, people need to explicitly or implicitly make agreement about how they will live with each other. Even if the agreement is not written down, as in the case of tribal peoples, this is a form of ‘government.’

The challenge is not whether government is a valid concept or not, the challenge is whether government will be democratic or authoritarian.

We’ve gotten ourselves into an upside-down world because, for a long time now (30 years at least), the people who openly held government in contempt, were the very same people who held government power. We had government leaders who claimed they didn’t believe in government leaders. Not surprisingly, it has led to silly, cavalier and reckless behavior. Indeed, the ‘government-is-the-problem’ proponents represent an emotionally immature person, and at the level of an insolent teenager who bristles at any kind of restriction of his or her behavior. When this kind of person has the upper hand in setting the ground rules for how we are to live with one another, you can expect all hell to break loose.

Now, hell has broken loose.

Timothy McVeigh was angry that he had to drive according to a speed limit. He didn’t recognize all the other people who contributed to his power to drive a vehicle. The engineers who created the car, the roads built at taxpayer expense, the other people on the road who also had a need to use auto transportation infrastructure. For a slight bit of curtailment of his freedom (i.e. not drive at 100 mph, but keep it to 65), the social group who empowered him in the first place all could have gotten along using a commonly shared physical environment. But he didn’t see it that way.

Ronald Reagan, Timothy McVeigh, George Bush – these rugged individualist, anti-government proponents don’t want to recognize the community in which they live. The closest they get to recognizing a social dimension in their lives is when using such financial terms as “counter-party” or “greater fool.”

The real challenge that we face today is in creating genuine democratic government. There is too much centralized power, political and economic. Global corporations and authoritarian national governments have too much say over day-to-day living arrangements in communities, cities and regions.

There exists a solution and it is to decentralize power – political and economic – and cultivate strong, vibrant regional economies.

At the heart of this vision is local ownership of local enterprise. The Washington Consensus – the myth that is disintegrating before our very eyes – held that jobs were all that mattered for economic growth. A large retailer, manufacturer or a large World Bank project could be inserted into a local area, and the job creation from this would lead to economic growth and prosperity.

But now, with 30 years of hindsight on this idea, we know that this doesn’t work.

Strong, resilient economies depend on more than jobs. In addition to jobs, they depend on enterprises buying inputs from other local enterprises, and they depend on profits of enterprises being remitted to local owners as well. Then, as these three distinct flows of funds (wages, cost-of-goods expenditures, and profits) are channeled – as much as possible – to other local enterprises and households, the region’s aggregate income and wealth rises.

These three flows of funds, compounded through multiple cycles of transaction, also lead to solid capital formation in the region. Capital formation is necessary because it provides the capacity for seed investment into new enterprises in the region.

On the contrary, when only one of the three ingredients is present – job creation – and profits and cost-of-goods expenditures go outside of a region, that region’s ability to grow is severely limited. Over time, a highly concentrated, extractive global economy emerges. Ultimately, it collapses. Witness the collapse occurring around you.

Strong, interdependent local economies, based on local ownership of enterprises, are the way out of our current crisis.

This simple framework has been lost in the mad rush to globalization and privatization of the past 30 years. Yet, this framework has proven itself throughout the modern era. Look at “regional economies” such as Singapore, Taiwan, and Hong Kong and specialized regions such as Silicon Valley, Hollywood and the Emilia-Romagna of Northern Italy. Economist Jane Jacobs, as far back as 1984 put together the massive empirical evidence of this vision (in her book, Cities and the Wealth of Nations).

Multiple, strong regional economies, engaged in trade with one another, are resistant to global collapse due to overconcentration of power.

What we want to create going forward is a world economy that is metaphorically similar to the Internet. The Internet is a very strong, resilient device because it is highly decentralized. If any one server, patch of servers or subnetworks fail, the global system keeps on ticking. Network traffic is simply re-routed around the problem spots.

We want to have a world economy based on similar principles of decentralization.

The strategy of strong regional economies is pro-trade, by the way. The key distinction is to have the exporting enterprises be owned by locals, not by invisible offshore entities. Local ownership is key because it provides the greatest capacity for self determination and sovereign power to locals. Local people are the best stewards of the environment, and the best arbiters of social issues pertaining to the community. Giving sovereignty to the peoples of a given place insures the greatest balance in the economic system, both at local and global scales.

This simple framework is also the basis for good government. Government in this framework is where local citizens truly have power to establish their livelihoods, to manage public resources, and to make agreements about how they want to live together.

Ownership of the enterprises that generate and govern the deployment of capital (human, financial, natural) must be re-localized, re-regionalized and decentralized from today’s status quo. Today’s status quo is extremely vulnerable to collapse and it is non Democratic. It makes an increasingly smaller group of families very rich, while impoverishing the mass of humans and depleting the environment.

The Washington consensus that there is no alternative but to have all powerful global corporations running the world is an ideology whose time has come and gone.

A new day is dawning. It is in strong regional economies that retain individual personality, that give the greatest governance to the citizens of the region, and that creates the greatest well being for all.

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