HISTORY’S LESSONS

One thing is clear in retrospect: governments under the influence of the powers of money were a huge mistake. In the early days of the United States of America, Jefferson fought for a republic of citizens, Hamilton, for a republic of merchants. Hamilton won, that much is known.

In the twentieth century, von Mises, von Hayek and their likes, drafted the charter of an irreversible takeover of nations by merchants, who would be the new aristocrats of a new feudal system. They did win, and then, the spirit of Hamilton invaded Europe. It would be cruel to recall the most conspicuous symbols of it in Great Britain, in France, and a few days ago only in Belgium.

The last stand of the citizens of Europe was the peoples’ refusal of the European Constitutional Treaty. By then, the takeover by money powers was already so advanced that the citizenry’s vote was simply ignored, to no immediate consequences.

The longer term consequences are being felt now: the euro zone is dying in an unending process with jolts and jerks, while her companion of misfortune, the United States of America, is in a fraudulent bankruptcy.

We need rebuilding nations of citizens; time has finally come to build a citizens’ Europe. We need to make sure that the merchants, who are given today the red carpet, no longer write the laws instead of legislators. Poll-tax based vote must go. In its advanced version, in the United States, a von Hayek-inspired Supreme Court decided that the vote of citizens would come after that of companies: “To each, according to one’s stash of money!”

Restoring republics of citizens, restoring a citizens’ Europe are uphill battles. But this republic of merchants is heading for ruin, this one thing is obvious. It is our main advantage.

11 thoughts on “HISTORY’S LESSONS

  1. Dear Mr. Jorion,

    As an International businessman, with abt. Half a century’s experience, …with social interest at heart….I am daily confronted with the consequences ofo globalization, and it.s social consequences, I think that a lot of the manufacturing formerly done in Southern Europe (Clothing, Shoes, furniture etc.) has now been exported to the far east and in the current circumstances it will in my opinion be impossible to regain that market for at least half a century (…Controlled inflation in China…also for the benefit of our multi nationals of course)

    In order to help solve our “capitalist” problems, the main problem, I find, the lack of –economically- paid employment in our countries, should be solved.

    Because of the differnces in cost level between rich and developing countries I favour – controlled- protection, on the basis of a yearly comparison of GDP, by means of the exchange rates of currencies….which was not accepted by the Americans in Bretton woods..because of their superior position as the leading industrial nation at the time.

    I have written things down as a comment on the daily news:

    ……..This means that because of “our aspiration to increase our prosperity and hence reduce cost” (The Dutch minister of social afaires Mr. De Geus in the Trouw newspaper September 2004) the financial economy is the engine behind social economical decline. Because:

    Which resulted in the following thesis:

    The system is, because of our aspiration to increase our prosperity and hence reduce cost” – the financial economy-, still consumer driven (user in respect of cost and investor with respect to returns) – the engine- Because of this it is eminent that employment in the manufacturing industry and, in particular as a result of the revolutionary developments since the mass implementation of the use of Internet, which in relevance can be compared to the invention of the wheel, also the industrialized, commercial- administrative service by the workings of the market (the absurd diffrences in similar work – the social economy- with the low cost countries, up to about 1000%, -the fuel-) cannot but leave the shores of our –so far- properly paid societies – the decline-

    So…..Marx’ game with the tampered dice is in full swing!

    1. The fact that some of the work that used to be done in our countries is now performed in other countries is highly visible. The truth however is that most of the work that is gone, is gone forever due to the extraordinary gains of productivity induced by information technology and robotization. Work has not gone to some other countries: it has essentially gone altogether.

  2. I wrote: ” – the financial economy-, still consumer driven (user in respect of cost and investor with respect to returns) –“

    An interesting contribution to this part of the equation is of course the fact that, under the reign of Thatcher and Reagan, supply side economics (Milton Friedman, in contradiction to the previously leading demand sides economics as propogated by Keynes) -i.e the ruling that only the best performer in the market should be allowed to win- became the trend.

    This, with the aid of a commercially more or less open China, the downfall of the other communist regimes in Europe (therefore a decline in power of the socialist movement as a whole, -socialist is often mixed -up with communist these days-) and the relaxation in regulation (anonimity of share holders for instance) on multiple financial and trade fronts this, in my opinion, got us where we are now.

    So (cost) prices for manufactured (and service) products will ultimately always be based on the performance of the cheapest producer….and of course goods we buy and which are produced there are made for and sold by our businesses..

  3. Dear Mr. Jorion,

    Thank you very much for your reaction on my postings.

    Of course (Industrial) automation is part of the “change” It has been and still is part of my daily life for a quarter of a century mow…..and I love it. (I find it technically very fascinating)

    However,

    Why is it that:

    -Production lines in Europe were actually moved from well paid to lower paid (southern Europe) to even lower paid (Eastern Europe,1990 the anti communist revolution) to extremely low paid (China after the opening up, 1998) countries, and as far as I know 15 years later still there.?
    -Practically all the non food –luxury- products we see and buy in the shops are made in….?
    -twice 700 billion dollars of QE money were injected into the American economy without creating jobs, may be some financial growth because of profit in services and trade in dealing with expoorted industries.
    -in spite of all the stimulation of the recent past (spending the “overvalue” of the roofs over our heads for instance) unemployment stays also high in Europe?
    (The Dutsch figures show about 4% of the working population is unemployed, but this figure is in my opinion rather flattering, the real level, taking account of other social provisions is about 10%

    I had recently seen an interseting site of how outsourcing is “sold” to the public, when I find it again I’ll post it…we are being cheated.

    We all know the answer…there is a place for cheap production, not only our clothing originates mostly there now.

    I agree that in the course of time part of the jobs at the lower end of the salary scale have been made redundant because of automation, but quite a few jobs at the higher end were gained. However because of the move of these industries to the too low paid countries the latter jobs are going there with the industry .

    Competion on the job is is the best breeding ground for innovation.

    Then, is it also not the case that thanks to automation/innovation the choice of ways to sp[end our money has expanded tremendously. In the fifties the highest aims for the middle classes were probably a radio-set, may be television, a record player a bike and if you were very well to do a car. Now the choices are abundant, however the people that are working those machines are basically working for a pitence , whereas in the old days those worljkers were paid a livable salary here. I remember that before the age of globalisation tghere was talk in Holland about a basic wage for everybody, machine were to take over all the work (profits would remain the same) so people basically would not need to work for their living (very unhealthy, I think, loony left, but that is beside the point…) point is that those profits have evaporated, because of the too free market.

    Finally last monday, there was a documentary on BBC 2 about innovation and manufacturing in the UK. The conclusion was; they do wonderful things, but the takings are not enough to payfor all the imports. The deficit in the balance of trade and hence the amount they have to borrow ….or gain throiugh QE…..? is about 30 billion pounds per year. Of course the same applies to the US, who joined the globalization band wagon first.

    Luckily we have still got Germany with it’s rather “conservative” social economic aproach in our midst (and France for that matter)

    Unemployment in Europe was until fairly recently about 20 million, in the states 10% (about 30 million, I would think) the export orientated Chinese economy gained about 30 million jobs, of course that is also in construction

    Would not it be better if they stimulated (inflation) their home economy a bit more so that the people there can enjoy a better life and give us some more breathing space to be able to produce ourselves for our home markets?

    And as far as we (the West) are concerned, tlet’s start with plans like Desertec (solar energy for Europe, prouced in Southern Europe and Northern Africa…which is of course only one example that we can do in a leap forwards….

  4. Cher M. Jorion,

    You wote ”But this republic of merchants is heading for ruin”.

    Obviously I agree with you again, yesterday in the morning paper:

    There is now a record number of millionairs in the world, in total 10.9 million, last yer the increase was 8.3 percent, the total capital of these millionairs, worldwide, expanded last year to forty- two thousand billion dolaar, if you divide that by 6 billion, you arrive at seven thousand dollars per inhabitant of this world, ….there appears to be something rotten in our social- economic thinking.

    Apparently through (financial) dealing and wheeling about 0,2 percent of the population hold the key to the door of progress for a big part of the remaining 99.8 percent of the world population……what are they doing with that money?, …according to the paper they spend about 60 percent of their free income on expensive cars, yaghts, art collections, jewelds and expensive watches, the rest goes too expensive wines, antiques, coin collections, sport clubs, race horses and travel….what about investment?

    Finally, a couple of years ago there was a revieuw in Holland which showed that the big multi-nationals paid abt 16 billion Euro’s to little on tax…about half our budget deficit…..

  5. I wrote in nr. 3

    “I had recently seen an interesting site of how outsourcing is “sold” to the public, when I find it again I’ll post it…we are being cheated.”

    Here it is:
    http://www.globalchange.com/outsourcing.htm

    This is the article about how globalization (Boundarylessness in outsourcing) can be sold to the public…but then again the result of 1.5 trillion dollars spent in the American economy does not lead to any improvement as to job creation, there!….how come?

    Of course, this site was set up before the current multiple economic crises. Out of which we are supposed WORK ourselves, see Greece.

    Capital will however rather invest in emerging markets, guaranteed low costs and at the moment (The devaluation of the value of labor as a consequence of supply side economics) still fairly high returns (Speculating rather than investment). Paying a market conform salary to the workers in the low paid countries will not help to solve the problems in our “consumer” markets., which are all facing austerity measures because of evasion of funds.

    Controlled tariff (currency) barriers on the basis of the difference in actual cost price of production between low and high cost countries is in my opinion the only solution, based on GDP, resp. the shopping basket (Big Mac index ?) for instance.

    A charge of 100% on the cost price, would probably on average only mean an increase in the costs for the consumer of about 10%, but like in China’s case, raise 50 to 100 billion Euro’s in extra revenue, to finance: ….. Desertec ..strategically wise , less dependency on oil!.!

    Imports from China into the EU amounted to about 280 billion Euro’s in the crisis year 2009, exports to China abt. 113 billion (CIF value), leaving a gap of about 167 billion Euro’s….. exported money.

    Fifty percent increase of the cost price (not the sales price!) would lead to abt. 80 billion Euro’s annually ……. (the difference in the actual sales price could be more or less negligible.

  6. Paul Jorion’s excellent analysis on job disappearing as a result of extraordinary productivity gains has also been made by other writers, Jeremy Rifkin in 1992 in his famous book “The End of Work” which unfortunately didn’t induce reactions from the various governing bodies nor from many Trade unions groups. More recently Martin Ford,in his book “The lights in the Tunnel” developed the same analysis on the devaststing impact that very advanced technologies had, have, and will have in the future, on the OECD economic value added labour share: less labour share means less spendable income and hence less final demand. This in turn pushed the banks and the financial authorities, particularly in the USA, but not only there, to compensate demand decrease by easy credit based strategies, with the result that we all know too well: private debt and at the same time public deficit dramatic increase. Less income = less income taxes and less demand = less sales taxes… Down to a point of breackdown that we have seen in 2008 and that Paul Jorion had been one of the rare analysts to have forecasted.

    This information about labour share reduction between the 1950’s and throughout the years 2000, was available in official OECD publications. Such official statistics have been used by a French writter, Pierre Larrouturou in a first book entitled “Crise la solution interdite” (Crisis the forbidden solution) and very recently in a second book “Pour éviter le Krach Ultime” (To avoid the ultimate crash) where the author proposes some economic policies that could help us all avoid the complete disaster which is bound to happen if our governing bodies continue to make surface changes to the financial regulations and keep ignoring the poorly redistributed productivity gains which lead the world economy to the disastrous state it is now in.

    While offshoring has had a disastrous effect on reducing work availability in high pay and rather high social standards countries, it is, according to these authors, the poorly redistributed productivity gains that have most contributed to unemployment, more so that just offshoring.

    Without going into lengthy statistical analysis, let me quote just one evidence of this productivity gains statistics used in Larrouturou’s book : “Between 1820 and 1960 productivity increased by a two fold factor, and since 1960, productivity increased by a five fold factor.

    However this analysis is rarely presented to the public. Job losses linked to higher automation in production and services processes are insidious, job losses are scattered throughout a large number of enterprises and dependent establishments.
    Explanations about technology driven job losses require more analysis and is less easily accessible to a wide public, while “Out sourcing” on the contrary attracts high levels of visibility. When one establishment in an enterprise or a whole enterprise goes out of business in one country to go elsewhere, or goes completely out of business because of the low cost production in other countries, this is highly visible and TV cameras are quick to rush in to capture angry crowds images that are then broadcasted through all TV networks: it gives national governments an easy scape goat, shamelessly populations frustrations, which are made easier by the deep nationalistic and sometimes xenophobic feelings that are frequently aggravated in economic crisis periods.

    Governing bodies throughout the World should start speaking the truth to their people and integrate several political actions to compensate for technology driven job losses, including taxes on productivity gains that do not fairly and equitably return to the population members, in particular those working classes that allowed such productivity gains : workers are fundamental in productivity gains, not only automated machines. Of course this cannot be a single country policy since we all know that in an international free trade, countries can use social and tax system dumping in what Joseph Stiglitz has called: “Beggar thy Neighbor economic strategies”

    But, be it at G8 G20 or any other levels, the world governing authorities fear to address this problem, just like some individuals avoid talking about illness or go see a doctor afraid as they are of having to deal with the problems… But procrastination has lead the world leaders to a situation where actions have become even more painful…

    Paul

    Former economist in high technology business forecasting and later on very active in Social NGO’s activities at the European level, so I have seen both, the business and the social sides…

  7. Dear Mr. Trehin

    In an earlier contribution I wrote:

    Quote….I agree that in the course of time part of the jobs at the lower end of the salary scale have been made redundant because of automation, but quite a few jobs at the higher end were gained. However, because of the move of these industries, to the too low paid countries, the latter jobs are going there with the industry .

    Competition on the job is the best breeding ground for innovation.

    Then, is it also not the case that thanks to automation/innovation the choice of ways to spend our money has expanded tremendously. In the fifties the highest aims for the middle classes were probably a radio-set, may be television, a record player a bike and if you were very well to do a car. Now the choices are abundant, however the people that are working those machines are basically working for a pittance, whereas in the old days those workers were paid a livable salary here.

    I remember that before the age of globalization there was talk in Holland about a basic wage for everybody, machine were to take over all the work (profits would remain the same) so people basically would not need to work for their living (very unhealthy, I think, loony left, but that is beside the point…) point is that those profits have evaporated, because of the too free market…..unquote.

    I do believe that parallel with industrial automation the choice of artificial “produce” has increased tremendously, so that because of this variety in products a tremendous amount of jobs will have been gained too.

    I am of the honest opinion that the main culprit ARE the difference in living standards and the reduction in size of the planet in the combination with the free for all market which brings all the honest working people to their knees…there lies in my opinion the only solution….evolving compensation by means of tariffs on basis of the “shopping basket”…. and eventually a taxation on industrial automation?…..

    I am a worker in Industrial Automation.

  8. In fact it is not only a question of industrial automation. Vast numbers of jobs have been made more efficient via ad tech based new products and methods.
    As demonstrated in the books I quoted in my previous post, it is not only the lower qualified and lower paid jobs that have been hit by high tech based productivity increases. Some relatively highly qualified and high paid jobs too have suffered. By the way to go in your direction for a while many of these highly qualified and high paid jobs have dramatically suffered from Offshoring, but this is primarily made possible by high tech computer communication products and services. Other lost jobs with a mixed high tech and offshoring combination were the airline reservation systems with agents located in any low income countries. However when you or me make airline ticket reservation on the internet we are participating in massive travel agents job losses…

    With regard to very highly qualified job losses, take a job like architecture or automobile design: architects and designers needed a whole team of drafting employees to translate rough drawings made by the architect into very precise blue prints. Now it is often the architects or the engineers who doe this through CAD-CAM or autoCAD and other advanced computerized architecture and design software productss, not needing drafts people anymore.
    At a lower level but still qualified jobs have been disappearing; graphic designers who used to work almost by hand on images and photographic pictures are now using extremely powerful software products and one of them can do in an hour the work that ten of them took a full day to do…

    But the real source of the job losses is laying in the greed and cupidity of management lines as well as stockholders. Instead of sharing a part of theses productivity gains, they reduced the number of the labour force to increase the share that was going to capital.
    So I repeat that it is not innovation only that caused job losses but the greed of management and capital owners who didn’t share equitably the productivity gains.

    Note that there was a period when a slightly more equitable productivity gains between the society members took place. Indeed part of the productivity gains had been shared under the form of weekly hours reduction, going from about 80 hours a week in 1850 to about 40 hours a week in 1960 while maintaining a rather stable income for workers.

    Roughly: doubling the hourly productivity between 1820 and 1960 lead to halving the weekly hours… This was in the USA, a deliberate US government policy, supported by Fordism, that there should be yearly wage negotiations, in order to match wages and social benefits to productivity increases.

    Roosevelt in 1944, before going to Bretton Woods had invited the Allies to an ILO conference in Philadelphia, putting forward the priority of social justice, the ideas that labour is not a merchandise, that poverty where ever it exists is a threat to the prosperity of all.

    As a result up untill 1981 when neoliberal economic theories resurfaced, theories which you call “Supply side economy” , there was no need to try to boost the economy via credit and private debts, since wages were increasing pretty close to productivity increases, .

    In comparison, the later five fold productivity increase wasn’t equitably shared and lesser social progress was made, the spread between lower wages and highest incomes being on the contrary vastly increased. Higher revenue categories, getting on top of that, great tax cuts under Reagan in the USA and under Thatcher in UK.

    As you may have seen I’m not against innovation and technology advances, I’m indeed a great fan of Buckminster Fuller who believed that only innovation would get the world away from oblivion. But innovation and advanced technologies, can only benefit the populations if equitable redistribution schemes are enabling all society members to benefit from productivity gains and new technologies benefits. Which was not the case since the early eighties when supply side economy took power in the highest political decision making sphere in almost all western countries. With the exception of a pale attempts at productivity redistribution in France, with the 35h week scheme imposed upon companies by the then socialist government.

    Until world’s political leaders, all of them, rediscover the value of this Philadelphia conference declaration, the economic crisis are bound to keep coming back, with their terrible misery creating task…
    http://www.nationsencyclopedia.com/United-Nations-Related-Agencies/The-International-Labour-Organization-ILO-PURPOSES.html
    See paragraph three of the text that starts by:
    “Meeting in Philadelphia in 1944, the International Labour Conference adopted a declaration that rephrased and broadened the “aims and purposes” of the ILO and “the principles which should inspire the policy of its members.” President Roosevelt stated that the Declaration of Philadelphia, as it was called, summed up the aspirations of an epoch that had known two world wars and that it might well acquire a historical significance comparable to that of the US Declaration of Independence. The declaration, which was incorporated into the amended constitution of the ILO, affirms that labor is not a commodity; that freedom of expression and association are essential to sustained progress; that poverty anywhere constitutes a danger to prosperity everywhere; and that the war against want must be carried on not only with unrelenting vigor within each nation but also by “continuous and concerted international effort in which the representatives of workers and employers, enjoying equal status with those of Governments, join with them in free discussion and democratic decision with a view to the promotion of the common welfare.”

    And to finish this message it is important to note that with very advanced Artificial Intelligence technologies, that are finaly comming to fruition, even higher qualified jobs will be lost. The author who explains that, Martin Ford, is himself an entrepreneur in High tech products in California.

    Note also, that beyond the economic impact, many high tech applications hit directly many vulnerable people lives, making access to some public services far less accessible (plenty of examples if necessary) (I have written several papers on computer assisted education for people with disabilities as well as papers on how to make more accessible several day to day activities…) But fortunately some technologies have made a few activities more accessible to people with disabilities or elderly people.

    Yours sincerely.

    Paul

    1. Dear Mr. Trehin

      Thank you very much for your extensive reply, I will certainly check out the books that you mentioned in your posting.

      My point of view in these matters has been built-up since the mid nineties and I cannot but wholeheartedly agree with the tendency in the contents of your reply. All sides of the problem touched and coming together.

      As far as “modern times” are concerned Indeed the combination of modern logistical tools (Internet, fast transport, IT as a whole and freedom of financial flow) form indeed a very big part in the abuse of workers’ rights/possibilities.

      The only positive thing I would still like to mention is that, in my opinion, because of the diversity in today’s consumer market there is a lot more variety in the products to be produced so that will, in my opinion, also create – a hell of a lot of- extra jobs.

      Then, of course, naturally we should have had to see a big increase in demand from the still developing part of the world, as you said:

      “innovation and advanced technologies, can only benefit the populations if equitable redistribution schemes are enabling all society members to benefit from productivity gains and new technologies benefits.”

      However, this of course was thrown in the dust-bin by this:

      “Which was not the case since the early eighties when supply side economy took power in the highest political decision making sphere in almost all western countries.”

      At the time (1980’s) probably economically speaking a plausible idea (supply side economy…who were the suppliers then? ….?) but since the accumulation of boundaryless possibilities , we are consuming ourselves socially extremely undesirable from the tail upwards.

      Nowadays, because of globalization/boundarylessness (also morally) and its downward pressure on wages, Marx’ rule of the army of the unemployed applies again to our world.
      I quote:

      “Unemployment has not increased because the unemployed are lazy and have chosen not to work because benefits are so high. Marx’s reserve army of the unemployed is a conscript, not a volunteer, army.

      The problem right now is simply that there are too few jobs.” This:

      “But the real source of the job losses is laying in the greed and cupidity of management lines as well as stockholders. Instead of sharing a part of theses productivity gains, they reduced the number of the labor force to increase the share that was going to capital.”

      ….Is of course ABSOLUTELY true, the now possible unfair “competition” with –much- lower paid countries helps capital to find the stick to beat the (working) dogs easily. ..the game with the tampered dice…refound as a means of pressure on the “working classes”…worldwide.

      Moreover, the movers and shakers are competing with one another who economizes best at an ever increasing speed. The communicating vessel with the fat bottom empties at an ever increasing speed, see the black hole in the US’s QE solution, lots of money spent, but no jobs.

      It is not strange why the republicans were so keen to do away with the progress that Roosevelt made in a social (IN THEIR EYES PROBABLY COMMUNIST!) perspective. It was successful!…they might loose voters.

      Fordism was a great idea, but that needed a market in which Ford was more or less in control, the first with an automated production line and a new very desirable object for sale, …he could afford to do what he has done…his market was secure. Today’s is not.

      Philips announced today that it made a loss on operations in Europe and America, but a profit in the developing countries. From where the goods for the developed world are now exported, (Why would not they sell so much anymore overhere?..stress in the economy)

      Good thing would be if all the multi nationals came together and raised the income of the workers there (like Ford did in the US), that would give those economies a boost and while labor would get more expensive there would put less pressure on our workers and we might see some of the work return here.

      As far as accessibility for less “modern minded” people goes (elderly etc.) that is indeed a problem, look at the way modern use of local transport is organized..it has become quite a complex system.

      Finally, as I said I fully agree with the contents of your posting, but who is there so solve the problem?

      Now with the Murdoch affair in the UK am even more convinced that a hell of a lot of politicians have only one ideal…themselves…or is it may-be just an Anglo-American (non Rhineland) problem?

      Diversion from the truth…

      best regards,

      Jens

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