The most dramatic change during the latest decades has been the opening up of national economies and the creation of a truly global market. This has been a boon to the world and it has altered the global economic and political landscape forever.
The positive economic effects have been readily recognised and the loss of jobs has been reluctantly accepted by the Old Industrialised Countries. However the most dramatic change caused by the globalisation has yet to be recognised.
Before globalisation the national economies in the Old Industrialised Countries were rather closed. The advanced ideas and technology created in a country were utilised locally for years, and only the resulting products were exported. This resulted in extra surplus value creation (creation of profit from innovation and from being ahead of the competitors) making it possible for the country to be competitive even when wages and taxes were higher than in other countries. This was the case as long as the combined surplus value and extra surplus value was higher than that obtained in the competing countries.
A positive feedback mechanism thus existed whereby the higher wages and taxes resulted in higher educated and developed employees capable of creating new advanced ideas and technology. This resulted in still more extra surplus value creation, leading to higher wages and higher public economic and societal capability, making the creation of still more advanced technology possible and so on.
In order to develop advanced ideas you have to live in an advanced environment/country and in order to maintain and develop an advanced environment you have to create a larger economic surplus than the environments/countries you are competing with.
What has made this dynamic feedback mechanism invisible in the U.S.A. has been the fact that the creation of extra surplus value thrived in spite of low wages and low taxes due to the massive import of highly educated and creative employees from the rest of the world. In 2007 50% of all US patents were originating from the achievements of non US citizens.
Actually the "mysterious" stagnation of middleclass incomes in the USA from the 1970thies and onward coincide with the acceleration of the internationalisation of the economy.
Actually the "mysterious" stagnation of middleclass incomes in the USA from the 1970thies and onward coincide with the acceleration of the internationalisation of the economy.
The hitherto overlooked but highly dramatic and very serious change that has taken place as a result of the globalisation of the world economy has been the breakdown of the described positive surplus value / extra surplus value feedback loop.
The majority of advanced ideas are still, for a short span of time, created in the Old Industrialized Countries, but today the new advanced ideas and innovations are often utilized directly in the New Industrialized Countries thereby depriving the Old Industrialized Countries of job creation and surplus value. As even small firms today have international affiliates, the extra surplus value resulting from the new inventions are also escaping national taxation, as the profits can be diverted to affiliates in countries with low taxation.
Before the economic internationalisation one could say, “what is good for the company is good for the country”, that is unfortunately no longer valid! It is now clearly documented that it is only those company activities that are situated in a country that benefits that country!
Deprived of the extra surplus value, which has been the fundamental cause of the flowering of the Old Industrialised Countries since the 14th century or even earlier, the Old Industrialised Countries no longer have the means to maintain their socioeconomic lead. Without that lead the environment for creating the most advanced ideas and innovations will gradually dry out.
As ideas and innovations cannot be stopped through protectionism, the present economic structures have no way of coping with the problem. Never the less there exists a solution to the problem, but the space here does not allow me to go into that!
The housing bubble and the extensive use of high gearing within the international economy has for years covered up the fact that the Old Industrialised Countries are in for a downturn that ends the general upturn that has lasted since the 14th century!
Why did it come to such a grave collapse?
Why did it come to such a grave collapse?
Back when the “.com bubble” burst “The Economist” wrote a leader concluding that the only sure outcome of that stock market bubble would be the development of a real estate bubble, how right they were on that point!
It is obvious that there were economic warning lights, and that some individual scientists, through the ensuing years tried to get through with warnings about too lax economic policies, and that very few were inclined to listen. But the main reason why nobody listened might be that the scientific economic indicators did not all point in the directions they were expected to according to the prevailing theories. Indicators are based on scientific assumptions, and when the scientific theories are not in accordance with reality, the indicators will fail to flash the appropriate warning lights!
(“Surplus value”, meaning the economic surplus obtained when an employer makes better use of the employees labour than the employee could do on his own, and “Extra surplus value”, meaning the economic surplus producers obtain when they are technologically ahead of their competitors.)
For a far wider scientific perspective of the above:
“Videnskaben, Historien og Fremtiden” published 1991.
(“Science, History ande the Future” http://unifiedscience.blogspot.com/)
ISBN 87 7241 673 4
Søren Hetland Basse
3760 Bornholm
Denmark
Fascinating. Thanks!
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