The Economic System and the Future of Societies

Human beings do not exist for the sake of economic system or political ideological system, but an economic system comes into being by the force of their wants and to satisfy them. This obviously means that their endeavors would require a framework for their best practices and this could be best attained within a lucid framework of periodical interventions where there is one entity making the periodical rules and the individuals adopting different courses of actions that are most convenient for their economic transformation. This process is in fact a flow that is not uninhibited so as to destroy the very system. In fact, an economic system must serve the people at all times at the most efficient level and give the people the scope of satisfying all their positive wants, give enough feedback and information to dwell into their inquisitiveness and aspirations as well as give enough space to further their individual talents and satisfy the spirit of human endeavors and challenges within their self and that of their natural surroundings. Although most economic system suggests this one way or the other and it has left a lot of confusion as to what exact system is best suited for each aspiring individual of the society.

With the collapse of the communist countries it became apparent that the capitalist society is the best way forward, but with the world experiencing recession, increasing unemployment, low growth and instability both in the physical and financial markets there is a general feeling that something has gone amiss in the capitalist countries too. People have started to think of a new world economic order although all advocates of different types of economic order fail to bring about an idea or framework that actually relates to all of the above underlined factors. It all looked that capitalism was delivering it quite efficiently up and until the sub-prime crisis in US and the world wide recession brought forth along with it. Then the European Union went into depression and now looks even more horrifying with the rot taking place in Greece. Several other countries are going to follow suit and with it the whole of the world is looking at a great contraction that may sooner or later take place if things do not change for the better.

For the free world the horrors of a totalitarian communist regime looms large in their mind and so does it to erstwhile communist or socialist countries. The people of countries belonging to the free world are terribly uneasy even though they have had a good time yet with the failure and indiscipline of their own financial system paving way to crisis after crisis they have even started to think whether they are doing  things right after all. The issue is even more compounded with the bail outs in US in particular for those who were instrumental in pulling down the very system they were so far preaching perfectly. In fact, many have apprehensions of the increasing welfare programs that would lead such free countries into a socialistic type of society.

So, is there any hope of revival? Or is this the end of the road of the free world and the beginning of yet another closed economy where every citizen can look up the state for their daily doles. It surely doesn’t look like it as what is needed is proper framework of long term vision on which we all need to provide a base for our thoughts and economic action for possible solutions.

Economics of Periodical Interventions (Fluidism)

The idea of periodical interventions came out of observation of the pattern that is generally in practice in most countries. These are government interventions on the economy, the Central Bank’s monetary interventions and corporate interventions, the latter may be voluntary or by an act of law. However, all such interventions it is seen has a general tendency to remain permanent since the time it has been started and this makes it look not as interventions, but a permanent portfolio.

Thus, it is mandatory that interventions must be periodical so as to give the intervening area or project a lease of freedom fostering creative growth potential. This also gives the system a flow where in businesses can prosper and thrive. Periodical interventions are also the basis of fluidism as it keeps the whole system fluid and not too fluid to create ruptures. In other words, the fluid state of an economic system is maintained analogous to that of the human body system. It should be noted that all interventions that are carried out on the economic system must be made transparent by publicity and information for proper governance of the outcome of such interventions. This also means that feed backs are as important as the action thereon. Here again interventions in order to keep the system fluid are of two types. One type of intervention is intervening at a particular area of the system and the other is abstaining from intervention itself. Both the acts are interventions and therefore the need for giving out the necessary information to the public at large when intervention is being made and when it is not.

Intervention is not a constant over time nor is fluidism, but both are value adding factors within the economic system. This would mean that there might be less flow or greater fluidity or lesser fluidity which must be intervened in the appropriate way at appropriate areas. The best way to understand fluidism is to understand it in terms of the human body system which is the most perfect system undergoing evolving process (value addition) over time and doesn’t remain a constant. This can be easily seen in the way the human brain has evolved from the cave man to the present man and scientists have an estimate of the size of the brain in the far future too.

Fluidism versus the Human Body System

The human body as has been stated above is the most perfect continuously evolving system where there are numerous entities inside performing non-stop work for the growth and the sustenance of the entire body. These organisms and organs with different functions and different sizes act upon the system as a whole to bring about the best possible health for the system. They perform their specialized works for protecting and providing the much needed impetus or growth for giving the base for the next stage of growth process through the process of evolution.

The same is true of the economic system as different regulators, business houses; land, labor and capital perform to their best potentials to give the economy the much needed impetus on a continuous basis so as to take it to the next level of trade cycle. True, as in the case with human body the economic system too undergo a period of growth,

Just as the body keeps the fluidity within the system to ensure smooth passage of various ingredients and their micro-organic carriers so that they reach each and every part of the system efficiently so does the economic system too. The economic system too has to be kept in a fluid state with interventions made as and when there is a clog in the system. When the human body system faces problems, interventions are made either internally or externally through administration of medicine and other surgical methods. So too is the case with the economic system.

It must be remembered that the blood flows through the body and if given a free flow then it results in raptures or bruises on the system and it is likely to escape outside leaving the system for want of fresh blood. Here too intervention is made with surgical stitching and arresting the outflow of blood in the system. The same is the case with our internal system as the blood may get coagulated or its flow slowed down due to build up of excess fat or blockades which eventually lessens the flow to the heart resulting in heart failure.

The economic system should also be wary of such blockades within the system and outside resulting in loss of fluidity. Any stagnation may mean that the economy is not in a healthy position. Excess fluidity within the system is as dangerous as non fluidity. The former can be rectified with some interventions in the monetary and government regulations, while the latter can prove to be a disaster and take the economy into contraction.

In the human body too external loss of blood through bruises if not large or excessively damaged can be rectified with the help of stitches and other surgical measures while those that result in stagnation can suddenly lead to chronic situations and heart failures.

Again, as old system of production and services get outdated they are slowly removed from the system just like the body removes wastes, or the skin gets replenished slowly. The flow never gets stagnated as it has to be always kept in high liquid state for thwarting diseases, illness and other anomalies. Similarly, old business ideas are replaced and people working in them are allocated or allocate themselves in other locations with additional skill inputs and learning process.  

Further, the body undergoes a paradigm shift over time called the evolutionary process and so too should the economic system towards a higher paradigm shift to the next higher level of business cycle.

How is this possible?

Evolutionary Stages of Economic Cycles

Although in economics there were never a need for a separate status for economic cycles yet when the economy grows the need for such cycles are more apparent. Each economic cycle evolves into a stage where the GDP is twice the present size and the economy and the people within it have made a paradigm shift in the standard of living as well as in innovation and production levels.

What does this mean? The usual business or economic cycle that we see is in four stages and these are the expansion phase, the upswing phase, contraction phase and then the recession phase. After a period of recessionary phase expansion in the economy again starts. This is the nature of the cycle when there is investments and growth plans of the usual nature. But when there is recessionary period of the type which the world is experiencing now there is need for greater degree of stimulus otherwise the economy would show some signs of expansion and then revert back to recessionary trend. What then is needed is not simply some monetary measures by the Central Bank or simple policy measures from the government as the same can be effective only when the debt of the nations are manageable and not enormous that it looks frightening. Neither do measures like infusing huge stimulus works wonder in the long run unless the whole overall perspective is made clearer.

This means that the right questions ought to be asked and that is what else can manage this debt or give substantial impetus to a sagging economy.

One way to answer this would be to make gargantuan projects requiring decades to complete. Identifying such mammoth projects would be the first step to check the continuing recessionary phase. For example some of the large projects already floating are the Desertec, Palm Island, Suez Canal and others. Even reclamation of land especially by Netherlands over the years can be seen to be a large project. What is necessary for an investment to be fruitful especially so if it is for a considerable long time is to identify a ‘human need based projects’ that can withstand the test of time and not become obsolete after a shorter or before the completion of the large project. Such large projects are necessary not only to remove the recessionary phase, but give the working and entrepreneurial and other stakeholders a larger than life size commercial venture which can stimulate both the economy and the spirits of the people. These projects built in the form of consortium can balloon the GDP of an economy and in the ensuing growth the size of the fiscal deficit or public debt would look proportionately smaller and inflation would take care of itself over the long run.

What is again the most important factor is that the right identification of a viable project for the community. Remember, it is large to colossal investments that give the real fillip to the economy and not the stimulus. This is mainly because the nation or united consortium built by a few nations would gear up a considerable larger community directly or indirectly pitch into the project unlike the stimulus which is simply monetary in nature. Even if some money from the stimulus does go for proper investment there are chances of others to go to negative areas too. So the best idea would be to make use of some stimulus while also preparing a grand plan for a large mammoth project too. Government help initially is inevitable as there is need for garnering up huge resources so that there is total involvement in the project as well drive huge consumption and demand. Monetary doles have their limitations as in a recession driven economy or sagging economy there is greater panic as to how to utilize such funds as investments in all sectors do not look promising enough. There is thus greater scope of money being utilized for lesser desired purpose socially and economically. On the other hand a consortium of fund managers driven by a risk appetite for a socially and economically viable project or few large projects can drive demand and help the sagging economy into expansion phase.

This would balloon the GDP of the country or countries that are members of the consortium and make each of their fiscal deficit look significantly small and manageable. What is most interesting phenomenon is that the whole of nations would be hooked towards one or two such projects and the people of the society would be given a newer and more proactive challenging role for overall fulfillment which otherwise may go waste in negative ideas and socially harmful engagements. Employment would catapult towards a higher level especially for higher orders or individuals who are highly educated apart from employing millions directly and indirectly as the whole of the economies of these countries would improve. Investments of such nature would be of immense help to those economies who have little resource at their disposal and lower infrastructural base. The boost to education would be enormous as more of newer challenges would throw open in such cases and there will be greater demand for specialists in several fields and perhaps even newer areas of technology and innovation.

Contrary to what is preached in socialistic ideology it is not sufficient for men and women of future to be happy with stagnated jobs as their mind is inevitably undergoing an evolutionary step whether they like it or not and hence the need for challenging the mind continuously is necessary. If the right type of challenge is missing the men and women may take to negative thoughts and actions harming the society in the process. A lot of hatred, crimes, drug abuse, sexual crimes, depression, suicides and murders take place due to lack of proper challenges for the mind. And so too diseases of varied nature that have afflicted men and women both physically and mentally have their root cause in having no larger and positive approach to life and achievement.

Thus, as stated above a continuous momentum has to be given and the degree of fluidity in the economic system must be maintained. The role of private enterprise is always there and this can be explained as follows.

The initial stage is the formation of a consortium of investors where the stakeholders are either private, government or both. The main idea is to garner huge funds which one single entity cannot bring in nor be able to withstand the gestation period for such a large mammoth job. In fact, an investment would mean say ten to twenty years of locked up capital invested on an incremental basis periodically. The gestation period can be extremely tiring for individual firms and hence the government intervention as a biggest stakeholder is a must. Later on after the completion of the project the same can be handed wholly or in parts to individual firms from the market so that the government can help bring about yet another consortium to implement yet another large ‘human need based’ project or projects.

In India joining of rivers, extending the deltas and other huge infrastructure projects are quite easy to be identified by experts in the respective fields. I have already stated this in my blog article titled Monetizing the Wealth of the Nations.

But where will the funds come in? The answer here too is that the government is the best bet for initial step in this field as it can garner huge sums for a lock in period for a considerable period of time with or without interest. This would surely drive consumption and demand to a new level helping nations out of recession and into expansionary phase. If the private sector with several entities can garner such a huge amount with the understanding that the fund may get locked for decades, then there is no harm. Within the consortium members block share transfer within the stakeholders as well those coming from outside could be made during the course of work-in –progress of the project. Temptation among members would be high during this period and even the consortium members may face difficulties and financial constraints during the lock in period of the project. This should be explicitly stated in the memorandum of understanding as financially less powerful and more greedy members might be tempted to sell part of their shares openly in the market by further division of shares, but in such cases the entire dynamics of the mammoth project would feel the strain and might derail it.

Different Evolutionary Stages of Economic Cycle

Already over the period of time businesses have evolved through a continuous process of transformation and innovation, as such there wasn’t any need for evolutionary stages to be defined for a larger vision. Every time the GDP of the countries increases the prevalent cyclical pattern of expansion, growth, contraction and recession was quite sufficient enough. However, this is not going to be as in the future gargantuan investments have to be made for engaging the people in gainful employment in a challenging atmosphere and providing nourishment for ever inquisitive evolving mind of humanity. The evolutionary stages of economic cycle could be denoted as A, B, C, D, and so on. The principle reason for such an evolutionary stage to be denoted as such is to identify the area of the economic cyclical pattern of the economy of a particular country or a group of countries. It goes without saying that some countries would surely have crossed into the next evolutionary stage while some wouldn’t have.

As the same is only economic data yet it is very important to denote the level of achievement of each country to ascertain the level of investments and the viability of future much larger mammoth projects. It is seen that when there is growth in the economy the sum total of different data show improvement while during contraction the same data shrink.

For instance, a developed country at this stage which is to be denoted as ‘A stage’ of the evolutionary stage of the economic cycle (as past allocation or subdivision is not of much importance), it would be seen that it is in a position to take up very large project forming a consortium of member investors for the exploration of space. Yet it still falls short of the actual huge stunning investment that is necessary for commercial exploitation of space. For this the country’s economy or the economy of the member countries would have to move to the evolutionary stages E, F or G. Only reaching the stage of E or F or G that the country’ projects can bring about the much needed economies of scale for project feasibility and commercial viability.For example, a country may launch space shuttle and bring a few kilos of rock from space or deep sea. Yet for mass production of shuttle and exploitation of natural resources of other planets it would need economies of scale by entering into the above mentioned evolutionary stages.

Now some people may ask why go to the other stages and not remain in the first ‘stage A’ only. The principle idea is to provide the endless challenge to the human mind apart from the fact that with the gigantic leap in labor standards and payouts would ensure rather easily affordable mundane necessities and luxuries. The whole of the global education system itself would undergo a paradigm shift to gear up for the challenges such projects would eventually throw open for aspiring graduates.

It is also to be remembered that every stages of the evolutionary cycle which is not less than twice the GDP expansion of the previous cycle would have longer period of economic cycles like longer recessions (during project stagnation), longer growth (during completion of project) and so on.

Labor Standards

There will be paradigm shift in labor standards unprecedented in history of any country especially when the larger part of the population would shift to high technology and innovative management fields rather than mere physical labor. This would enable loosening out labor from menial jobs in cases of developing nations and make them move to higher rungs of educational process.

There is yet another parallel job opportunity that would come to the peak during the evolution of the whole of economic system from one stage to another. This would mean that there would greater concerns for the environment and many industries would achieve a meaningful sophistication not hitherto known as well as new generation of technology that would be imperative to the success of the mammoth projects. These are highly sophisticated mandatory waste management, treatment of exhaust and fumes, replenishing lost lands, cleaning of rivers and more sophisticated social management. The health sector which otherwise would rise even in the Stage A of the evolutionary economic stage would be an all important factor as one individual  ill or lost in such large project would have telling effect in the whole system.

Labor policies have to be periodically updated as the same wouldn’t be of use as most labor would have achieved some kind of higher level expertise not easily replaceable. The same wouldn’t be the case with contentious issues which could have been solved at the grassroots level have been allowed to bloom as we see in today’s world. In India the case of Maruti strike of which I had written in my other blog has been a mess mainly due to serious default in the management’s way of handling the issue. A lot of wrong signals go into such dispute especially in a poor country like India where right on the fence sits the ultras, the Maoists, the extremists, the terrorists and not to mention the vested interests that are waiting for an opportunity to exploit the poverty of the land.

With the involvement of mammoth projects this problem can be solved to a large extent as people would then be gainfully employed and refrain from negative activities. Therefore there is need for the right type of intervention to maintain the fluidity of the system as the factory has to run and the workers employed.

Similarly, in the case with larger projects where there is need for right type of labor intervention, negotiations and other emoluments so that the whole project does not gets stagnated nor further progress is jeopardized. In such cases the employee unlike the labor force that is prevalent will have to become a stakeholder in the consortium thus formed.

Essentially a Future Framework

The idea of fluidism and the evolutionary economic cycle stages is essentially a future framework for all times. There is no need for any confusion as to where we are headed towards. By understanding the larger picture we are able to micro manage the position affecting the economy on the monetary front as well as the fiscal front so as to provide the necessary leverage to get out of the current crisis and forge ahead according to this framework.

The present crisis affecting the Euro zone can be effectively checked by creating large funds like Contributory Contingent Reserve Fund where all nations of the Euro Zone put the money into a lock in period of interest free ten or fifteen years to help a need based project or projects that would drive consumption and demand.

In India and China domestic demand can easily be accelerated with large mega projects and simultaneously making some prudent corrections in government profligacy and penchant for subsidies. If this is difficult then foreign investment becomes all the more apparent as this would look after the supply side factors and tame inflation. Of course, this is short term ideas yet when we have a larger framework to guide us then there is less chance of going astray from the path of proper development.