New strategies needed to tackle challenges of ageing, globalisation, and as robots take on human jobs, writes Neil Behrmann
Unlike rapid advances of technology and medicine, developed nation economic policies are stuck in a quagmire. Innovative, lateral thinking strategies are thus essential to generate economic growth.
Quantitative easing (QE) – excessive monetary ease and almost zero interest rates – combined with European austerity of high taxation and lower government spending, have clearly failed to generate adequate growth. Those crying for old-time Keynesian policies of higher government spending and borrowing to boost demand for goods and services are ignoring current excessive debt of numerous nations.
Since the 2008 financial crisis, global unemployment has risen by 61 million to 202 million people, or 6 per cent of the labour force, estimates the International Labour Organization (ILO). Youth without jobs total a staggering 73 million. Many so-called employed are part-time, lowly paid workers.
Singapore’s “Future Economy Committee” is well aware that change is urgent and appreciates that the challenges are “the future of jobs, future of companies, future of resources, future of technology and future of markets”.
This is a global problem, however, and new economic thinking aimed at avoiding former mistakes is urgently required. Common sense implies that competitive capitalism and the profit motive, despite imperfections, boost economic growth. Government and central bank intervention should be limited. Monetary policy should remain stable. QE and high government, corporate and individual debt have raised fears of another financial crash and recession, and have thus deterred long-term direct, job creating investment.
With the above in mind, here are a few ideas for a global economy struggling to cope with ageing demographics, globalisation and industries that are increasingly replacing humans with artificially intelligent robots:
• To counter stagflation (flat or declining growth coupled with inflation), entrepreneurs and business should be encouraged. Companies should not be encumbered with excessive regulation and taxation as most economic growth comes from the private sector.
• Mariana Mazzucato, Sussex University’s professor of innovative economics, has shown, however, that the state has played a major part in backing and researching new technology and medicines. These have ranged from the Internet, smartphones and global positioning systems (GPS) to biotechnology and cancer research. The solution towards higher growth is not just corporate tax cuts. Instead of job-creating investments, many companies are firing labour, slashing costs and are purchasing their own shares to engineer higher earnings and stock prices. To counter this problem, companies such as Apple and Google should be prevented from carrying out massive tax avoidance. Moreover, if the state backs initial funding and research of new technology and pharmacology, it should be a shareholder in the companies that it backs. The state took the risks, so it (and hence the taxpayer) should also hold some equity and profit from successful new ventures.
• Inherent in reforms should be increased competition. Several industries, especially those that have been privatised, are oligopolies, pursuing uncompetitive and “crony capitalism” practices.
• Corporate and individual tax should be simplified. Applying a reasonable calculation for poverty levels, the poor should not be taxed. From that level upwards, there should be a flat tax for middle income and the wealthy. Trusts and other tax avoidance schemes of the super rich should be penalised. High taxation in Europe, the US and elsewhere has created a massive grey, informal, illegal tax-free cash economy. A reasonable flat tax should counter that. Both the tax evader and those who seek discounts from plumbers and other artisans by encouraging this evasion, should be prosecuted.
• QE has worsened inequality as the wealthy are the owners of considerable financial assets. In return for a flat tax to attract the super rich back into the tax net, philanthropy must be encouraged. A possible way could be mandatory donations as a percentage of taxable income while the super rich should have their own charitable foundations. To help slash unemployment and boost demand and growth, local community apprentice and technology training and retraining schemes should be financed not only by government but by industry bodies and philanthropists.
• Much more private money should also be donated to counter health inequities, notably, medical research, improved health facilities- both physical and mental- poverty stricken people and socially deprived areas, the arts and other charitable causes. Charities, in turn, have to be as low cost as possible so that the bulk of their takings go to those in need. High cost charities should be scrutinised.
• The demographics of ageing baby-boomers are already causing a logjam in employment as older workers hang on to their jobs because of inadequate pensions (one of the consequences of QE’s almost zero interest rates). First, retired people could be employed in training schemes to apply their experience and knowhow to train youth in a variety of occupations. Second, retirement programmes and villages, with healthy, enjoyable living – exercise, diet and interesting, creative activities – would also open jobs for young and old. The same applies to caring for the growing number of old people.
• To boost productivity and corporate loyalty there should be more worker participation in profits of large, medium and small corporations. John Lewis, the UK department store, is an example. Basic salaries and wages would be lower so that companies can survive in recessions with minimal layoffs. Germany has a policy that encourages employers to shorten work hours rather than fire workers. In good times, employees can bank extra time which offsets lower pay during a downturn.
• The state should focus on decentralisation. Governments should provide finance to local authorities for selective infrastructure improvements such as roads, bridges, railways, canals, hospitals, schools, affordable housing and clean air and water projects. The money could be borrowed initially but the construction would eventually be self-funding with road tolls and regional and local taxation tied to usage and debt would be repaid. Taxes on petrol could also help the funding and reduce dependence on oil. These projects (following the economic multiplier principles of R.F. Kahn which John Maynard Keynes adapted) would employ more workers and private companies. The employees and corporations would in turn spend more money and multiply business, growth, revenue and employment elsewhere. Countering bureaucracy, these projects should be micro-managed in local regions and communities, and the law should lean heavily on potential corruption.
Copyright Neil Behrmann- first published in The Business Times, Singapore
Neil Behrmann is author of Trader Jack- The Story of Jack Miner and anti-war children’s novel Butterfly Battle- The Story of the Great Insect War