Sunday, July 25, 2010

Europe and the United States on downward slide to 3rd world status!

Dear Colleagues

Erle Frayne Argonza from the Philippines wrote the following. It reflects almost totally my own perspective about the failing socio-economic performance of the United States and Europe ... and the terrible misinformation that dominates both the political and economic dialog. Its URL is
Posted by Erle Frayne Argonza on July 24, 2010 at 3:20am

Magandang gabi! Good evening!

It’s dusk time as I write, and this dusk at a time of intensifying monsoon rains seems to bode images of a grim future for the West at large. The European Union or EU members and the USA, the gigantic pillars of the global economy, are particularly in dire straits as they have entered the zone of flat growth and perpetual recession.

As already tackled by me in diverse articles, the East is surging forward bringing life to the global economy as a whole. In contrast, the West is spiraling downwards, and the strategies their stakeholders are putting into place to arrest the downslide are at best palliative. As the East continues to surge upward, the West continues to stagnate and decay.

After World War II, both Europe and America embarked on massive infrastructures and heated industrialization that saw both economies dominating the global economy’s wealth production. The result of that was an OECD producing 60% of Gross World Product or GWP for some decades (today that’s down to 40% of GWP and will still go down).

That was the situation back then. By the 1990s, the situation had been badly reversed as a result of liberal economic policies instituted in the previous decade (80s). The rise of a ‘virtual economy’ dominated by predatory finance was instrumental in the West’s massive de-industrialization, decay of relatively unattended infrastructures, decline in science & technology research, and neglect of the transport sector (only Japan & Germany were actively pursuing maglev railways).

By the early 1990s yet, certain experts among economists and sociologists in America began echoing alarming notes about the possible downslide of the USA into a 3rd world country should the economic decay, such as that of relatively unattended infrastructures, be allowed to continue till past 2010s.

In the late 1990s, my own circle of political economists in Manila (Sunday Kapihan/Independent Review) saw such a possibility ourselves as we consolidated the data made available to us thanks to the internet. By 1998 all fellows of our circle were convinced of the catastrophic direction that the USA and Europe were plunging themselves into, which could begin with a depression past 2005 and a thirdworldization by 2010s (both have been hit by recession this decade as a matter of fact).

When Katrina struck the USA and when those floods struck Europe just a few years back, and the same free market policies stubbornly remained in place, I knew the downslide would turn out to be irreversible. The fate of New Orleans, with its residents lining up for food akin to a depressed city, revealed an appallingly decayed 3rd world city inside the USA which, to my mind,
is but a fractional tip of a gigantic iceberg that are America’s decaying cities on the way to 3rd world infamy.

If, for instance, just about 55% of the top 700 cities of the USA will be so badly decayed by 2015 and be declared as 3rd world or ‘developing cities’, then we know more or less that America had catastrophically seen its worst state. With 97% of U.S. population living in cities (urban), likewise will the whole of the USA be declared as a ‘developing economy’ as early as 2015.

That is, again, if the destructive ‘virtual economy’ policies will not be taken down and reversed sweepingly. As I’ve declared in previous articles before (when Obama was still campaigning for the presidency), America must quickly return to a New Deal-type policy regime: interventionist, with great stress on revivifying infrastructures, revitalizing transport R&D (railways, shipping, etc), upscaling science & technology investments (including rockets), returning heavy industries (revive steel and many dead manufactures), and ensuring agricultural productivity.

Europe is not far behind such near-catastrophic downslide of the USA, just to remind our friends in Europe and the globe. Decisively institute interventionist policies in the continent, regulate the financial-banking sectors (criminalize predatory finance), and revivify social policy that were hallmarks of a once strong and mighty European economy.

And there’s no better time to act then now. Failure to act soon, by stubbornly instituting the palliatives (e.g. bailing out failing big banks, semi-regulating stock exchange), will be the best sure-fire formula to see a rapid thirdworldization of the West.

Before long, some messianic mad leaders in both continents would be drum-beating their being "stubbed behind the back” and generate new Hitlers and Bonapartes in their backyards. Act now, Western peoples, to avoid this eventuality from ever taking place at all.

[Philippines, 21 July 2010]
I am not a defeatist ... and I do not subscribe to the idea that all is lost. I am old enough to know something of the stories of World War II and how many thought that Hitler had won and that the UK would quickly be defeated. Winston Churchill had other ideas and leadership made a huge difference so that in due course the war was won.

I believe that Obama has the potential to be an amazing leader ... but the experts in politics and economics are unlikely to serve him well. This is not entirely their fault, since they have been brought up on metrics that make no sense. How GDP growth can be the ultimate holy grail of economic performance is a nonsense ... how balancing the budget of any entity should take priority over balance the budget of society is equally farcical ... but it is the way we do the metrics and keep score.

I see the economy in engineering terms as much as in terms of economic mathematics. There are needs and there are resources. If the world's intellectual, financial and material capital were optimized to satisfy needs there would be amazing global progress ... but who is working on this? Nobody!

On the other hand the corporate world is sitting on all sorts of possibilities to make the world a better place ... but only allocating resources to those activities that are going to make the company profits. Really good things that do not make much profit are pushed aside ... because doing good is not part of the score-keeping that people take into consideration when valuing and buying corporate stocks. Value accounting and reporting needs to be as much in play for corporate performance as profit accounting.

Corporate Social Responsibility ... CSR ... would make a huge difference, starting off by getting corporate organizations to pay the right amount of tax. Governance at all levels has to be funded ... and the corporate world should be part of doing this funding. There needs to be scorekeeping that measures this and reports on it.

Government decision makers rarely do what is right, but mainly what is convenient ... for re-election or for a personal agenda! The inefficiency of government is fodder for humorists ... but it is also a disgrace and needs to be addressed. Again, the lack of appropriate scorekeeping makes it possible for political behavior to be anything the politicians want it be!

Britain did not lose in the battles of World War II ... a few good decisions and the world may be surprised how well the United States can perform in this evolving 21st Century. The same goes for Europe.

Both Europe and North America have a vast pool of intellectual capital ... a combination of leadership and a paradigm shift in the way socio-economic metrics are done and people around the world may well be surprised.

I hope so! Stay tuned!

Peter Burgess

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