This article will look at present economic strategies influenced or enforced by IMF on European countries as a result of the recent bank crisis suggesting that such tactics represent economic dogma and will cause serious problems to the respective economies. It will propose that:
1) such measures are traditionally employed to combat inflation,
2) such methods will stagnate economies,
3) economies require stimulation not repression,
4) public spending has a wealth creation agenda that has been overlooked,
5) governments, influenced by IMF and America, are ignoring this fact,
6) the lessons of the Chinese economy are not being learned,
7) the importance of local government direct wealth stimulation to British economic environment.
Since 2009 the British economy has been failing. Although economic recovery recently looked possible, it has continued to falter. At present with the prospect of high energy prices, there is the possibility of inflation, although some commentators still hold that this is unlikely. Nevertheless, there has been a considerable fall in productivity.
Stringent Economic Strategies:
The present economic strategies, forcefully encouraged by the IMF, are liable to cause long term stagnation. The strategies I suggest are the result of the influence of lumbering economic dogma disdainful of government directed economies. Willfully pursued by the British government, and imposed on the economies of Greece, Ireland, and Portugal these measures rather than the effects of the Bank crisis will ensure Europe’s economic demise. What we have is the last trumpet call of Puritanism. Greedy, overspending, fat populations (not irresponsible bankers and incompetent governments) brought to heel, and made to face their shiftless ways. How they must now be made to suffer. The use of words such as ‘endure’ and ‘punishment’, seen in many dailies reporting on the issues, suggests the pronouncement of moralists.
Such policies misunderstand the nature of public spending, focused perhaps on a largely American belief in the importance of entrepreneurial wealth-creation.
Public Spending and Wealth:
Money spent by a government on a public service is not, as appears to be believed by many economists at the government’s beck and call, economic waste but a method of creating the means of wealth. It’s what separates wealthy countries from poor countries. Britain was the originator of continuance government wealth creation. Successive early governments initiated the building of Liverpool and London docks, causing wealth from the Americas and Far East to be directed towards Britain, thereby fashioning national wealth based upon trade. Government encouraged the building of railways, ensuring Britain continued to economically compete beyond its size for a further hundred years.
Importance of Locally Directed Economic Initiatives:
The maintenance of the urban environment by council officers creates the enabling environment that allows for prosperity, transversible roads, able communications, the free and rapid movement of cash and paper money, credit and electronic money (the use of cards which carry the same contracted promise as cash). Council officers spend, often locally, pay taxes, acquire property. They are bound to strengthen, not weaken, the local economy. In China, local initiatives are fuelling economic growth. Active, participatory local government directed economic growth is essential for healthy national economic growth.
In poor countries, little attempt is made at upkeep. Road repairs or road building is not considered essential as often money-making is located within individuals. In Nigeria for example, a big man generates wealth, often pocketing much of it himself. The money is not spread around, vitalizing both local and national economies. A road built or repaired constitutes wealth-creation through the facilitation of community development and easy travel and communication. A good, well built road connects one group with another, causing them to work together, trade and develop trade. The direct use of money, to encourage building, buying a number of commodities and employing labour, aids the control of money flow but also allows money to be active.
Economists dogmatically assume that money used in such a fashion is passive, and therefore unhelpful to wealth production. If the money flow is active, it produces wealth creation. Buying and selling is one means of circulating money (and of course goods) but not the only means of creating wealth. Currency which circulates through government run agencies stimulates beyond procurement, supply, and private savings and spending. It involves controlled wealth stimulation.
The present economic state of Greece, where immense numbers worked for the government creating an artificial economic environment, is used as a means of justifying economic policy. Greece is an exceptional case. The problem there appears to lie with the Greek government’s unwillingness or ineptitude in the collection of taxes from influential sections of Greek society, especially the middle class. Clearly, a system based upon government jobs requires the efficient collection of taxes.
Effective public expenditure:
Money spent on benefits means that money continues to circulate, which governments can control. People on benefits, sickness or unemployed, act as a brake on inflation. The problem of benefits lies in an excessive number of people on benefits creating local downturns. A depressed local population has a knock on affect. Companies, even national companies, struggling in such an environment suffer. Cuts are made, projects shelved, the business suffering elsewhere to keep alive an unproductive shop, pub, or garage in a failing local economy.
Where the American system has an advantage over the British, and many European, systems is to allow government bodies to engage in the market place. A prime example is the American military. Allowing the NHS to engage with the market place, not necessarily brokering health but through training for example, would offset the over-burdoning costs of the service. Selling expertise is an acknowledged element of modern economies. In fact, GPs already act in the above fashion, acting as middle-men for drug companies. If British hospitals engaged in research, pondering health issues beyond the triad of drugs-present technology-materialism, they could develop expertise for marketing. This was done in the past.
Limiting the scope of the NHS is essential, restricting certain surgeries, encouraging more realistic forms of health insurance through discussion with stakeholders should and in fact must happen. In the recent and distant past, governments have attempted to impose plans rather than opening the debate. Doing so has often met with resistance. While insisting that everyone involved with the NHS is a stakeholder, governments have tended to ignore that fact when it comes to overall decision making. The NHS exists as a government fiefdom curtailing its development.
Unemployment benefits are given as a way of punishment, restricting choice and individual flexibility, rather than used positively. If for example an unemployed person seeks re-education they can lose benefit or part of it, unless the re-education is done according to government regulations. Such re-education, based upon basic skills, tends to be unimaginative and limits individual choice and flexibility. The integration of benefits into the economy would work wonders.
Correct Policies: China shows way.
Although such strident, severe economic measures are necessary to offset inflation, the present problems have little to do with such matters. Artificial stimulation of economies requires government intervention, in one form or another, to, after a short period of severity, re-stimulate the economy. In 2008, during the crisis when the Chinese economy showed signs of slump, the Chinese government authorised a 374 billion stimulous plan. While British governments normally seek to encourage economic growth within a national scope, although rarely through direct activity, such stimulation would best be accomplished incrementally. The lesser risks involved in local government intervention, unable historically and financially to act like the Chinese government, would bear swift fruit.
Government departments, tied to the Prime Minister through the PM’s control of both the Civil Service and Treasury, should be freed to engage in wealth creation as an essential part of their overall remit. German economic policy has, since the period of economic stagnation in the 1990s, emphasised a flexible labour market, entrepreneurial use of knowledge and high tech, and deregulation. Universities have been encouraged to engage with the market. British governments and civil managers have long taken the view that the public and private sections operate in different, contradictory fashions and must never integrate.
Direct government stimulus has been shown to work, but here in Britain such an approach is rejected through dogma. That dogma, American economic ideas brought into Britain via the Thatcher government and IMF, which came to prominence during periods of inflation, are connected to equally potent dogmas concerning the fixed, separate roles of public and private sectors. Here, I have advocated, government direct stimulus is vital, that stringent economic policies are at best ineffective, at worst dangerous, and, to lessen risk, stimulus should be attempted incrementally, through local government.
China is the present economic success story, and, although its methods may prove to be valuable locally and not applicable elsewhere, the Chinese central bank is committed to stimulating the economy whenever it is deemed necessary. Part of China’s current wealth is based upon the stimulus gained from creating a modern, efficient infrastructure. In Europe, we now seem to disdain such methods. We believe it is better to punish ourselves, pull in our belts and brave a coming storm which continues to be of our own making. We must take risks to compete.