Mobility of Production Factors

Mobility of Production Factors as One of 6 Principles of Global Economic Order Under the Maxims Democracy and Market Economy

An Article in the Compendium of Market-Based Social-Ecological Economics

Key issues in view of the neoliberal crisis:
How can we guarantee employment and fair income?
How can we protect the environment effectively?
How should we shape the economic globalization?
What should the economic sciences contribute?
What must be the vital tasks of economic policy?
How can we legitimize economic policy democratically?

Click here for the list of all articles: Compendium
Click here for the German-language version: Mobilität der Produktionsfaktoren

Table of Contents

  1. Overview
  2. Preliminary Remarks
  3. Factor Mobility and Its Limitations

Overview

regionaleordnung01In view of the threatening extent of the devastations caused by the neoliberal economic doctrine, the turning towards compatible economic principles becomes almost existential. But only when these principles are combined to form a model of sustainable regional and global economic order, can the urgently needed economic policy measures be derived.

All 6 global principles are summarized in the article Principles of Global Economic Order in the form of questions. The supplementary 17 regional principles are listed in the article Prinzipien regionaler Wirtschaftsordnung, also as questions.

In the context given here, the term »regional« refers to largely homogeneous entities, currently primarily nation states and supranational political and economic areas (unions), that meet all the requirements for political sovereignty and economic autonomy and are therefore in a position to form a viable foundation for the prosperous coalescence of the world. Hereafter, these entities are mostly referred to as economic areas.

The European Union (EU) and, in particular, the euro zone existing within the EU, can serve as a cautionary example here. Both are supranational entities that have emerged from the political and economic self-interest of powerful players, and whose inhomogeneity and centralism have since unfolded great destructive potential (as a supplement see the article Demokratie und europäische Integration).

Preliminary Remarks

In the course of the historical economic development in Europe and the USA democracy and market economy have emerged as useful and reliable Maximes of Economic Order. Both maxims have, however, been distorted by the neoliberal indoctrination since the 1990s to such an extent that the »natural principles« inherent in them are hardly perceived by the citizens any more. It is therefore essential to return to these principles and to combine them into a model of a sustainable regional and global economic order. See also the article Market and Market Economy.

In contrast to the centralistic structures produced by modern Neoliberalism, the model presented here is based on decentralized structures, or, better still: on subsidiary structures. Only if the citizens in as many countries as possible are recognizing democracy and market economy in their interaction again as convincing maxims, can a culture of political co-determination and economic self-determination return to society, politics and the economy and work towards social and ecological justice. Embedded in subsidiary structures, the citizens bear full responsibility for their actions and well-being, so that they are always brought to shape the conditions in their immediate environment in exchange with each other and at the same time create the preconditions and the foundation for global exchange.

Social and ecological justice, by the way, arise from a multitude of economic mechanisms: For example, the terms Efficiency and Productivity as well as specialization, which are wrongly defined in the neoliberal context, are redefined in the sense of social justice and ecological sustainability and are no longer subject to the arbitrariness of »liberalized« (unregulated) markets, but to economic policy control. The market thus regains the freedom it deserves, which enables it under meaningful and uniform framework conditions, rules and standards to allocate economic resources efficiently and equitably like no other mechanism.

Thus, the price is able to perform its original function again as the central information medium and control element of market transactions of individual economic players, because under the conditions of social and ecological justice and productivity it reflects all internal and external costs. By allowing the players to be guided by truthful prices resulting from the interplay of supply and demand, economic resources move – as if steered by an »invisible hand« – to where they provide the greatest benefit to individuals and, at the same time, to society as a whole. As a supplement see the article Economic Pricing.

Subsidiary structures ensure that prosperity and welfare are no longer at the mercy of the imponderables of a worldwide production quantity achieved under oligarchic rule and high capital concentration, but result automatically from the domestic production structure. The production structure alone is decisive for local and regional economic diversity and consequently for the level of employment, the performance-related equal distribution in society and the preservation of natural resources.

Unlike domestic competition, international competition can not, by its very nature, be granted the freedoms of regulated domestic markets. It must rather be based on bilateral trade agreements given the completely different traditions, standards and resources in the world. In these agreements the exchange rate must be set as the crucial trading link, supplemented by autonomous tariffs and trade quotas to balance out the differences and to grant trade profits to both sides. The primary objective of these agreements must be to ensure that imported products with their characteristics and prices are integrated into domestic competition in the most stimulating but harmless way possible.

The separation into regional and global order thus results quite naturally from the principle difference between domestic and foreign trade. Besides, this explains why there can be no superordinate, all-dominant, self-regulating and self-stabilizing world economic order in a desirably diverse and democratic world. For more details see the article Future-Proof Foreign Trade.

Among politically sovereign and economically autonomous nation-states and economic areas, the global order is reduced to agreements of norms of conduct, especially regarding norms of international trade and cooperation. By applying these norms, economic subsidiarity can be extended beyond national borders and find its perfection at the global level in the form of projects of global interest and scale.

With domestic and cross-border subsidiarity the doctrinal practice of transferring economic powers from lower to higher levels (especially nonstate) is overcome, of which neoliberal protagonists claim it would bring about »more appropriate« and »more efficient« decisions. Along with overcoming this practice, the justification is removed for a World Trade Organization, which is entrusted by its current 164 member states as the guardian of the Grail of global cut-throat competition based on dumping prices in lead currency (i.e. US dollar or euro). This is an unprecedented event in economic history, especially because the condition for membership is the (voluntary) renunciation of national economic autonomy.

It should be noted that the demarcation of the specific functions of the various economic levels, i.e. the subsidiary structure of autonomous nation-states and economic areas both domestically and beyond their borders, is absolutely crucial for the future viability of economically autonomous entities and for the global economy as a whole:

Functioning regionality is a prerequisite for sustainable globality. Globality is the complement of functional regionality.

In what follows, is the plea for the mobility of production factors as one of 6 principles of global economic order:

3. Factor Mobility and Its Limitations

ProductiveFactorsPNG01In the classic threefold division the factors of production that are input to the production processes are called labour, natural resources and capital. The factor labour includes all capabilities and activities, which humans contribute to production – also their knowledge and their ability to acquire new knowledge. The factor natural resources is comprised of the raw materials of the earth crust, the seas and the atmosphere as well as energy and properties. The factor capital includes tools, machinery, equipment, buildings and other facilities that directly or indirectly contribute to production.

It should be noted that capital itself always results from previous productions into which labour and natural resources were initially included as original factors. Therefore, capital is not an original, but a derivative factor. As far as the obligations of capital are concerned (see below), there is no need to distinguish between real (physical) and monetary capital, because both types can be exchanged for each other at any time. The interchangeability is part of the central mechanism in a market economy that generates economic dynamism: The central bank, in controlling the money supply, enables commercial banks to supply the economy with credit, enabling entrepreneurs in turn to take out loans secured in rem with existing real capital and invest them in production facilities to produce new real capital that can then be used as input to further productions. This process can continue indefinitely – and enhance prosperity and welfare – provided the original factors labour and natural resources are not damaged or destroyed.

The mobility of the three production factors is restricted in the social-ecological market economy promoted here by three principles: the social obligation, the environmental obligation and – as their foundation – the local ties. These principles can only be abolished under very specific circumstances by democratically legitimized decisions.

I have deliberately written the following paragraphs in indicative mood and without contrasting individual statements with the current neoliberal condition, so as not to overloaded the text and maintain legibility:

The factor labour: For economically active individuals, at their place of activity, natural obligations and restrictions of a solidarity nature towards the community and a preservicing nature towards the environment arise. These obligations can, however, be transferred locally within autonomous economic areas without any costs being externalized. If, for example, certain productions are set up at a higher economic level at central locations for technical reasons, national freedom of movement will ensure that suitable workers of different local origins seize such an opportunity and immigrate.

The cross-border mobility of workers is quite different: It has to be regulated because social and ecological obligations derive from and are bound to the standards of the respective economic systems. In the case of unregulated cross-border traffic, different standards would cause crowding-in effects in one direction or the other; freely migrating workers would, on one side, abandon their obligations of solidarity and, on the other, parasitize in foreign communities of solidarity – and they would cause external costs both here and there. As a supplement see the article Full Employment.

Cross-border mobility is therefore subject to economic policy decisions and is always earmarked for a specific purpose: Economic areas can agree on a temporary exchange of pupils, students and workers for the purpose of knowledge transfer and learning; they can delegate their workers to supranational functions and projects for a limited period of time – for example to support development aid; and finally they can also agree bilaterally on culturally and politically responsible immigration and emigration flows.

On the other hand, a general fundamental right to free mobility does not exist and could not be substantiated ethically. Although democratic economic areas grant their citizens the right to emigrate, a complementary right to immigration, i.e. a permanent right to hospitality, cannot be derived from this. In practice, economic areas are obliged towards their citizens and their environment to shape their immigration policy in full sovereignty in such a way that their socio-cultural identity is protected from exaggerated colonization and the preservation of their natural basis of life is guaranteed by limiting population density. In addition, however, there is a general right to visit which allows citizens to travel to other countries for a limited period of time without the host countries being obliged to grant visitors special freedoms or to respond to their demands. For the larger context, I recommend the article Demography and Retirement Provision.

The factor natural resources: The social and environmental obligations towards natural resources, including their local ties, to which economic areas are committed, offer the guarantee that the resources are used nationwide with the aim of achieving the greatest possible social and ecological productivity and are thus permanently preserved. The obligations and the local ties demand that raw materials are only traded in limited quantities and where possible on a reciprocal basis, and that trading partners commit themselves in bilateral agreements to reuse raw materials in material cycles. Land plots, on the other hand, as a public good, can not be subject to cross-border sale and should only be leased on a temporary basis, even for humanitarian supranational use.

The factor capital: Capital as a derivative production factor »inherits« the obligations and local ties of the original factors labour and natural ressources. This applies equally to real (physical) and monetary capital because, as said, both can be exchanged for each other at any time. The inherited obligations and restrictions mean above all that owners cannot arbitrarily detach their capital from its local ties, let alone cross-border. Owners can exercise their power of disposal only within narrow local boundaries because the workers involved in generating the capital have a permanent right to participate in the profitable use of the capital. Accordingly, cross-border use of capital must be democratically legitimized and limited to supranational programs and projects that serve humanitarian purposes, such as development aid.

As a supplement I recommend the articles Factors of Production and Economic Subsidiarity.

Click here for the German-language version: Mobilität der Produktionsfaktoren.

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