The Reconstruction of Economic Structures Destroyed by Neoliberalism
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?
The advancing desertification of economic structures, especially outside the conurbations, is the result of an economic doctrine that is selfishly and euphemistically called market liberalization by its protagonists. Desertification is not only accompanied by unemployment and poverty, but it’s also causing a gradual de-democratization. Therefore, it is essential to raise awareness of the urgent need for domestic and foreign trade economic countermeasures.
2. Clarification of Terms
In the ongoing global predatory competition a number of major branches of industry have completely disappeared or been forced into high-price niches, not only in Germany, but in all economically developed countries, starting in the eighties of the last century. For Germany these include, for example, the sectors toys, textiles, computers, entertainment electronics and cameras. In other sectors, which have not yet been completely ousted, attempts are being made to absorb the increasing competitive and cost pressure through mergers, takeovers, centralized production and relocation of production to low-wage countries.
However, the pressure is not only affecting the industry sector (as the secondary sector), but also the primary sector (agriculture, crafts, small business and retail trade) as well as the tertiary sector (services such as telecommunications and finance). This means, the process of territorial concentration of production including the concentration of productive capital in fewer and fewer hands has been advancing throughout the economy for years.
Economic structures become deserted both through crowding out of economic competitors and through the process of concentration of production and productive capital. With the result, on the one hand, of agglomerations with relatively high economic activity in all three sectors and relatively low unemployment and poverty, on the other hand, where the economy has withdrawn from peripheral areas, with inadequate structures and low economic activity, high unemployment and poverty as well as an unsustainable, socially and economically unbalanced age structure of the population.
The term industrialization refers here, in accordance with the Latin meaning of industria (diligence or activity), to all three economic sectors, not only, according to today’s economic diction, to the industrial (secondary) sector.
3. The Neoliberal De-Industrialization
The »market liberalizations« initiated on the basis of the neoliberal economic doctrine have led in the countries participating in world trade to
… see as a complement the article Bretton Woods System
Developed and underdeveloped countries suffer equally from the consequences of the predatory competition:
4. The Necessity for Re-Industrialization
Re-industrialization means: Nationwide reconstruction of all lost and pushed back economic sectors at all levels (local, regional and national) and in all three economic sectors (primary, secondary and tertiary).
At all levels means: Production and operating facilities must be rebuilt as decentrally as the technical conditions of production/operation permit. The quasi natural tendency to concentrate power and capital must be countered with appropriate fiscal means.
In all three economic sectors means: Not only must agriculture, crafts, small businesses and retail trade be decentralized, but industrial production plants must also be reestablished extensively across the country and close to the people. And the same applies to service enterprises, especially financial service providers.
Further, re-industrialization means that
5. The Prerequisites for Re-Industrialization
An economic policy that wants to be future-oriented must fulfil two essential conditions in its own and in the global interest:
An economic area must plan a transition period of at least ten years for the re-industrialization project. During this period, the processes from points 1 and 2 must be closely interlinked and designed as a gradual transition from the old (neoliberal) to the desired new order.
6. The Actual Re-Industrialization
Figure 1: According to the above Prerequisite 1, value added is to be generated by the smallest entrepreneurial units capable of producing it. The decentralization (better: subsidiarization) required is achieved through a dynamic process of size limitation and repartition of entrepreneurial units by means of progressive taxation. This process intensifies the market economy mechanisms by distributing production capital optimally and by creating horizontal competition at each and every level of economic activity between the largest possible number of players and at the same time vertical competition between labour-intensive lower and capital-intensive upper levels. Nationwide diversity and decentralized responsibility ensure a high level of employment among both highly- and low-skilled citizens as well as a careful use of natural resources. Since economic participation and responsibility are decentralized, productivity can be calculated from the quantitative benefits for society and the environment and is thus socially and ecologically defined and establishes an order of social and ecological justice
For reasons of subsidiarity, the greatest diversity is found at the local level with agriculture, crafts, small businesses, small-scale production and retail trade, while technologically more elaborate productions are located at higher levels. The structure may expand as a supranational and global order in agreement with other autonomous economic areas, so that complex research and development projects, for example for climate protection and the fight against AIDS, can be carried out multinationally.
In concrete terms, economic subsidiarity is achieved by regularly defining a virtual reference company for each sector, that reflects the smallest possible production or operation site and its highest possible productivity. For industries in which traditional and modern, craft and industrial processes exist independently of each other, a separate reference company is defined for each technology. This differentiation ensures a diverse coexistence of labour-intensive and capital-intensive companies, including the horizontal and vertical competition mentioned above.
Figure 2: Each reference company defined for taxation purposes is clearly defined by a total of four quantitative criteria, two ecological and two social.
On the social criteria it should be noted that:
The maximum allowable number of employees for a reference company prevents the expansion and inflation of companies as it triggers a progression of the tax burden if it is exceeded and thus, sooner or later, forces a division of the companies in line with subsidiarization. A lasting shortfall in the number of employees on a broad front, on the other hand, is an indication of productive progress and leads to a reduction in the number of employees assigned to the virtual reference company at the next inventory.
The maximum allowable weekly working hours must be regularly adjusted to the progress in productivity, i.e. it must decrease with increasing productivity in order to ensure permanent full employment.
Companies that meet or fall below the specified criteria are subject to the lowest tax levies. In this way, incentives are created to repeatedly divide expanding companies into smaller, independent companies by founding spin-offs (so-called cell division) and to constantly provide start-up entrepreneurs with opportunities to enter the market. Tax policy is thus put at the service of economic structural policy:
The benchmark of undifferentiated macroeconomic production volume (which determines the conventional gross domestic product) is unsuitable to generate prosperity and welfare and is therefore replaced by the benchmark of subsidiary production structure and its social and ecological yields. In other words, the production volume is not increased any more by centralizing production in disregard of social and ecological costs, but is increased only within the limits of the production structure oriented towards social and ecological yields.
This ultimately means: The neoliberal obsession with endless quantitative growth is replaced by qualitative growth and sustainable progress.
The practical construction of subsidiary economic structures under the conditions of the neoliberal globalization and as an entry into a post-neoliberal economic order is dealt with in the article Building Subsidiary Economic Structures.
Figure 3: According to Prerequisite 2 above, predatory international competition with price advantages in dollars or euros is replaced by wealth-increasing trade based on relative price advantages. Relative means: the natural productivity differences between trading partners are neutralized by bilateral exchange rates, which are calculated directly from the two average price levels. This ensures that each economic and monetary area can develop further according to its specific natural resources while benefiting from the advantages and incentives of international competition.
This requires bilateral trade agreements setting exchange rates and mutual autonomy in the unilateral fixing of tariffs and trade quotas. Each economic area may, during and after the transition period, adjust prices and quantities of imported products to domestic levels or needs in a competitive way, so as to benefit from the abovementioned incentives of international competition as regards progress in domestic productivity and to achieve a more balanced bilateral trade account.
Trade in products of basic supply (primary care), which each trading partner largely has at its disposal, can be converted in the name of balance to intra-industry trade on a reciprocal basis, which induces competitive incentives and increases the diversity of supply on both sides. Trade in specialities and raw materials, which are unique or of a different nature for each trading partner, can also be converted to a balanced mutual exchange as far as possible. In addition, the emerging multi-bilateral trade allows trade gains to be optimized for the most favorable relative prices for imports due to the multitude of bilateral relationships and specialities and raw materials to be selected from the multitude of offers. Furthermore, environmental requirements for products and production processes as well as short transport routes can and should be made a condition of trade agreements in order to enforce one’s own ecological principles.
Under the conditions of regulated domestic structures and regulated foreign trade, all economic sectors that have been decimated or destroyed by neoliberal predatory competition can be rebuilt in a subsidiarily structured way. This applies both to labor-intensive productions such as those in the textile and toy industries and to capital-intensive productions such as consumer electronics and computers. In this way, the lost economic diversity and independence can be fully regained and the broad spectrum of skills and qualifications available in the population can be brought into line with the labor demand of companies. Re-industrialization can be accelerated by importing lacking productive capital such as machinery, equipment and licences and by recruiting knowledge carriers.
Ideally, with a view to balanced intra-industry reciprocal trade, the production of sectors under construction or reconstruction is increased to the volume of domestic demand and the corresponding imports are synchronously scaled back until the volumes of imports and exports per sector as well as the overall economy are finally in balance. In order to avoid distortions of competition, price competition must be regulated by economic policy during the transition period by subsidising domestic products degressively and progressively imposing customs duties or taxes on imported products. At the end of the transition period, the international competitive conditions take effect, which are permanently established by means of bilaterally agreed, price-neutralizing exchange rates and autonomously fixed tariffs and trade quotas.
7. The Levels of Autonomy of Economic Policy
Figure 4: In the case of subsidiary structures, there are roughly four levels whose economic policy autonomy decreases from the (lowest) local to the (highest) global level, and whose responsibility for international understanding on normative guidelines increases from bottom to top. In other words, the citizens are most autonomous in their economic policy decisions at the local level, while the political and industrial representatives of upper levels have the greatest responsibility for the understanding on normative guidelines gouverning international trade and relations. However, normative guidelines are not legally binding and their implementation including the time horizon are the joint responsibility of all economic levels affected. Meaning that the basis of international economic relations is the indivisible sovereignty of the participating economic areas or national states, which reach agreements on an equal footing that are only valid for a limited period of time or until revoked. As a compliment I recommend the article Principles of Democracy.
A successful economic globalization aimed at global welfare must be based on a foundation of intact, autonomous economic areas that regulate their domestic economies socially and ecologically in a sustainable way and agree on their foreign trade relations on an equal footing.
Note on the COVID-19 Pandemic
The pandemic has noticeably revealed the significant weaknesses of the neoliberal economic system for everyone, above all the shortage of medical, but also other products, caused by disruptions in the absurdly networked value and supply chains across the globe.
The analyses of the neoliberal system as well as the principles and practical procedures based on them for building a sustainable system, which are presented in this compendium, thereby obtain an unexpected topicality. Now is the time to seize the opportunity and build up economic policy pressure to enforce the development of an economic order that is sustainably oriented towards social and ecological welfare.
The following article refers to the targeted arguments contained in the Compendium: COVID-19 and Globalization
Click here for the German-language version: Re-Industrialisierung statt De-Industrialisierung.