The New Pragmatism Pt. 2: Reframing the political and economic policy debate
This is the second part of Steve Barber’s paper on the New Pragmatism. Part One is available here.
- 1. The Chinese Approach
As Leonard (2008, pp. 5-7) notes, China’s rise is “the big story of our age and its after effects could echo down generations to come” – its scale is mesmerising, with its vital statistics being almost impossible to grasp:
With one in five of the world’s population, China’s entrance into the global market place has almost doubled the world’s workforce. Already, half of the world’s clothes and footwear have a ‘Made in China’ label in them, and China produces more computers than anywhere else in the world. China’s voracious appetite for resources is gobbling up 40 per cent of the world’s cement, 40 per cent of its coal, 30 per cent of its steel and 12 per cent of its energy… If current growth trends continue – which is admittedly a big ‘if’ – the People’s Republic could overtake the USA to become the world’s biggest economy well before 2050.
It is well documented that China has achieved its current status over the past two decades, since 1989, through what Hui (2009, p. ix and Chapter 2) has described as ‘economic developmentalism’. This has been the product, not of spontaneous market emergence, but rather of state intervention, which has enabled the state to create such resounding economic progress as to lift more than 100 million people out of poverty, while concealing other underlying tensions and contradictions (in a way that the purist Western form of neoliberalism would not be able to), such as “unemployment, the decline of social security, and the widening gap between rich and poor” (id., pp. 20-21).
The key element in the success of China’s unique model of a state-directed market economy is the ‘state-directed’ part: China consciously decided, at state level, that it wanted to develop a successful, modernised, market-based economy, through the policies of Deng Xiaoping (see his “Selected Works”, 1982-1992), in the form of a strategy for the next 50 years of “bold economic changes intended to raise living standards and rebuild support for the Communist Party after the demoralisation caused by the Cultural Revolution” (Shirk, 2008, p. 18). These successes did not occur spontaneously as a result of a purist, laissez faire, non-interventionist form of neoliberalism, but were, and remain, the result of conscious, indeed visionary, government policies which “sent China into a steep economic takeoff … [with the 1982] government goal of quadrupling the economy by 2002 … [being] met two years ahead of schedule” (id., p.19). This conscious state-directed, interventionist policy has, during the very period when the Soviet economy was stagnating and then crumbling, seen China go from having, in the 1950s, a “per capita GDP far lower than those [sic] of Europe and the United States back in the 1820s when those countries were in the early phase of industrialisation” (id., p. 18), to now being the “manufacturing workshop of the world, just as Great Britain was in the late nineteenth century” (id., p. 16).
It is particularly relevant that the success of this Chinese ‘economic developmentalism’ which has produced the ‘Chinese economic miracle’ has come “at a time when the [neoliberal] doctrine of Western … economics, along with its namesake, the Washington Consensus, is tarnished” (Halper, 2010, p. 36), with “Chinese scholars and officials [debating] about how to manage the West’s decline; how … [they can] best shape the behaviour of Western powers to advance Chinese interests and values” (Leonard, 2008, p. 116). The success of this Chinese ‘economic developmentalism’ has also been rendered more successful because, during this period, the educational strategy in the Anglo-economies (particularly in the U.S.) has been to continue mass education in the form of ‘dumbing down’ and as a ‘Deweyan tool of social engineering’ emphasising collective socialisation over substantive learning, while China has instead continued to pursue traditional educational policies based on the ‘three “R’s” with the maintenance of rigorous objective performance standards and work/study ethics. Indeed, it could be said that China has not only been pursuing ‘economic developmentalism’ but ‘educational developmentalism’, while the Anglo-economies have been pursuing laissez faire policies at both economic and educational levels (see Gatto, 2010, Ravitch, 2001, and Dewey, 1999).
Indeed, the lesson for the Western political and ruling elites from China’s economic success story, using our ‘Clausewitzian reality check’, is that, as the work of List (1856) makes clear, we have to actively decide what sort of economy and society we want, and promote it with appropriate government policies, just as China has successfully done. For otherwise, left to the free market alone, the deadly combination of ‘ponzi-financialisation’, deindustrialisation and consumerism, which as we have already seen comprise the most significant downsides of ‘Millennial Capitalism’, together mean that we are precipitating our own decline and facilitating the rise of China at the expense of our economic, and foreign policy, security.
Indeed, it is interesting that Leonard (2008, pp., 64-68) quotes a prominent Beijing University academic, Pan Wei, who theorises that China’s economic success in using the state-directed ‘economic developmentalism’ model is also partly due to the fact that it is not a democratic state, which thus enhances the ability of the state to direct matters in ways that have become unfashionable in the era of ‘Millennial Capitalism’ in the West. In this connection, Leonard cites Pan Wei as observing that the West assumes that “countries are stable and prosperous because of democracy … [whereas it is instead because of] the rule of law … [and] that democracy and the rule of law do not need to go together”.
And of course, the ultimate price that we will pay in the West, especially in the U.S. and Australia, for failing the ‘Clausewitzian reality check’ in relation to China, and allowing ourselves to become economically weakened by our ‘Millennial Capitalism’ in comparison to the success of China’s state-directed ‘economic developmentalism’ model, is for China to increasingly dominate the Asia-Pacific region in a foreign policy sense as a corollary of its economic strength. In this connection, numerous authors have been documenting this increasing foreign policy shift, involving both “soft power” (Ding, 2008, pp. 98-108, who notes Chinese President Hu Jintao’s emphasis on “peaceful development”) and “hard power” (Shirk, 2008, pp. 118-120, who cites the ongoing disputes regarding the “bone of contention” between China and the various Southeast Asian nations over the “islands in the South China Sea that sit astride the major sea-lanes and may have rich deposits of oil and gas under the seabed”). Further, Kurlantzick (2007, p. 226) notes that the rapidly growing economic power of the Chinese economic model has enabled it to flex its foreign policy muscles to the extent that “it may already be the pre-eminent power in parts of Asia and Africa, and it could develop China-centreed spheres of influence in other parts of the globe … [with] even longtime American allies, like Australia [moving] closer to Beijing”.
Bluntly, as regards China, we have failed the ‘Clausewitzian reality check’, and our neoconservative foreign policies and our neoliberal economic policies have therefore weakened us, through being based on the wrong ‘centres of gravity’; conversely, at the same time, China has passed the ‘Clausewitzian reality check’, and is becoming stronger both economically and in a foreign policy sense, through adopting the right ‘centres of gravity’. Accordingly, the foreign policy downside for us in this regard that is now beginning to emerge, is the risk that China may become increasingly belligerent “in maneuvering to preserve long-standing interests” (Sutter, “China’s Regional Strategy and America”, in Shambaugh, 2005, p. 299). Evidence that this trend is now clearly beginning to develop can be seen in recent press articles, such as those by Wines (October 11, 2010) and Hickley (November 10, 2010), where China is becoming increasingly aggressive in relation to military matters in the South China Sea as regards the presence of the United States.
News items such as these are but a foretaste of what is to come if we continue on this path towards economic and foreign policy weakness, through adopting policies which continue to fail the ‘Clausewitzian reality check’.
- 2. Japan and the Asian Tigers
Japan and the Asian Tigers, and their success with economic development and building robust manufacturing economies with high value-added components are, like China, an example of what Halper (2010, pp. 68-73) calls “illiberal capitalism”. This is an alternative capitalist model to the Western laissez faire neoliberalism of ‘Millennial Capitalism’, being export-driven, state-directed capitalism (also referred to as the “East Asian model”, owing to its broad and successful application among Japan and the Asian Tigers).
The key element of this “East Asian model” of “illiberal capitalism” is its focus on generating “growth by the mass production and export of products with a decisive competitive advantage for sale on the international market … [and in this regard] Beijing has only refined a growth formula that was pioneered by … Hong Kong, Taiwan, Singapore, South Korea and Japan” (id., p.70). Halper (ibid.,) notes that these Asian Tigers all have consistently registered their 8 to 10 per cent annual growth rates through sharing certain core characteristics: comparatively cheap labor, undervalued currency, heavy state subsidies to achieve export competitiveness in international markets, high levels of personal and business savings to fund national investment in industries, high levels of foreign direct investment with tax incentives, an emphasis on improving education, and highly protected domestic markets.
The success of the “East Asian model” speaks for itself: China, Japan and the Asian Tigers are all today highly successful industrial manufacturing economies, reflecting the vision that these states had of what type of economy and society they wanted to produce. They are the direct result of deliberate state policies designed to create an integrated industrial manufacturing economy, not the result of laissez faire, neoliberal ‘Millennial Capitalism’ in which the end result is purely in the lap of the undirected ‘free market gods’ with their ‘invisible hands’, and which has precipitated, as we have discussed, our steady and inexorable deindustrialisation by comparison.
Indeed, Chomsky (1999, p. 28) observes that the changes in the global order wrought by the success of the “East Asian model” and the deleterious ramifications of ‘Millennial Capitalism’ on the Anglo-economies, have meant that, for the first time, the Washington Consensus has effectively been applied to us at home, in reverse. This is demonstrated most shockingly by the current events unfolding in real time in the developing ‘Sovereign Debt Crisis’ in the Eurozone, where we have the unprecedented scenario of the IMF applying its harsh financial medicine, not to developing countries, but to first-world Eurozone nations such as Ireland, Greece, Portugal and Spain. And further, in the world’s largest economy, thanks to ‘Millennial Capitalism’, “for most of the U.S. population, incomes have stagnated or declined … along with working conditions and job security, continuing through economic recovery … an unprecedented phenomenon … Inequality has reached levels unknown for seventy years, far beyond other industrial countries … The United States has the highest level of child poverty of any industrial society, followed by the rest of the English-speaking world” (ibid.). Indeed, Reich (2008, p. 51) says it well, when he notes that decades of ‘Millennial Capitalism’ have “sucked relative equality and stability, as well as other social values, out of the system”, to the point where by 2007, the top 1 per cent of American families took in 23.5 per cent of the nation’s total income, whereas as recently as 1970, this figure was only 9 per cent (Reich, 2010, p. 1, citing the economists Emmanuel Saez and Thomas Picketty).
In short, the failings of “Millennial Capitalism”, with its ‘ponzi-financialisation’, deindustrialisation and the fallacy of consumerism, have resulted in the Anglo-economies now exhibiting many aspects of what were formerly third world maladies, so is it any wonder that our mainstream voters have reached a ‘break point’ with the political and ruling elites on these issues and have become frustrated with not being listened to?
- 3. The imperative to reverse deindustrialisation in the Anglo economies
One only has to read the item posted on the increasingly popular economic blog, The Economic Collapse, entitled “19 Facts About the Deindustrialisation of America”, cited below, to get a feel for how the deindustrialisation process wrought by ‘Millennial Capitalism’ is now rapidly accelerating, and to understand why this is exacerbating the ‘break point’ between the mainstream voter and the neoconservative and neoliberal elites. Indeed, these 19 facts about deindustrialisation summarised by The Economic Collapse should be compulsory reading for all members of the elites, so as to put them in touch with the ‘real world of Main Street’ where the mainstream voter lives, works and struggles.
The highlights, set out below, from “the 19 Facts”, are cause for great concern, not only in the U.S., but also in Australia, Canada, the UK and Western Europe, where a similar deindustrialisation phenomenon has been occurring to various degrees since the advent of ‘Millennial Capitalism’ in the 1980s:
- The United States has lost approximately 42,400 factories since 2001. About 75 percent of those factories employed over 500 people when they were still in operation.
- The United States has lost a total of about 5.5 million manufacturing jobs since October 2000.
- As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.
- In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008, it represented 11.5 percent.
- Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.
- In the United States today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is spent on services.
- The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.
- In 2008, 1.2 billion cellphones were sold worldwide. None of them were manufactured inside the United States.
- If the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone. As of the end of July, the U.S. trade deficit with China had risen 18 percent compared to the same time period a year ago.
- Between 1999 and 2008 employment at the foreign affiliates of U.S. parent companies increased 30 percent to 10.1 million. During that exact same time period, U.S.-based employment at American multinational corporations declined 8 percent to 21.1 million.
- Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide.
- The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.
- The U.S. Census Bureau notes that 43.6 million Americans are now living in poverty and that is the highest number of poor Americans in the 51 years that records have been kept.
As Roberts (2010, pp. 1-2) notes, the situation in America, as a result of this deindustrialisation and the associated ‘offshoring’ of jobs, is dire, because:
… the loss of manufacturing jobs was followed by the loss of professional service jobs, such as software engineering, that were career ladders for American university graduates. The middle class has no prospects. Already the American labor force and income distribution mimics that of a third world country, with income and wealth concentrated in a few hands at the top and most of the rest of the population employed in domestic services jobs. In recent years net new job creation has been concentrated in lowly paid occupations, such as waitresses and bartenders, ambulatory health care services, and retail clerks. The population and new entrants into the work force continue to grow more rapidly than job opportunities.
Accordingly, it is imperative that we reverse the process of deindustrialisation and ‘offshoring’ that has been wrought by ‘Millennial Capitalism’, and quickly, especially in view of the accelerating pace with which it has been occurring since the onset of the 21st Century. Indeed, as Batra (2007, p. 105) notes, “it now afflicts most advanced economies to various degrees”, and because it is a phenomenon that began with the United States as the epicentre of the neoliberal ethos, for the rest of the advanced economies (especially the Anglo-economies) it is literally a case of “where goes America, so goes Australia/Canada/the UK”.
Batra (ibid.) is right when he notes that outsourcing can do no good for our country: “… no matter what an expert says, this idea appears foolish, even disastrous”, because if a company offers an American’s $100,000 job to someone in Asia for just $20,000, it is highly unlikely that the company’s profits will rise enough to provide more jobs to U.S. residents. Further, Batra (id., pp. 109-110) points out that outsourcing inflicts a “double-edged loss on high-wage countries like those of the United States, Western Europe, Canada and Australia”: the direct loss occurs when someone’s work, previously done in the advanced high wage country, is awarded to a low-wage worker abroad, and the indirect loss occurs because the outsourcing invariably results in reduced wages in the advanced high-wage country (as has been shown historically to be the case, noted above in this paper), meaning that some goods manufactured in the advanced high-wage country will go unsold, causing further layoffs in the process.
Accordingly, the neoliberal economic doctrines of ‘Millennial Capitalism’ are “not just another way of doing international trade … [they are] another way of destroying high-wage jobs in America” (Batra, ibid.), and leading to the steady and inexorable weakening of our economy and our culture.
Applying our ‘Clausewitzian reality check’, this is clearly a wrong ‘Centre of Gravity’, and the fact that the elites cannot see this, when it is self-evident to the mainstream voter who views the situation from a position of ‘robust common sense’ in ‘Main Street’, rather than from the elitist position of purist political economic ideology, is without doubt one of the key defining features of the ‘break point’ referred to above. Indeed, a good metaphor for this situation would be the ‘elite runner’ who pushes himself in a 100-mile ultra-marathon, depleting his bodily resources and depriving the body’s core of nutrients and energy; the heart can make up this deficit by working harder, but only for a finite time, and the ‘elite’ ultra-marathoner risks total collapse in the end. In contrast, the ‘ordinary’ common sense position is to ‘know’ that this approach is unsustainable for the long term.
The ‘New Pragmatism’ has, as one of its prime drivers, the aim to reverse this negative process of deindustrialisation that ‘Millennial Capitalism’ has wrought on the Anglo-economies, through implementing modern 21st Century variants of the ‘economic developmentalism’ referred to above. In so doing, it aims to recreate the successes of the Fordist ambition, through which American society became “prosperous, stable, safe and well guided … and workers were assured gradual improvements in their standard of living … [whereby] the Pax Fordiana promised a bright future” (Mead, 2005, pp. 46-50). And as a result, the ‘New Pragmatism’ will enable a new era of “economic humanism” to work in conjunction with the free market, reflecting the soundness of Roepke’s ‘Centre of Gravity’ that “it is a precept of ethical and humane behaviour, no less than of political wisdom, to adapt economic policy to man, not man to economic policy” (Roepke, 1998, p. 6).
- 4. The ‘sound’ strategy rather than the ‘grand’ strategy – the ‘New Pragmatism’ and ‘Centres of Gravity’ that hold:
As has been noted above at the outset, the ‘New Pragmatism’ is designed to be a ‘game changing’ policy paradigm which we can use to replace the discredited and arrogant ‘grand strategies’ of the elites, which have not passed any of our ‘Clausewitzian reality checks’ in either the foreign policy or political economy realms. In this, it represents a return to ‘sound’ strategy, based on a common sense view of the world and our place in it, rather than ‘grand’ strategy, based on the lofty and out of touch ideological thinking of elites.
Simply put, it is about what ‘works’ for us, based on the realities of history, the modern 21st century world, and how we see ourselves in it. In particular, it is based on the beliefs that the ‘Four Tools of Freedom’ are absolutely central to our strength, wealth and well-being, and that (as our forefathers successfully did in making Western culture the world’s dominant force) we must consciously decide what sort of state, economy and culture we want to create, and actively promote attaining it.
These matters are simply too important to be left to out of touch elites and to ‘invisible hands’ – this realisation is indeed the ultimate example of passing the ‘Clausewitzian reality check’ and settling on a ‘Centre of Gravity’ that holds.
- A. Foreign Policy: The Asia-Pacific Centre of Gravity
As we have seen above when we subjected the ‘grand strategies’ of Brzezinski and Neoconservatism to our ‘Clausewitzian reality check’, we found that they are based on flawed ‘centres of gravity’ which cannot hold: viz., Central Asia being the focal point, the export of democracy to the Middle East, moving manufacturing jobs to China, piling up enormous trade and budget deficits, letting education become little more than a socialisation and social re-engineering exercise, and the push towards one-world governance through using immigration and multi-culturalism to make nationalism and cultural fundamentalism passé.
In addition, we must recognise the reality that the “logic of hard power that converted, briefly, a bipolar world into a unipolar world is now giving way to a multipolar world … [and that] US global dominance is apparently not immutable” (Sikri, 2009, p. 1). Indeed, even the U.S. National Intelligence Council’s Reports entitled “Global Trends 2025: A Transformed World” and “Mapping the Global Future” seem to acknowledge that it is likely that the influence of the U.S. is going to be reaching a plateau.
Accordingly, in a new multipolar world, where the U.S. is unlikely to be the world’s unquestioned dominant power, a new era of alliances among states with aligned interests (both political and economic) will become important. This will be especially so because the UN Security Council “reflects the mid-20th century power balance rather than today’s realities and is, therefore, unsurprisingly ineffective in its core purpose of ensuring peace and security” (Sikri, 2009, pp. 3-4).
So what then, is the right Centre of Gravity for the ‘New Pragmatism’, which will hold in this new reality?
Gharekhan (in the foreword to Sikri, 2009, pp. xv-xvi) correctly notes that the “modern trend is for countries to establish strategic relationships or partnerships” and that “a country’s foreign policy is often described as an extension of its domestic policy”. He also notes Palmerston’s famous dictum that a country does not so much have permanent friends or enemies but only permanent interests (ibid). Accordingly, the ‘New Pragmatism’ must look, in settling on our correct foreign policy ‘Centre of Gravity’ to those strategic relationships or partnerships which can fit with Palmerston’s concept of core or real interests, as opposed to merely ideological constructs.
On the basis of these considerations (viz., foreign policy being an extension of domestic policy and the requirement for permanently aligned interests between strategic partners), the ‘New Pragmatism’ therefore naturally settles towards a foreign policy alliance ‘Centre of Gravity’ consisting of:
- a geopolitical focus being the Asia-Pacific region (because this region encapsulates the most dynamic economies of the 21st century, and will therefore provide much of the drive for global growth from this point on); and
- a strategic alliance focused on the successful industrialised democracies of the Asia-Pacfic region (ie., India, Japan, the Asian Tigers, the U.S., Canada, and Australia/New Zealand).
In so doing, the ‘New Pragmatism’ brings together the most dynamic democratic states in the world for the 21st Century in a very powerful alliance of shared, permanent aligned interests which could represent one of the most powerful diplomatic, military, trade and economic power blocs that the world has seen in many centuries. All alliance members share a successful and stable democratic structure centreed around the ‘Four Tools of Freedom’, they are all peaceful trading and industrial economies, and also, most importantly, within the alliance group reside key resource, raw material and energy suppliers (viz., Australia, Canada and also the U.S.) to provide the alliance bloc with all-important resource independence (in this regard, it is important to note that, in addition to the large oil and gas reserves of Canada, Australia has large reserves of gas and is in fact the world’s largest exporter of LNG). Such an alliance bloc would also have the very strong advantage of being able to naturally counter the political and economic impacts and aggression of other significant powers and power blocs, such as China, Russia, Brazil and a potentially resurgent pan-Islamic caliphate which may be driven by either or all of Turkey, Iran, Pakistan or Indonesia.
- B. Political Economy: The Developmentalist Centre of Gravity
The compelling alliance between the modern, successful democracies of the Asia-Pacific region, which is suggested to be at the heart of the ‘New Pragmatism’ from a foreign policy standpoint, works equally well from the standpoint of political economy and leads the alliance members naturally towards a strong ‘Centre of Gravity’ based around the “East Asian” economic model which has made the Asian Tigers an example to us all.
Clearly, as we have seen from our ‘Clausewitzian reality check’ of political economy, the strong economic Centre of Gravity (which is the one that the mainstream voter’s common sense tells him is correct) for our ‘New Paradigm’ alliance, is that of using the ‘Four Tools of Freedom’ to actively promote, in all alliance member economies, the “East Asian” attributes of industrialisation over deindustrialisation, production over consumption, and the ‘real’ economy over the ‘ponzi-financialised’ economy.
In this regard, all alliance members must adopt what we have here termed a ‘developmentalist’ economic model, which recognises the historical fact dating back to the industrialisation of Britain, Germany, the United States, Meiji Japan, and running through to the modern economic development success stories of post-World War II Japan, the Asian Tigers and modern China, being that countries develop most successfully “by radically violating approved free market doctrine” (Chomsky, 1999, p. 30).
Indeed, it is imperative for the future economic survival of the U.S., Canada and Australia, that we each adopt these East-Asian ‘economic developmentalist’ policies by joining in the proposed ‘New Pragmatism’ alliance, so as to arrest the decline within our economies being caused by decades of ‘Millennial Capitalism’ and its associated deindustrialisation and endless cycles of destructive financial bubbles. For as Lavonick (1993, pp. 5) notes in the context of the decline of British economic and political power over the past one hundred years, “the ultimate critique is that laissez faire failed to comprehend Britain’s future – a future in which, confronted by [non-laissez faire] systems of national capitalism, the British economy would enter into a long-run relative decline from which it has yet to recover”. And furthermore, of particular relevance to the imperative that the U.S., Canada and Australia take full advantage of the proposed ‘New Paradigm’ alliance by adopting these East-Asian ‘economic developmentalist’ policies internally, Lavonick (id., pp. 6-7) concludes that the laissez faire “theory of market economy, as it has been elaborated in the twentieth century, contains no theory of economic development, and hence no conception of ‘ideal’ economic outcomes … [and] history shows that the driving force of successful capitalist development is not the perfection of the market mechanism but the building of organisational capabilities”.
Accordingly, the adoption of the ‘developmentalist’ economic ‘Centre of Gravity’, as proposed by the ‘New Pragamatism’, represents an exceedingly strong ‘Centre of Gravity’ for all members of the new alliance, but especially so for the Anglo-economies of the U.S., Canada and Australia, because it enables them, critically, to arrest the long-run economic decline that has afflicted Britain so disastrously as a result of deindustrialisation. In so doing, the proposed ‘New Pragmatism’ alliance resoundingly passes our ‘Clausewitzian reality check’.
For completeness, the engaged reader of this paper will be interested to find specific policy-level examples, in the appendices, of the ways in which it is proposed that the ‘New Pragmatism’ can eliminate the ‘ponzi-financialisation’ of the economy, and also reverse the seemingly inexorable trend towards deindustrialisation.
- 5. Conclusion – Restoring the “Angel in our Whirlwind”: Not the end of history, but the return of history
This paper has been predicated on the harsh reality that has been dawning over recent years on the mainstream voter, but has apparently yet to dawn on the political and ruling elites, that contrary to Francis Fukuyama’s confident projection at the end of the Cold War, there has in fact been no ‘end of history’. Instead, there has been a ‘return of history’ with a vengeance, and this history shows us unequivocally that the political and ruling elites, with their fascination for arrogant ‘grand strategies’ (such as treating the world as a “grand chessboard”, exporting democracy to all and sundry regardless of its compatibility with their culture, multi-culturalism at the expense of nationalism and cultural fundamentalism, and ‘Millennial Capitalism’), are all completely out of touch with the day to day realities confronting the mainstream voter. And moreover, they are simply bad policy based on the wrong “Centre of Gravity’.
The ‘break point’ that this ‘return of history’ is causing between the elites and the mainstream voter, as evidenced by the historic rise of the tea party movement in the U.S., in the lead up to this year’s mid-term elections, provides us with an opportunity of unparalleled proportions. This opportunity, simply stated, is to develop a game-changing new policy paradigm that can re-frame the political and economic policy debate in the Anglo-economies, particularly in the U.S., and in Australia. We have endeavoured to provide this game-changer in this paper by outlining our proposed ‘New Pragmatism’, based as it is on what we have termed the ‘Quadrilateral Alliance Strategy’ formed around the use of the ‘Four Tools of Freedom’.
As we have discussed, the ‘New Pragmatism’ uses the tried and tested lens of the famous 19th Century military strategist, General Carl von Clausewitz, to formulate a new ‘sound’ strategy (rather than a ‘grand’ strategy) for our foreign policy and political economic policy which is based on strong and correct ‘Centres of Gravity’ which will carry us, on an even keel, through the turbulent multi-polar world that we find ourselves entering in the second decade of the 21st Century.
The ‘New Pragmatism’ passes our ‘Clausewitzian reality check’ because it is based on the concept of forming a full diplomatic, military, trade and economic alliance between all the successful industrial democracies of the Asia-Pacific region, which share a common thread of being linked by a general adherence to the ‘Four Tools of Freedom’. In addition, from the standpoint of political economy, the ‘New Pragmatism’ recognises that the elites’ addiction to ‘Millennial Capitalism’ will ultimately come to be regarded as merely an unhelpful economic fad of the late 20th Century, which caused a wholly undesirable decline in the industrial manufacturing base of the Anglo-economies. In this context, the ‘New Pragmatism’ proposes, through the ‘Quadrilateral Alliance Strategy’, a defined mechanism for the reindustrialisation and revitalisation of the affected economies, thus returning them to their former strength derived from a revitalised and fully integrated advanced manufacturing base, thus enabling them to counter the rise and influence of China, Russia, Brazil and a potentially resurgent global Islamic caliphate, none of which are likely to have our best interests as their prime directive.
The analysis conducted in this paper, based on the lens of the ‘Clausewitzian reality check’, shows us unequivocally that the best ‘Centre of Gravity’ is knowing clearly what sort of state, economy and culture we want, and putting clear policies in place to ensure that this is achieved, because such matters are too important to be left to ‘market forces’ and ‘invisible hands’.
The mainstream voter has reached the break point with the elites precisely because this is common sense logic to all but the political and ruling elites in the Anglo-economies who remain buried under the weight of their own ideologies and self-deluding arrogance.
Accordingly, the ‘New Pragmatism’ enables us to take charge of our destiny, at state, corporate and individual levels, and thereby restore the “Angel in our Whirlwind”.
Or expressed in Fordist language, the ‘New Pragmatism’ will facilitate the ‘return of history’ with the fulfilment of the goal of a chicken in every pot, a car in every garage, and an Angel in every Whirlwind!
For it is an old truism that:
Where there is a will, there is a way.
Where there is no will, there are excuses.
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Appendix 1 – Policy points to eliminate “Ponzi-financialisation”
- Financial industry (and publicly-listed corporation) executives’ salaries to be linked to incentives based on long-term performance measures of their clients;
- Remove the preoccupation of the Western (particularly the Anglo-economies) financial markets with 90-day performance targets, which encourages short term thinking, poor planning, and ‘creative accounting’;
- Eliminate the uncontrolled and lightly regulated use of derivatives, which has led to the underlying real risks being ignored or worse, hidden or actively buried from view, resulting in exposures getting completely out of control;
- Remove speculation in commodities through the derivatives and futures markets, so that only those with a real interest in the underlying physicals can use these products for bona-fide hedging of their actual or perceived risks;
- Regulate all derivatives markets and confine all derivatives trading to defined and regulated exchanges (such as the LIFFE, COMEX, SFE etc);
- Regulate all hedge funds and the shadow financial system in the same manner as banks and stockbrokers, with strict guidelines on leveraging;
- Reintroduce controls on bank leverage;
- Increase capital adequacy requirements for all financial sector players (including insurance companies), not just banks;
- Scale back or remove the international fractional reserve banking system;
- Reform the existing system of income taxes to favour a consumption tax model so as to encourage personal savings in the Western economies, and not penalise savings as the income tax system does (ie., consumption taxes favour personal savings by penalising consumption);
- Remove sectoral government intervention that encourages the development of sectoral bubbles (eg., eliminate Freddie Mac, Fannie Mae and legislation such as the Community Reinvestment Act 1977) – instead implement government regulation which is designed to set the ground rules across all sectors, with regulatory agencies being intelligent watchdogs for standards, corruption, fraud, and false and misleading conduct;
- Eliminate the “too big to fail” mentality, and let zombie banks and other giant corporations fail and be restructured, so that “moral hazard” becomes central to risk assessment and corporate decision making, and so that capital can be redeployed in new and productive enterprises with participants who have learnt from their mistakes (see the example of Japan’s ongoing 20+ year recession from not following this rule);
- Legislate to keep commercial banking, investment banking, insurance, stock broking and market analysis all separate from one another so as to eliminate conflict of interests and burying of risk (a return to a supercharged version of the Glass-Stegall Act, on a global basis);
- Outlaw the ability of ratings agencies to charge fees from their issuer clients, based on a percentage of the deal size, so as to ensure that ratings agencies are genuinely independent of the outcome of their ratings decision (note the numerous conflicts of interest which have been uncovered in relation to the ratings of the CDO markets in particular).
Appendix 2 – Policy points to reverse deindustrialisation (Australian emphasis)
- 1. The basic policy driver
The basic policy driver should be to enunciate clearly what sort of country we want: a fully integrated decentralised manufacturing economy, which means that we must develop “coercive” developmentalist policies to facilitate reindustrialisation and decentrism – the reality is that this will not happen in a ‘laissez faire’ policy environment dominated by purist neoliberal economic rationalism.
- a. Laissez faire or interventionist strategies?b. Only interventionist strategies will result in the effective reversal of deindustrialisation and centrism – the question is what sort of intervention is appropriate in the modern policy environment?
c. Clearly enunciating what sort of country we want, and actively encouraging it, will drive the policy mix.
d. Avoid policies which involve government “picking winners”, and instead utilise policies which allow the market to decide which businesses and industries are chosen by investors as part of the reindustrialisation and decentrism process (“economic developmentalism”, based on a hybrid model of von Mises, List and Roepke). Note in this regard that nevertheless, Korea’s, Japan’s and China’s examples clearly show that strategically sound and proper sequencing is essential and indispensable – if properly conceived, one step prepares and leads to the next one; also note that it is essential to develop and invest in production areas that are essential for growth and productivity, and which have key multiplying effects on the rest of the economy.
e. Some of the needed and good projects can be foreseen and identified; other needed and good projects cannot be foreseen; in general, if one can generalise, knowledge is required (and not just individuals’ knowledge, but integrated/associative knowledge) – the new challenge is “how to connect people” best and most effectively.
- a. Tariffs and subsidies, and other related interventionist measures are no longer palatable internationally (WTO Doha Round etc., and also give rise to the possibility of retaliatory action by trading partners, such as China).b. Accordingly, more subtle and sophisticated policy measures are required that will, nevertheless, result in the achievement of the reindustrialisation and decentrism process.
- i. A base rate of 25% flat throughout Australia;ii. A preferential rate of 17.5% flat for industries and businesses established in the Decentrist Zones;
iii. Full mortgage interest deductions on the primary family residence (as in the USA) in the Decentrist Zones, but not in the existing “centrist” zones (as per the traditional Australian position, where home mortgage interest is not deductible);
iv. Capital gains tax exemptions for industries and businesses in the Decentrist Zones.
v. Introduce an Australia-wide preferential 10% flat tax rate for banking, finance and fund management industries, with a requirement that, to qualify for the preferential tax rate, a defined percentage, say 15% of their business, must be done in the Decentrist Zones.
vi. Reduce GST to a preferential rate of 7.5% for the Decentrist Zones.
c. Note that introduction of low, flat tax regimes always increases tax revenues (through reduced avoidance and increased business activity) – see Russia’s increase in tax receipts by 635% between 2000 and 2007 from introducing a flat tax of 17.5% from the earlier progressive system with a 60% top marginal rate. The use of general tax preferences, as opposed to sector-specific subsidies and deductions, means that the system is “sector neutral” and there is no “picking winners”, but should immediately result in new businesses moving to and being established in the Decentrist Zones, plus the move of residents to the Decentrist Zones to take up the new jobs; and in addition, the banking and finance incentives mean that international banks and fund managers will increasingly locate in Australia from, eg., Singapore and other Asian time-zones, and will also lend to, and invest in, the new businesses in the Decentrist Zones.
d. Introduce “well packaged” and “soft” labor market deregulation, so as to encourage Australian labor market competitiveness and to facilitate the adoption by businesses of appropriate wage and conditions incentives for workers in the Decentrist Zones.
e. Resist any suggestions to break up the existing Australian States (using Constitutional Law grounds and requirements of policy uniformity etc.), but use the Australian Constitution’s federalist elements, to work with the States to relocate various parts (perhaps not headquarters, but merely local branches) of the State and Federal bureaucracies to the Decentrist Zones from the State capitols and Canberra, so as to provide an immediate momentum to the creation of jobs in the Decentrist Zones.
f. Adjust immigration policy away from the current “open borders” policy towards a strict “needs based” policy, with elimination of refugee status and welfare for immigrants (immigration without jobs waiting for the immigrants should be eliminated), and a return to the successful earlier policies, from the 1950s and 1960s, of directing where immigrants locate, with a preference to locating immigrants in gainful employment in the Decentrist Zones to provide a workforce for the newly establishing industries and businesses.
g. Provide relocation incentives to firms in “centrist” Australia and from outside Australia to relocate to the Decentrist Zones. Also establish a “government marketing function” to market the benefits of relocating to the Decentrist Zones from “centrist” Australia and from outside Australia. Integrate this marketing function with existing government departments such as the Federal Department of Foreign Affairs & Trade etc.
h. Develop a coordinated policy for the provision of appropriate infrastructure (power, water, roads, air and rail transportation, technology/broadband access etc) to all parts of Australia, particularly to emphasise the development of existing regional centres and not the creation of “new towns”. In particular, favor the development of Northern Australia from West to East as the priority policy areas (close to Asia, resource rich, and generally not water constrained due to its tropical/equatorial climate and higher rainfall than the Mediterranean climate of southern Australia).
i. Use a new ‘Department of Reindustrialisation and Decentrism’ to ensure that all policy initiatives in other areas (education, health etc) are devolved to the regions for implementation purposes (eg., as in the existing proposals for health policy and expenditure to be administered by local area boards etc.).
j. Decentralise and relocate military bases and service communities throughout Australia to a greater extent that is done presently (especially moving the Navy from Sydney where it is currently concentrated).
k. As part of a general overhaul of the public service (which will include dramatic reductions in its overall size), to ensure its accountability and that it is in touch with ‘mainstream’ Australia, gradually introduce a policy whereby all public servants must work 1 year out of 3 in the private sector (and do this in cooperation with business, so that there is a permanent rotation between private and public sector, to eliminate the “disconnectedness” of the public service from ‘mainstream’ private sector Australia). As part of this process, certain government agencies would be targeted more than others on the grounds of relevance, and consideration would be given to which levels of public servants ought to be involved in this more than others.
a. Provide incentives (tax and other) to locate new industries and businesses outside the old centres (which in Australia, because it is actually highly urbanised, are largely the population concentrations around the 5 major mainland cities: Sydney, Melbourne, Brisbane, Adelaide and Perth), so as to facilitate both reindustrialisation and decentrism at the same time. This will involve defining what constitutes the new geographical areas, outside the old centres, in which reindustrialisation and decentrism is to be encouraged; it is suggested that these new defined “decentrist” areas should comprise the areas of Australia which lie beyond, say, 100 kilometers from the 5 major mainland cities (and also the same distance from Hobart in Tasmania). For the purposes of the following policy points, these areas are referred to as the “Decentrist Zones”.b. As part of a general Australia-wide thrust to restore Australia’s economic competitiveness, the central part of the strategy should be income tax reform to a flat tax rate (with minimum income exemptions as usual) for personal, company and trust taxation, as well as simplification of the tax code as much as possible, thus making it “low cost compliance”, with key provisions as follows:
2. Two main policy alternatives
3. International realities which constrain policy elements
4. Suggested policy alternative and main policy elements
Steve Barber, based on the Sunshine Coast, has more than 25 years’ experience internationally in law, finance, operational risk management and counterterrorism issues. Until recently he was an active member of the Liberal National Party’s Policy Standing Committee and the Chairman of the LNP’s Federal Trade & Resources Policy Committee. The views expressed here are his own. Steve can be reached by email at firstname.lastname@example.org