Tag Archives: Market economy

EU/Eurozone – Start Again or Plod On? – Market Economy

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EU/Eurozone – Start Again or Plod On?

Market Economy

Is the so-called European Union worthy of all the time, trouble and cost, all fully funded by the people of Europe? Firstly let me clarify the value-added components of a market economy worthy of the time trouble and cost of our United States of Europe. I refer to a secure, self-sufficient, free market economy consisting of a secure and sustainable supply of raw materials and energy, a relatively cheap labour force, innovative skills (excellent education), technology transfer skills, manufacturing, marketing, and with stable and effective financing (banking).

An economic definition of a Free Market Economy is a system in which decisions regarding resource allocation, production, and consumption, and price levels and competition, are made by the collective actions of individuals or organizations seeking their own advantage, i.e. profit. In all market economies, however, freedom of the markets is limited and governments intervene occasionally to encourage or dampen demand or to promote competition to thwart the emergence of monopolies. Also called free economy, or free market (ref: BusinessDictionary definition). But this can occur at the nation state level, or as a collective of nation states such as NAFTA.

The free market viewpoint defines ‘economic freedom’ or ‘economic liberty’ or ‘right to economic liberty’ as the freedom to produce, trade and consume any goods and services acquired without the use of force, fraud or theft. This is already embodied in the rule of law, property rights and freedom of contract, and characterized by external and internal openness of the markets, the protection of property rights and freedom of economic initiative.

However in this world of globalisation recent history has shown that uncontrolled greed by the few can have devastating impacts on the many. The most obvious of these is the banking crisis where a few greedy investment bankers, interested only in their personal wealth, saw the opportunity to use their banks as casinos. When they were winning everyone was happy, ignorant of the fact that it could not last. The effects of this have caused widespread hardship, putting excessive stress on all of the welfare initiatives inherent in a democratic system.

We also see this excess in the boardrooms of major corporates who award themselves excessive bonuses, pensions, and salary increases whilst the workers, who actually create the wealth, have to suffer wage increases below inflation, i.e. they get poorer.

Clearly entrepreneurs and wealth creation are at the heart of any free market economy and must be encouraged and rewarded. Furthermore it is arrogant of politicians in general to think that they can outsmart the clever people whose sole intent is to make money regardless of consequence, and avoid or even evade taxes where possible. However united political systems throughout the global economy can take steps to close many of the gates to ensure that such excessive freedom is not available. For example investment banking is a global business so governments throughout the world need to legislate in tandem that banks cannot act as casinos, and must contain their activities to creating economic value and global liquidity. We need the creativity of investment banks, but we do not need their casino activities.

Likewise we now see moves by various governments to give stakeholders, the owners of the company, more powers to curb the excesses of the executives. However this is not the part of a market economy that I wish to address in this essay.

I want to refer to our template of the USA and examine the parameters that fuelled their economy, especially throughout the 20th century. If we refer back to the opening paragraph of this essay we will see a definition of a secure and self-sufficient, free market economy. If we examine the components of this definition there is one which can be considered as deficient within the EU as it is today, i.e. a secure and sustainable supply of raw materials and energy. My use of the word ‘sustainable’ in this context relates to volume rather than the Kyoto concept of ‘renewable’, especially for natural minerals. This component was fundamental to the industrial development of the USA and, indeed I am aware of expansionist plans of the USA to restock when they are close to exhausting their own supplies. For example we see how fast the USA has embraced fracking for both oil & gas exploration and development resulting in the material reduction in energy costs in the USA. This enables the USA to resume as a competitive manufacturer and supplier, thus reducing imports. This is a win-win-win for the US economy and its people. It is very refreshing to see that David Cameron has fully embraced this technology as a counter to the usual doomsayers who would have people starve rather than benefit from this technology.

So where does the EU find secure supplies of raw materials? The logical choice is to look east to our neighbours in the outposts of Eastern Europe. Russia has already demonstrated that it does not understand how to engage in secure supply, thus can only be considered a secondary source for the time being. It is possible to engage with countries such as Ukraine, Azerbaijan, and Kazakhstan albeit with caution bearing in mind their continued alliance with Russia.

We cannot assume that the plundering the natural resources of third world countries as with Bougainville Island can continue. For those who do not know this story Bougainville is a small island state near to the Solomon Islands in the Pacific south of the Philippines. Before the war it was placed under administration of Australia under mandate of the League of Nations, but was invaded by the Japanese during the war. After the war Australia did not officially resume its role of administrator but, as soon as Rio Tinto found that Bougainville had enormous reserves of copper ore and gold in the 1990’s Australia went into business with Rio Tinto and passed statutes giving the mining rights to Australia who then gave Rio Tinto the exploration and development agreements without any regard to the people of Bougainville. The process of extraction polluted large tracts of the island until the people of Bougainville forcibly removed the Rio Tinto personnel (who were supported by Australian police and the Philippine army) from the island, with many dead. There is much on the internet about this tragedy for those interested. Rio Tinto and Australia are still looking at reparations of some USD 8 billion to the people of Bougainville.

Parts of Africa are also rich sources of minerals, but the Chinese have secured much of these for their own industrial requirements, as is the case with Brazil.

Thus the EU will primarily have to compete in the open market – not the strongest base on which to build a United States of Europe, especially with competing countries as large as China and India, both willing to secure as many resources as they can find to fuel their own needs.

It is worth returning to the situation in Brazil, one of the so-called BRICS, as an example of not understanding the economics of owning raw materials. Currently in Brazil they mine their raw materials and export them to countries such as China at Rial:USD exchange rates that do not optimise value to Brazil. They then have to import finished goods made with these raw materials thus consuming more than their receipts from the raw materials to satisfy their own internal market demand for goods. This is a sad reflection of a country with outdated fiscal and social policies, woeful internal transport systems, and that cannot attract large-scale manufacturing industry because cost of production could not be competitive at current exchange rates. Contrast this with the USA who would use their capitalist economy to convert these vast reserves of raw materials into goods for both internal consumption and export thus reducing the need to import, and receiving export income. Think of the employment difference between Brazil and the USA – Brazil only engages nominal labour in mining the materials, whereas the USA would also engage the manufacturing design and process people, distribution, etc. The market economy of the United States of Europe needs to resemble the USA model to satisfy the definition that I have proposed. Indeed if Brazil were a direct neighbour of the EU they would be a ‘must’ to be a member as the EU could provide all of the market support to Brazil that it lacks in exchange for its raw materials – this would be a fantastic outcome for our United States of Europe. It does not matter that Brazil is a developing economy as the capabilities within the other member states could rapidly transform Brazil into a vibrant economy having all of the infrastructure necessary for a 21st century country.

Therefore I would suggest that we consider the current 28 member states as phase I of European integration, or even phase I and phase II if we adopt a more pragmatic plan of integration. I see phase II (or III) as the inclusion of Ukraine: (coal, iron ore (5% of world reserves), manganese, nickel and uranium, mercury ore (2nd largest reserves in the world) and sulphur (largest reserves in the world)), Azerbaijan: (rich variety of minerals, oil & gas), and Turkey: (many types of minerals, and close links to the Kurds in northern Iraq and their large oil & gas reserves). Before anyone asks, Turkey would have to commit to continue as a fully secular democracy as part of membership, but having worked with Turkey since the late 1970’s I do not see this as a problem, and as is evidenced with the current unrest in Turkey. Just as we have seen in Egypt the majority of people in Turkey value a free secular society, and will fight to keep it.

Ultimately I see the integration of Russia with its vast mineral wealth (our local equivalent of Brazil) thus placing the United States of Europe as a significant self-sufficient market able to compete with any other economy in the world. As improbable as this seems today, if Europe can achieve a United States of Europe similar to what is proposed in these essays, then a more pragmatic regime in the Kremlin will see the advantages of being within, rather than the vast costs to create their own economic system – especially if Europe can substantially reduce its need of oil & gas supplies from Russia.

The value of a market economy, as per my definition in the opening paragraph, to our United States of Europe is the lack of dependency (and thus exposure) to any other country for the supply of materials strategic to the economy of the nation. This is also applicable to agriculture, but in this regard I do not anticipate any problems with capacity to feed the people of the United States of Europe today or in the foreseeable future. For example we have not yet begun to properly and fully exploit the vast black gold agricultural regions around the river Danube throughout the former Yugoslavia and Romania, and which could potentially produce a significant amount of the produce required. They call the soil in that region ‘black gold’ for a reason, and most of this region is organic soil.

Thank you for your continued interest in this European venture.

This blog is part of a series of blogs called ‘EU/Eurozone – Start Again or Plod On?’ and which examine the framework for a truly United States of Europe, and what would be needed to achieve it. Look at the archive index to find other blogs in this series.

I hope that you found this blog interesting, and will give it the Like It ‘thumbs up’ below, and/or become a follower so that you receive notice of further essays in this series.

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These blogs are intended to provoke thought and ideas so I look forward to any comments about the content. Just move to the beginning of the blog, click on ‘Comments’ and you can record your views, or ask questions.

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EU/Eurozone – Start Again or Plod On? – Model Outline

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The EU/Eurozone – Start Again or Plod On?

A Model Outline

Following on from my Intro blog yesterday what is the future for Europe – do we need a new European model, or can we fix the existing model? To date the politicians have held the cards, but is it now time for the people to speak. Even the countries of the former Soviet Union now have had enough time and understanding to know what is possible, and what they would like to see as a sustainable future. Do we revise the current model, or just as with the EEC and the ERM, we put it down to experience and start again with the benefit of hindsight? I am looking for input so I would like to start with a provocative statement or two as I would like to encourage discussion and comment on the future of Europe for our children and grandchildren.

I hope that this will be an evolving blog where interested parties feel that they can contribute to the debate with comments, and be heard. Non-Europeans are welcome to participate as all input is valuable input. The resulting model for Europe should not be insular, and it is important both in relations and trade that the outside world sees a friend and partner with whom it can engage politically, and conduct business.

For the purpose of this discussion can I propose that we call our new model the United States of Europe. I have an utter dislike of any name using the word ‘Federal’ (sounds like a police state), and any reference to the word ‘Republic’ automatically removes any debate about a monarchy, and I am far from convinced that many people in Europe feel that a republic is the only option. Furthermore I would suggest that the United States of Europe is fully inclusive of all countries in Europe, as with the United States of America.

So let us start with the provocation.

  • I believe that it is a fact that the EU has no democratic legitimacy. Has any member state to date asked the people to vote on whether or not their country should become a member? This should not be confused with referendums for treaty ratifications.
  • For over 2 years now the politicians have attempted to solve the financial problems within the Eurozone. I would suggest that if you put some of the best banking minds into a room for 4 – 6 weeks, devoid of politics, vested interests, and with open minds, workable solutions to the financial problems of the Eurozone can be achieved. The pills may not be sweet, but they would be equitable and sustainable in the long-term. For example Germany was by far the economic winner with the introduction of the Euro – now it must deal with the appropriate reciprocity.
  • We must start with the tenet that a democracy consists of a framework of a Government freely elected ‘by the people, for the people’ with oversight from an independent judiciary built on merit, not election. This Government needs to build a social and legal framework based on the rule of law, respect for human rights, free speech, respect for International law, and equality for all. In return the electorate need to respect the law, and take responsibility for their role in society.
  • A secure, self-sufficient, free market economy consists of a sustainable supply of raw materials and energy, a relatively cheap labour force, innovative skills (excellent education), technology transfer skills, manufacturing, marketing, with stable and effective financing (banking).
  • The existing EU/Eurozone is built on political, over economic, sensibilities, fractured by pandemic compromise, with political and national interests as serious constraints to sustainability.

A cursory comparison of the above with the structure of the current EU/Eurozone will reveal that the current structure shows that it:

  • fails to satisfy democratic legitimacy;
  • is incapable of resolving the existing financial problems, and responds too slowly in any event;
  • does not meet the recognised basic parameters of a democracy;
  • does not meet the requirements a self-sufficient free market economy; and
  • is constrained by the vested self-interest of the political leaders of the member states.

Rather than start by debating ‘Start Again or Plod On’ I would suggest that we start with a blank sheet of paper and identify what the people see as a credible European integration by building a model of an equitable and sustainable United States of Europe. Having developed and agreed such a model we can then compare it to what we have today to determine if we can adapt what we have to what we need, or whether we adopt our new model and move into it, leaving any unnecessary baggage behind in the old model. The other option, which is certainly on the table, is to completely abandon European integration.

Please forget ‘what is’ today in your thinking as details such as what side of the road we drive on in different countries is irrelevant to the future of our children and grandchildren. At the risk of alienation the green lobby can we also ignore what could be in energy terms and just look at the resource base that already exist. Too many people in Europe are currently below the bread line, distressed, and hungry. This problem must be addressed as a priority over any new initiatives. Indeed one of my drivers for this exercise is to divert wasted money in the existing EU into growth generation to create jobs for the millions currently without income. Dignity and self-respect derive from self-sufficiency, not charity. Also let your mind have free rein when considering all of the components of a self-sufficient free market economy. I would suggest that there are countries that could be invited to the party to strengthen self-sufficiency.

The classic method of solving complex multifaceted problems is to:

  • Understand the problem, and subdivide into logical components for analysis
  • Analyse each component part – Create an ideal solution
  • Adapt the ideal solution as little as is needed to make it work

When considering the way forward could we concentrate on what we need in our model to create a sustainable, prosperous, and equitable future for all, rather than what we want. Many people want a Ferrari car, but they do not need it to live their life in peace and prosperity.

I would like to propose 2 templates to guide us through the process. The first is the creation of the United States of America in terms of some of the hard decisions and compromises that had to be made to ensure inclusion of everyone. As the creation of the USA had the benefit of no historic baggage to deal with I want to use Switzerland as a second template being a country which functions in 4 languages, has a 700 year history, not currently fully compliant as a democracy, and has an unconventional government structure. If anyone would like to propose any other template I am open to suggestions.

In order to make the process manageable I propose to load a series of blogs over time, each one addressing a separate pillar of democracy, e.g. structure of government, judiciary & legal system, taxation, etc and throw in other considerations such as common language, nationality, republic versus monarchy etc. to complete the whole picture.

This is a serious attempt to find answers to the problems that politicians seem unable to resolve. Having spent some 30 years addressing complex problems using lateral and progressive thinking I can attest to the methodology which, on first sight appears too simplistic, impossible and/or unrealistic – but they said this about Keynes at Bretton Woods – until they sat and really thought about his ideas. We still benefit from his thinking today. The fall of the Berlin Wall was an unthinkable piece of lateral thinking after too many years of political bluster. I believe that the collective thinking of people from all walks of life seriously interested in the future of Europe can contribute to solutions to the problems that face Europe. If you have friends or contacts that you feel would find this process of interest then get them involved as well. Think the unthinkable, and enjoy the process.

I will attempt, in no particular order, to start the first discussion blog in the next few days. If you click on the ‘Follow’ tag you will receive an email as each blog is posted.

Thank you for reading my blog, and I hope that you feel it worth the effort.

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