Re: Keynesianism etc.

I hope this is not too much becoming a mutual monologue but I think I have
to say a few things in response to Paul Riesz and he sent it to WSN:

I therefore feel, that your vast
>amount of economic expertise and your evident powers of persuasion could be
>much better employed in advising decision makers on how to finance such
>policies and how to plan them wisely for the greatest possible social and
>economic benefits.
>
Sadly my political influence in this country equals about 0.00000%, so that
I'm not into the business of giving policy prescriptions - I am trying to
explain how things work rather than how I would like them to be.

>You insist in linking Keynesianism with the production of armaments.
>Whether or not such a linkage existed in the past is beside the point; at
>present such policies would be incredibly inefficient, since

>1. To-day's sophisticated armaments have a very small component of labor
>and would not help to find work for unemployed factory workers or relieve
>the poverty in developing countries, which are the goals of Keynesian
>policies.

>2. It is illogical to believe that producing armaments would bring more
>votes for a government, than building housing, schools or hospitals or
>hiring more teachers, nurses or doctors? It would only produce personal
>benefits for CORRUPT politicians, expecting to get financial compensations.
>
Undoubtedly you're right but it's not a question of corruption - the simple
arithmetic's of the political process in the USA and increasingly elsewhere
is that if you don't get billions in funds to buy media-time and put up a
`professional' campaign you're not going to be elected. Actually the latest
campaign in the USA once again proved this - Bill Bradly might well have had
the best program but he didn't have a shadow of a chance against Gore or
Bush (the latter obviously being the spokesman for Texas' oil and armament
industry).

Schools and hospitals won't fund or block campaigns - armament or
pharmaceutical industries will (witness e.g. Clinton's totally failed
attempt to reform the US health system, which was basically broken by the
medical and
pharmaceutical lobby). I don't think, say, Al Gore is corrupt (the
Republican media would otherwise long have found out) but the present
electoral process in the USA is such that:

A.) You need massive financial support from consolidated big industry to get
elected.

And:

B.)You can under no circumstance alienate `single issue voter' lobbies
since they can make you and break you in a district system - thus e.g. take
the USA's `gun lobby' or the southern fundamentalist lobby in the Republican
Party (which - as the Republicans are perfectly aware - makes them
ineligible at the moment, yet what are they to do about it?). But not only
in a district system: outside of the USA you might think about the
`fundamentalist' Jewish lobby in Israel which has been systematically
obstructing the peace-process, although I'm convinced 90% of the Israelis
want peace.

Now, add to this the impact of opinion-polls in which politicians already
know before the elections what position is likely to be supported by the
voters and you get a pretty dismal picture. The present political system is
built on an increasing inertia of the political process and thus on an
increasing power of a non-elected bureaucracy, professional lobbyists,
`tink-tanks' and what have you

The main way for Keynesian policy to be supported by politicians (if we are
to start with the New Deal experience) is to build up a broad
working-class - urban minority coalition. But such coalitions have
historically always been constructed around male skilled workers organized
in unions.

However, due to economic shifts from the 1970's onward the unions have
steadily been losing members - now, if the US economy remains booming, thus
giving rise to serious labor shortages, it's likely organized labor will
gain support again. (And I'm in particular thinking about female workers
here). In that case prospects for an electoral shift away from the present
political impasse are definitely there  but we still have to wait how the
present trend works out.

>Since unemployment is bound to rise to higher and higher levels because of
>automation and technological progress, Keynesian policies shall become more
>and more important in the near future. >

I doubt the unemployment thing - for what's the whole point of
automation? Precisely - to make more products and sell them cheaper -
that is to push down `transaction-costs' (that's where computers are for).
So, if consumers have to spend less money on products - what do they buy?
More
products? No: they buy services which can not be produced by machines and
which can not be moved to low wage countries. If you don't believe me take a
look at employment-trends in the USA where the really big gains of the
economy in employment are not in the 'high tech' sector like in computers
(which is a very small employer indeed) but in services like retailing or
tourism. If the present trend continues tourism is going to be one of the
major - if not THE main industry of the world.

I'm not certain what this shift towards services - and skilled services in
particular - means in political terms. Historically the paradox of the
1980's and 1990's was that while on the one hand the political process
appeared to be dominated by the New Right - and its `roll back the frontiers
of the state' philosophy - at the same time there has been a continued,
rapid, expansion of the number of people employed in welfare, education or
healthcare - Scotland has nowadays more university lecturers than it has
miners. That was since the public `bought' more medical and educational
services and because of institutional constraints to cutbacks. - E.g. in
Margaret Thatcher's Britain the number of people directly employed in
providing welfare increased - I recall - from 60.000 to 300.000. Albeit -
relative to the required skills that's a badly paid sector. And these people
have politically normally leaned rather to the left
than to the right.

Take this list for example: sociology is above all a training for workers in
welfare-provisioning - note: this is NOT criticism, many of these people are
morally very high standing people - and it strikes me that `traditional'
liberal sociology (e.g. the US `Chicago-school') has almost totally been
replaced by various forms of Marxist or Marxisant sociology in the 1980's.

Why is that? Well - let's for once apply Marxism to homo sociologicus too:
traditionally - whatever - academic training was a passport to a well-paid
job. That's no longer true: e.g. salaries of university lecturers have been
dropping in real terms over the past twenty-five years - in Britain and
Holland but probably also in the US. - And that particularly applies to
wages of social scientists  A group which is `relatively deprived' compared
to graduates in say economics or business has every reason to be
disgruntled. Hence the increasing fascination of sociology with `conflict'
rather than `harmony' models.

This has had its political effects. I am not sure about the Democrats but
the people professionally engaged in state provided welfare (teachers,
social workers - often academic sociologists - ) form the social base of the
cadre of the `new' Social Democratic Parties in Europe. (Thus e.g. Tony
Blair's `New' Labour or - although I never investigated that party in
detail - Wim Kok's PVDA). It would be interesting to investigate too how the
language of Social-Democracy over the last twenty years has gradually been
shifting from emphasizing class-conflict  and employment as central issues
to `class-reconciliation through the provisioning of welfare' as the central
issue, which, IMHO reflects their shifting class-base from being mainly
skilled (almost exclusively male) workers in industry- parties to being
skilled (male and a bit female) workers in services- parties.

It would be even more fascinating to trace down how lately the very language
of management itself has become `infected' (by lack of a better word) with
concepts which originally derived from the `non-profit sector' and from a
services rather than a profit or goods providing sector. Reflecting these
sectoral shift in employment and growth patterns. For much of the growth of
the private sector - at least in Europe, I'm not sure for the US - has been
in the `quasi-non-government' sector, which as to its jargon imitates the
`non-profit sector'. `Quasi non-government'  since the government is it's
only buyer and/or entrance to the business has been severely restricted by
government-regulation. That is: they are monopolists (or at best
oligopolists) on government-sufferances but they TALK as if they are
operating on `a free market'. Take e.g. the phenomenal growth of
advisement-agencies over the last twenty years who - although they claim to
be `profit' oriented `hard capitalists' - really by and large work for a
single contractor: local and national government. And I think through the
bridge of this quasi-non-government business a non-profit sector jargon and
mentality has been pervading the profit-sector too.

I would have to investigate this more closely but apart from the financial
sector (and the stock-exchange) it strikes me that management nowadays
constantly  says `it is providing a service to the public' (Microsoft:
`at your service - where do you want to go today?', Philips: `let's make
things better') rather than that it's `making a profit'. Outside of finances
all capitalists are nowadays always `benefactors to the people'. Note how
management manuals have been invaded by public sector jargon like
`group-processes', or `personal satisfaction' - and also witness the talk of
the `management gurus', which is full of `personal self-satisfaction', `how
to lead a meaningful life' etc. And I thought management was about profit?
Or again take the bizarre discussions on wanted or unwanted sexual
intimidation on the work-place, about prohibitting smoking etc. which are
all leading to a still further extension of typical welfare bureaucratic
services (arbitration-committees chaired by lawyers and doctors and
psychologists, ever more psychologists) into the capitalist work-place
itself.

What it basically seems to boil down to is that if the need for basic
products has been satisfied the `consumer' primarily wants to buy more
`personal satisfaction', that's services:  like entertainment, education,
health, even sexual hapiness (as in the sexual harrasment-debate, which is
to some extent about the STATE having to guard that males do not express
possibly unwanted sexual urges to females) etc. And these can most cheaply
and conveniently be provided by the state. Well, not yet sexual satisfaction
but - mind you - although this country is perhaps very extreme in such
matters: there are discussons here on whether state-licensed prostitutes
should henceforth not be provided to disabled people on the cost of the
national health-insurance. For  `happiness' can not be easily priced (how do
you price, say, the `happiness-value' of Yellowstone National Park?) Or
individually priced: e.g. how do you price the `happiness-value' to
Americans at large of having, say, grizzly-bears in Montana to restore the
natural balance as against the very `price-able' interest of local farmers
there - who would rather prefer to shoot them?

Not really a new argument this, of course, since John Kenneth Galbraith has
been arguing precisely this since the 1950's.

>The general fascination with economies of scale cannot justify
>Magnitogorsk, because of the especially high incidence of freight rates in
>this case.
>As to compare Magnetogorsk with the Boeings plant, you forget that freight
>rates are a completely insignificant cost factor in such a high tech
>product, while they are decisive for the competitiveness of a steel plant.
>
World War II aircraft were not that terribly sophisticated - the point of
World War II production was not to build sophisticated products but to build
them quickly and in mass and in that both US and Stalinist `economics of
scale' production were highly successful - don't forget that the USSR built
something like 60.000 tanks in World War II. Precisely the opposite from
German production which did built `quality products' but in far too small
numbers and at a far too high price.

The two production systems really faced off in the decisive battle of World
War II namely the 1943 operation Zitadelle/battle of Kursk (a three weeks'
gigantic `battle of material' since the German objective was to break the
Soviet lines with a sheer masses of tanks rather than any strategic
cunning). And to Kursk had gone the creme de la creme of German military
production. The Germans had certainly the best tank there namely the famous
Tiger and Panther but they had - I recall - 300 Tigers and 250 (Mark 5)
panthers and somewhat like 2.000 .old models (Mark 3 and 4), whereas the
Russians had up to 4.000 tanks, of which about half would have been the
superior T-34; I believe Soviet artillery outnumbered the Germans there as 1
stands to 4, and the Russians had more aircraft too (although the Luftwaffe
had concentrated practically its entire force on the Eastern front at Kusk).

Now - remember that Germany was then the second largest economy of the world
and had the resources of the whole of Europe - including 40% of the USSR's
pre-war production potential - at its disposal and that Lend Lease was good
for only 10% of Russian production. There can be absolutely no doubt that
the efficiency of Stalinist planning WAS proven at Kursk

>My answer:
>Why would special economic zones add to their deficit?
>Creating the conditions for capitalism to succeed, such as clear property
>rights and other necessary legislation, eliminate bureaucratic corruption
>and inefficiency and provide manpower skilled in private banking etc. might
>still be impossible to do in such a big country, but would be quite
>feasible and NOT AT ALL COSTLY in such zones.


And Petersburg certainly tried to do that, as did Nizni Novgorod. The
problem was (and is) that there is little incentive to invest - for the
simple reason that Russia has to compete in today's `global market place'
with a whole series of other countries which also have:

>an immense number of highly trained professionals, world famous centers of
>investigation and almost limitless raw materials which would certainly be
>considered as big advantages by any investor.

and have advantages besides which Russia does not have - INDIA for example
also has `immense number of highly trained professionals, world famous
centers of investigation and raw materials' AND has a limitless supply of
lower wage labor besides that, AND has a potential market of 1 billion eager
customers AND is much more politically stable than Russia AND has many
wealthy, highly trained, citizens abroad AND has much higher rates of
savings than Russia AND has had a booming instead of a contracting economy
over the last fifteen years. And of course investors are humans too  - why
in heaven's name invest in decaying, grim, crime-invested, damp and cold
Petersburg (let alone Nizni Novgorod) if you can also invest in sunny and
safe Bangalore or be pampered by servants (each costing perhaps a dollar a
week) in Bombay?

If I were an investor I would know where to invest and it would assuredly
NOT be in Russia (though I would consider Cuba - but Russia doesn't have
much prospects as a big destination for package-tourism either).

Best wishes

R.J. Barendse

Amsterdam, The Netherlands