As the new Parliament opens it is clear that the Government intends to correct some of the worst errors of its predecessor but shows little recognition of the huge changes going on in the real world. The ALP retains its commitment to tokenism. The Greens have learnt nothing from their disastrous election result and continue to advocate a return to some idyllic dreamtime.
This is unfortunate, as we need someone to advocate global realist economics.
Global realist economics is about dealing with specific issues to achieve clear goals, as opposed to having faith in theoretical purity and only acting to "get the settings right".
We live in revolutionary times and fiddling with interest rates, government spending limits and other broad parameters is not enough.
There are new realities driving fundamental change. Those who ignore the pressure in the belief that the market will sort things out as we go along will be the economic losers. Those with governments committed to being first-movers will win. So far the Chinese are well out in front.
Here are three of many challenges requiring economic adaptation.
1. Huge expansion of the global economic system.
Over the last thirty years nearly two billion workers, mostly from former communist nations but also from other former state-managed national economies, have joined the global marketplace. Many of them are skilled and educated. They are cheaper than similar workers in the rich countries. Roughly 30 million more join the global labour force every year. The rich nations have a combined workforce of 720 million people. China alone has 950 million eager to work. In our efficient global system many jobs will go to where the cheap workers are.
In the same period trillions of dollars of new capital has been accumulated by the savings of these new players, and created by rich-nation governments trying to maintain living standards while their industries lose global competitiveness.
In 1998 China had a GDP of $1 trillion and $390 billion in gross savings. In 2011 GDP passed $7 trillion and savings sat at nearly $4 trillion. Other Asian nations, Saudi Arabia, Germany, Russia and others all massively build up reserves. The US creates around an extra trillion dollars every year to keep itself afloat.
As a result there is now an extreme oversupply of labour and capital within the global marketplace. Theoretically market forces will sort this out and achieve a new equilibrium, but that would take decades and mean everyone in nations that are currently rich would become much poorer. There will be great pressure for some other solution. If sane people fail to lead we can expect the extreme right to dominate.
2. Intellectual property is now critical to economic success and is overwhelmingly generated and controlled by a small number of global firms.
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