Labor Supply, Wages, and Economic Growth and the Crisis at the Border

Labor Supply, Wages, Prices, and Economic Growth and the Crisis at the Border

By Dr. David Blond, Queri-International ([email protected])

Workers are quitting jobs or not returning after a prolonged period of enforced leave due to the pandemic.?Inflation is up with bottlenecks at the ports and on the nation’s highways slowing the flow of imported and domestically produced products to stores.?Everywhere there are signs of workers needed and apparently the United States has run out of workers, or workers are no longer willing to put up with managers who don’t listen seriously to their complaints, hours that don’t fit with their lives, and pay that is inadequate to their needs or the economies need ?for sustaining the circular flow of money.

?This is not just an American problem, it is a worldwide one. It comes at a time when the Advanced economies are facing a second crisis, the crisis at their borders.?So almost at the same moment that we are worried about having enough workers in the farms, factories, or driving trucks to clear port congestion, we are seeing?a build-up of immigrants seeking entry.?This is true at the American southern border and also in Europe as millions of poor and displaced people are on the move seeking better lives. ??

We are also facing a crisis of inflating prices that are the result of the sudden collapse of the global economy due to the pandemic. ???This leaves the Biden Administration and the Federal Reserve with a problem – fight inflation by inducing a recession and then being blamed for that calamity; or allow the ?economy to ?go through the normal adjustment from the shutdown due to the virus with its higher prices driven by multiple problems of labor shortages, congestion at the ports, the slow restart of the world economy on which we now depend,?and just key industries, like petroleum, taking advantage of shortages to raise prices. ?Republican politicians are, of course, blaming Biden for inflation linking the higher prices to Biden’s American Rescue plan (that saved the economy from ruin in January), and as if both the infrastructure plan and the social spending plans had already passed, for future inflation that might come from the economy working more efficiently.?Both the infrastructure plan and the yet to pass Reconciliation bill will help the economy become more efficient by rebuilding infrastructure and also by allowing labor to be more flexible and fungible.??In a logical, non-political, world, the government would alleviate the problem by welcoming in more immigrants legally, but we are not in a rational world are we.?

Global Dynamics – Simplified Models of the World Economy

I have been building models of economies for the last nearly fifty years.?Over this time I have built one of the most complete and complex models of the global economy covering 72 countries and more than 150 industrial and service sectors linking sectors business to business and also industries to suppliers worldwide.??All of the models developed have been complex, multi-country and multi-time period models.?My sample of countries includes three group – advanced, emerging and developing countries.??

The current dilemma of government – how to insure labor resources at all skill levels –thus reducing the cost of doing business while insuring a well-functioning?human resource supply chain—could be partially met by allowing more skilled and unskilled immigrants into their countries.??The restart of the economic engine of the world has been in stages and not at the same rate in all parts of the world.?Higher inflation must be the natural outcome of this as businesses are unable to plan for next quarter much less next year.?Inflation may be a byproduct as much of slow growth as of too rapid growth.?For finished goods excess demand may cause prices to increase, but for most products we buy from multiple sources of retail suppliers and as a result of computer programs smoothing out price differences for goods offered on the Internet,?raising prices is dangerous. ??Ultimately the price of these products at the wholesale level, if supplies are tight, ?will increase but that is a slow process.??There are exceptions to this rule.?The price of used vehicles increased because the chip shortage for new vehicles slowed assembly lines putting pressure on used vehicle prices.?Unlike consumer goods, used cars reflect the availability within a small geographic area and are not subject to the auction effect of full information and similar products offered by multiple retail outlets in larger metropolitan areas or on the Internet.?Rents also increased once the pandemic ended and the moratorium on evictions was cancelled.?New construction had slowed for housing and this left landlords free to raise rents again within smaller, geographical areas.??

?President Biden’s efforts to help people through the period of uncertainty, ?before vaccines were widely available in January, ?refloated the economy, but this added pressure to demand while possibly having some negative impact on availability of labor as a result of the extra financial capital provided allowing people to make choices as to jobs?they would take, came at a price politically and economically to the President and his Party. ??At the same time large scale employers in retail pushed wages up to attract labor finally making $ 15.00 an hour a floor, not a ceiling, for low wage workers.??Every one of the initiatives in Biden’s Build Back Better Plan should help make the American economy and its labor markets work more efficiently, and yet he gets no credit for doing what is long overdue.??He is blamed for nearly everything – from the new variant and for the overcrowded hospitals due to so many people refusing to take the readily available vaccines.?He is even blamed for trying to force people to get vaccinated as if their personal freedom to get sick and infect others is some God given American right. ???Biden needs to tell the public the truth about Republican plans for their future – or the lack of plans to help the struggling middle class afford child care.?He needs to lay out, like FDR did during the Depression, the truth about inflation and not allow the Republicans to set the narrative that it is due to his efforts to restart the economy or that he is not responsible for the failure of the last administration to have a real plan for getting shots into people’s arms, to stopping more unemployed workers in January falling into poverty and homelessness. ?

?Recessions are a kind of stupid way to try to make inflation go away.?It is the reason the Fed is holding back from raising rates.?Higher interest rates will not put food on the table or lower the price of used cars and rents. ???As I see it the infrastructure plan and the human infrastructure plan, as yet not voted on, meet the challenges of creating a more efficient economy – repairing roads, ports, harbors, railroads, and adding broadband will allow businesses to work more efficiently; the human infrastructure plan from early childhood education to helping with childcare will make it easier for women, but also men, to take jobs that are today going begging.?

The chart below shows the relationship between economic growth and the inflation.?The 1990’s were different than the later periods.?Real growth of GDP was strong and inflation remained low.?Bill Clinton I am sure would like to take credit for this, the real reason, I think, is that once you can get a functioning economy running full force with innovative products coming into the market place and companies looking forward to strong growth, then inflationary expectations are minimized, suppliers can plan for next periods, next years, and next decades demand.?There is a steady rhythm to employment and economic growth and it is this stability that may make companies think twice about raising prices above costs for fear of losing to competitors.??Service intensity also matters when we think about inflation.?Most of the consumption we do is for services and less for goods.??

When economic growth is weak, small service businesses have to struggle for customers.?To keep the neighborhood grocery or dry cleaners or restaurant in business when economic growth is below average, service businesses have to cover their fixed costs with higher prices.?Cutting the price of dry cleaning will not make people clean their clothes if they don’t have jobs to go to.?The 1990’s were a golden period until Bush took over, 9/11 happened, and like the pandemic, the economy was slowed by outside events.?The result was a slow recovery and inflation and then another outside event, the financial collapse in 2008, deep recession, high unemployment.?With the slow recovery from the financial crisis inflation remained well below historical trends.?Government support helped pull key sectors from near bankruptcy.?At the same time new supplies of energy from fracking and drilling in public lands kept energy prices low weakening?the ability of OPEC to force prices higher without costs to their revenues from sale of petroleum.??

Trump’s initial efforts to shut down the economy slowed the virus, but his inability to treat the virus as a real crisis, ?like a war, ?and his attempts?to downplay the virus in order to reopen the economy prematurely, ?left his successor, Biden, with the task of rescuing the?unemployed or underemployed workers with his American Rescue plan passed with only Democratic support at the start of his time in office.?By adding income without work, he induced a recovery that is ongoing, but surprisingly has garnered anger from many parts of the country as if the President is at fault for events well beyond his control.?What is curious to many people is that while Biden is blamed for inflation, he is also criticized for the strength of the economy and the low unemployment, for vaccine mandates, overcrowding at hospitals, for ending a long war at the date set by his predecessor and also for not staying on longer, in short, being President must be the most thankless job in the entire world.?But we are not here to talk about President and his policies, but about the importance of people to economies – rich, middle and poor.

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Population Matters – Old Thinking, New Econometric Models

So this brings be back to the question of what is the link between labor supply and economic growth.?In many early econometric models the link between people and economic growth was self-evident.??Hollis Chenery, the Chief Economist of what later was renamed The World Bank, working with a small sample data for countries after World War Two, built early cross country models using only two factors – per capita GDP and population size.?In my cross country models I often used population and urban population shares along with other more deterministic variables like intermediate demand for products or final demand, when developing production functions. ?It’s a fair point, advanced countries before this crisis were already facing low, or even negative growth in population.?I was curious too about the links between population and economic growth.?Looking at a single country only picks up the trend and can be prone to misleading findings, but when we look at many countries and over many years then we can have a fuller picture of the hard and fast relationship between economic growth and population.

Of course not all population is equal. Population in rich countries tends to be better educated, more productive than in poorer countries.?Urban population is more beneficial to growth than rural population.?We might also want to test the idea that rich countries have a different set of needs to sustain growth than emerging or developing economies.?Fortunately I had an easily accessible data set to test this idea --- 72 countries macro, micro, industry, trade, employment, and price data covering the period 1990 through 2020 with actual data and a forecast through 2030.?Using this data we can build ?a simple multi-country model ?for GDP growth related to population growth, urban population growth, domestic share of traded products?in total production of the economy,?the import share of traded goods consumed, and the export share of traded goods produced.?Very simple concepts, none tied directly to the traditional model of GDP – either on the demand side of the equation or the supply side[1] . ??Models?show?point elasticities reflecting the rate of change in GDP to the rate of change of key variables.?Individual country differences are accounted for using intercepts for each country. ?A second model, more complex, splits these three dynamic factors between types of countries – advanced, emerging, and developing based on per capita income to urban population and rates of growth. ??China is in the emerging markets as is India, while the advanced countries are mainly the ones in the OECD with some exceptions (Korea is in emerging markets).?The developing countries are mainly resource rich, manufacturing poor nations with per capita GDP either too low to be included in the emerging nations group or they have other factors that are holding them back.?Some of the developing countries are even full members of the European Union, some in Africa, some in Latin America, and Asia..

Table 1 is the simplified model using the full sample of 72 countries for the period 1990 through 2030, almost 3000 observations in the sample.?A log-linear model is assumed so that the coefficients are point elasticities.?A 1% increase in population would produce all other things held constant then the coefficient for population x 1% population growth = % GDP growth.?

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Table 1 – Full Sample, All Countries (72 countries, 41 years)

Interpreting this table is easy.?General population growing 1% per year adds about 1.11% to GDP growth.?This can be accelerated by strong growth in urban population.?You then get some marginal benefits from increasing the share of physical goods produced,?but imports if they increase their share of physical goods consumed reduce the growth rate of GDP, increasing share of export to production of traded goods, ?will increase GDP.??This is a very simplistic view of what drives economic growth as measured by an imprecise measure of activity as GDP, but what is important is that population growth and where that population is growing fastest – in the cities – are major elements of demand for goods and services, i.e. GDP growth.?The remaining variables are non-traditional ones, rarely included in macroeconomic models of GDP growth. ????Goods share growth adds to the speed of economic expansion, so that an economy that is industrializing or even mining intensive or with more productive agriculture will increase the share of total output that is produced by manufacturing, mining or agriculture.?Import intensity reduces GDP growth, but not in all cases, as we will discover.?Import intensity is the measure of imported value of traded goods to total consumption of traded goods. ??In this case we measure the share of consumed goods that are imported.?Like the traditional demand model for GDP imports are negative and in some cases during a recession when imports decline these models see growth in GDP.?In this case if the recession comes and consumption goes down, but the share of imports remains the same there would be no change.?So in this simplified model to get improvements you need to reduce your dependence on foreign goods.?The opposite of import share is export share.?This entire model is based on shares with a single exception – the number of warm bodies to buy the products that are made or to make the goods and services in the real economy.?All the other elements are adjustments on population growth. What is surprising to me is that this is a good, if simplified, representation of reality.?As advanced countries depopulate, their economies will naturally slow.?It may turn out that emigration (legal or illegal) is the best form of government support for the economy contrary to what many on the “right” want to believe.[2]

Not All Countries Are the Same

The great advantage of a multi-country and multi-year model is that we can in a single estimation subdivide the model into three separate models.?In the next table the model is split between countries generally in the advanced, industrialized group (OECD members), into emerging markets (fast growing and up and coming nations), and poor or developing countries.?Not surprisingly the factors that are driving GDP change once we do this.

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Let me lay out what I think the above table illuminates for the three groups:?

For the Advanced countries

·????????Population alone drives GDP.

·?????????Most of these countries are already urbanized.

·?????????Weak economic growth is coming mainly from the depopulation.?Fewer people, fewer consumers, less spending, less sales, less GDP.

·?????????At the same time the goods share is also likely flat or even negative as service jobs, lower paying and less stable, substitute for manufacturing employment.

·?????????Increased import shares slow GDP growth for advanced and emerging markets, but for developing countries, import share elasticities are positive rather than negative to GDP growth that suggests developing countries are dependencies and that any interruption in the supply of hard currencies will harm long term growth.??

·????????Increased export shares are critical to faster GDP growth for both advanced countries and emerging markets, but are significantly less important for developing economies due, probably, to most of their exports are of primary products that offer less real benefit in the way of employment or internalized growth than manufacturing exports do. ??

·????????When examined in light of the positive import dependency this suggests that countries in this group have few new, dynamic sectors to lean on for growth and with negative elasticity for higher goods share supports the notion that these countries are still suffering from their colonial pasts where trade was tightly controlled and these countries were used as suppliers of raw materials and buyers of finished goods.?The negative elasticity for goods share suggests that breaking these bonds will be difficult without specialized interventions.

·????????In emerging markets population growth is less critical than urbanization.?Goods share increases also help propel growth and likely are related to the increasing urbanization of the labor force.?Import share is negative, but export shares are positive.?As development proceeds domestic supplies may reduce import share of consumption and export-led growth keeps economies growing.?

·????????In the developing countries population growth is not a strong factor, urbanization growth will help some, but as we will discuss, most of these nations missed out on the second great period of industrial development and trade that started with China’s entry into the WTO in the 1970’s.

The clear divisions in elasticities observed in this first model for GDP growth suggests we are in a tripartite global economic system where the advanced countries, industrialized, but fast transitioning to post-industrial economies ?dominated by trade and leisure with supplies of finished and semi-finished products imported with higher value products exported or where designs are exported to lower cost suppliers.?Emerging markets are replacing advanced countries as industrial centers of gravity developing networks of suppliers within fast growing countries, but still tied to advanced countries?for technologies, finance, and economic leadership.?Ultimately this will devolve into a war for influence with these countries between the West and very likely China.???China’s ?centrally directed, faster moving with respect to gaining access to raw materials and finance when needed, government-business partnership ?is gobbling up key material resources?while the free market, laissez-faire approach of the advanced countries may find themselves locked out of new sources of materials.?China also has a strategy for acquiring technology—borrowed or home grown—to own the next century just as America owned the last one.

?Developing nations remain locked in a New Mercantilism.?This is a good description of the development path for many of the developing countries in the group with some of the others simply geographically co-located with labor short economies such as countries in Eastern Europe thus serving as a source of cheap labor and markets for products, quasi-mercantilist given that most of these countries have been incorporated into the European Union. ?For most of the other countries in this group,?they are continuing the long tradition of supplying raw materials in return for manufactures – either from former Colonial masters or now from China – while paying for these imports with raw materials often from mines owned by companies domiciled in China or Europe.??Some of these nations are also oil producers with most of the profits flowing out as taxes paid for depletion are likely below current market prices.

How Accurate Are These Generalized GDP Forecasts

What is surprising to me about these very simplified ?models for predicting GDP growth is that they are surprisingly accurate, but more useful is that they match our a priori expectations of what should matter to a country as it develops along the continuum from poor to rich. ???Of course you have to have the actual shares as they evolved over the years and getting these requires knowing what’s going to happen, but it is surprising to me that the root mean square error even for the broadest of models using the US factors is 1.7% for GDP growth rate even with the pandemic induced collapse in output for 2020. ??Leave out that last year and you have about a 1.3% error for the broadest version (the full sample of 72 countries).?Using the advanced country model the error is 2.4% for all the years, but leave out the last year, and the root mean square error is just .5 of 1%.?We have a similar pattern for China or even Bangladesh.?The model appears to be better for emerging markets than for developing country markets. ???What is clear, at least, is that for the developing countries that have achieved a higher rate of growth (as is the case for Bangladesh), the model underestimates the rate significantly.??Of course one reason that these coefficients are as reasonably good at predicting the future for GDP is that we use the actual shares for consumption, trade, population, etc.?Like all forward looking models, getting the exact shape of these factors right is as difficult as deciding if consumers will like Black Friday sales at Walmart or Amazon in five years’ time.

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A Productivity Model of Gross Domestic Product

An alternative model for output growth, ?GDP is driven by two primary factors that most economists argue are critical to growth -- capital and labor.?Capital investments are not directly defined but embodied in full factor labor productivity (total output/total employment).?This measures output of the economy for each additional unit of labor.?In the equation below the elasticities are well below 1 suggesting a diminishing return to scale.?If this were a simple Cobb-Douglas than we might assume that the coefficient for labor contribution to GDP growth is 1-k, where k is the estimated coefficient for capital contribution (productivity is in this specification labor combined with capital). The coefficient for capital of .66 for the advanced countries is paired with the coefficient for labor of 1.09.?This suggests that educated labor produces more output than adding more capital.?We live in the advanced countries mainly in service intensive economies where productivity in the manufacturing sectors is taken and reused for services.?Manufacturing becomes a commodity, imported while design and technologies are exported, thus the productivity is stolen and so allows advanced economies to gain more from each additional asset employed (human capital).

Adding more labor adds more to the rate of growth of GDP than adding more capital or it might take two units of productivity growth to equal just one more unit of labor.?Given the higher service intensity of advanced country economies this makes perfect sense.?Looking at the coefficient s developed for the same simplified model of global GDP there’s a real rational reason for each of the coefficients.?Advanced countries labor growth is more ?valuable to GDP growth than gains in productivity from capital investments. ??Emerging markets gains are less and developing countries less than that.?Thus the ranking for the coefficients .66, .63, .57.?A similar pattern is observed for employment growth, 1.09, 1.01, and for the labor intensive more agricultural and extractive economies in the developing country group, a very poor .62.?This model says that for a developing country to attain a higher rate of real growth in GDP it must almost run in place raising productivity and adding labor.???This is an analogue to the higher coefficient in the developing country model for urbanization share growth in these nations.?Moving labor from rural to urban is the necessary element to reach a higher standard of living.??

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The Countries Left Behind

?Developing countries face insurmountable challenges to reaching middle income status in the near future. ??In the 1970’s, after the dissolution of the French and British empires,?the newly independent countries of Africa and Asia took different routes.?In the mineral rich countries in Africa, governments allowed mining and exploitive industries to dominate reaping paybacks and bribes for concessions that yielded little in the way of structural development – building viable industries to meet local needs.?With hard currencies from exploitive industries they could buy off the upper strata of the countries elites with imported civilian goods and even trips abroad.?In Asia, without the same natural resources to depend upon, they became the workshops of Western countries to a point where they could internalize growth.?By the time the developing countries woke to the problem, they were hooked on low cost imports and a new form of mercantilism started as investments were now being made by the richer emerging market countries as well as companies from advanced countries.?China has systematically tried to gain control of mineral resources in Africa and elsewhere while at the same time cementing their markets for low priced consumer goods.??Africa also suffered from advanced country social and religious ?guilt and became a dumping ground for hand-me-down clothing and shoes destroying local businesses that might have developed to supply similar products.?

In short, most of the countries in the developing country group have been relegated to suppliers of raw materials with limited domestic manufacturing due to the success of the countries in the emerging markets group in becoming the suppliers of finished and semi-finished products to the world.?Much of developing country economies are likely hidden, unrecorded, so that when we build a model using the same factors we see sometimes strange results.?The share of goods production is positive and very significant for the first model both for advanced countries and emerging markets, but has a negative sign suggesting that what growth in GDP comes from other factors – population growth, urbanization, and interestingly enough imports.?Unlike the advanced countries and the emerging where import share growth reduces real growth in GDP, the developing countries group is dependent on import shares increasing.?Financing for imports is likely coming from earnings from extractive industries and foreign aid.?Developing countries have a steady 3% deficit on imports relative to consumption of traded goods while emerging markets have a 3% surplus on trade of traded goods relative to consumption of these goods.

The economic history of the last thirty years may have been already set in stone leaving 24% of the world population mired for the most of the next century in the same, relative, position they started in without much progress to show, and possibly, due to climate change, now much worse off.??Most of the people in these nations were left behind once the Asian Renaissance took off starting in the mid-1980’s with the electronic revolution that started with the transistor and continues today with highly specialized chips made in billion dollar factories with technologies well beyond companies in these countries without support from foreign owned firms locating there for tax or other reasons. .?The double recession of the early 1980’s started this migration of manufacturing to Asia.?Late in the 1970’s the OPEC Cartel quadrupled the price of crude oil and finished products.?The result for the developing and emerging markets was a sudden shortfall in their current accounts forcing borrowing from Western banks.?Banks were afloat with money from oil producing countries and recycled this back to the Third world countries starting a cycle of debt, forgiveness, and more debt.???The effect of the increase in the price of energy in the United States was a recession just before the election of 1981, a short recovery and then another recession. Companies initially responded by laying off line workers, the normal reaction to economic slow downs, but then when the recovery didn’t happen, they managed profits by laying off layers of middle managers (including economists).???

Laying off the middle rungs of companies, men and likely some women, who were in the middle of the management of manufacturing and new product design,?combine this with a large amount of recycled oil money and profits paid out to the investor class, and a new form of banking – venture capital, this?opened the door for the ideas that were rejected by their former companies unwilling to take a chance on new products – from Walkman’s?to personal computers -- ??turned into finished new products in the contract manufacturing companies of Japan, Korea, Taiwan, and later China. ?[3] . ?The result is the world we are living in today with its long distance supply chains.?What also helped?in the early 1980’s was the laissez-faire attitude of the Reagan administration to the idea that American preeminence in manufacturing was under threat from both Europe, finally recovering from the Second World War, and from Asia, primarily Japan.?Reagan was forced to negotiate agreements slowing the import of smaller Japanese automobiles, electronics, and steel, but by then the move towards dependence on outside sources for manufacturing had become established creating the growing trade imbalances we live with to this day.?But for most of the developing countries, these shifts had little or no impact on their fortunes except to make creating viable domestic manufacturing in these resource rich nations a near impossibility.???

Intra-Asian trade supports Export-led growth

The growth and expansion of a new trading bloc intra-Asia in support of export led growth going to the North America and Europe could be foreseen, even if not appreciated.?In the mid-1970’s I managed to convince the computer center at UNCTAD to mount trade data for a single year.?I wanted to show my bosses in the Manufactures Division that the real benefits for developing countries must come from South-South trade, not from South-North trade as was the traditional model. I conceived of what I called the Trade Identification Project.?I pulled together a list of about 160 different regional trading areas, common markets, regional federations from all over the world.?I matched the exports of a developing country to the advanced countries group at the 3 digit product level of detail with the imports from an advanced country group and recorded the share of the imports that one of their close neighbors might be able to supply. For much of the countries identified as ?Developing in my modelling, the results were barely worth the trouble, these countries had been systematically turned by companies in the advanced country group or by the Soviet s through Comecon– into suppliers of low cost labor, agricultural products, and raw materials,?and as consumers of finished manufactures.???Out of all of the countries and regional groups analyzed, including Latin America, it was the emerging market within the Asia-Pacific trading region that stood out as having the potential, even in 1975, of replacing imports coming from advanced countries with exports from their neighbors.??\

A New Center of Manufacturing Develops helped by a Paternalistic Government in Asia

Once it became possible to make almost anything in Asia, once China opened up with its dual economic program that allowed for investments in the provinces around Hong Kong for export to earn hard currencies, then the ones left behind by mercantilism in the past, where transportation links between the South and the North remain ??difficult,?where governments too weak, ineffective, and downright ?dishonest to do much business, the world in which we are now living took shape and became fixed in stone.??Asia matters, Africa does not.??African geography and the vagaries of governmental incompetence and thuggery has made doing business there for all but companies like mining and?energy companies too complex, difficult, and dangerous.??For these extractive companies bribes are a small part of their cost structure.??Asia with its broad networks of small, family owned firms, and with governments that were relatively honest, an educated workforce and even geographical advantages of coastal geographies rather than landlocked countries dependent upon older transportation links for movement of goods in and out to old ports, made doing business in Africa a non-starter.?The cost and time for transport from ports to inland destinations without loss of half of the cargo to pilferage and robbery sealed the deal for businesses looking for low cost labor and stable investment sites.?The final problem was the lack of regular liner service between Africa and other areas of the world despite efforts, well back in the 1970’s, to insure full ocean transport access (UNCTAD Liner Convention, 1973).

The Data Doesn’t Lie, the Developing Countries Need Extra Help to Achieve “Take-off”

The first model illustrates the problem for developing countries better than any explanation.?Countries with manufacturing companies operating will see imports as a negative to the rate of their growth.?This is the convention built into the standard macro model.??While absolute imports may have this characteristic, import share of consumption can have either a positive or a negative impact on production or GDP.??If a country is able to make some of the products it imports, then higher shares of imports will reduce GDP growth.?For the Advanced Countries and the Emerging markets the coefficient for import share of consumption of traded goods is properly negative, but not for the developing countries group.?It is positive.?These countries are dependencies.?With small shares of manufactures in traded goods in this group, the model suggests that when goods share of output increases, GDP growth is negative.?The benefits that come from manufactures growth in the emerging markets is negated in developing by the larger share of agriculture and mining—likely more exploitive rather than supportive of local growth and opportunity. ??In 1990 the manufacturing share of traded goods for the emerging markets group was mid-30% whereas today it is close to 90%.?In the 1990 the manufacturing share for developing countries was 20% and is now 37%.?To compensate then for the failure to build self-sustaining manufacturing sectors in the developing countries,?labor resources were deployed in services and the underground, hidden economy.?Hard currency, earned from exports of raw materials and agriculture, or generated by remittances from overseas nationals, foreign aid, and sovereign and private borrowings, are mainly used to support factor inputs for extractive industries and manufacturing, but also consumer durables to meet the needs of the small, wealthy,?subset of their population who are living within the global super-state.???

Over the period 1990 – 2020 the traded goods share to total production declined from a high of 50% in 1996 to a low of 26% in 2020, thus the negative elasticity for this group associated with goods production. ??The decline in the goods share has kept these countries dependent for both necessities, including food, and also for consumer goods and high tech products?on foreign handouts and loans.?The positive elasticity for imports supports this fact.?Emerging markets started the decade of the 1990’s with a 37% share of urban population compared to 43% for the developing countries group.?By 2020 the urban share had increased to 50% for the emerging markets and 50% for the developing countries.?Some of the stronger growth in GDP came from this movement of lower value labor in the rural agricultural into higher value labor in the cities.?The shift for the developing group was less obvious.?Advanced countries urban share is nearly 80%.?The forecast for emerging markets continues the trend higher, but for developing countries the share reaches 50%, but the model forecasting urban concentrations suggests a decline in urban share over the next ten years in this group of countries.?Weak economic growth, fewer opportunities, at least in the model, ?may drive ?people back towards the safety of the countryside from the cities.?

These trends support the observation that developing countries have lost out and without special help or a new growth paradigm they will continued to lag behind the other countries in the race for tomorrow.??It might be noted that the first major industrial country in the Group of 77, the developing countries group at the UN, was not Mainland China, but Taiwan.?Taiwan is a country with few resources except the human kind. It may be that having oil or minerals is not the asset that matters most.?What matters more than anything is timing, early development, plus investments in human capital.??The timing of the developing countries is bad, the shift of manufacturing to Asia is almost over and more rapid development has meant that now companies from the emerging market countries are making investments and securing resources to support their growing economies.?Export led growth has been replaced by internalized and regionalized specialization.??Human capital is the second factor and poverty begets more poverty.?We know this to be true in the advanced countries for generations of families are stuck in the same cycle.?As we now are seeing the best and the brightest from these nations are on the move, they are fighting to get into the Europe and America.?

People Matter is the Message

The world went through a social experiment called the Great Depression from 1928 to 1938, a decade of collapse, depression, and slow recovery which morphed in 1939-1945 into World War II, the ultimate in disruption.?From this mire came America’s new role as the “indispensable nation”, a moniker that American politicians liked to use to insure popular support for engagement with the world at large.?Standing here, at the beginning of the next millennium in 2021, we forget the long, slow, painful rebuilding that started at the end of the world war in 1945-46, and continued almost until the mid-1960’s when much of the rest of the world came out of rationing of both food and also hard currency, once the Marshal Plan had rebuilt Europe and Japan opening the door to more competition for American manufacturing.??Compared to that long period of slow rebuilding and political and economic turmoil, the pandemic disruption is a blip, but an important one, and how we recover from this will have an impact on the role of nations and the future of a stable global economic system.?One lesson we have learned from this forced shutdown and slow recovery is that even miracle cures – from vaccines to pills – cannot overcome human nature to resist good intentions.?It may be this very human reaction to government that is the most dangerous outcome of the Covid19 virus.?

Economists as Kings ….

When I decided on a career as an economist back in the early 1970’s and entered graduate school at NYU,?economic students could be divided into two camps – proponents of Marxist or radical economics and more conventional students, Keynesian I think rather than Milton Friedman monetarists, given the orientation of the New York based students.?Some of my compatriots even followed into the footsteps of the Marxist camp. In those mid-war Vietnam days, the only major employer that recruited at the URPE convention (Union of Radical Economists) was the CIA.?Not surprisingly URPE was a better place to find future CIA analysts than the AEA meetings. ??????One thing the Marxists and the Keynesians had in common was a kind of Pollyanna like belief in the power of economic theory to make the world a better place, the “if I were King syndrome.” ?It will take a lifetime to realize that changing the world isn’t for the faint heart and events beyond our control wreak havoc on the best laid theories of politicians and economists alike.

In Ayn Rand’s classic novel about the 1930’s, Atlas Shrugged, John Galt says “I’m going to stop the motor of the world”.?Between February, 2020 and June, 2020, most of the major governments did exactly that, they shut the motors that run their economies and the world system that had evolved during the long period of peace that followed the end of World War II. ??Like a war, when you stop the normal business of exchange between individuals (labor and employers), or businesses (buyers and sellers of goods and services),?the normal informational universe within which we all live is disturbed and fractured.??The result is the form of inflation we face today; ?but ?more importantly, the change in how companies view labor and how workers view their jobs.?Without government intervention, the unexpected result of the shutdown in parts of the economy while other parts were deemed essential and workers continued to work at some risk, companies like Amazon pushed up their starting salaries to a minimum of $ 15.00 an hour.?Others had to follow so without government intervention, the underlying starting wage for low skill work in the United States today is set at around $ 15.00 an hour.??Of course small employers are complaining, but fixing the minimum wage above the poverty wage is a step long overdue.??Even with higher wages, workers are dissatisfied with the jobs that are available.?Labor shortages are forcing companies to restart long abandoned training programs.?It may turn out that an occasional disruption like the shutdown is necessary to shake long held beliefs of businesses that workers are fungible parts, easily jettisoned when times are bad and rehired when economies recover.???

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Border Walls and Labor Shortages

There is an irony about the lack of labor today even with higher wages.?Some jobs are just so hard to do or so mind numbing that we can’t get workers to do them.??We are short of farm and construction workers at the lower end,?fill slaughterhouses with workers with dodgy ?papers, and yet we have massive build-ups at the border of people wanting to come in, and millions of children of legal residents unable to get papers to stay when they turn 21 because of our broken immigration system?(part and parcel of our now broken political system ).?One outcome of wealth seems to be a decline in the birthrate, so in many advanced ?countries and increasingly ?even in ?some of the emerging ones, the population growth rate is low and even ?less than replacement.??In poor countries, fast population growth rarely benefits the economy because the other component s necessary for a successful transformation – infrastructure, technical skills, healthcare, education?, domestic manufacturing capabilities, and to this list add climate plus geography, make growth except for a few resource based industries next to impossible.????Because there is a small, wealthy, upper class, governments encourage imports of products similar to those available in other countries in the world, while the mass of their people are left with local substitutes or dependent on foreign handouts of food and even second-hand clothing.?Even the well-meaning flow of second hand clothes that abound in Africa’s markets is a curse, not a blessing.?Before this flow of free goods, Africa had a clothing and fabric industry, but with cheap or free goods coming in from overseas, the local industries have nearly disappeared.??

Shortages of resources make people angry, dangerous, and reckless. ?Wars of liberation or for reasons of religious extremism occur with a regularity that for many in the wealthy North seem all too common making even travel to these places dangerous and risky.???Governments are unstable and propped up by foreign aid, and what progress is made is concentrated either around raw material reserves or in the capital cities.?Doing business often requires local knowledge of the correct amount to bribe local officials.?Government impediments to entrepreneurship abound ?with many government officials demanding payments to process simple forms, and regulations are enacted as much to allow for this layered corruption so that wealth that can be passed on from one generation to another from underground businesses or squatter communities fails the test of having proper legal papers of ownership despite generations of family ownership or business activity (illegal bus routes are a prime example of this service offered on a regular schedule that cannot be licensed due to the cost of regulation and outright corruption.?I once had an argument with the number three at UNCTAD, an old time, British socialist, who claimed that bribes in third world countries were an efficient source of price formation for new businesses as unprofitable businesses would be unable to make the payoffs to underpaid government officials.?

It is thus no wonder that we are seeing millions of poor men, women and children risking everything to get into stable and well run countries mainly in the northern hemisphere.??Our crisis at the border will only get worse before it can get better.??With climate change and the lack of opportunities at home, this has led to the mass exodus of the best and brightest from these mainly southern lands to the better opportunities in the northern, richer, and population growth poor countries. ??

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The Best and the Brightest Are Leaving

It is an irony that advanced countries are building walls and fences to keep these immigrants out even as their population growth falls to below 1%.?But the question I would ask – what if when we return these seekers of a better life to their countries, we spend some money investing in helping them build a better future there. If someone spends his life savings to get out and we send him back impoverished, we don’t accomplish anything.?What if we set up an investment fund and offer to these asylum seekers the possibility to borrowing from this fund to build businesses in their countries or instead of giving money to governments there, we give money to individuals with ideas and the energy to make dreams come true.?What if before sending migrants back, we work with them in groups to identify ideas for new businesses that they could start with some outside help in their own countries.??

I have had a theory for years that suggests that one of the burdens that the developing and emerging countries have faced as they have tried to develop is that the price of their precious raw materials is set by world markets,?rich country markets, so that the iron ore or cobalt that is mined has to be useful at prices consistent with advanced countries while the wages in these countries are too low to buy the same products made with these materials.?During the period of industrial development in the advanced countries the general price levels for materials and labor were comparable.?You could price a car, as Henry Ford did with his Model A’s, to be affordable by a worker at his plant, thus insuring the market size could grow in synch with employment at the new factories that were being built and using the manufacturing techniques that he pioneered at his Dearborn, Michigan plant.?But today the wages in developing countries and emerging markets are below the purchasing power parity prices, thus reducing the natural growth potential and markets for new entrepreneurs to tap.?The iron ore is sold at world market prices and the finished products at prices consistent with the higher wages paid in advanced countries.?

Open the Gates, Let them In

?Of course a more profitable, from the point of view of the advanced countries businesses could be to reform our out dated asylum and immigration system.?As the article in the New York Times points out, many of the wealthy countries are facing a crisis of too few new warm bodies to be available for work and for paying taxes to pay for benefits of their aging populations?(see Contending With the Pandemic, Wealthy Nations Wage Global Battle for Migrants - The New York Times (nytimes.com) ). ?The irony of our current political situation is that we need this new blood, we need this willing labor to keep the economy healthy and growing.??Yet we spend billions on walls and Coast Guards, on detention centers, and courts to adjudicate asylum claims.?Just making it to the borders alive is perhaps the best indicator of intention and drive.???Still it is unlikely that open borders will be the rule anytime soon, but we could view importing people, skill and unskilled, as part of any critical infrastructure support plans thus turning the question of legal and illegal immigration into one of sustaining a working economy.?

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The Aftermath of the Pandemic – Can the World Recover

The simplified models of GDP growth must be seen as representative of some hard truths about the world we live in. ?If we believe it then most of the growth in GDP in advanced countries, places where urbanization has already happened, who are stable in their trade balances having already shifted their consumption towards a fixed share of imports to total consumption and exports to production for resale overseas or at home, can only now grow beyond trend by importing more people to work and consume.??The table showing the model’s forecasting ability suggests that for the ?United States most of the 2% we expect in economic growth except during those rare points when governments intervene and boost economic growth through investments in people or things (infrastructure or the military) comes from population growth – home grown or imported. ??

?Of course outside events—positive and negative –can change the future course for a short while, but the long term growth rate, for which this form of the multi-country and long time period model predicts, is written in the demographics and not the economics.??Without a renewal of people, then economies will run down.?To achieve then higher rates of growth productivity must be ramped up while labor growth is flat or even declining.?To reach the higher rate of productivity necessary for a stronger growth in GDP, ?then the distributional aspects matter more than the output.?If labor supply is fixed and if productivity is measured as ?output per unit of labor, then production has to grow rapidly even as labor growth is flat or even negative.??But for production to grow profitably it?must be also consumed (paid for). ?In our open market version of capitalism, then choice of one product or another is dictated by the market and consumers tastes.?A well functioning free market system must grow or it will collapse.??China discovered this when it decided to stop supporting the State owned industries and turned to private sector operators to keep its economy?expanding and also adapting to new tastes and technologies.?

If companies hold labor costs down and not reward productivity gained from capital to their employees, but flow gains to profits, ?then the excess new production must be absorbed in non-productive uses.??This can be done by shifting from consumer goods to non-productive, possibly reconstructive (environmental remediation or even exploration of space) activities substituting machines for people.?When I was the Pentagon’s Senior Economist, at the end of the Cold War period (or so we thought), the worry was what to do with our nearly 5 or 6% of our GDP devoted then to national defense, more importantly, how to insure stable growth and employment in the defense sector that I knew to be a national resource worth preserving in some form or another if we were no longer needing to buy weapon systems. ?????One possible solution then was to quickly redeploy these resources from tanks to space ships, from DOD to NASA. ??

?If the labor supply is constrained, if you have managed to shift towards a fuller consumption pattern, then the improvements in productivity must be spread out into other activities.?But to reach a higher rate of growth solely through productivity without laying off millions of workers then it must be achieved through higher levels of capital investments.?In this simplified economy and given the way companies allocate capital, without a more cooperative, long term, thinking of companies and governments this will not happen.?It is just as easy to imagine in a country facing demographic decline, with private companies facing shortages of labor in the service trades and a smaller base to sell their products to as well, that they will reduce production.?Individual choices will lead to a rapid decline in economic activity while forcing governments to try to compensate through tax cuts (this is what happened often when Republicans gained control of Congress starting with the Reagan tax cuts in the 1970’s and 1980’s and continuing through to the Trump tax give-aways in the 2017) or increased social spending and redistribution when the Democrats take control. Neither is a productive, self-sustaining, solution to the problem of demography.?

The easiest way to insure stable, strong long term growth in advanced country and even emerging market economies is to allow in some of the refugees and boost population.?Moving the concentration of population to area with low population or where social and capital infrastructure is sufficient to support these new workers and consumers, is the best alternative.?At the same time support invention and innovation while drawing off the excess production to new government activities that are less tied to defense and more to exploration and remediation.

Climate Change – the Ultimate Challenge

In some ways climate change is the perfect solution to a slow growth future.??If population growth is slowed in the developing country and emerging markets and negative in the advanced markets, then to insure stronger growth in GDP countries will need to draw off the excess production coming from the increasingly automated and highly productive manufacturing and primary sectors, or even a new AI enhanced service sector.?When I was the Pentagon’s Senior Economist I would argue that defense spending was the ultimate in useful, but wasteful, product streams -- good ways to tap both innovation, design, manufacturing, and so long as you don’t get involved in a war, the older equipment is replaced by next generation of weapons keeping a capital base available for the time when these skills are really needed.?Economies need absorption mechanisms to bleed off the excess productivity without driving down prices below break-even.???

Climate change may be the better mechanism for absorbing the excess production that comes from stagnant labor markets and even declining demographic trends.??To achieve growth a country will need to improve productivity through capital investments while maintaining full employment.?The excess production, not absorbed by rising standards of living, then is absorbed in mitigation of the worst effects of climate change. ?

The Steady State Economy

Astronomers and particle physicists argued for a long time on the point in time when the Universe began or even if there was one single point at all.?The argument came down to whether the Universe formed in a moment in time when some microscopic quantum dot suddenly ?appeared, compressed to a point of unimaginable density, and then inflated and spewed out the galaxies and the stars sending them speeding into the ?void, creating molecules in the solar furnaces and later the heavier materials in exploding stars, and we are left with the enigma of our Universe and the possibility of multiple other Universes that are squeezed off?at random intervals, or at least that’s my layman’s interpretation of cosmology and particle physics. ?Something from nothing is the best way to describe this event, a kind of cosmic accident of near zero energy from the vacuum exploding into positive energy, a kind of agnostic version of the Creation story.???Physicists apparently don’t ask the real question, i.e. where did that first quantum dot come from, but you get the point, either we began with a bang or as the competing narrative for creation suggested, it’s always been here, i.e. the “Steady State”.?The academic debate between two scientists,?Fred Hoyle and George Gamow, lasted until the background radiation surveys confirmed Gamow’s big bang appears to fit the facts better than Hoyle’s?Steady State version of the truth.?But an ever expanding, accelerating Universe also left the physics community with a new kind of force as yet fully understood, to keep the Universe expanding.???The alternative, closer to the Bible’s version is Fred Hoyle’s universe that began when God created the Universe and all that is in it so that ?the stars and the galaxies were there.?Like a picture it was set in place and only changed or moved when stars ran out of energy.?In Gamow’s version the universe is a never ending story of expansion with the galaxies instead of collapsing due to gravity, being driven ever further way by dark forces as yet unknown or not directly observed.???

The Capitalist Model of Adam Smith May Be Broken

Marx believed that capitalism would die a death of its own making, that the avarice of capitalists (industrialists in those days rather than Bill Gates and Mark Zuckerberg’s) would eventually lead to a new form of economic cooperation, socialism on the way to the purest form of human cooperation, communism – from each according to his abilities and to each according to his needs.??As population growth in advanced nations collapses towards zero or negative growth, advanced countries will turn increasingly, without real success, to automation or to increasing the share of imported products for domestic consumption.???As the model suggests if the import consumption share increases this reduces the real rate of GDP growth in advanced and emerging markets. ??If economic growth is supported by productivity and not by population and labor, then the labor that is working must be rewarded through higher wages from the productivity improvements.?During much of the 1990’s through even today, productivity increases have been passed on to companies and not to workers.?The result has been that GDP growth has come through higher profits of corporations and the circular flow has been maintained by tax cuts and deficit spending by governments.?So as we move towards the steady state, low population growth and full employment of labor, then the growth in production that comes from capital intensity and innovation must give rise to higher wages rather to benefits to corporations and their owners.?Failing to do this will lead to long periods of slow or even negative growth in GDP even as production increases due to automation and innovations.?Governments will find themselves in the business of supporting through subsidies economic growth.?Economies dependent upon government intervention will ultimately fail.?Already some economists seeing how ever increasing productivity not passed on to workers through higher wages will lead to secular stagnation.?One solution then to this paradox is that governments through taxes or deficit finance offer everyone a minimum income if onlyh to support consumption in support of private enterprise.

A New Social Compact[4]

We may need to write a new social compact, a kind of cooperative rather than fully competitive model?for the relationship between companies and the governments who set the rules.?The pandemic illustrates the dangers that come from failing to insure stable and steady growth; failing to educate lower tier workers and raise their productivity by paying wages and offering hours that meet their needs; ?or failing to insure that resources are fairly deployed for the best uses for the medium to long term, not just for short-term gains. ?With the large middle class, companies and governments need to insure stable employment?and/or income streams sufficient to insure steady consumption and progress.??Modern societies can not afford the kind of collapses we have seen in past times without fraying the social compact that insures security and stability of human relationships.??When Biden came into power, he was forced to pass a rescue package to keep people in their homes and insure sufficient cash in bank accounts so that once the vaccines were available the circular flow of money could restart.?It is a wonder that this package, passed with only Democratic votes,?was not praised, but rather vilified as causing inflation and rapid economic growth as if the opposite, depression and mass unemployment would be a better outcome.

A post-Competitive model of capitalism comes from the collapse of the Wall Street or financial market oriented managerial capitalism that we have today.?Companies today are run by managers hired for their ability to satisfy a small subset of investors rather than the larger universe of stakeholders.?In a post-competitive capitalism, imagined in my three book economic trilogy, The Phoenix Agenda, ownership is consolidated into a Trust with the goal of insuring the long term survival of the human race.?Companies in this consortium, ?the largest, richest, most advanced companies, this means that senior management and Boards of Directors expand their vision from solely on their shareholders to the public interest for clean water, air, and stable economic growth.?In the fictional world created by the stories, at the end, the private sector replaces the role of government insuring full employment and broad based social and economic progress.?In my economic oriented, fictionalized thrillers, this is accomplished easily; to do this in practice will require companies to see their purpose more broadly than they do today.??The private sector’s largest and most successful firms must play a positive role to insure stable and long term economic growth.??Historians may look back and see Amazon’s efforts to hire more workers by paying a living wage to its frontline workers starting even before the pandemic short-falls in labor and higher risks of ?$ 15.00 an hour changed the dynamics of the labor market in a way that governments could not have accomplished.?Governments must guide this renaissance of thinking more broadly about the real role and responsibility given to companies—not just to their ability to influence political thinking, as the Supreme Court allowed today, but their responsibility to insure the long term health and stability of the world economy within which they must operate.?Unlike in my novel, where the Phoenix Trust owned most of the shares of these companies and can command them to do the right thing for the good of the world, this same truth can be achieved if the men and women at the top of the pyramid choosing to do what is right rather than just what is profitable with their great power.

Afterword: the Phoenix Trilogy[5]

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…excerpt from the Journal of Social Economy, Volume 75, Number 3, “The Corporate State … Historical Developments Leading up to the Development of the Corporate Council and World Economic System” September, 2020

Economic historians date the rise of the Corporate Councils, and their current role as the sole economic authorities managing the global economy.?While in law and theory each Corporate Council is regulated and answerable to the United Nations Political Council, in practice the UN Council had little real authority except to suggest changes in business practices that appeared to be self-dealing and at odds with the agreed International Corporate Codes of Good Conduct.?It was the emergency created by the sudden collapse of world equity markets in October, 2020 that allowed these non-competitive, massive, business units to be formed and sanctioned.?Once established and working there was no incentive to try to try to regulate and break-up these intercompany relationships.??But the risks to governments from so much power being in the hands of managers meant that governments were envious and knew in time they would have to act, but how to do it and what to do, became a private topic of debate among the political elites.????

Historians trace the initial reorganization came at the end of the “Great Disruption” that began in late October, 2010 when global equity markets collapsed.?This event, one hundred years ago this year, started the process of corporate consolidation into unified relatively free of conflicts, world economy with Corporate Councils playing the role of governments.?While undoubtedly this created more stable economic conditions, it also led to a new uniformity of belief bridging the long held ethnic, religious, and political divide that had allowed wars and ethnic conflicts during the previous millennia of human development from primitive peoples forming into tribes an later into nation states to an advanced, world-spanning civilization in which legal norms ideally should be standardized making it simpler to do business in countries everywhere.?This began with a universal maximum and minimum rate for corporate income tax and then morphed into other rules mainly in the area of the environment and labor regulations.?Corporate Councils used their power to force governments to standardize the rules as they applied to this class of multi-nationals or international companies in return for pledges to be responsible social partners.

They made tolerance of individual differences elements in their hiring decisions marginalizing some groups, white nationalists who had been privileged under the old systems saw these changes as destroying their social position and this led to many problems including acts of terrorism against company assets .

?In response to these acts of anti-social behavior, governments enacted laws that added to social tensions creating the fuel for further nationalist activities and in some cases civil conflicts that had to be put down by force.

Ironically even as the world economy began to operate efficiently, leveling out social and class differences, the tensions within the body politics grew worse.?Gradually old ideas started to emerge and politicians on the left and the right began to lobby for changes and the break-up of corporate assets.?

Why Governments Agreed Allow Corporate Combinations?

In this article, we look back objectively at the past one hundred years.??Days after the great collapse of October, 2020 were ones of turmoil as millions were forced out of work by short-sighted corporations and as financial capital and individual retirement accounts were wiped out by the equity market collapse.?Short falls in margin accounts added to the negatives and bonds were sold driving down prices but increasing yields for any investors with liquid assets it was a time of rising interest rates, but collapsing economies—a paradox.????Losses on 401 K pensions meant that for many men and women close to retirement there was the potential to be both out of work and also forced to live on government assistance and existing social retirement accounts.?The net loss of income to the economy was substantial, possibly a 50% decrease in quasi-liquid assets as measured by pre-crash and post-crash share values.?This sudden, unanticipated, loss of wealth also slowed consumption while the Pan-Pacific dock strike meant that companies began to close plants and stores to lay off retail employees.?The value of non-commercial property declined leaving many mortgages underwater and adding to the already massive strain on banks—large and small.??As the employment situation became worse, more homes were put up for sale driving down property values further.?Combined with the near panic and collapse in commercial real estate as a result of the Masters bankruptcy, the underpinnings of the capitalist economy – asset values and income streams from work – unraveled setting off a deep recession and the potential for a global race to the bottom as firms went into their fortress modes—cutting employment, holding off on new investments, and generally acting as if the sky were falling.?The business and popular press covered this as sensational news making any effort by government to rebuild the lost momentum nearly impossible.?Kirsten Anderson’s efforts in the first few months of the crisis were to rebuild confidence in the future.?She was unable to get the kind of stimulus needed from a recalcitrant divided Congress and the Federal Reserve’s conservative faction made “Fed action” ineffectual and even counter productivity.???

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In the end, the new approaches to compensation of workers , including the redistribution of Trust shares in companies controlled by the Phoenix Trust, broadened the base of ownership more widely .?Gradually most companies large and small became members of and governed by the social compact developed by the Corporate Councils.

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The original Morris Plan for these councils was to be a kind of benign oversight committee to coordinate responses to economic disturbances or disasters.?A mutual help society for the largest, most powerful, firms in the world to maintain strong, positive, and beneficial growth to the greatest number of people by all means at their disposal, up to and including make-work projects for the public good” was the original Morris mandate. But as profit sharing and share distribution advanced leaving individuals with shares to trade?global equity markets gained new life, but “Wall Street” never regained the power and influence that it had had pre-2020.?

New smaller, innovative companies developed during this period helped by broad based support from the Corporate Council members buying partial ownership and offering preference to associated companies in buying decisions.??A new investment fund was set up during this period to fund small businesses including companies from minorities or under represented regions of the world.?Efforts to spread growth beyond the largest and richest nations continued to have problems due to limits on education, resources, and infrastructure for developing manufacturing for local needs.?But advances in technology also allowed for more localized production of non-durable goods and food supply.?With stronger circular flows within these countries and regions and with barriers to entry from governments that had stopped individual initiative through red tape and rent seeking government officials reduced, eventually, within thirty years, real progress in raising standards of living in these underserved countries and regions could be observed.??With economic growth came more political and social stability and the gradual reduction in corruption.

Planetary Stewardship agreements helped in reducing carbon emissions and forced investments in new energy sources replacing fossil fuels as the basic energy source for both industrial, transportation, and residential power.?????The problem of global climate change and the cost of adaptation represented the defining challenge for our world even today, one hundred years after the 2020 collapse.?The Corporate Council approach to coordination, while better than the “go it alone” of the past could not stop the worst effects, but did allow the development of new technologies that make life more bearable.?Sea level rise continued to inundate entire coastal plains so that the planet we live in today is far, far different even in geography and arable land than the world a hundred years in the past.??

Nationalism and Tribalism – Dual Problems for the New Corporate Councils

Nationalism continued to plague the recovery. The emphasis on national identities and customs conflicted with the uniformity demanded by Corporate Councils controlling the productive assets on which national prosperity and employment depended.???Politicians and progressives saw the perils of putting so much power in the hands of faceless managers no matter how benevolent and forward thinking.?In the United States problems arose when corporate goals conflicted with national goals despite the fact that the largest groups of companies were historically US corporate domiciled firms.???By 2050 the Global Corporate Council had organized security services to protect property from police forces starved for public funds and demanding that companies pay for “protection”.?The breakdown of authority of local officials leads to fights over taxes and zoning that sometimes turned armed conflicts.?

For employees caught in the middle of these arguments between corporate authority and the authority of the State, these times were difficult.??This led to the first great crisis of the new capitalism, described in the next section.?During this early period national identities remained strong with historical roots conflicting with the need for a uniform narrative that came out of the global business paradigms. The Corporate Councils pressed local nation States for a new form of “international citizenship” allowing free access across borders and local laws (similar to the ‘status of forces agreements’ of US forces in foreign lands).??This led to the Corporate Wars of 2050-70.??

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The Corporate Wars of 2050-70

This period of instability was a longtime coming as the private sector demanded more rights.?US Supreme Court decisions based on a special interpretation of the 14th Amendment gave companies many of the same rights as individuals.?The combination of companies into stronger associations only enhanced this and by 2050 the government found itself unable in many cases to assert its own authority.?The great recession of 2051-53 created a backlash as the corporate citizenship rules that had worked for so long were ignored in the interest of “profits” for the whole.?The first stage was a series of strikes by workers and a slow-down in global trade.?But the power of the corporate sector to reallocate resources and to freeze out entire economies often leading to spiraling inflation as consumers found little to buy in stores, forced a retreat.?

But the governments fought back by uniting in a new global governmental body.?Workers and retirees were caught in the middle of this fight. As governments tried to impose their will or to break up these companies, they found that these firms and their partners were too integrated into the very fabric of economies.?Small and medium businesses were impacted and unemployment surged as economic growth reversed.?Lacking the ability to retaliate against the companies, the governments began a purge of senior officials only to find entire businesses closed down rapidly leaving millions of workers without income and stores with nothing to sell.?Unrest led to riots in major urban centers ultimately to a retreat by governments.?

The cost of this disunity was what some have described as a lost decade of growth.?Living standards fell in the poorest countries, but in the end a new social and economic compact emerged.?Corporate Councils were forced to adopt binding rules guaranteeing governmental bodies a say in their organization and regulation.?Some of the monopoly power that had accumulated as they grew powerful was diluted with the sale of shares to governments and to workers and finally to individuals.?

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Stability and Growth – 2070 – Present

Nation State Councils agreed to at the conclusion of the Corporate Wars joined together into regional groups to insure they had more power to influence the powerful, inter-regional, Corporate Councils.???We identify five major regional social systems – the North American Council, the South American Council, the Euro-Asian Council including Southwest Asia, the Pan-Asian Council, and the African-Gulf Council. Forced to work together the still individual nation states had to gradually unify their laws including labor laws under pressure from regional Corporate Councils that sought flexibility of labor movements.?A free flow of labor within these regional groups and reciprocity agreements to balance skills started to have the impact on the social-racial balance that had long eluded nation states.?English became the primary language of global trade and ultimately some of the regional groups adopted English as their primary language to simplify problems of multiple languages connected to previous nation states and tribal groups reasserting individual identities.???By 2120 with the spread of English now called the “Common Tongue” combined with?the standardization of legal code led to the globalized world we are now living in.?To most people living today even the names of these countries and political divisions are simply historical anomalies.?If students are taught about these countries it is to remark that the signature of the time when national identity was paramount was either real war on a mass scale or the fear of war, ?including the risks of weapons capable of a mass extinction of the human race, best describes this time period. ??Others point to the inability to work cooperatively towards solutions to the problem of environmental disaster.?If there was one single outcome of the 2020 collapse of the market and the restructuring of global corporations into Corporate Councils it was the destruction of the national identity and replacing it with an understanding that we are all in this together if we are to survive what is coming.??.?

Not since the time just after flood when all people of the earth spoke the same language and united to build a tower to heaven before God sundered the people and their languages, had the earth spoke a single, unifying language and closely aligned set of rules and regulations.??

A New World Order Emerged from the Phoenix Storm[6]

A hundred years has not been enough time to mitigate the damage done by 300 years of unchecked industrial development.?With world population reaching a steady-state 9 billion, and with ever increasing standards of living taxing the ability of the world’s resources to support this development, National Councils were forced to work cooperatively with business to mitigate the negative impacts on the environment already destabilized by 300 years of pollution. Entire coastlines had already been lost to oceans and eco-systems were under stress despite the changes in energy production and supply.?By the turn of the century, 2100, a new unified planning commission was created to plan for the needs of an increasingly affluent global community.?New sources of non-polluting energy were introduced replacing coal burning; water treatment and desalinization allowed for more efficient cities and higher yield urban farms to limit requirements for transportation of food and supplementing larger agri-businesses; and a new global food bank allowed poorer communities to improve nutrition.??

New networks of inter-urban transport were added to reduce the need for automobiles and energy efficient and low pollution vehicles were mass produced.?In advanced countries a thirty hour work week opened the door for more low impact service businesses to grow to take-up the higher income that came as a result of sharing of productivity improvements of more automated factories with workers through higher wages.?The share of services rose to an average across all advanced and emerging nations to between 70 and 80% of total output.?

World output reached over $ 350 trillion dollars by 2100.?Income differences narrowed but remained significant between the poorest and the richest nations.?With global output as large as it was the Corporate Councils pushed for opening up new Frontiers replacing the previous efforts at adding military equipment with technological projects and major global infrastructure projects including satellites to adjust weather patterns by cooling and warming the atmosphere steering rain and moderating rising temperatures thus limiting the effects of droughts.?New airports, urban centers, and a connecting network of high speed rail?allowed connections within countries and between regions.?Long distance trucks were transported rapidly on these networks allowing multiple trips for delivery and reducing greenhouse gases while recharging long distance trucks that ran on efficient electric power supplies from safe, subcritical, fission reactors.

Space exploration absorbed the expenditures that had been devoted to defense.?Commercial use of space including tourism and mining asteroids advanced propulsion systems and improved materials.???The final frontier, the efficient, fusion power plant, offered the potential of ships reaching near light speed.?Research continued to developing new energy sources and dreamers continued to believe that long distance, inter-stellar, travel possible through worm holes or developing new propulsion systems that could propel space ships into hyperspace allowing humans to exceed the speed of light with all its distortions on the time-space continuum.??????

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The first near light speed ship was launched in 2121 combining new fusion reactors with advanced materials, mankind started a new adventure.?It was a joint effort of??engineers and scientists from almost every nation on earth.?The crew on board, most in suspended hibernation, came from almost every country on earth.?The journey, expected to take at near light speed of seven years, but with reaching that speed and slowing down the actual length of time could stretch to more than 40 years.???With the distortion of time and space taken into account the ships return, if it returned, would be more than a hundred earth years.??It might be possible, if new hyperspace systems could be developed during this period that explorers from Earth could be on Alpha Proxima to greet the astronauts, but reaching that, the ultimate goal, of faster than light travel might well be impossibility. Still with resources finite on earth and living standards ever rising, the goal of finding new worlds beyond Earth remained the driving ambition of a unified global system and of the Corporate and National Councils.

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Summary and Conclusion – A Remarkable Century of Progress

What began in 2020 with a global collapse[7] morphed into a world spanning system that has reduced poverty and has now almost eliminated regional and inter-racial and inter-religious conflicts. ??It isn’t perfect but it is a far better world than the one that existed pre-2016.?Steady, consistent, and broad based growth replaced booms and busts. The corporate code of conduct insured that all stakeholders gained from expansions.?Poverty, while not eliminated, was alleviated.?Billions of people moved from poor to lower middle class, from lower middle to a broad based upper middle class.?Without the fear of sudden changes in economic fortunes and with portable health insurance, individual initiative for starting and developing new businesses with the backing of the Corporate Council’s venture capital bank new companies were formed – some survived and some fell by the wayside, but the net result were waves of new business formation that ultimately will reduce the influence of Corporate Councils on the global economy.???

Individual freedom from want was assured with National and Corporate support reaching almost all impoverished parts of the globe.?But in return for this, citizens were expected to act responsibly with some freedoms allowing free expression by individuals or groups limited by laws intended to protect the rights of the broader society for life without conflict.?The question that some ask, given the long history of human conflict, is how long can this “perfect world” last?

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[1] GDP is a value-added concept whereas most of the QuERI models are based on a fuller, broader, definition of economic activity, gross output or production by industries.?The demand side of the GDP equation is C+I+G+E-M with the imports negative to value added of a country and exports positive.?The supply side of that equation is simply wages + profits for each of the industry groups included in the general GDP model produced by governments each quarter or year.?The assumption is that the value-added of workers and companies must be equal roughly to the sale of products or purchases of investment goods.

[2] The current strong growth rate achieved in the US and elsewhere is a recovery from the past.?The models in this paper are looking more at longer term trends that reoccur once the stimulus ebbs as it always will.?

[3] The early 1980’s was a time when equity markets and company profits were high, but economic growth below normal.?Otto Eckstein’s DRI Macroeconomic model missed this turning point at first because he used total disposable income as the key to consumer spending in his model.?They failed to see the second recession because this variable was growing, but when he looked further he saw that the wage share of this variable was flat or falling while the profits share was rising.?Companies were spilling extra cash into dividends so there was plenty of financial capital available to fund these new companies – Leading Edge made the first clone computer for the new IBM PC –first in Japan and later in Korea.?Taiwan was at that time the major manufacturing powerhouse in the developing countries group accounting for the largest share of exports of manufactures of developing countries to the world before China jointed the UN and Taiwanese trade disappeared.?

[4] Fifty years ago when I was in Geneva just after OPEC raised the price of oil to new heights suddenly causing a crisis within the developing and developed country groups, I started to write a novel about how we might get through this crisis.?I continued to write the story, over and over, after each crisis.?This year I finally published it in three parts The Phoenix Agenda Trilogy – (The Ancient and Honorable Society of the Phoenix, The Phoenix Storm, and Recovery and Rebirth).?My goal was to describe a new, post competitive, cooperative form of business organization that comes out of the tragedy that ends the first novel.?Its available on Kindle, but the point is that there are other ways of insuring business units can be rebuilt to serve multiple interests – those of shareholders, workers, and communities.

[5] This summary of the next one hundred years appears at the end of the last book of the Phoenix Agenda Trilogy, Recovery and Rebirth.?All three novels are available on Kindle as ebooks and in print.

[6] Book 2 of the Phoenix Agenda Trilogy, Kidle.com.

[7] Book 1 of the Trilogy – The Ancient and Honorable Society of the Phoenix – describes the efforts to collapse capitalism and gain control of global corporate assets to reorganize Wall Street driven capitalism into something new.?It is available on Kindle.com in print and ebook form.?s.