How to Avoid being Spooked by a New Boogieman - The Global Economy

By John Odenthal

Economic self-reliance is an obvious goal for the Atlantic provinces. We now see individuals and provincial governments getting less and less in transfers from the federal redistribution system, some of which had proven to be a mixed blessings at best. Up to now, the system has been sort of like Robin Hood, taking from the rich to help the poor. Now we must create different methods, not because the economic goal of these programs is wrong, but simply because international financial markets increasingly discipline, offset, and trash government economic policies. But for us to conclude that there is no good economic role for central government may be naive.

"The Atlantic provinces are still active players in the global economy, because smallness is now less of an issue."In light of the G-7 meeting, its important to remember that very small regions like the Atlantic provinces are still active players in the global economy, because smallness is now less of an issue. The most successful modern economies in Europe, measured by standard of living, are not very large - Switzerland, Holland, Denmark, Norway. Part of the reason is that these countries have created successful strategies and alliances with their own regions. They have taken different means to do it, but central government has been bold in setting standards. How to create an intelligent alliance between public, private and non-profit sectors which fits each unique economy is the question. But the guide book for regional economic development in a global economy has not been written.

Extreme ViewsWe have sadly seen that a simplistic ideology can be horribly dangerous. The hateful and insane bombing in Oklahoma may have been a result of simple-minded and paranoid notions about what controls our economic and political life. Hate-filled talk shows may be a catalyst for these extreme views, but I suggest that the underlying cause of these extreme views lies more with problems in comprehending our globalized economy and how it affects our jobs. It isn't easy to comprehend. Therefore lots of people are simply buying less, so economic recovery is slowed. More extreme reactions are arising from groups of younger white males in the US and Europe who blame liberal governments for the uncertainty. The extreme right-wing "militias" in the US want no government at all above the county sheriff level. Oh, to return to the simple life back in the frontier days of Dodge City!

Globalism vs. TribalismHow can we, as armchair economists, expand our awareness of the issues? How can we educate each other about an emerging global economic system that seems just too complicated (or sinister )for ordinary people? Can we see through the information fog and stop perpetuating simple-minded solutions? Economists may prove to be worse than lawyers in obscuring, obfuscating and self-perpetuating behavior. One solution may be more and better jokes about economists. The dismal science, however, is no more the villain than are the national governments. Nor can private industry be expected to create enlightened public policy by itself.

"A stunning fact about the global economy is that business is becoming either regional or global, not national."A stunning fact about the global economy is that business is becoming either regional or global, not national. Moreover, national governments can't support our economic life the way they used to because they are being painfully humbled by the annoying and often irrational actions of international financial markets. Elected governments simply have fewer options to support or develop their economies. The international bond markets which finance public services may have a greater say.

Another economic fact of life is that attempts to organize taxes so that corporations pay a fair share will be increasingly frustrated by something called the global company. These transnational companies are in reality a set of computer networks that locate their activities around the globe according to their perception of international competitive advantage. The great success of trade liberalization (at least among developed countries), and the amazing fall in computing prices have also changed the game for economists and national governments. On a personal level, all these factors affect our sense of security and identity. Certain occupations or economic tribes are threatened.

Hearing these economic "facts" does not help the angry young man who, as a machinist or forestry worker, still finds himself is in a more precarious financial situation than his father, who had a similar occupation. He feels that someone has deceived him. These economic facts need to be discussed with friends, and become part of our common vocabulary. No government, talk-show, Hollywood, paranoid "militia", or special interest group can gloss them over forever. During times of great social uncertainty, there is a tendency to apocalyptic visions of reality. To some it is some kind of Satan (i.e."international financial masters") who are running the show. More thoughtful people may be left wondering what intellectual ground there is to stand on when they hear of things like a "jobless recovery", or that economic performance must be slowed down for everyone's good, or that the only way to cut deficits is to cut public services, rather than boost the economy by lowering interest rates. It not hard to see why people are more susceptible to simple-minded, talk-show solutions.

Evo-EconomicsThere are two pragmatic insights which might provide some perspective. One is an approach to changing government (specifically in our region in Canada) to accommodate both global and regional realities. The model is the European Union notion of subsidiarity. In plain English, it means letting the level of government that can best deal with the problem take the lead. National interests, currencies, and standards will apply only if it makes sense to not do it regionally, or internationally for that matter.

The second insight is for armchair economists. Many trends in our society are towards greater cooperation, particularly in the private sector. This runs counter to recent studies that show that economics training has been found to lead to a less cooperative view of society. For example, senior economics students at Cornell University scored the lowest in a game that required cooperation to win the best results overall. This result was found even when cooperation proved to be the most effective way to solve the problem presented. Could it be that the prevailing economic view which states that self-interest is the motivator of economic and social behavior is actually a self- fulfilling prophecy? Economists, armchair or professional, in business or government, influential or not, must now contemplate their limited view of human behavior. Biologists have shown that human behavior and adaptation is indeed evolving, and 'survival of the fittest' may not be an appropriate biological or economic model. If economists (and all of us) accepted this fact, it would help immensely to cut through fearful and simplistic views of our economic options which are echoed in the wider population. We can actually expand our minds about these issues, and then quite possibly come up with new ideas on how to sustain our world locally and around the globe.

John Odenthal is both an arm-chair economist and a professional economist with the Atlantic Provinces Economic Council, and is a regular contributor to Maritime Money.