Monday, June 6, 2011

Global and EU systemics: Major systemic imbalances in urgent need of fixing!

I am not sure how the following model fits with traditional economic models (note: I am an MBA, decision scientist and a policy analyst, not an economist or financial analyst anyway) such as the capital - labour - land or the capital - labour - knowhow ones:

In "my" model, there are 4 factors: capital, goods, services and work. And IMO for a system, be it the EU or the USA or the world (globalisation) to work, these 4 factors must have more or less the same level of freedoms ("4 freedoms").

Also IMO, the current instabilities in the global and EU systemics are due to uneven levels of fredom between these 4 factors.

Capital has a very high level of freedom to move and relocate around the world. Capital movements have, realitively speaking, few restrictions, within the world and within the EU.

Goods have seen their freedom grow exponentially since GATT was founnded after WWII leading to the creation of the WTO in 1994. But still, the level of freedom of goods is nowwhere near "free trade". Many tariffs and quotas, especially the former exist even between the WTO membems (and within WTO rules). Even in the EU Single Market for goods, many problems still exist, especially for small firms.

Services at least the most tradeable ones, have been making progress but their freedom is nowhere similar to that of capital and goods. At WTO and at EU level. Eg in the EU many are in fear of the travelling plumber!

When it comes to work or the freedom of labour, then things are quite sad, especially at WTO/global level and even at the EU level many problems exist. Too many.

My thesis is that unless the level of freedom of all these 4 factors converges upwards, it will soon start to converge downwards (that applies to the global and to the EU "systems"). In goods, the by now admitted failure of the WTO to reach agreement in the Doha agenda, opting for an effort to conclude a lite or extra lite one instead, the backwards pressures can be seen. With a zero or low level of public debt being reconised as a key factor in sovereignty (due to the Euro crisis etc), the concept can easily be expanded to the trade balance and the CA balance. Already certain countries have been accused (by the US) of "exporting too much" (eg Germany and China). Movement of workers, free lancers and people is "near apartheid" level globally and be in for political asylum or so called economic immigration reasons, it is alas getting worse pretty much all over the world.

What is more, the economic globalisation, in the form of the freedoms of capital and trade, needs to be balanced, structurally by a global political and a global social pillar!

Else, it is structuraly unsound.

If there is no global polity (a world parliament and possibly government (eg for the WTO 153)), or at least continental-level polity, I would not exclude de-globalisation and either regionalisation or nationalisation/localisation of capital and goods freedoms (see eg "buy local" initiatives).

Or a system of 4-7 major global players (federal EU, USA, China, India plus Russia, Japan, Brazil (or UNASUR), see my recent relevant post).


It is in the good interest of capital and the finance world to encourage or at least not block the globalisation of the other factors and the creation of global political and social pillars.

That is maybe why, in a way, the financial markets seem to be pushing the EU or at least the Eurozone towards political union!!! Because a single currency and a single market need a single polity as foundation and the financial system may not be always responding to crises in rational ways, but its vision is as good as anyone's. And the prudent financiers IMO know that either the other factors gain more freedom or capital loses much of its own.

Plus, the business world, those who produce and deal in goods and services, have clear vision too. And to the extent that the finance world does not manage to be part of the solution to the imbalances, they will ally with the politicians and societies against them.

Not for the battle for midde earth though! Enough metaphorical headlines or slogans (overdone by media etc in recent months). What is going on is the world today is the ultimate real show, much more interesting and cruel than any fairy tale or show.

The humans will prevail, eventually, they always do. Ask the monarchs, the Romans, the Soviets, etc. The financial system is next, it seems, if, as a system, it does not read the signs of the times and listen to the prudent voices inside it.

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Nick

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