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The New Economy and its Illusions

"The complexity of a modern society, its transparency, the speed of disseminating information and the educational state make it more important than ever that the core systems of the economy and society are robust..If the greatest chance of humanity for peace, freedom and prosperity that ever existed should not be carelessly lost, pseudo-liberalism must be replaced by true liberalism." Fredmund Malik is a professor of economics in Switzerland.
The "New Economy" and its Illusions

Pseudo-Liberalism or True Liberalism

By Fredmund Malik

[This article is translated from the German on the World Wide Web,  http://www.schweizerzeit.ch/1502/liberalismus.htm. Fredmund Malik is a professor of economics at the University of St. Gallen, Switzerland.]

The only new element in the "New Economy" is something ancient and as old as the hills. Deregulation, globalization and digitalization lead the world to the model of perfect competition more strongly than any other technical or social development in the past.

The main elements of the competition model - known to every economics student in the third semester - are: friction-free adjustment of all economic processes, minimization of time and maximization of transparency. The consequences of this model are also clear. Prices level out on the lowest possible standard and no one makes any profits any more.

This insight is neither new nor especially pleasant for the entrepreneur side. In this light, the "new economy" appears rather old and far from the heavenly conditions. Not a single thesis of the "new economy" supporters and their loyal media vassals has proven correct. In other words, the collapse of illusions actually occurred much earlier, in the middle of the nineties.

Debt Economy

Delaying and shifting this collapse so long can be ascribed to the unparalleled creation of liquidity by the US Federal Reserve together with the direct interventions supporting the stock exchanges. This led to an unprecedented credit expansion and a gigantic "asset bubble" (stock market bubble) not justified by any real economic output. Simultaneously that mass psychology mood spread in which every risk appeared trifling and the belief could arise that the American Federal Reserve was always ready to be a deliverer.

Greenspan's Acrobatics

FED Chairman Alan Greenspan, heroized by the financial world and the media like Abraham Lincoln and John F. Kennedy, has a good chance of entering into history as the destroyer of the American economy. All conditions were fulfilled that made possible a collapse of the financial markets with all the usual consequences: a long-lasting recession, possibly a depression and destruction of a large part of asset values in a period of deflation. As history teaches, such events are not limited to the economic sphere but have far-reaching effects on the social fabric of society, endangering old-age pensions and social security. For the same reason, these events also lead to the risk of political radicalization.

The lessons could have been drawn long ago if one studied Japan and its economy. Japan is ten years ahead of the US and therefore offers the best example. All the excesses happened there in the second half of the eighties. The result was a ten year debt-filled agony for which no end is in sight. Lessons could also have been drawn from the collapse of the Southeast Asian economies. However this warning came too late to halt the mass psychology moment.

Economic Laws Remain

"Old" and "new" cannot be applied so simply to the economy and its laws as attempted. The "great transformation" that presumably is still in its first third will bring many innovations. Radical innovations will occur in all value-added stages of the economy from research and development to marketing. New forms of organization and new types of enterprise will arise, new kinds of administration, learning and teaching, transportation and consumption. People will act in many new ways.

Nevertheless the laws of the economy will not change. Price formation will occur despite all the innovations through supply and demand. Contracts should be observed and expenses paid. Debtors should be served. Creditors have to be executed or written off. Businesses first need customers, then they can think of shareholders. They must be competitive at all times. Being valuable is not their goal. Business will first maximize customer value. Shareholder value comes afterwards. Solid financing and the ability to survive bad times will be basic elements of every business strategy. One must learn to rightly distinguish false misguided growth and market-necessary size from personal monuments. Good managers must be clearly contrasted from adverturers and egomaniacs. Businesses cannot be conducted one-dimensionally in a purely financial economic way in the long run.

True and False Liberalism

A free economy is not possible by renouncing on rules. This must be learned again. Liberalism has never meant disorderliness but rather the establishment of carefully well-thought out and skillfully arranged rules that set limits to self-destructive forces and clearly and strictly limit individuals' exercise of power and enforce responsibility and liability for faulty conduct.

The complexity of a modern society, its transparency, the speed of disseminating information and the educational state make it more important than ever that the core systems of the economy and society are robust. These systems may neither be at the mercy of intellectual adventurers and their economic illusions, the playthings of the greed of the financial world nor abandoned to the megalomania of managers.

If the greatest chance of humanity for peace, freedom and prosperity that ever existed should not be carelessly lost, pseudo-liberalism must be replaced by true liberalism. A small but internationally interwoven country like Switzerland must have a precedent interest in true liberalism.

homepage: homepage: http://www.mbtranslations.com
address: address: mbatko@lycos.com


competition:YES monopolies:NO 20.Sep.2002 12:53

Nick Winlund nickw@cyberspace.org

Maybe because this article is translated from German it reads funny...

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"friction-free adjustment of all economic processes, minimization of time and maximization of transparency. The consequences of this model are also clear. Prices level out on the lowest possible standard and no one makes any profits any more."
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Maximization of transparency has nothing to do with profits. Transparency asks the question: "where does the money come from and where does the money go to?"

Prices come from dynamic markets and marketplaces, not a fixed single standard. True pricing (i.e. pricing not set by monopolies) is based on verifiable supply of some product or service in an industry. Pricing is set by small-, medium- and high-level brokerage and trading firms across the world. Consolidation of ownership affects pricing but only in the short-term.

The word verifiable is important to use (verify & validate) because some corporations will lie about their assets (what they have) in addition to earnings to attempt to "corner the market" and/or maxmize profits. For example in telecommunications the telco monopolies have repeatedly lied about availability of cutting-edge Internet access (the new IP-based soft switches-- http://www.gnu.org/software/bayonne/). In the case of telcos supply transparency is feigned by greedy individuals and thus THE PRICE IS NOT REPRESENTATIVE OF THE DEMAND. In a manner of speaking this is exactly why DOW/NASDAQ is going to shit now. The investors know they've been lied to (read: Global Crossing, Lucent) so the investors are striking back by selling heavy.

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"Debt Economy
Delaying and shifting this collapse so long can be ascribed to the unparalleled creation of liquidity by the US Federal Reserve together with the direct interventions supporting the stock exchanges. This led to an unprecedented credit expansion and a gigantic é─˙asset bubbleé─¨ (stock market bubble) not justified by any real economic output. Simultaneously that mass psychology mood spread in which every risk appeared trifling and the belief could arise that the American Federal Reserve was always ready to be a deliverer. "
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This is an *excellent* analysis of the American debt economy or old world "debt wage"/"slave wage" system about to collapse from its own weight.

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"é─˙Oldé─¨ and é─˙newé─¨ cannot be applied so simply to the economy and its laws as attempted. The é─˙great transformationé─¨ that presumably is still in its first third will bring many innovations. Radical innovations will occur in all value-added stages of the economy from research and development to marketing. New forms of organization and new types of enterprise will arise, new kinds of administration, learning and teaching, transportation and consumption. People will act in many new ways."
---

It's already happening. -  http://www.opensource.org/ - Need I say more?

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"Nevertheless the laws of the economy will not change. Price formation will occur despite all the innovations through supply and demand. Contracts should be observed and expenses paid. Debtors should be served. Creditors have to be executed or written off. Businesses first need customers, then they can think of shareholders. They must be competitive at all times. Being valuable is not their goal. Business will first maximize customer value. Shareholder value comes afterwards. Solid financing and the ability to survive bad times will be basic elements of every business strategy. One must learn to rightly distinguish false misguided growth and market-necessary size from personal monuments. Good managers must be clearly contrasted from adverturers and egomaniacs. Businesses cannot be conducted one-dimensionally in a purely financial economic way in the long run."
---

Basically Keynesian economics (John Maynard Keynes was the John Birch asshole who helped form IMF and solidify supply-side economics at the end of WWII) so popular with the dwindling maximum-profit warmongers will have to be dumped for sustainability. Shareholding is separate from stakeholding but both are extremely important and will have to be recognized in the 21st century if demanders (customers) and suppliers (businesses) are to get along. Competition is surprisingly not something that comes naturally to humans. The tendency for greed (monopolization) seems prevalent in most societies so vigorous checks and balances brought into the mainstream by grass roots organizations will need to be the norm (forcing auditing, oversight, compliance and accountability no matter how much the corporations kick and scream).

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"A free economy is not possible by renouncing on rules. This must be learned again. Liberalism has never meant disorderliness but rather the establishment of carefully well-thought out and skillfully arranged rules that set limits to self-destructive forces and clearly and strictly limit individualsé─˘ exercise of power and enforce responsibility and liability for faulty conduct."
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First: equal rights and justice for everyone. Second: Verifiable accountability in all businesses and organizations that Western businesses (who charge interest) and Eastern, Arabic-owned businesses (who don't charge interest) understand and respect. Third: Wipe out proprietary software systems that allow greedy individuals to hide transactions and fake profits and replace them with Open Source which boosts transparency.

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"The complexity of a modern society, its transparency, the speed of disseminating information and the educational state make it more important than ever that the core systems of the economy and society are robust. These systems may neither be at the mercy of intellectual adventurers and their economic illusions, the playthings of the greed of the financial world nor abandoned to the megalomania of managers."
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The author assumes society is transparent but this is a cultural argument. In America people have a tendency to internalize conflict or not speak out. This is not transparency. We must teach our children to actively question authority and practice civil disobedience even when faced with arrest and violence. In other countries like Venezuela conflict is externalized more--i.e. the Venezuelan people knew Hugo Chavez was getting ousted in April this year even though their corporate-owned and operated newspapers and television didn't talk about it. People knew because they talked with their families and neighbors at town halls to learn the truth behind the attempted White House-backed coup d'etat.

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"If the greatest chance of humanity for peace, freedom and prosperity that ever existed should not be carelessly lost, pseudo-liberalism must be replaced by true liberalism. A small but internationally interwoven country like Switzerland must have a precedent interest in true liberalism."
---

Think globally, act locally. Your community comes first. Work for peace and sustainable economics in your community first, then reach out to others. Get a life, not a job!!! Work blood sweat and tears for something you love, not something you hate.

We are in the midst of witnessing corporate fiefdoms crumble on all sides. The Rastafarians say: "The stone that the builder refuses will be that cornerstone." How true! Conflict is an ongoing process and normal for all societies. To not have it means transparency isn't working since people always have something to argue about. Conflict resolution is a continuous day-to-day process with measurable goals set by people not corporations. If we externalize our conflicts or not limit debate about events in our society to closed door meetings and the domain of corporations we'll do fine. If we continue to buy proprietary software (Micro$hit) that SPIES ON US or "elect" leaders like the Shrub we'll go nowhere.