3.7 The Current World and Future Trends                                               Version 1.2 March 2012

 

 

 

Business people in Europe and America saved or borrowed money (their capital) to set up mechanized factories to produce goods, trading companies to distribute the raw materials and finished products, and banks and stock exchanges to arrange the finances.

The “business cycle” developed over the colonial world.  When businesses were optimistic they employed more people for better wages and the workers could afford by buy more goods, so business people to became even more optimistic and the economy boomed.  Eventually they produced more goods than people wanted, sales and prices went down, businesses went bust, workers lost their jobs and the economy went into a recession.  The Great Depression in the 1920s and 1930s lasted many years, causing great suffering.

The appalling inequality in industrialised Europe led to the political philosophies of socialism and communism, in which the government takes ownership of the means of production, distribution and exchange.  Though they weren’t industrialised, communist revolutionaries took over Russia (in 1917) and China (in 1949) and persecuted many people while attempting to create ideal societies based on sharing worldly goods. 

But the Communists did not share power, tried to control all economic activity, and created oppressive bureaucracies to persecute critics, which led to massive inefficiencies and widespread corruption and abuse.  The Communism regime in Russia collapsed in the 1980s and China converted to a capitalist economy but retained the Communist Party’s control over state power and still oppresses its critics.

Socialist governments avoided the totalitarian oppression of communism, but pursued government ownership of key economic areas such as utilities (roads, water, power, telecommunications, airlines), and key businesses such as banks and insurance.

To counter the business cycle, governments learned to follow Keynesian economics: during a down turn in the economy governments can reduce taxes and borrow money to create jobs, so the additional workers and higher net pay increase demand for goods and encourage businesses to start up and hire more employees.  When the economy is booming governments can increase taxes, reduce job creation and pay off the debts they accrued.

Socialist parties in European countries (and the USA under Truman’s Employment Act and Eisenhower’s road construction programs) gradually took responsibility for managing the economy to provide full employment and increased workers rights, age pensions, health care systems (in the USA under Johnson) and legal rights (in the USA under Kennedy).

Popularly elected governments had difficulty raising taxes to pay off debts and to reduce citizens’ benefits in boom times, leading to excessive government borrowing, cost push inflation which raised wages leading to high unemployment (stagflation).

Monetarist policies were introduced, to reduce demand by raising interest rates so businesses and workers generally have less money to buy goods and services, and to reduce government debt by selling off the government owned business enterprises.

For ordinary people in affluent countries the world was changed: they could expect to live reasonably comfortable lives free of oppression and want, even better than life under the Song Dynasty in China, due to better government, public health, productivity improvements, mass produced consumer goods, improved transport and vastly improved communications.

The so called “triumph” of capitalism over communism and socialism is almost complete.  Corporatization and commercialization is now rampant, in agriculture, manufacturing, finance and media.  The world has become and integrated economy, with Middle Eastern oil states and China funding excessive American borrowing, and Indian knowledge workers taking jobs from Europe and America.  Controls on capital markets and financial institutions are limited even in Europe but they are even less controlled in the USA and uncontrolled in developing nations.  Corruption is a growing problem on a global scale.  The global financial system is becoming more complex and difficult to predict, and there is no evidence that it will be successfully managed in the future.

Over population and increased economic development are over stretching the natural environment.  The climate is warming, due to human intervention. 

There is a risk of global collapse, into wars, ecological disasters, or protectionist economic zones with a fortress mentality. 

We must hope for increased global stability, ongoing prosperity, and humane progress.  But there are no adequate global institutions that can effectively govern the transitions we face.