High level thinking on economic issues

Here, in a nutshell, are a few ideas you might try to extend your answers with in a strong conclusion; luckily Moneyweek has summarised this information for you. The full article can be found here.

Escaping neoliberalism

WE CAN LOOSEN THE GRIP OF POPULISM

Stagnant economies and the rise of the populists have been the broad themes to emerge over the past few years, but few have delved into their causes, say James Montier and Philip Pilkington on GMO.com. Both have their roots in “neoliberalism”, the system of economic governance that arose in the mid-1970s and is characterised by globalisation, flexible labour markets, and a focus on maximising returns to shareholders at the expense of reinvestment and growth. Escaping from neoliberalism will  involve restructuring our economies on more equitable and sustainable lines. Here’s what we need to do.

First, stop trying to steer the economy with monetary policy while shirking the responsibility for maintaining full employment. Instead, the government should offer a fixed wage for any  labour that is forthcoming, which  will be the de-facto minimum wage. When unemployment is high, workers will flow into the government scheme and be outsourced to private charity groups and put to work on any number of jobs that are currently not done – cleaning rivers, helping the disabled, caring for the elderly, planting public gardens, and so on. When times are better, employers can lure workers back by offering higher wages.

Second, to mitigate the negative effects of trade globalisation, run a policy of import substitution. Governments should identify the products currently cheaply imported from abroad that could easily be made here. Then offer direct subsidies to companies willing to produce these products. This should be thought of as part of a broader policy of reindustrialisation. 

Third, frown on corporations that maximise shareholder value at the expense of investment and growth. This is really a corporate choice, not a government one, but corporations should be warned that they need to get their house in order before it’s too late – “populists have policies too, you know”.

Finally, unionise the workforce. Unions have been demonised for four decades, but they can play a fundamental role in ensuring that the distribution of income is fair and that the macroeconomy is balanced. “If policymakers fear striking workers and hot-headed shop stewards, they should look to the Scandinavian countries where capitalist worker-government relations are excellent because everyone treats one another with respect, everyone gets a seat at the table, and equitable outcomes are reached.”