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AB 2000 studies

Alain Boublil Blog

 

The New World facing old economic policies

The world has more changed during the last 25 years than during the half-century which preceded it. An extraordinary innovations wave whose success nobody forecast occurred from information circulation through domestic tools belonging to the daily life until shale oil and gas discoveries which postponed by several centuries worries about possible shortages. There was also the upheaval of the geopolitical context with the end of the Cold War symbolized by the fall of the Berlin Wall, the strengthening of the European project and the Chinese economy take-off. The States did not have any other choices, to cope with these challenges than to open their borders to people and to goods, services and financial flows. How to keep borders when information is freely circulating all around the world and when the transport costs fall offers to everybody the possibility to travel? How to oppose to capital flows when corporate expend their activities all around the planet? Why, at last, to forbid to consumers to profit from the vast products and services range with affordable prices thanks to competition? It is what was called globalization.

At the same time, societies were deeply changing. Women aspiration to have a professional life able to offer to them their blossoming was progressively recognized. Technological innovations were transforming the nature and the amount of work necessary to satisfy new needs. Worries about environment were emerging after the anxieties generated by the heavy blows to natural surroundings, to air and water quality and to climate. The impact of these deep mutations was amplified by the new communication systems, the social networks along with the multiplication of platforms and television channels.

But, during that time, the only thing which did not change was economic reasoning and the tools supposed to be at the States disposal. We were still opposing Keynesian recipes, elaborated during the Thirties and relying on supporting internal demand when this one was slowing and generating unemployment, to monetary policy, inspired by Chicago School economists in the Sixties. According to them, it was the money supply evolution which was the appropriated tool. It was the duty to central banks to act through interest rates and the evolution of their balance sheet size.

Results have not been convincing. The inequality increase has weakened the political equilibrium in many countries. The insufficient regulation of financial markets has provoked in 2007-2008 a major financial crisis. Started in the U.S., it has spread abroad in the whole Western world. The country is still a threat with its huge internal and external deficits it finances thanks to the special statute of the dollar. Europe is going through an existential crisis which is not limited to Brexit. The population adhesion to the project in several founding countries including Italy is put in question. The results expectation was especially high when States were progressively deprived of the traditional tools of the economic policy. European Central Bank independence to manage monetary policy was guaranteed by the treaties. Budgetary policy was strictly managed by the same treaties with uniform rules for every country, despite their structural differences and direct interventions in corporate life were limited by State funding prohibition.

The world economy transformation has had two consequences in France: inflation disappearance and a global private wealth accumulation, even if that one was not enough shared. The range of tools dedicated to fight inflation has become without any purpose to the point that central banks have set in future as an objective to have a price rebound. States became the major losers because they don’t anymore reimburse their debt with devaluated money. Transfers are now in the opposite direction, to the benefit of households. Interest rates fall will maybe allow to partly correcting this situation in the future. But the objective to have a stabilization of the ratio between public debt and GDP becomes obsolete. It was easy to reach it when inflation was high. Today, it increases deflationist pressures. The right solvency indicator would be a ratio between public debt and households net financial assets. In France it is stable for the last twenty years because the evolution of their financial wealth has been spectacular, even if it occurred with rising inequalities the tax policy was not able to correct. That would reassure our German friends, who are always anxious about having to pay others debt. The State didn’t know how to adopt a policy regarding its assets suitable to the New World. It must stop to give up profitable assets which contribute to growth at a time when interest rates are so low. This principle should also be apply to pensions it is useless to reduce in order to accumulate surplus in the funds when there will be no need before a very long time.

The responsibilities sharing must change. The State is not anymore the only economic agent whose action is important. It is even the one whose interventions tools will be reduced in the future. A pedagogy effort is to be done regarding consumers because the level of employment and the reduction of environment blows depend of them. They have a huge but underestimated influence. When a famous brand has a bad social attitude or dubious tax practices, consumers, mobilized through social networks, should take that into account when they make their choices. The dissuasive impact would be enough to put an end to these practices with the highest profit in favor of employment and public finances which would benefit to employees and taxpayers. If, when they buy a product or when they chose a place for holidays, the same consumers take into account the localization of the production or of their destination, internal and external equilibriums of their country would profit of that. It is not about economic patriotism because that word evocates a sacrifice. To behave like that wouldn’t be such a thing since everybody, at the end would be a winner. It exist countries where these reactions are natural, like Germany and Northern Europe countries. Their results, so frequently hailed are the consequences of these behaviors. It is the State duty to promote that behavior change which can also be applied to the protection of environment.

Companies have the same responsibility. They can contribute to a better sharing of the created wealth and they must better exploit the offered possibilities by globalization. The objective is not, through costly foreign acquisitions financed by debt, to make their place on the world market. Market share are not to be bought. They are captured through products qualities and their suitability to customers demand. Countries which yield surplus and which benefit from job creations are these where enterprises have put into practice international development strategies which keep a large share of their value-added into their national territory.

Attitudes must change. Old tools of the economic policy are not anymore enough to answer to the New World challenges. Countries which are doing the best are these where consumers and enterprises have understood the new rules of the game. We must move from macro-economy obsession to a taking into account of the real micro-economic stakes.          

        

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