Saturday, October 29, 2011

Can democracy deal with the complex problems of the 21st century?

I was pondering whether our political institutions are even capable of solving the challenges that the 21st century poses.  I should say these challenges are also incredible opportunities for prosperity.  Much as the challenges of the 1930's were also great opportunities. 

In the 1930's the western states eventually had to put in the social welfare state in order to save the economy and system.  Otherwise capitalism was destroying itself with mass unemployment and the downward spiral on demand that creates.  The farm combine and other technologies had made millions unemployed, and they were migrating to the cities bringing wages down there, and creating public infrastructure challenges.  In the 1930's many political systems began to fail under the weight of mass unemployment.  Ultimately a number of nations political systems did fall, eg.. Italian democracy and the Weimar Republic in Germany.

The old EU of consensus is already arguably fallen.  And a new German dominated EU has emerged.  To get things done you need one voice in charge.  Others can have a seat at the table and voice their concerns and opinions, but one leader has to make the call.

One of the most basic problems is the out of control power of the banks.  Its insane to be insured by the state, and to be able to take extreme bets and keep the profits if they go well.  Yet our democratic systems seem captured by the monied interests.  Special interest in general seems so powerful that you cannot reform anyting without hurting someone's profit.  So the leaders shy away from reforming anything and just hope for hte best.. or try to print some more money and cover things up for awhile. 
Look at the movements now like the 'indignatos', occupy, the strikes in Europe, the loss of political credibility of both major ideologies. 

Monday, October 24, 2011

Discussion on automation

A good discussion on machines taking jobs on housepricecrashforum.

What will happen long before a majority of jobs are automated is demand will collapse.  The army of unemployed will underbid jobs down to the national minimum wage.. like in the USA there is 'click monkeys'.. lawyers who are making barely over the minimum wage, so at least they can be using their law degree.

The unemployed themselves will buy very little, so demand falls.  And as Miko pointed out, those remaining in good jobs will save as much as possible, incase they are made unemployed.  Realizing a best case scenario is several years in a college to retrain into a new skill.  Which is going to require a lot of money.

Faced with falling sales, corporations will downsize, and faced with falling tax revenues, governments will downsize. 

In the USA the people employed was 150 million going into 2008.. but now is 138 million.  (Even as the population expanded by 9 million over the 3 years).  Those 12 million are still waiting for the market to bounce back and create new jobs.

Friday, October 21, 2011

Piecemeal factories

One interesting fact is that in China nearly all the factories are piecemeal. The workers get paid based on their production. Those type of factories were outlawed in Europe and the United States back in the 1930's.

But there are a handful of the factories still remaining that pay employees based on piecemeal.. they were grandfathered in way back in the 1930's. At one factory in Virginia the average worker made 180,000$ a year.

But they had something like 7 times the output per worker as the pay by the hour factories.

In Britain it takes a lot of money and effort just to hire someone, and try to comply with countless regulations - and those are just hte labour regulations, which is one of dozens of regulatory agencies. Most corporations are saying why bother, and simply moving production to Asia. Not like this is a new trend, but we are starting to wake up and say, wow there is actually no jobs in our country.

Why locate production in the West

Part of the issue is that if you come up with a new idea for something to be manufactured.. you would basically have to be an idiot to build it in the UK.

One example that is small by itself but indicative of the problem is the requirement for handicap access and handi-cap bathrooms in British facilities.

What about your business' professionally prepared plan to stop harrassment of lesbian, gay, bisexual and transgendered employees?

And your documented proof that you did not use racial, sexual or other forms of discrimination in your hiring and any promotions that were done?

I hope you have created a union friendly work environment and are providing, paid sick time and disability insurance. Is your building up to the modern seismic code? Where is your report on teh water flow in your facility prepared by a licensed hydrology engineer? Is the ventillation system stamped by a professional engineer as providing adequate ventilation?

Energy output versus wages

One reasons salaries are so low is that our nation's output is so low.  If you look at something like a steel mill or oil refinery the production is so vast, and the energy use is so vast, that the wages are huge - while still being a minor part of total costs.

In fact energy use is directly related to output obviously.. work output.  As we move to a sustainable, less energy intensive economy, our work output declines.

With less output as a society the pie to share is smaller.  A worker operating a vast machien that outputs £500 pounds of value an hour, can easily command £50 an hour in wages.

The same worker, now in a coffee shop, producing just £50 pounds an hour of output.. can command more like £5 an hour.

Thursday, October 6, 2011

How to finance and build a manufacturing base

I don't think our society yet has the will to really finance a manufacturing development.  I've been following China's rise closely for over 10 years now, and one of the interesting aspects is how they get into a new business.

Lets say for example Britain chose to manufacture train cars.  And for arguments sake it would take £20 billion in capital to develop 2 corporations to world competitive status.

You choose a city they are going to be based in.  The city and the banks then extend essentially unlimited credit to those 2 corporations to start setting up plant in the city.  Then the banks and city also need to finance a host of supplier manufacturers. 

Once you commit to having a certain business.. you have to go all the way.  If 5 years in you get weak willed, start having doubts and stop lending more money, then for sure you won't make it.  Once you are say £10 billion in.. you have to be willing to go the whole £20 billion, maybe more.

The thing is the rewards are also vast.  You might have to finance deep these companies for 10 years before they start making some real money.  Then you can pay back all the loans, plus interest, and have a huge industry in the city, that is a constant money machine.  As its a vast world out there to sell the product.  When you look at the GDP of the city, it is going to be be huge, because not only do you get the high level manufacturing, but you also get the supplier manufacturing, and the whole related sales and other support.

Say the industry ends up generating £5 billion a year in GDP for the city.  Well that is 50,000 jobs that pay £100,000 a year.