ECONOMY OF TOMORROW The Economy of Tomorrow 1

ECONOMY OF TOMORROW The Economy of Tomorrow 1. Why is a new development path necessary? New economic, ecological, social challenges The end of successful development models 2. How could a sustainable development model look like? The Eo. T model for socially just, sustainable and green dynamic growth 3. How to create the political will for a shift onto a new development path? Weak progressive actors/ flawed governance Building political leverage for the struggle against the status quo Contact: Marc Saxer, marc@fes-thailand. org 1

ECONOMY OF TOMORROW The Economy of Tomorrow New Challenges Contact: Marc Saxer, marc@fes-thailand. org 2

ECONOMY OF TOMORROW CHALLENGES: The Great Crisis of the West Euro Crisis/ Sovereign debt cisis Crisis of casino capitalism Crisis of shareholder capitalism Failure of neoliberalism Flawed neoclassical theory of efficient markets Limits to extractive growth The crisis of the nation state Crisis of representative democracy Contact: Marc Saxer, marc@fes-thailand. org Metaphysical Black Hole 3

ECONOMY OF TOMORROW Virtual growth and crises in the West (Example US) Moderate Inflation State debt Mass Runaway inflation Nixon abandons Gold Standard/ End of Bretton Woods 1973 unemployment Quantitative easing Private debt Public debt crisis Lack of consumption demand Fed raises interest rates to squeeze out Inflation Clinton cuts deficit spending 1981 1993 Contact: Marc Saxer, marc@fes-thailand. org Over leveraging Subprime/ financial crisis Fed buys foreign debt 2001 2008 4

ECONOMY OF TOMORROW The perpetual crises of virtual capitalism Problem Quick fix Injection of virtual resources Problem Contact: Marc Saxer, marc@fes-thailand. org 5

GLOBAL CHALLENGE: Financial capitalism is unstable Misallocation of Capital (Financial) Weak Risk Market Management Liberalization Excessive Leverage Lack of Investment in Productivity Wrong Incentive and Innovation Structures Downsizing the State Large Currency Reserves Pro-Cyclical Policies Supply Side Lack of Income- Income Inequality Economics Driven Consumption Instability of IDEOLOGY Financial Capitalism LACK OF AGGREGATE DEMAND Debt Driven Concentration Regulation Consumption Blocked Cuts in Public Goods Austerity licy res po Export Driven Demand Po Imbalances nse s CRISES onse Market resp Poli cy s NEO- LIBERAL Speculative Bubbles Instability

ECONOMY OF TOMORROW All modern institutions– state, market and democracy– are based on the Enlightenment Ideal of Rational Man f Man o e c n d merge “The e self-impose is from h ains” ch “Rational ity allow s progres to a bette s r future” Efficient Markets eing tional B Ra autonomous decisionmaker H universally informed Representative Democracy icus onom ec omo State Bureaucracy maximises interest rational choice Technocracy Well informed voter Social contract Incremental optimization Planning, Future scenarios Go od Go ve e Common Good Scientific Progress Metaphysical Roots of modern Institutions are flawed Contact: Marc Saxer, marc@fes-thailand. org rna nc 7

ECONOMY OF TOMORROW The situation in Asia is different, but challenges are converging WEST converging trajectories ASIA Contact: Marc Saxer, marc@fes-thailand. org 8

ECONOMY OF TOMORROW Additional CHALLENGES for developing/ emerging economies Japan, Korea, Singapore, Korea, Hong Kong Post-Industrial Economy India Moving up the value chain - high-tech industries - Services Thailand Malaysia Indonesia Vietnam Bangladesh Pakistan Industrialization Extractive Growth : - Exploitation of natural resources - Exploitation of labor (rural => urban productivity) Contact: Marc Saxer, marc@fes-thailand. org 9

ECONOMY OF TOMORROW The East Asian development model of the past decades Industrialization Export Low Wage Contact: Marc Saxer, marc@fes-thailand. org 10

ECONOMY OF TOMORROW The end of the East Asian development path Finite Resources/ Energy security Third Industrial Revolution/ New global division of labor Climate Change/ Natural Disasters Industrialization Japanese Tsunami China’s Bubbles Export Low Wage Vulnerability to external shocks Financial Crisis Income Disparity = Social Divide and Political Conflict Looming Global Recession = Lack of external Middle Income Trap demand Influx of “hot = AEC: Low Wage money”/ Need to boost Currency volatility productivity competition Contact: Marc Saxer, marc@fes-thailand. org

ECONOMY OF TOMORROW Extractive growth: Infinitve growth in a finite world? ec olo its gic al im c l i om on lim its fisca l lim fiscal its ec p its al lim c i t i l o social limits Contact: Marc Saxer, marc@fes-thailand. org 12

ECONOMY OF TOMORROW The Economy of Tomorrow Economic Solutions Contact: Marc Saxer, marc@fes-thailand. org 13

ECONOMY OF TOMORROW The Economy of Tomorrow Development Model Macro- Public Long-term Restructuring Economic Goods Strategies Guidance Balanced Accounts STABILITY Stable Financial Markets Productivity Innovation Consumer Government Investment Net Spending Exports Dynamic Supply BALANCE Steady Demand INCLUSIVENESS DYNAMISM Human Resource Technological Capital Efficiency Innovation Inclusive Institutions Income Equality Competitiveness Contact: Marc Saxer, marc@fes-thailand. org 14

ECONOMY OF TOMORROW The Economy of Tomorrow Growth Drivers Innovation Stability and Balance Inclusiveness Contact: Marc Saxer, marc@fes-thailand. org 15

ECONOMY OF TOMORROW What strategic aims for the state/ private sector? Resource efficiency Green Innovation Investment in Renewable Energies Green Dynamic Growth Productivity Stable financial markets Sustainable Growth Socially Just Growth Fiscal sustainability Stable natural environment Stable social environment Global trade balances Contact: Marc Saxer, marc@fes-thailand. org Fair Income Use of all talent

ECONOMY OF TOMORROW The Economy of Tomorrow Political Solutions Contact: Marc Saxer, marc@fes-thailand. org 17

ECONOMY OF TOMORROW If we know what should be done… … why is it then not being happening? „Populism“ debate shows that it is impossible to talk about economic development without politics. “Change” is not the automatic result of facts and figures. „Change“ can only be the outcome of a political struggle. Contact: Marc Saxer, marc@fes-thailand. org 18

ECONOMY OF TOMORROW Shifting the development path can only be the result of a political struggle 19 Contact: Marc Saxer, marc@fes-thailand. org

ECONOMY OF TOMORROW Eo. T Strategy: Compass, Coalition, Communication Contact: Marc Saxer, marc@fes-thailand. org 20

ECONOMY OF TOMORROW Economic problems are not primarily economic, but political problems The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. John Maynard Keynes, The General Theory of Employment, Interest and Money (1935) Contact: Marc Saxer, marc@fes-thailand. org 21

ECONOMY OF TOMORROW Politics is less about solutions but about the definition of the problem Definition of the problem … determines the political outcome Discourse 1 Facts § § Financial Crisis Bank Bailouts Recession Collapsing Tax Revenue Sovereign Debt at the periphery exploded because of bailouts and devaluation at the center Policy Regulate (financial) markets Discourse 2 Sovereign Debt exploded due to oversized social welfare costs and state mismanagement Contact: Marc Saxer, marc@fes-thailand. org slash (welfare) state 22

ECONOMY OF TOMORROW STRATEGY: Channeling the political process Contact: Marc Saxer, marc@fes-thailand. org 23

ECONOMY OF TOMORROW Eo. T serves as a compass and benchmark GOVERNANCE TOOLS To Achieve STRATEGIC AIMS Collective Bargaining Minimum Wages/Wage Policy Short Term Employment Vocational Training Lifelong Learning Programs Decent Work To Fire Up R&D in (green) technologies To drive GROWTH To Produce COMPASS NORMATI VE VISION Income Equality Fair Income For All Socially (consumption demand) Inclusive Institutions Include all Talent Just Public Goods (Education, Health, (innovation & labor Social Security) productivity) Growth Financial Market Curbing of speculation Regulation International Monetary Regime Anti-cyclical macro Capital Controls economic guidance Administrative Capacity (Oversight and Control) Market introduction ¨ Setting Incentives for schemes Productivity and Innovation Standard Setting Emission Trading GROWTH ENGINES Stable financial markets (capital productivity) Balanced Trade (balanced current accounts) Balanced Budgets (fiscal sustainability) Stable natural and social environment (Green) Innovation � ¨ Long-term investment “Greening the Old & management Economy” strategies ¨ De-Coupling (resource efficiency) Contact: Marc Saxer, marc@fes-thailand. org Sustainable Growth GOOD SOCIETY with FULL CAPABILITIES FOR ALL Green Dynamic Growth 24