The Failure of Western Neoclassical economics - Invention without innovation results in increasing poverty
Thu 28th Aug 2014
Many individuals in the Western nations are still great at invention, but innovation — defined as the transfer of these inventions to the factory floor — has generally failed in the West. Why are iPads invented in California but produced in China? Why are Dyson vacuum cleaners, invented in Wiltshire, England, produced in Malaysia? What are the forces which encourage economic growth in Asian industry but do not allow it in the USA and the UK?
There is a linked intellectual component to that economic failure. Why is neoclassical economics, which obviously does not produce the goods, so well entrenched in Western universities?
There are perhaps three main reasons for this:
—First, because the existing systems are such an enormous advantage to the rich and powerful.
Neoclassical economics, by restricting the growth of credit through the Central Bank and the banking system, delivers capital shortage and increasingly higher profits to major companies and higher interest rates for foreign borrowings. This is a great advantage to the already rich and powerful and forges links between leading right-wing politicians and offshore foreign billionaires who try to run the world and who have often partly succeeded in doing so through the imposition of the Washington Consensus. That Consensus delivers falling living standards to the majority of the Western domestic populations, who are increasingly impoverished by the deliberate policy of Western governments since 1980 to force lower wages, higher unemployment and the destruction of the social fabric to bring about a low wage low tax economy.
In Britain, the share taken in national income by wages and salaries has now fallen below 50%, and the median worker is now over £7,000 poorer than he or she would have been if the wage share of national income in 1980 had not been reduced to current levels, and if the inequality in incomes had not been so sharply increased. The Coalition Government is now claiming to have reduced inequality, and it has partially done so, by moving many millions of people into poverty and making more necessary the income support it proposes to reduce in future.
That process now seems to have reached the end of its road and is no longer acceptable or tolerable to the majority of the electorate.
— Second, because the funding of research is controlled and managed by the rich and privileged in order to continue to protect their overseas nominee-bank-account tax-avoiding fortunes and for their financial advantage.
The UK is perhaps the main example of this. The “Institute for New Economic Thinking” is funded by George Soros and perhaps by the CIA — how likely is that individual and that group to finance research which reduces the returns to offshore billionaires and demolishes the Washington Consensus? How free is the Rethinking Economics community to think outside the existing framework of economic understanding if the piper-payer calls the tune?
But perhaps the super rich elite of the West have woken up to the fact that it is not tolerable to the majority of the highly educated populations of the West that their economies are being run for the benefit of the overseas billionaires and rentiers. The political control of supposedly democratic nations will be lost to the rising force of populist causes which might repudiate foreign debts to faceless nominee lenders. The previous greed of the rich could cause them to lose completely their current wealth if a better economics is not practiced.
—Third, because of intellectual inertia — it is easier for most people to accept the socio-economic situation than to try to change it.
As stated in the Declaration of Independence;
“Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed.”
And the answer to the problem is in the same document and reflects, in older resonant but entirely appropriate language, the justification for the current world wide protests against austerity;
“But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”
Until the 1980s the major justification for capitalism — and it was a moral justification — was that it was the most successful system for the improvement of the wealth and welfare of the great mass of the people in every nation. That is no longer valid. Neoclassical capitalism has produced widespread poverty and starving families in both the UK and the USA.
I very much doubt that even the self-serving elites of the West intended to bring about that result, but they have contributed to it, and it is completely unnecessary.
Shimomuran economics is not only much better at producing the goods but also it is superior in producing rising living and welfare standards. It does not require a revolution, and it can restore wealth and welfare among the Western nations. It is obviously a much better way forward.
For me the remaining question is not if, but when.
© George Tait Edwards 2014
Note 1: George Tait Edwards has published a book about “Shimomuran Economics” at http://www.lulu.com/shop/george-tait-edwards/shimomuran-economics/paperback/product-21688864.html
Note 2: This article was first published on Medium.com on July 11th 2014 at https://medium.com/@georgetaitedwards/the-failure-of-western-neoclassical-economics-8136fd80dfe1