Monday, January 14, 2013

Re-industrialisation gives hope for the future

In the age bracket of 16 to 25 years of age, Germany scored the lowest unemployment of 8 % among the 27 EU-countries in the first quarter of 2012, whereas Spain and Greece had the worst positions, with more than 50 % out of work. The United Kingdom ended up somewhere in between with 22 % unemployed, slightly better off than Sweden. Despite often many years of advanced studies, much of which arranged by governmental educational programmes, the jobs just are not there. Life that was just about to get started is replaced by dependency on family and friends, local authorities and social security.

An economy running empty
A flashback throws light over the scenario. Large parts of the European industry has emigrated, a movement that took off many decades ago. An ever-increasing urge for pay-rises and higher social benefits resulted in industrial wages, social security fees and taxes rising well beyond productivity. Hence western industry had to fight a gradually growing competion from the rest of the world. As many industries either closed for good or moved to brighter horizons e.g. in South-eastern Asia, China, the Indian peninsula and Brazil, the industry jobs in the West were too few and often regarded as too unattractive for the younger generations. Meanwhile, in the absence of industrial jobs on a larger scale, public bureaucracy grew and thus gave the pay-checks that people in the West demanded to keep up with their expectations of the high standards of living.

Nowadays few in the West have their income from production and refining. On the other hand has the publicly funded sector expanded enormously, with a flora of jobs, “job-creating measures” and projects for the unemployed in order to give the earnings requested. However, most of these schemes lack support in economical reality as they are publicly funded. This means that funds from taxes are being moved from one part of the economy to another, a game without revenue.

Too late the apparatus of politicians, bureaucracy and economists have started to realise that the West no longer is the King of the Hill, and we do no longer create the economical resources that the western welfare states demand. Despite growth in international trade, we borrow for our living and leave mountains of debts to future generations. It should have become obvious in the past years, but it seems as if many politicians in the West still have not woken up from dreams of unearned luxury as they hope to boost the economies with non-existent funds.

Widening knowledge gaps
Contemporary politics is dominated by naive wishing lists, paid for by the revenue granted from a high-tech industry. Blind for the fact that such very research and development to a large extent takes place in close cooperation with the production lines – which have emigrated. Another solution often put forward is the growth of a service sector, which may succeed in employing quite a few, but how it will manage to produce revenue in order to pay for expensive welfare is still left unclear.

Moreover, the countries we compete with also boast strongly motivated and clever students, and a youth who expect to work hard in order to accomplish what many in the West take for granted. Besides, it should be obvious for any thinking person with the least of life experience, that the bulk of the workforce just will not match the requirements of the high-tech “knowledge-intensive” industry.

Re-industrialisation employ the many
Unemployment in general and among young people in particular is a serious problem for the West. Some talk about a lost generation, meaning youth out of work and unable to become productive citizens saving up for their own future. So far no cure has proven to work. The good intention to create jobs by means of public funds seldom comes with revenue, and if it continues, the West will be left far behind and unable to finance what should be expected from the state.

In order to turn the situation right we need tough structural reforms and create conditions for re-industrialisation. To accomplish this, the West needs considerable re-thinking and to achieve a private business climate that attracts new industrial ventures. Of course this is not done over night, but through purposeful and stable long-term policies. A competitive industry is a necessary prerequisite to keep at least some of the welfare state, which should be paid for by the many rather than the few. Contrary to high-tech industry and a service sector, basis industry knocks down unemployment. With a growing and diversified industrial sector not only the necessary new jobs will be created, but it will also reduce the dependency on a few larger companies.

Strategies to save a core of welfare
Through identifying the primary undertakings by the state, the necessary financial resources can be prioritised: Schools, Civil contingencies, Police and Judicial systems, Infrastructure and Defence. The goal for the welfare tasks should be: All means to actual production of welfare – such as essential medical services, brief and basic income in between jobs, protection for children faring badly and similar morally obligatory frameworks of social security for those unable to make their own decisions – but nothing to unnecessary administration, many a time with metastasising layers of bureaucracy on top of another. After this slimming cure there should be a small but strong and clearly defined core of publicly funded welfare, where no doubts should remain as to what ends the fees should serve.

Insurances in excess to those included in a sharply delimited and thus a lot more durable welfare state, should be up to the individuals to decide upon and theirs to finance for themselves. The long term, sustainable, direction will be that human brotherhood should not be shovelled out with taxes. The civil society, you and me, families and communities, will have to take more responsibility.

Adjustment to reality – no bursting credit bubbles
As none of the new industrial superpowers stand in line to pay for the high standards of living of the West, our salaries will have to become subordinated to international competition and relative productivity. It is self-evident that this means reductions of the cost of labour, i.e. wages, salaries and the social bills on top.

With lower taxes, as a consequence of a smaller public sector and matching the reduction in labour costs, it will become possible to reduce price levels and make the individual able to live on his own income. Moreover will he become unable keep up bursting bubbles of loaning bonanzas. This in turn also forces the financial systems off the dependence of cheap, newly printed, money and will give both governments and the people a cold turkey realising that savings comes first if you wish to invest.

In order for the West to establish hope for a bright future it takes re-industrialisation. The path comes only with sweat and tears and a good portion of common sense. Politics will no longer be about listening to theoretically schooled oracles, competing with one another of what sounds good, but of what actually works.

The article above is written together with economist and entrepreneur Carl Anders Breitholtz and is a to some extent modified version of the Swedish text Återindustrialisering ger framtidstro and the Danish commentary article Genindustrialisering giver fremtidstro published in Jyllands-Posten in October 2012. 

 Claude Lorrain (1600-1682) Mill on a River (1631).