45

ECONOMIC TRANSITIONS

Ludwig H. tlai

Alfred Marshall, ProfesSor of Po l i t i ca l Economy at Cambridge, wrote in 1885

"Economic conditions are changing constantly." At approximately the same time

Karl Knies~ Professor at Heidelberg, said, "No economic system is f i n a l . "

The tremendous and far-reaching economic changes in the last twenty-f ive years

confirm these statements. These changes were fundamental and in many instances

not comparable with any others in former times. But, they are not yet completed

and leave the door for future changes wide open. We are s t i l l in a time of

t rans i t ion.

When we go through the pages of the history of our c i v i l i z a t i o n we find many

such periods of major mutations and breakthroughs which in the i r own time appeared

~mpressive and outstanding as we have called the modern inventions and discoveries

of the las t decades.

The past is dead, the future not yet born. To give purpose and meaning to the

present, to make the best out of l i f e and to secure the optimum sat is fact ion

we have to redefine the true purpose of a l l economic a c t i v i t i e s and have to c l a r i f y

our aspirations and what we actual ly want.

To consider these problems i t w i l l be advantageous to go back to the or ig in ,

to the roots of our economy, since many of the concepts and i ns t i t u t i ons , dating

as far back as the Middle Ages, are s t i l l with us.

In doing this we discover that our ancestors l ived in an en t i re l y d i f fe ren t

world. A funct ional, carefu l ly organized sustentive economy had the purpose to

produce and supply what was needed for survival on the status into which a man

was born. The human quest for improvement and achievement pointed toward an eter-

nal l i f e af ter death where the treasures obtained by serving God here on earth

were of much greater value than accumulated wealth of worldly goods could ever be.

t t is wrong to cal l th is time the "dark age" only because l i t t l e economic progress

was made. In fact , i t was a world f u l l of color, excitement and joy, an age f u l l

of love and devotion, f i l l e d with hope and optimism in which, however, many things

which now often dominate our mind and which we value so highly were of only sec-

ondary importance and were subordinated to the desire to earn the kingdom of

heaven, the f u l f i l l m e n t on the love of God. The search for human perfection moved

on a d i f fe ren t leve l . Economic improvement was only an accidental by-product and

not the purpose of l i f e .

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The past is gone, but reflections remain. When during the Renaissance

material things received more attention and the glori f icati .on of man was increas-

ingly emphasized, the sense for the brotherhood of a l l was overshadowed by the

importance of the individual. The strong prince, described by Machiavelli, became

the idol. Not responsible to anybody, resting on his own power position, he regu-

lated the social and economic l i f e . ~ith the national state emerged Mercantilism-

as i t came to be called later on--which produced wealth and luxury for the few in

power supported by the work and services of the subjeats-workers, farmers and those

in the colonies.

I t is not surprising that those who .were exploited demanded a change of the

economics and social structure, but they were not strong enough to make themselves

heard. Of the many educated men who saw the shortcomings i t was the physician of

the royal court in France, Francois Quesnay, who submitted to the king an "economic

table" showing the interrelat ionship and interdependence of a l l within an economy.

Applying "natural law" to economic l i f e he proposed that an economy would function

best and to the benefit of a l l i f a system of Laissez-faire ~ould be accepted in

which every individual would be free to do what he recognized as the best for

himself and thus--al l men together--would produce the best for the whole society.

7he reform of the economic structure was not accepted by those with vested interes~

The only way l e f t open to change the socio-economic structure was a revolution by

the masses--the French revolution.

In England the Laissez-faire idea was demonstrated by Adam Smith in his

famous book "The Wealth of Nations" (1776) which exercised great influence upon the

economic transit ion. I t became a book of rights for individual sel f - re l iance,

a book of unrestrained individual action to obtain economic security and equality.

I t helped to make economic growth and progress the main purpose of the industrial

revolution, which actually emphasized economic success over ethical values, economic

power over po l i t i ca l power, wealth over nob i l i t y . The successes became in fact

much greater than a l l expectations. Han became convinced that he could change the

world, that nature could be subordinated and used according to human desires. Gone

was the time when man f e l t he was a part of the universe, depending on the g i f ts

of nature and that pruden~and adjustment to the environment would produce the

very best results.

The people of the Enlightenment wanted to break open the inside of the unl-

versal environment to make better use of what was offered by nature, to improve

37

i t for better u t i l i za t ion and material enrichment. They were convinced that

there is no llm~t to what man can do. Me wi l l be able to do whatever he

wishes.

In that age of individualism and materialism a multitude of inventions

and discoveries were made. With the help of science, technology and hard work

l a b c rea ted new t o o l s , machines and equipment and f i n a l l y gave b i r t h to the

modern mechanical s l ave , the robo t . The successes were o u t s t a n d i n g . Progress

reached a l l f i e l d s . The whole way o f l l f e was changed. But the p r i c e was h igh.

Adam Smith's dream that the individual producing the very best for his own

want-satisfactlon would automatically, guided by an invis ib le hand, produce

also the very best for the human society as a whole, did not become true in

the reel world. Rather, in his urge to obtain more, to secure fester, to

conquer whatever came into his reach, the individual did not stop with satisfying

his present wants but added an increasing multitude of new desires with a never

saturated hunger to possess, to control, to command. He readily ignored the

interests of other individuals and of the society. The means to a given end

became an end In i t s e l f , even the original cause of desire was lost in the

daily struggle for more, better, faster.

Again, i t is not surprising that those who f e l t they were exploited, i . e . ,

that they did not get their fa i r share of the products they helped to produce

demanded a change in the d i s t r i b u t i o n o f income and wea l th . A c o l l e c t i v i s t

movement, a socia l is t revolution, turned against those who refused to share

what they considered to be r i gh t fu l l y their property and did not want to give

up privl leges. Thus, the world was divided into two economic systems:

Capitallsm , where the defpnders remained in power, and Communism, where the

attackers succeeded. But Communism Is no less mater ia l ist ic than the classical

system of Capitalism. Communists only hope that col lect ive ownership and

production would result in more equal d ist r ibut ion of economic well-being and

power. They s t i l l have to prove this to be true.

Capitalism was based on private i n i t i a t i ve , private property, free compe-

t l t i on so that the f i t t e s t could reap the f ru i ts of the ac t i v i t ies . At hls time

Adam Smith had no reason to expect that the atomistlc structure of industr ia l -

t z a t t o n - t h e many s u p p l i e r s , produc ing the g r e a t e s t number o f goods at the

cheapest possible prlce-would vanish, that the etomlstlc firms would grow and

combine Into large enterprises with vast economic power which radiated pol i t ica l

power. He a lso d id not recogn ize tha t the f r ee market does not n e c e s s a r i l y end

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automatically serve those who have the greatest need but rather those able to amass

and secure the most wealth or purchasing puwer.

In spite of these developments and emerging shortcomings we can look with

admiration upon the rapid economic progress of the last century and the beginning

of the present one. But, then came the great crash of 1929. I t was not a social

or economic revolution. I t was a f i r e in the workshop of an overheated, fast run-

ning machine. The machine was saved from total destruction but was never rebui l t

in the same way.

I t was John Maynard Keynes who rushed to the assistance and who reminded the

world of the interdependence of a l l within an economy, of that role of the consumed-

no consumption, no production--of the importance of investment as income generator,

but, f i r s t and foremostly of the importance of employment as source of income for

consumption. He even reestablished responsibi l i t ies of governments for making

full-employment possible and for a more equal d ist r ibut ion of income as a means

of supporting aggregate demand. He did this less for humanitarian reasons than

to rescue the free enterprise system.

The so-called Keynesian revolution was widely accepted in industr ial

countries and private enterprises developed into economic giants. Productivity

increased rapidly, output mult ip l ied, more goods than ever became available

to more people. Labor organized into large-scale unions. Governments, aware of

their new responsib i l i t ies, took part in these developments by helping to direct

and supervise them and by becoming the largest single buyer and employer.

Keynes died in 1946. Like Adam Smith he could not foresee the fu l l conse-

quences of the acceptance of his program. Economic growth moved into new

dimensions. Suddenly, however, we discovered that this increasing growth rate

was needed not for consumption's sake, but to keep this enormous economic maching

~unning. Economic growth became an end in i t s e l f and the whole interrelat ionship

within the economy became so complicated and sensitive that i t became increasingly

less manageable, even with such modern tools as computers. I t seemed, at times,

as i f the mechanical robots could endanger the l ives of their human masters.

In spite of a l l sc ien t i f i c achievements and the largest production scale

ever, we now face the fact that full-employment became, for a l l practical purposes,

impossible and that an in f la t ion of increasing proportions eats into the value

of work and prices. Ways and means to battle these destructive forces, which attact

from two sides at the same time, have not yet been found. All that can be done at

present is to proceed with playing Keynes i . e . , pumping de f i c i t money into the

~9

~arkets to secure more employment, to produce products for which a demand must

f i r s t be created and to offer welfare programs to increase pz ~asing power.

And now, at this c r i t i ca l time, the same scientists who had promised to

master nature i t s e l f give us warning signals that the natural circular flow

and the ecological equilibrium on which our l i f e and our survival depend is

seriously endangered i f not already irreparably damaged to a very serious extent,

they threaten us with predictions which leave l i t t l e hope fbr humanity i f radical

changes in our value-attitudes and behavior are not forecoming quickly.

In the meantime big enterprises in the industrial world found ways to

l iberate themselves from national restr ic t ion and, ignoring boundaries, developed

Into multinational companies, They open new production plants, and marketing

organizations, establish subsidiaries, merge or buy into large firms of other

rations and create new types of supernational structures. The very ground on

which they grew and reached maturity becomes increasingly less important for them.

Governments, which gave them the necessary protection and assistance now lose their

control and direct ive power over them. These multinational giants call the world

their home. They promise to develop a world economy and a new brotherhood of man.

They declare that they w i l l make Ricardo's law of comparative advantage a rea l i t y .

Many of them have now attained annual transactions larger than the Gross National

Product of a great number of countries. Their p ro f i t margins are much higher than

those of national enterprises. Their tremendous assets and financial strength

permit them to move into any region of the world whenever they decide. The

cream of the intel lectual and of managerial capacity are at thei r disposal, re-

gardless of the nat ional i ty , race and creed of those called into their services.

The corporate wealth of the multinational structures operates on ent i re ly new

levels free from influences of national bodies. No one can predict how these

independent colossusses w i l l change the economies of the cap i ta l i s t - and even

those of the co l lec t iv is t - -count r ies , nor how they w i l l change the world society

~nd existing po l i t i ca l ent i t ies .

Has the post-industrial age already arisen? I t has been envisioned that before

the end of this century more than eighty per cent of the world population wi l l l i ve

(n super-cities with t h i r t y mi l l ion inhabitants and more, that the average producti-

v i t y w i l l be so high that man wi l l not have to work longer than f i f teen years to be

able to spend the rest of his l i f e in leisure and comfort, that even the working

years wi l l be made up by only 147 workdays, leaving two hundred and eighteen

40

holidays every year. Average l i f e expectancy wi l l increase rapidly and wi l l

f i na l l y be extended to 150 years. Regional specialization in agriculture and

manufacturing wi l l be intensif ied worldwide. Foodstuff wi l l be supplied in

large quantities from the sea and wi l l be recovered from industr ial waste. Wage-

rates wi l l be equalized internat ional ly. Health services wi l l be available to

everybody but many diseases wi l l disappear completely. Drugs wi l l change

personality-defects and molecular biology wi l l make i t possible to increase the

intel lectual facult ies of man. An ind iv idua l is t ic educational system wi l l

produce a quali ty society and new social and moral concepts wi l l assure the great-

est security of man's l i f e .

l~hether or not these forecasts wi l l become rea l i t y , fu l l y or par t ly , i t

cannot be denied that we have arrived at another economic t ransi t ion. Such

periods of changes in hCman history are not new, as we have seen. New, however,

are the tremendous dimensions, the complications of the high level , and the rapid

speed in which we move. Never had so many so much. Howe~er, this wealth is not

based on concrete property but mostly on properties of legal ~ights, contracts

end agreements, and depends on mul t ip l ier - accelerator ef fects, monetary

uelocity, etc. I t becomes necessary to keep the complete economic machinery

under pressure-stream to avoid a breakdown. To prevent such a disaster and to

teep this machine running we are now ready to le t anyone share in the output

who is wi l l ing to keep the economy moving simply by taking the pro-

duction off the market. We are wi l l ing to make transfer payments to those who

are not able to part icipate in productive ac t i v i t i es , because we need their

consumption. We are sacr i f ic ing concepts of la issez-fa i re and accept a highly

organized structure in a society in which everyone belongs to an association

and is represented by an organization. This trend leads also to international

associations which influence the world monetary system to the point of direct

regulation power reflected in national monetary and f iscal policies which no

longer are decided independently in the old sense of the term. Such power

factors become increasingly more impersonal, hard to recognize, o f t en hidden,

sometimes changing over night, sometimes disappearing into the nowhere. And since

these power factor~ and their compositions are not stable and clear the coeff |r

lent of uncertainty has increased to the point where anything can happen.

This is indeed a period of great economic and social change, a time of

great t ransi t ion. The magnitude and compYexity of this change made i t essential

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to define crystal clear what we actually want, to consider carefully the values

and the ethical postulates and implication involved. If modern science claims

that man can do what he wants to do, the question remains: What actually do we

want, in what kind of world do we wish to live? It is childish to do something

only because somebody else is doing it. Who actually has the right to force

upon us innovations and discoveries out of curiousity or of profit-seeking?

It is indeed time to stop at this crossroad to decide on the final goals we

wish to reach, the ways and values we have to choose. We have to ask o u r s e l v e s :

What is the t rue purpose of economic a c t i v i t i e s and where are the l i m i t a t i o n s ?

Without a clear vision of the desired future we may d r i f t into destruction rather

than into the l i f e for which we had hoped.

The socio-economic order is an ever dynamic order. The present t rans i t ion

may not be the most crucial period in the history of the human race but i t must

be regarded as substantial ly more c r i t i c a l and crucial than most t rans i t ion-

periods of the past.