What about “tickling the dragon’s tail” to trigger growth and development?
(Roots of Growth)
BRADES, Montserrat, Dec 28, 2015 – It is all too easy to “tickle a dragon’s tail” the wrong way and find ourselves facing an economy blazing back at us. Especially, given those who want to tickle our itching ears with what we want to hear. Where, economics and policy-making are topics on which, historically, we are ever so prone to misunderstand or be manipulated.
So, forgive me a bit of earnestness by way of a steering word from 3,000 years ago:
“Prov 15: 2 The tongue of the wise commends knowledge but the mouths of fools pour out folly . . . 14 The heart of him who has understanding seeks knowledge, but the mouths of fools feed on folly . . . 22 Without counsel plans fail, but with many advisers they succeed . . . . Prov. 20: 18 Plans are established by counsel; by wise guidance wage war.” [NET]
For, it is all too possible to be wise in our own eyes and yet have such poor insight that what we think is the light in us is in fact self-deceiving darkness. Where, the all too common lock-out game, intellectual laziness and the rhetoric of attacking the man rather than dealing with the issue may make for entertaining office or national politics, but such are not signs of healthy policy-making. One tickles a dragon’s tail at one’s own risk. (So also, if we do not know enough to be afraid, we do not truly understand the kind of matches we are playing with.)
I find that the Austrian Economist, von Hayek, had a point when he used his “triangle” to analyse phases of investment and production, and how they affect overall economic activity. (I must point out his Nobel Prize, as there is a tendency to glibly dismiss insights from the “heretical” Austrian school of thought. But, these are the “heretics” who keep winning Nobel Prizes. So we would be well advised to listen, and to draw on what they see aright.)
Let us put Hayek’s investment/production phases triangle in a wider context:
Long before goods and services are offered to consumers (or as inputs to other businesses), there has been a long tail of research and development, mining and/or agricultural production, investment in facilities, raw materials processing, procurement, production, inventory management, logistics, distribution etc. As a result, an economy is always digging back deep in the roots of production, and is dependent on the natural resource base, the community, good governance and the economic climate. So also, it is wise to be always building the future, a main focus of both wise businessmen and governments. This includes investing in the future quality of natural resource no. 1: people, through appropriate health, education and welfare. Where, too, we can see how the sustainability concept fits in: meeting needs better and more fairly for today and tomorrow. (Of course, the “trick” is how to soundly apply it. Yet another dragon tail tickling challenge.)
We here have a complex, highly interactive system where the past affects the future. Such systems are prone to oscillations and to cumulative trends. That points to the famous Kuznets 8 – 11 year boom-bust business cycle:
One caution is, that ill advised policies that try to pump up the economy can instead distort it. The resulting malinvestment – an Austrian term – takes the economy into unsustainable territory, and bang, it will eventually snap back into deep recession or even long term stagnation. It is ill advised to put all of our economic eggs in one basket, whether sugar or bananas, oil, bauxite or tourism. And, we must always invest in the research, policy analysis, capacity building and development that build the base for tomorrow’s economy. (Hence, the importance of development banking in the Caribbean.)
In turn, the 8 – 11 year business cycle rides on a longer term trend; which is where the Kondratiev, generation-length, dominant- technology- and- investment- driven cycle becomes relevant. Here, let us use a more elaborate form of the Perez S-curve:
(And yes, many economists doubt the reality of such longer term cycles. However, recent “spectral” analysis shows that there is a distinct peak of “energy” with the right sort of 30 or 40 – 70 year period. Geographers, too, point to no fewer than nineteen documented technology breakthrough driven long term cycles all the way back to the Song Dynasty in China in the 900’s AD.)
It often takes decades of investment and “eating” the many failures along the way before a tech-led breakthrough opens up a rapid growth trend. Economies and industries will undergo restructuring and some will fall on the wrong side of creative destruction. There may be “bubbles” of rapid expansion or stock market surges not justified by underlying realities. Such speculative bubbles invariably pop and hurt a lot of people. Then, as the long term trend-line begins to flatten, the smart money is already heading for the next wave.
All of this gives me serious pause when I consider the ECCB’s warning that in the EC, growth in the 1980’s was 6%, then in the 90’s, 3%, then it fell to 2%. We really do need to be building the future economy. For that, I want to ask a direct question: what are we doing about digital productivity?
– ENDS –
