A perfect functioning
allocation mechanism in an economy is a utopia.
A better functioning allocation mechanism in
regional and local economies is not a utopia,
but
a
better functioning society.
With a deductive approach, the
purpose of this paper is to initiate
cross-disciplinary discussions between Okanagan
University College of British Columbia,
University
of Northern British Columbia
and the Mid
University of Sweden, and other parties from the
government and private sector.
The major premise is the
proposition that the parties will form a joint
institute.
The International Institute for
Sustainable Regional Economics IISRE (working name)
The Institute’s purpose is to
assist government and private sector to address issues
in the allocation and pricing mechanisms that
unsolved, cause market failure in local and regional
economies. To assist government and private sector to
correct market failure and develop precautionary
methods and systems to prevent such failure, industry
collapse, fragmentation of communities, and impelled
migration – a global problem.
Okanagan, British Columbia February 2004
The purpose of this three-part paper is to initiate a
discussion between OUC and MU and possibly other
parties from the private and government sector.
Studies of the CCIP Canadian Community
Investment Program and experience from VentureBC’s
effort to address information and transaction failures
that hamper investment in, and the development of,
small and midsize enterprises, has been a contributing
factor in the decision to draft this paper.
The approach is deductive.
As such, formulated proposition and statements
are assumptions, with the aim to initiate and provide
a platform for discussion, rather than to make
predictions or to prove the analysis, statements, and
propositions in the paper.
The intent is that conclusions shall arise from
the ensuing discussion, not from the paper itself.
It is anticipated that subsequent discussion will involve
participants from different natural and social science
disciplines, and from government and industry, both
large and small. Any recapitulation of elementary knowledge merely
intends to establish a base for discussion and a
bridge between disciplines and between people with
different expertise and experience. What should be
important are the issues, not who addresses them. As
Francis Bacon said: knowledge is power, nevertheless,
it is not enough to argue and discuss; acceptance of
new ideas and thinking requires practical experience.
The major premise is the
proposition that the parties, with participation from
government and private sector, will form a joint
institute and with facilities in Canada and Sweden.
The International Institute for Sustainable
Regional Economics IISRE – working name. The
Institute will provide advanced research and education
programs to private sector and government that address
issues in the allocation mechanism that, unsolved,
leads to market failure in local and regional
economies. Thereby,
assisting government and private sector to correct and
develop precautionary methods and systems to prevent
market failure, fragmentation of communities and
migration.
The rationale for the proposition is that social satisfaction
and a sound ecology in local societies, which make up
democratic governed mixed economic systems, such as in
Canada and Sweden, depends on a proper functioning
allocation mechanism and the allocation of private
investment and government intervention as required,
into economic production in local and regional
economies.
Missing or faulty bits in the allocation mechanism will
inevitably hamper investment in economic production,
and ignored will eventually cause market failure.
Since the seventies, the economy has shifted from the
more commodity driven and tariff regulated closed Cold
War conditions, to more knowledge driven open and
rapidly shifting conditions with unrestricted movement
of investment and liquidity and expanding political
and trade block formation such as EU and NAFTA.
The socio psychological impact of the shift is changing
people’s economic behavior (private, corporate, and
government), which subsequently affects the allocation
mechanisms in local and regional economies.
From a more lateral flow in local economies,
the flow of investment and economic activities is
shifting vertically into the major capital, stock and
bond markets. Traditional
post and Cold War government intervention methods are
not working well or not at all in today’s open
globalized conditions.
The common observable reaction from central government, is to
intervene by simply off-loading functions by
privatizing or downloading services to regional and
municipal government and to so-called non-profit
corporations, where the impact on the allocation
mechanism in regional and local economies is not
understood.
This presents tough challenges for local communities, where
the common reaction is to jump on bandwagon solutions;
expecting society to adapt to models and systems that
are often unsuitable, rather than developing the
models and systems necessary to solve the real
underlying issues that hamper economic production and
social satisfaction.
The problem is that each regional and local economy is
unique, and the underlying issues in the allocation
mechanism that hamper investment in economic
production and the distribution of real incomes in
each community are different.
What are the issues that hamper investment and economic
production, cause market disruption, and ecological
failure that erode distribution of real income in the
community? How
do societies that make up regional and local economies
organize themselves to survive in technology driven
rapidly shifting open conditions?
The proposed institute’s purpose
is to address the issues and assist regional and local
communities in British Columbia and Norrland, and
elsewhere in the world, to identify and solve problems
in the allocation mechanisms that hamper sustainable
economic development. This involves the relationship
between regional and local economies and central
government. To identify and study the issues that
hamper (versus stimulate) economic production in the
Swedish and the Canadian version of a democratic mixed
monetary economic system, and to utilize the research
to offer solutions at home and abroad.
The underlying causes, as well as
the solutions to issues in the allocation mechanism,
are found in socio-psychology and the impact of
natural and social science – or lack of - on
economic behavior in the private sector and in
government.
That raises the question: what is in it for
people? The
unsolved issues in the allocation mechanism that
stagnate communities, threaten jobs, and erode social
conditions, such as occurred in the British Columbia
forest sector, the Newfoundland fishery and in similar
examples in Sweden, cause irreparable harm to
communities. These are not acts of God or nature and
do not need to be accepted.
The cause is in socio psychology and economic behavior - the
eternal conflict between unlimited and indeterminate
human aspirations and instinctive tendencies pulling
in all directions, and limited resources that have
alternative uses.
Consequently, that is the reason why a perfect
functioning allocation mechanism in an economy is a
utopia. It
is also the reason why a better functioning allocation
mechanism and therefore a better functioning society is not a utopia.
Can society afford to continue to allow issues in the allocation
mechanism to escalate into wealth distribution problems, social problems, and
community fragmentation?
That is what is in it for people.
The
cause and solution is found in human characteristics.
Therefore, a discussion of the proposition would not
be meaningful without reference to the economic system
and the characteristics of the members of society that
make up the democratic mixed economy in Canada, Sweden
and elsewhere.
In such a system, social satisfaction in society depends on private
investment in viable sustainable economic production
in the local economies that make up the overall
economy. It
also foremost and entirely depends on government
meeting its monitoring and intervening role in the
system.
Universities role in the economy and
ethical
responsibility to the
society that make up the economy, is to
provide
the
research that produces the knowledge resources that solve
issues
relating to everyday existence in society.
Research
and knowledge
is the key to combine all other resources into
sustainable economic production and to solve issues
that hamper sustainable economic production and
distribution of real income and social satisfaction in
the community. What
kind of research and education the university
prioritizes is crucial for society, and that those
decisions reflect ethical choices.
Ultimately, the intent of this paper is to open a discussion on how
Universities and Colleges through research and
education can assist the community to develop better
methods and systems to monitor the allocation
mechanism - the allocation of resources and investment
- in regional and local economies.
Furthermore, to research better intervention
methods to prevent and solve issues in the allocation
mechanism that cause market distortions and failures
that erodes social conditions in the community.
OISD Okanagan Institute for Strategic Development
February 2004 XE "Writers Proviso"
The standard of living, social satisfaction and sound ecology
in democratic mixed economic systems such as in Canada
and Sweden, requires a functioning allocation
mechanism. Encourages
private investment and entrepreneurial effort, to
generate economic production, in pursuit of profit,
in viable business that combines resources into
product and services that consumers want and can
afford to buy. Businesses
that distribute wealth in local communities via
better-paid employment and rather than via tax
transfers to individuals and business.
Government taxes the economic production generated in the
private sector in order to provide the services that
the private sector fails to provide or to which the
members of the community (as voters) in good
democratic order have decided shall be provided by the
public sector. Government crucial role in the system
is to monitor the allocation mechanism and intervene
appropriately before issues in the private sector’s
behavior, as well as in government’s own behavior
and policies, escalates into market failure and
economic, social and ecological adversity. This
monitoring and intervention function is beyond the
scope of the private sector and can never be the
private sector’s task in a mixed economy. It also requires that those the voters elected and
entrusted with the task and paid to be government,
meet their accountability to society and ensure that
government monitors the allocation mechanism,
addresses issues and formulates alternative solutions
for the community’s benefit.
What is significant in a ‘democratic’ economy is that
government not only has the accountability to society
for the private sector’s behavior, it also has the
accountability to society for the government’s own
behavior and policies.
Eventually of course, that depends on the consumers and
members of the community to meet their task in their
guise as voters and in good democratic order ensure
good government that meets its role and the standard
in the economic system.
Market failure could with a stretch, be seen as
a democratic failure.
An economy, like an engine, must have all of its components
functioning together in order to work and drive
economic production and secure social satisfaction.
When components, like a spark plug, misbehave, the
engine may still function but the malfunctioning parts
can be repaired or replaced allowing the engine to run
better again. The problem occurs when failing
components go undetected or are ignored. Eventually
the components and hence the engine will fail.
Malfunctioning components in the allocation
mechanism in an economy will hamper economic
production, and failing components can cause market
failure.
Consequently, problems in the allocation mechanism can hamper
private investment and entrepreneurial effort in
regional and local communities, and unsolved can
eventually cause market distortion and failure, job
loss, economic erosion, and force migration. This is a global problem.
Since the seventies, the more commodity driven tariff
regulated and more closed Cold War economic conditions
have shifted. Today the community is facing a more
knowledge and technology driven open economy and
rapidly mutating conditions with unrestricted and
instant movement of information, investment and
liquidity, and expanding political and trade block
formation such as EU and EFTA.
In the post war and Cold War conditions, an economy could
function with significant flaws in the components in
the allocation mechanism.
Problems in the private sector could be
remedied with tax transfers, subsidizes, tariffs
against foreign competition, and be compensated for by
expanding the Government sector.
In today’s information driven open
conditions, those remedies are obsolete and often
barred by agreements and supranational legislation.
In the past, in more closed conditions, societies could
secure and improve their economic and social condition
and achieve their ambition with more flaws in the
allocation mechanism than is possible today. The
proposed institute will assist communities to address
these issues.
The socio psychological impact of information technology that
is driving the shift to open economic conditions, is
changing people’s economic behavior - as
individuals, in business, and in government - and has
shifted the investment and liquidity flow.
It is the socio psychological impact of knowledge and
technology that has always changed economic behavior
and society, just as the steam engine started the
industrial revolution. From a more lateral local flow,
investment and liquidity is shifting to a vertical
flow into the major capital, stock and bond markets.
In the more closed post war and Cold War
economies there were less investment alternatives.
Community members were more likely to invest
locally resulting in more of the local wealth being
invested back in the regional and local economy.
Investors may not have consciously acted with
more ‘civic mindedness’ in the past and may not
have made any connection between their local
investment in economic production and the subsequent
socioeconomic standard and quality of life in the
community. However, local money stayed local simply
because the system offered fewer investment
opportunities outside the domestic and local economy.
Since the seventies, the shift to a more open global economy,
deferred tax pension systems fueling ballooning mutual
funds, free and unrestricted movement of capital, and
online and Internet banking are radically changing
people’s economic and investment behavior. That is
ultimately changing the investment flow and making it
more difficult for smaller and mid sized companies to
attract investment and obtain financing.
Today, small investors can obtain information that only
a few years ago was the privilege of banks and large
corporations – making it easy to invest and deposit
money worldwide, facilitated by a creative growing
financial sector.
Banks and Credit Unions have directed their initiatives
toward wealth management, personal, and consumer
lending and away from commercial enterprise.
With a negative impact for many local
economies, the shift in the economy has made these
traditional sources of commercial financing less
accessible to small business enterprises, particularly
those that require smaller amounts of operating
capital.
In Canada companies that cannot document
annual minimum revenue potential in excess of 25
million US and a high growth rate have very limited
access to equity financing and have difficulty
qualifying for a public offering.
The lack of long-term reinvestment of the profits from the
resource sector back into forests and especially into
education, research and development of a value-added
manufacturing sector has been especially serious for
British Columbia and Norrland and other resource
economies. Much
is taken out - little is invested back.
It presents a tough challenge for many local economies, in
business, educational institutions and in regional and
local government, not only in Canada and in Sweden but
also elsewhere in the world.
The proposition in this paper is that there is an urgent need
to address problems in the allocation mechanism in
regional and local economies.
Problems
in the allocation mechanism are rooted in socio
psychology and economic behavior - the eternal
conflict between unlimited and indeterminate human
aspirations, and instinctive tendencies urging in all
directions, and limited resources that have
alternative uses.
A discussion of the proposition would not be meaningful
without a reference to the characteristics of the
members of society that makes up the democratic
governed mixed economies in Canada, Sweden and
elsewhere.
From
the first prototypes assembled on the African savanna
over five million years ago, to the most recent models
of over six billion who make up the world economy
today, Homo Sapiens are the only sentient creature on
earth with unlimited ambitions.
Humans
have a perpetual faculty of reasoning to produce
knowledge and use the knowledge to invent and produce
new tools and ways to satisfy our ambitions and solve
issues that hamper our ambitions, including the
self-inflicted. Our basic instinct tells us that
we can better or satisfy our own ambitions by
cooperating in groups with others.
We form families and group together, early in
tribes and then in larger, local, regional, national,
and supranational economies such as EU and NAFTA.
To
our own advantage, we instinctively seek alternate
ways to secure social satisfaction for the group we
belong to and the society that makes up the economy in
which we live. Some
members, on a scale from total vanity to total
altruism, will take more leadership than others and
offer solutions to the rest of the group, and
unfortunately sometimes impose the solutions.
The formation of Canada and Sweden
and other countries, its provinces,
municipalities, and cities, reflects this human group
behavior. It
is an ongoing, never ending process.
Countries group together in defense and free
trade agreements, businesses merge, and groups break
down and form anew.
As long as we believe we will be better off
than before, the grouping will continue.
The same group behavior and socio psychology can be traced
back to the tribal societies in ancient Greece, when
politics and religion were one and people considered
the leaders to have godly powers. It still flourishes
around the world.
The leader's decision was God's decision and
any opposition was in opposition to God. When the
leader died, the power was transferred to their heirs.
For example, as told in the Old Testament: by
anointing Saul, Samuel transferred the godly powers to
the first King of Israel.
The divine status of head of the state has been upheld even
in modern times. Japan’s Emperor had official divine
status up to the end of the Second World War, and many
in Japan continue to consider the Emperor divine.
Not always under the banner of a God, a number
of countries around the world are ruled with
autocratic divine power.
Increased enlightenment and influence from philosophers such
as Socrates, who believed that humans had the ability
to know what was good and bad, changed people’s
beliefs. The
leaders were no longer Gods, but representatives or
prophets of God. Still, in our time, legislators,
politicians, and business leaders sometimes behave in
a way that could create the suspicion that they really
believe they are God or at least a prophet of God.
Experience of tyranny and cruelties made people question that
one person had divine authority to rule over others.
The Greeks started to consider society as an
association of many interests, where the society was
given the task to solve common issues; developing the
first democratic type of society in Perkiness Athens.
However, early
democracy was a democracy only for some and not a
democracy for all.
Women, slaves, and other underprivileged had no
democratic right and were disbarred from the
democratic process.
The Sophists refined the democratic idea and
argued that only free speech and the right to
criticize constituted a democracy. The observation was
that only free speech and criticism could prevent a
demagogue from taking advantage of people.
The relative democracy in Athens created social satisfaction,
economic, social and cultural prosperity, which
promoted democracy among people. A backlash occurred
when Athens lost the Peloponnesian war, causing
economic depression and political chaos. Taking
advantage of the economic and political chaos,
demagogues and small interest groups took power and
violently oppressed the opposition.
In 404 BC, the tyrants in Athens executed more
than 1500 people of the opposition.
This is an example from democracy’s early stages. The
importance of this account is that we face the same
issues and behavioral forces in modern time and
today.
The attitude in the society ruled by the Russian Czar can be
traced directly back to the time of the Byzantine. The
Russian revolution in 1917 was caused by economic and
social oppression under the Czar’s dictatorial,
feudalistic regime.
Contrary to Marx and Engels’ predictions, the
revolution took place in the most poorly and
underdeveloped country in Europe and not as they
predicted in the more developed countries in Europe.
Disparity in opportunities and the lack of economic
production and distribution of real income via
employment in a community is what creates political
instability, not the other way around.
Adolf Hitler and his National Socialistic movement in Germany
in the thirties - resulting in World War Two - is
another example of economic and social misery leading
to political extremism. Many warned after WW1 that the depressing economic and social
situation in Germany, to a high degree caused by the
tough terms the Allies imposed on Germany, was
treacherous for the stability in Europe.
Unfortunately, they were not taken seriously.
Lingering economic and social dissatisfaction will
always lead to political instability. That in turn
creates the opportunity for extremists and demagogues
to take advantage of people’s gullibility and
‘wishful’ thinking.
Today, while technological advancements, open economic
conditions, and free flow of investment and trade has
improved life for many, the increased world population
is creating more consumer possibilities and
subsequently more opportunities.
At the same time, increased disparities in
opportunities and wealth within and between societies,
is causing social misery that is neither humane nor
sustainable, causing political instability and
more uncertainties than ever.
Social satisfaction and quality of life, a sound ecology, and
political stability, entirely depends on investment in
sustainable economic production and distribution of
real income in local economies via employment.
The forgoing offers a reference for discussion of the
proposal to form the institute whose purpose is to
provide research, knowledge and education to assist
society that makes up local economies, and to address
issues in the allocation mechanism that hamper
economic production and distribution of real income in
the community.
Participation from private and government sectors will result
in the development of methods and information
technology to address information and investment
failure.
University
and college role in society - local regional,
national, and international
Present and future generation’s aspirations for living
standards, social satisfaction, and a healthy ecology
entirely depend on the allocation of scarce resources
that have alternative uses, into sustainable economic
production and the distribution of real income in
local and regional economies.
Knowledge is the key resource that makes it possible to
allocate and combine all other resources into economic
production and to solve the issues that hamper human
aspirations. Unlike
other resources, the problem with knowledge is that it
cannot be automatically carried over from person to
person or from generation to generation. It requires
learning over and over again.
Universities role in the economy is to provide the knowledge
key to society by providing higher learning and to educate people for life.
The result can be measured by the role
Universities and academically educated people play in
the society and by their social activism and
involvement to solve issues facing society.
This reflects the ethical values of the
universities.
The advancement of knowledge depends on research driven by
human curiosity and ambition, to find new meaning in
old ideas and new uses for known resources, in the
search for new possibilities. It also, or rather
should, include finding better ways of doing things,
using fewer resources, and decreasing disparities in
opportunities in order to improve social conditions
and political stability.
Realizing
politics cannot be understood without the use
of natural and social science.
Contrary to prediction, since the seventies the world is
facing increasing disparities in wealth and
opportunities within and between communities;
effectively destabilizing the world. These issues contribute to the proposition in this paper to
form a research and educational institute from where
OUC and MU can better assist local communities at home
and elsewhere to secure economic production and the
distribution of real income in an information driven
open and chaotically shifting world.
Knowledge – derived from research - is the entire stock of
information that a society has at its disposal to
achieve their ambitions. Unlike other resources,
knowledge can be used in different directions
simultaneously and has no opportunity cost attached. It is also the key to utilize the stock of knowledge produced
by research in other parts of the world. The ideal
situation is of course to increase knowledge and any
other resource without incurring opportunity cost.
The problem is: without research, an economy loses the
ability to profit from increased knowledge in the
world, and therefore loses economic production and
progress. Knowledge, research, and hypothesis that
challenge convention can easily be rejected and
destroyed by dogma that cannot be questioned; impeding
discussion and experimentation with new ideas.
While it may also be destroyed simply from not
being used, research and hypothesis that has been
rejected as being useless has over time shown to be
useful. For
example, valuable knowledge and understanding in
native communities in British Columbia and in Norrland,
Sweden and elsewhere in the world, may be lost because
they are no longer in use.
The problem of course is to know how many resources should be
allocated to research, and to what kind.
It is obviously impossible to know the exact
outcome. The writing discusses the proposition of
allocating resources to researching the allocation
mechanism in regional and local economies, with
purpose to address issues that cause market failure
and adversity.
The decision faces the following situations.
The issues are known: ‘we
know what we don't know’ and society can decide to
allocate resources to research solutions. Society is
unaware of the issues facing them: ‘we don’t know
what we don't know’, and society can decide to
allocate resources to research ‘what we don’t
know’.
What society does know, or assumes to know, is that problems
in the allocation mechanism that hamper allocation of
resources and investment into economic production
causes market failure and hence social and ecological
problems. Apart
from natural disasters, it is human aspirations,
behavior and technology that causes economic, social,
political and ecological adversity.
Conversely, human aspirations, ingenuity,
information and technology is also the only way to
solve the issues.
In that paradox we find the reason and the
solution to the issues society are facing.
While the resources stay the same, the world population has
grown from ‘only’ 2.5 billion in 1950 to
approximately 6.4 billion today and will reach 7.0 in
ten years. Wouldn’t
we be fools to deny that we are facing mounting
socioeconomic, environmental, political problems and
social unrest?
This
paper proposes a discussion on how Universities and
Colleges can better assist societies that make up
regional and local economies, to solve issues in the
allocation mechanism that unsolved, cause market
distortion and market failure that results in social
and ecological adversity.
Improved
economic and social conditions also means improved
somatic and mental health in society and subsequently,
better public health and reduced social and healthcare
consumption. Allocating
more thinking to solve the underlying issues that
cause somatic and mental health, social and ecological
problem in society, is a good investment.
A
rapidly and radically changing and increasingly
complex economy and world
Finding
new ways, adding value, using fewer resources.
OISD
Okanagan Institute for Strategic Development
February
2004
