Structural Economic Change The broader view

1. Structural Economic ChangeThe broader view What major political economic changes have taken place in the last two decades? To what extend do they have common purposes? Do they have contradictory characteristics?

2. Business organisations and governments have been energetically reorganising their activities in order to develop new opportunities for profit and to establish the conditions for faster economic growth. • The following six interlocking elements in the processes of structural economic change:

3. 1. The application of new technologies • Usually the interest of business to implement new technologies (CAD & CAM) that cut the costs of production. • Often involves labour displacement, producing more outputs of goods and services with fewer workers. • Growth in the output of goods and services unmatched by growth in employment.

4. 2. Mergers and Takeovers • The voluntary combination of firms into larger units (a merger) or the acquisition of one firm by another (a takeover) is commonly driven by the pursuit of higher profitability. • If the larger business unit can achieve economies of scale in the production and/or distribution of its production, it may be able to reduce costs. • The tension between private interests and social costs is yet more striking when mergers or takeovers are undertaken primarily to secure market dominance, leading to higher business revenues or wider profit margins.

5. Cont. • Broader community interests– consumers’ interests, in particular– would be violated if the outcome is greater corporate monopoly power. • Herein lies one of the most frequently recurring economic policy debates: whether to regulate the processes leading to the growth of big business or to permit freedom of the market place.

6. 3. The Globalisation of Production • Globalisation opens up wider economic opportunities but poses particular threats. • Corporations can ‘shop around’ the globe for the cheapest raw materials and cheapest labour, they can minimise their costs of producing goods and services. • Companies can find, or create, new markets for their products in distant lands, that will increase their revenue.

7. Cont. • Corporations can locate their activities in the nations with the lowest tax rates which can help them maximise after-tax profits. • Companies can also find the least restrictive environmental regulations applying to their activities. • All of these have been associated with significant economic and social problems. • How to balance the potentially progressive aspects of globalisation against these real dangers is imperative.

8. 4. The reorganisation of employment conditions • Changes in employment: changes in production and information technologies which require different types of labour and skills; ongoing power struggle between employers and employees as classes competing interests; for more ‘flexibility’ in the workplace as a means of achieving higher rates of profit.

9. Cont. • These pressures are manifest in the greater emphasis on casual, part-time and contract labour. • Transforming a Fordist economic system to a post-Fordist one which means that from the systems of producing standardised products for mass markets to producing more diverse products for niche markets.

10. 5. Changes in the economic role of governments • Governments role was to set the ‘rules of the game’ for business. • Nowadays, governments have asserted the need for more emphasis on market processes rather than ‘interventionist’ planning. • ‘neo-liberalism’ (economic fundamentalism or economic rationalism)– giving freer control to market forces will produce more efficient economic outcomes.

11. Cont. • Deregulations (pricing policies, environmental impacts, employment practices, lowering business taxes, removal of government controls over financial institutions and capital flows), privatisation (from public to private ownership), trade liberalisation (reduction of tariffs on imported goods) are the common themes for neo-liberal governments.

12. 6. Changes in prevailing economic ideologies • Neo-liberalism as a political practice is closely linked to the ideology of free-market economics. It’s core emphasis on individualism, the belief in the primacy of the individual as the basis unit of society. • Prime minister Thatcher (1979-1990): ‘there is no such thing as society; there are only individuals…’ • These individuals are assumed to be self-interested, rational, and acquisitive, and it is through their interaction in a free-market economy that economic progress is assured.

13. Cont. • The test of an ideology is not its sophistication, rather its effectiveness in conveying a simple and seemingly persuasive story. • Ideologies based on competitive individualism undermine social cohesion, they create fuel for a collectivist alternative; ideologies pave the way for environmental decay, they stimulate the development of more ecologically based viewpoints. Therein lies much of the source of the social dynamic underpinning the ongoing public contest of economic ideas.

14. Final thoughts • Economic organisation is constantly changing. Historical, rather than mechanistic (equilibrium), approach is necessary in studying how the economy works. The formal is being less elegant but more realistic and useful. • Seeking ‘quick-fix’ solutions to economic problems– such as periodic recessions, economic insecurity, or economic inequality all have complex and changing roots and are not amendable to resolution through simple remedies– is likely to be unsuccessful. • Economic problems have complex and changing roots, they are not amendable to resolution through simple remedies.