Low-growth, low-expectation world needs a shot in the arm
Democracies beset by short-term thinking, bloated political class
Policies should emphasise the micro at the expense of the macro
Military investment brings surprising rewards in terms of innovation
Successful policies are elegant, balanced and simple
Some of the world’s oldest and greatest democracies are beset by low growth, stagnation, and endless political wrangling. What sorts of policies could turn the tide? Photo: iStock
I have just returned from a very interesting week in Athens and Paris, two capitals home to their share of dysfunctional politics. My extensive travels bring me to over 30 countries each year and one of the questions I am most often asked is this:
« If you were president, what would you do? »
Never one to back down from a challenge, I have over the years tried to finesse my « programme », so here is President Jakobsen’s political plan.
I will do absolutely nothing for my entire presidency.
I will embed into law that for every new law Parliament introduces, two must be retired.
I will create a zero-growth target for the public sector for the next 10 years –minimum.
Investment into basic research and military will increase as a percentage of GDP
That’s it! Now here’s why…
There is ample proof that a programme in which politicians do nothing is the best medicine for any economy. In Greece and France, the political system stands in the way of business and jobs. In Belgium, which was without a government for two years, all macro indicators actually improved during that period.
An economy is driven by its micro structure. Here we speak of the small companies, the ambitious teachers and business people trying to make better products, ideas and systems. An economy that is not growing is simply an economic system where there is too much macro and too little micro.
Too much government, too many central banks and economists alongside too few students, small- to medium-sized enterprises, incentives, and basic research.
This weekend, the cover of The Economist declared « Freedom of speech under attack ». To that, I would quickly add « so are free trade, free markets, and free thinking ».
Source: The Economist
If you look at world history, you will find that the stronger economic systems have been the ones in which opposing powers have limited each other. The inability to force macro ideas onto the economy has historically been met with superior growth.
Doing nothing for my entire mandate will allow society to move on and become disturbed by the spectacle of media-craving politicians constantly seeking attention for all the wrong reasons; politicians listening to themselves instead of setting a standard for where the country should be in 10, 20, and 30 years.
One for two laws
The biggest problem for any country is dealing with government red tape and bureaucracy. In order to have a working legal system characterised by transparency, equal rights, and fairness, the judical system needs to be simplified. Fundamental rights needs to be secured, but a functioning legal system should reduce overall complexity, not increase it.
The US constitution remains one of the most amazing documents ever written; it created a benchmark for all countries to follow. For the record, the US constitution is a grand total of 4,543 words long – less than many of my articles! It remains the oldest and the shortest written constitution of any major government in the world.
Finally, in public policy the rule has to be that all provisions or clauses included in regulation and statutes need a “sunset provision”. That is, unless legislative action is taken the law will have a maturity day! For my more historically inclined readers, this principle goes back to the Roman republic, where the Senate’s ability to collect special taxes and use troops was limited in time and extent.
The Romans were all-too-familiar with the perils of political overreach. Photo: iStock
Zero growth for the public sector
I don’t believe in far-reaching interventions into the very nature and setup of a society, but it’s absolutely clear to me that democracy and growth come under attack when more than 50% of the population benefits from state income transfers. Such a circumstance makes it perfectly rational for this group to seek no change even as such a situation represents an aggregate net-loss proposition for everyone – including the transfer recipients!
The lack of political movement we have witnessed over the course of this financial crisis has been minuscule relative to the wealth loss experienced. Democracy is at its weakest point when society becomes stalled and constant votes for « no change » become the norm.
In order to reduce this issue, the public sector and all its associated income transfers needs to drop to below 40% – at least. I suggest indexing this year’s nominal expense levels as « Index 100 »; from here onward, any savings made will stay in the system, thus making it more productive.
The opposing forces of demographics (higher costs) and digitalisation (significantly lower costs and an improved ability to fairly assess income and expenses) will again provide a better product here.
Basic research and military
Both need to grow as percent of GDP. Basic research because today we have the lowest productivity to GDP ever in history and we know from studies that productivity and basic research are closely linked. The higher the basic research and the average education of the population, the higher the innovation, productivity and employment level (which again lowers social costs).
The world’s richest countries have one thing in common… better-than-average education levels. Sweden, Norway, Denmark, The Netherlands, Singapore, Germany, Australia, Canada… these are all countries that perform well when measured by education, and their wealth is no accident.
As for the military? This may come as a surprise, but we need a strong military for several reasons… the most important being that having a strong military makes it less likely we will ever have to use it.
One of these is worth its weight in overwrought United Nations speeches. Photo: iStock
There is nothing that is able to deter conflicts more forcefully than the potential might of the opposition. Military spending also comes with high levels of technology and innovation attached to it. Finally, we have the most productive reason: the military remains one of the best training grounds for young people, and teaches that discipline and teamwork are invaluable to the strength of both the military and the identity of the country.
Finally, let me stress that I will never run for office anywhere or at any time, but in a world where the populace’s consensus rules in elections, referendums and certainly among the likely winners of all elections to public offices over the next two years, I think it important to look at how does a society really evolve over time…
It’s our quest to be better, to learn more and to drive towards higher goals that keeps the momentum of growth moving forward.
I happen to believe that everything is about simplicity, or to use a more contemporary word, “transparency”. We as humans are not trained to remember more than three things and hence we need frameworks: the incentive and the direction; the vision and the productivity; the education and the basic research.
Without this, you have the present-day alternative: no free markets, no belief in the division of labour, no social mobility, the lowest productivity in world history, the largest degree of inequality ever seen, the biggest governments and central bank interventions of all time… I could go on!
My list is not only incomplete, but is also naïve in a world still looking for macro solutions.
Let me conclude, however, by quoting Leonardo da Vinci : “Simplicity is the ultimate sophistication”.
Vitruvian Man: The genius of simplicity is that of truth. Photo: iStock