The term “New World Order” often refers to a system of global governance and economics, including the system of monetary exchanges and trade established through institutions such as the World Bank and the International Monetary Fund, and the balance of power between the nations through organizations such as the United Nations. Over the years, these institutions have been undermined by their members, for aims of personal profit and power, giving rise to many regional and transnational groupings. Philosophically, however, the term also refers to any system that can be used to meet its original goals of global governance and economic policy. In recent times, the term is sometimes used to refer to a conspiracy theory regarding a totalitarian world government that seizes control through immense centralization of wealth and power. In this post I will discuss why the current systems cannot be remedied, and propose what a real world order could look like.
Table of Contents
- The Modern Capitalist Economic System
- Supply-Side and Demand-Side Economics
- The Lack of Clear Alternatives
- What Might Be a Possible Solution?
- Globalization and Localization
- The Philosophical Basis of the New System
- The Elimination of Middlemen
- The Role of the Government
- The Role of Morality
- Comparative Assessment
- The Self-Converging Economy
- What is a Real Free Market System?
The Modern Capitalist Economic System
In all modern capitalist societies we can perceive an on-going duel between two opposite economic theories, which are colloquially called Trickle-Down and Trickle-Up Economics.
The Trickle-Down Economist claims that the rich are the reservoirs of wealth, and they must get richer before they can pass some of this wealth to others by employing them in jobs. To make them part with their wealth, the rich have to be incentivized through tax breaks and favorable business laws. Practical experience, however, shows that once these incentives have been provided, the riches don’t trickle down as the rich give out only a fraction of what they earn.
The Trickle-Up Economist now argues that economy can be spurred by making the consumers spend more, by giving them tax breaks, by reducing the rates of interest on borrowed money, by government sponsored welfare programs on health, education, child care, etc. But where do we get the money to reduce interest rates, provide tax breaks, or create welfare programs? The answer is borrowing. Once the money has been borrowed, it can be spent on people, but innate inefficiencies in the government (which include middle and low level corruption) prevent this from happening. Ultimately, the borrowed money doesn’t reach the people as efficiently as it should, and when it does, the people are unable to take advantage of that “dole-out” as well as originally envisioned. The government is still obliged to repay the borrowing. Practical experience shows that this model generally leads to a higher debt for a society as a whole, which has to be recouped through higher taxes over time, thus burdening everyone.
In the Trickle-Down system, the wealth that already exists with the rich is invested to create more wealth. In the Trickle-Up system, wealth has to be borrowed before investment.
Supply-Side and Demand-Side Economics
The Trickle-Down system is also called “supply-side economics” where the investors of capital into business create a supply of goods and services. This supply can produce a tangible benefit only if there is adequate demand (as disposable capital with a large majority of people) for the new products and services. It fails when the demand doesn’t exist. The Trickle-Up system is also called “demand-side economics” because the consumers have more capital in their hands, but it is just enough to get a job or get educated, not enough start a business. How can you find a job if there are no job creators? This system therefore fails because people can get educated and healthy but there isn’t enough supply of good jobs.
An economic system needs two sides: supply and demand. By spurring only one side, while starving the other, no significant improvement in the situation can be expected.
Meanwhile, from the standpoint of the rich, both systems look nearly identical. In the Trickle-Down system, the rich invest their wealth directly into business, where the returns might be risky upfront, but that risk is offset by the prospect of higher return in business. In the Trickle-Up system, the rich invest their wealth into government bonds—which the government issues as a way to borrow money—where the returns are generally lower than the Trickle-Down system, but are free of the risks because they are guaranteed by the government. On average, a higher-risk and higher-return system produces similar results as a low-risk and guaranteed-return system. Regardless of which system is employed, the rich can invest in either and because both systems produce adequate returns over time, the rich tend to get richer.
The Lack of Clear Alternatives
It is now evident that the capitalist system isn’t working because it tries to spur either the demand or the supply side of the equation, when both sides need a spur. If the government tries to spur both sides—i.e. give tax breaks to the rich, and welfare programs to the poor—then the government will itself fail because it has no means to sustain itself: it is not earning through taxes because the rich are given tax breaks, while it is spending on welfare programs for the poor. How can you keep spending without earning? The government can try to borrow money to feed the spending, but the results would appear only after a generation or two. Effectively, the future generations may have a higher education and health, but also a huge debt.
Many people argue that the answer to this crisis is socialism. In the capitalist system, producers and consumers operate independently and the government tries to stimulate either the demand or the supply. In the socialist system, this independence is taken away and the government tries to control both the demand and the supply side of the equations. For instance, the government can fix the prices of the commodities, thereby allowing the suppliers to have only a limited amount of profit (which would then be highly taxed), while providing welfare to people to spur the demand. The result of such mediation in the economy actually kills the desire in people to excel.
The poor have little incentive to use the welfare properly, because if they actually rise economically, then their benefits from the government would end. The poor fear the end of the free dole-outs, and make no serious effort to excel. The rich, similarly, have little incentive to invest, because they know that whatever profits they make would be taxed heavily. The result of such a system is that all the investments move into government issued bonds, and now the government is saddled with the problem of creating both the supply and the demand.
A side-effect of the socialist system is that the leader in the government becomes the center of power, and the people have no power. Thus, a socialist system creates an even worse situation than capitalism where at least the competition between the corporations and people’s choices could tilt the balance of power. In a socialist society, the ruler is the final authority and has no competition. Nothing can challenge their position, and there is no incentive to change.
The world has now entered a socio-economic crisis due to a lack of a sustainable socio-economic model. From the time of WWI until the 80s both socialism and capitalism seemed to work quite well, and the world was divided into two opposite poles—both of which had similar power. The subsequent collapse of the socialist regimes led capitalists to claim victory, and many people today continue to live in the illusion of that triumph, not realizing that the crisis of capitalism is on our doors, and the system is now crumbling without a good alternative.
What Might Be a Possible Solution?
Before we can identify a solution, we must diagnose the problem, and eliminate those alternatives which cannot be considered potential solutions.
The capitalist system operates on the principle of free market economy and results in globalization where the rich become the middlemen between producers and consumers. The previous post discussed how globalization widens the gap between cost and price: the workers get paid less relative to the price that a consumer pays, the consumer pays much more relative to the cost that the worker receives, and the increasing difference between cost and price is pocketed by the global corporation and its owners. Since the governments are still local, they lose control over the global corporations, which control the government.
The socialist system, on the other hand, localizes the economy, and the government is already local. However, because it stifles competition, it becomes saddled with the burden of trying to stimulate both the producers and the consumers, who have no incentive to change. Other than coercion there isn’t an alternative by which this system can work, and coercion results in problems of suppression, oppression, and revolution over time.
Based on the two contrasting systems, we can discern two key ways in which society must not be structured. First, business cannot be global while the government is local because then the businesses will control government as they have a broader span of control (global) than each individual government (local); also, the prospect of a global government (together with a global business) is flawed as it would result in massive wars, because no country is about to rescind control. Second, the government cannot itself own the problem of being on both the supply and demand side of the economy because it completely disempowers the people and leaves them at the mercy of the government, thus creating an autocracy. This essentially means that business and government must be separate, and both must be local.
The genesis of the problems in both dominant economic models is the existence of middlemen. In the case of capitalism, the global corporations are the middlemen between producers and consumers. In the case of socialism, the government is the middleman between producers and consumers. Any system that involves large and powerful middlemen tends to get corrupted and to prevent such corruption the middlemen must be eliminated in order for the system to prosper.
Globalization and Localization
Economy can succeed only when there is a direct contact between producers and consumers. This necessitates the existence of self-reliant local economies where the day-to-day necessities can be satisfied easily. If the local production is inefficient and incurs higher costs, governments must aim to improve efficiencies by a “technology transfer” from those places where a better technology exists, rather than pushing the production itself into the remote economy. Every local economy has people who can share their learnings with others, and governments should enable this transfer.
In essence, the government should play a protectionist role in shielding the local economy from the effects of globalization that separates producers and consumers and introduces powerful middlemen. However, the same government should also not itself become the middleman. The role of the government is local as far the shielding of the local economy is concerned. The role of the government is global in enabling an active role in the transfer of technology. All knowledge can be globalized and sourced from where the most efficient form of knowledge exists, but the conversion of this knowledge into a consumable product must be local.
The Philosophical Basis of the New System
Knowledge—i.e. concepts and processes—are not physical and local entities. A concept or a process transcends their individual instantiations and are, therefore “abstract”. The “abstract” entities can be globalized—because they never were local anyway—while the “contingent” entities have to be localized because they are always local. The philosophical basis of the system is that knowledge is global while material objects are local.
The system is therefore not anti-globalization or pro-localization in all cases. It rather globalizes those things—i.e. knowledge—which cannot be made local, while localizing those things—i.e. physical instances of this knowledge—which must always be local. The transfer of knowledge across geographies is easy and has to be done once, but the transfer of physical products of this knowledge have to be repeated with each instance of the product. The inefficiency in such a transfer then has to be overcompensated by a dramatic difference in price and cost.
Globalized trade, thus, should involve the exchange of ideas and methods, while localized trade involves the exchange of products and services. The globalized trade exchanges new abstractions while the localized trade exchanges the instances of such abstractions. The people involved in the local and global trade are quite different because the exchange of products needs producers and consumers who will operate with their material senses, while the exchange of ideas and methods involves those who must operate with their material minds and intellects.
The Elimination of Middlemen
The crisis of modern socio-economic system stems from the rise of middlemen, who mediate and control the interaction between producers and consumers, and profit incessantly from this mediation. Over time, they become increasingly powerful and corrupt, thereby putting the entire society in jeopardy. In the case of capitalism, the middlemen are the globalized corporations, and in the case of socialism, the government is the middleman. Both systems disempower the producers and consumers in different ways, and cannot succeed over time.
When economies are localized, the middlemen are eliminated in the exchange of goods and services. A community or society then operates based on people-to-people contact. The government—which is local—ensures that the producers are not involved in monopoly or dishonest practices such as the manipulation of people’s perception, fears, and desires, and using this to artificially increase prices way beyond the costs of production. The government also provides protection from external threats. To provide the internal administration for the efficient running of the economy, and protection from external aggressors, the government can tax the citizens just enough so that the socio-economic system can operate efficiently.
The Role of the Government
Social welfare—such as education, health care, child care, old age care, etc.—are not the jobs of the government. They are rather the duties of the citizens. People are expected to acquire knowledge, based on their prospective talents and abilities. They are expected to lead a healthy life through proper diet, exercise, and a peaceful mind. They are expected to take care of the children they produce and the parents that produced them. When citizens become responsible, the government’s burden reduces. That in turn entails a low rate of taxation.
The government has no direct role in social welfare, but it has an indirect role in ensuring that the costs of social welfare are low. At present, governments get involved in social welfare because the welfare costs are skyrocketing. In the case of healthcare, for example, the costs of useful drugs is very high because 90% of the drugs fail, have many side effects, and have to be therefore quickly replaced, while the research involved in developing the drugs is very expensive. They are also high because corporations work for the profit motive. The government gets involved to negotiate the reduction in prices, but this problem cannot be solved without a change in lifestyle, and an understanding of what it means to be healthy, including how the mind influences the body.
The reduction in the costs of social welfare needs scientific and technological knowledge, because costs rise when the optimal methods are missing. The previous post discussed how nature provides a lowest-cost solution, but no limit on the prices. To achieve cost reduction, therefore, knowledge has to be developed and the government is responsible for encouraging, funding, and facilitating the development of scientific knowledge—not with the aim to increase profits (as current science does) but with the aim to decrease the costs of living.
The Role of Morality
The government has a moral duty to protect its citizens. The people too have a moral duty to lead lives based on needs rather than excessive wants, and discharge their responsibilities towards the society—just as they have taken from the society. One significant cause of the current decline in societal organization is the degeneration in moral values. We have created wants far beyond the needs. People don’t have enough to facilitate all these wants so how can they repay their debt to society? The result is that people become self-interested and forego their responsibilities towards society, thus leaving the government with the burden of doing social welfare.
A socio-economic structure by itself cannot facilitate a happy society if the people are unprepared to lead moral lives based on principles of simplicity, honesty, and diligence. Our incentives for morality have been robbed by the modern ideologies of materialism which fosters growing wants, which then leads to increasing selfishness, which then prompts dereliction of societal duties. People cannot become happy under this materialism. If they want to be happy, they must return to the basics—i.e. living on needs rather than increasing unnecessary wants.
Unless this understanding can be developed, we will remain victims of unnecessary wants, which have to be fulfilled by increasing consumption (thus giving power to the capitalists) and by declining social responsibility (causing the government to step in, giving power to the socialists). By increasing our wants and reducing our responsibilities we are surrendering our freedoms to something that will step in to take control of our lives—either global corporations or the government. This is not a recipe for a sane society. Happiness cannot be produced either by growing consumerism or neglecting our responsibilities, because both approaches entail that we will be forced to give up the thing that we cherish the most—our individual freedom.
This system is not left-wing or right-wing. It is neither capitalist nor socialist. And yet it brings the best of all the worlds. As seen earlier, an economy driven by costs rather than prices is still a free market system and fosters competition to reduce costs rather than to increase profits. It avoids the pitfalls of globalization by enabling the best knowledge to exist everywhere through free exchange of knowledge thereby preventing the flight of jobs or the hoarding of capital.
This system minimizes the role of the government—and therefore taxes—by limiting its role to deciding the costs of commodities based on the availability of resources, and allowing the people to choose the best quality commodity in that price. The producers are free to compete by reducing the costs and improving quality, and the consumers are free to choose the best quality and the lowest cost products. This is a free market system in which producers can compete on the quality and costs of products or services, but not a free market system that allows the arbitrary adjustment of prices based on perception. The government plays an important role in ensuring that the price of a commodity matches its real value: low quality products must therefore be forcibly priced lower than the higher quality products. The consumers can trust that the government has done its due diligence in assessing the quality against the price.
The Self-Converging Economy
The result of matching prices to costs is that economic value represents the true value of a commodity. The wealthy can buy expensive products, but by and large, the market will trend towards few lower cost products because the incentive to produce a small amount of expensive products declines. In fact, as the volumes of expensive products declines, their prices grow proportionately, making it harder for people to easily consume such products. The system thus naturally tends towards the elimination of unnecessary products because they are no longer economically subsidized by a large consumer base.
Government intervention is not needed to eliminate expensive commodities from a market, because the market forces do this job. The intervention is needed only to match the price of a commodity to its true value—i.e. being honest.
The system competes for lower costs, thereby inverting inflation, and the costs of living quickly stabilize over time. As the prices drive down, so does the wealth people have. There is lesser variety of commodities in the market, and lesser wealth to spare. This pushes people towards the satisfaction of basic needs rather than imaginary wants. As these wants reduce, people are driven towards alternative modes of happiness—i.e. enjoying family and acquiring knowledge—rather than the pursuit of material things. The growing importance of family in a person’s life naturally leads to a responsible life of repaying their debt to society—e.g. children and parents. As citizens become responsible, the government doesn’t need welfare programs and doesn’t need to play Robin Hood in taking from the rich and giving it to the poor.
Karl Marx spoke about the “inner contradictions” in capitalism, but he did not see the inner contradictions in socialism. A system with contradictions oscillates and as the oscillations become faster and more extreme, the society is ruined. The capitalist system is opposed to the natural human tendency to seek safety and stability over risk and thrill. The socialist system is opposed to the natural human tendency to seek freedom. The inner contradiction in capitalism and socialism is that they are opposed to basic human tendencies. When the system is aligned to human nature, then it is free of inner contradictions and converges rapidly.
What is a Real Free Market System?
At present, we define a free market system as one in which prices are decided by demand and supply. In the new free market system, prices are determined by costs. Human ingenuity and creativity therefore helps the creation of new products and reduces costs, but there is no price for this ingenuity because the knowledge of ideas and methods is free. There is a cost in obtaining the raw materials, but we cannot put a price on ideas and methods. New ideas and methods can therefore be used to reduce the cost, but not to raise the prices.
Knowledge, in this scheme, is a public property—i.e. socialist. Material goods and services, however, are private property—i.e. capitalist. Since everyone has access to the same knowledge, the goods and services produced from that knowledge can also be produced by anyone, provided they have the access to the natural resources and raw materials.
Of course, not everyone will have all the natural resources, and societies and countries must learn to adapt to live with what they have within the span of their geographical control. Every geography creates unique constraints, which then create the local cultural diversity. Countries can exchange goods on humanitarian grounds under situations of crisis but these exchanges cannot be for profit—indeed such trading gradually leads to colonization and eventually globalization, as the last few centuries of human history has depicted.