Corporate game theory breaks the "virtuous cycle" of economic growth

 

    In the last two essays in this series, I introduced the concepts of "sapped economy theory" and "rotation of points of production and consumption. Sapped economy theory refers to how, as wealth becomes more concentrated in the hands of a few extremely wealthy individuals and families, there is less incentive for companies to invest in the creation of innovative products and services, as there is simply less money circulating in the hands of consumers to make that investment available. This leads to a concept known as "rent-seeking", where companies and individuals focus on "hostage markets" - those goods and services, such as housing, education and health-care, where consumers who choose to forego those goods or services suffer from a variety of harsh consequences. "Rotation of points of production and consumption" refers to a set of behaviors that companies use to try to minimize their plant and labor costs. In this essay, I'll offer a brief introduction to some of the consequences of the rotation of points of production and consumption. Both of those topics will be addressed more fully when this series of essays are compiled into book form. 

    In economics, there is a widespread belief -especially among conservatives- that new productive capacity creates in a "virtuous cycle", whereby wages from workers leads to increased economic activity throughout the community, which creates greater tax revenues for states, which begets greater public investment and infrastructure development, which leads to more investment by the private secotr, and ultimately leads to an improved standard of living for all. Belief in the virtuous cycle is exemplified by this statement from International Monetary Fund director Christine Lagaard, in a speech given in Brussels in 2017: "Resource mobilization can, if pursued wisely, become a key pillar of strong economy, and can help meet critical needs without jeopardizing debt sustainability. New investment strengthens communities through schools, hospitals, and roads. These enhancements to physical infrastructure and human well-being boost economic capacity and make private investment attractive." While it is true that in very poor developing nations the "virtuous cycle" still functions to a degree, The rotation of points of production and consumption (hereafter referred to as "the Rotation Phenomena") breaks this cycle, effectively creating a "wealth cap" where an increase in wages leads to companies looking for other areas with even lower wages to locate their production facilities. 

    The phenomenon of producers rotating production out of developing nations for lower wage markets effectively caps the growth potential from new manufacturing ventures. One of the great ironies of municipalities bidding against one another to provide attractive packages of tax breaks and low cost industrial park space is that the more financial support those municipalities provide, the less investment a company has to put into a new production facility, and the less investment there is in a new facility, the easier it is for that company to pull up stakes and walk away from that investment as soon as there are any rumblings of local political leaders wanting to finally see some tax revenues from a facility, or local workers wanting to see an increase in their wages. This phenomena has already been apparent in China for several years. Although China was once considered an attractive destination for US companies looking for cheaper production, a dramatic increase in labor costs led to many companies abandoning China for countries like Bangladesh and Vietnam. This phenomenon was already evident in 2015, before Donald Trump's trade wars or the rise of Covid19. 

    From an information warfare perspective, pulling production facilities out of a country leads to a period of political radicalization, as those workers who are displaced from their jobs must seek out other ways of making a living. In a later essay we'll be addressing how behavioral traits associated with the authoritarian personality also make it more difficult for those who possess those traits to find new employment. Individuals with authoritarian tendencies are more likely to become easily frustrated in their job-searching, to maximize the amount of time they spend on unemployment (while complaining about everyone else "living off the dole") and to create a string of personal crises for themselves before they are able to secure new employment. The radicalization of unemployed working class males facilitates the election of right-wing politicians who are experts at using fear-based appeals to win votes ,and who are more eager to give out nearly unlimited access to public resources to attract new jobs. 

    It should not be assumed that international business leaders are aware of the long term potential consequences of their actions. The business world does not reward deep thinking or social intelligence. Although it is true that sociopathic personality traits are common among corporate CEOs, the prevalence of those sociopathic and authoritarian traits appears to result primarily in short-term thinking, and the phenomena observed above are all the result of a "game theory" approach to business, where companies do whatever they can to maximize their advantage and profitability in the short term. This situation can be compared to 1930s Germany where, as William Shirer observed, German business leaders were skeptical of Hitler's anti-semitism but supported the rise of the Nazi Party because they despised the Social-Democrats and their support of labor unions, and they also wanted to reap the benefits of lucrative government contracts from a rapid German military buildup. They did not realize the consequences of their actions until it was too late. Likewise, in the modern day, we should assume that the rotation of points of production is a product of short-sightedness and greed, rather than a far-flung globalist conspiracy to make the whole world poor. 

    This essay provided a brief description of how the Rotation Phenomena breaks the "virtuous cycle" of economic growth. Companies get municipalities to bid competitively for the chance to host new facilities that will create jobs. The last essay in this series mentioned how companies frequently engage in extortionate behaviors and threats to leave a community if they do not receive the tax breaks or low-cost municipal services they desire. When a company leaves a community, it tends to create a "period of radicalization", where those individuals with innate authoritarian tendencies will have difficulty finding work, and become susceptible to political radicalization. The period of economic deprivation caused by factory closings also paves the way for the election of conservative politicians who are expert at using fear based appeals, at appealing to voters' frustrations, and who frequently promise greater prosperity by creating a "business friendly environment", which ultimately amounts to making public resources available for private use. It is natural that the reader may have thoughts or questions about other implications of the Rotation Phenomena. This essay was intended as a thumbnail sketch of the problem, and the topic will be addressed more fully when these essays are compiled into book form. 

    This was the third piece on the topic of "the initial stress", which is the first stage in the ego-maintenance process that leads to political radicalization. In next week's essay I'll begin to address "the individual's perception of failure". As mentioned in prior essays, the first stage has to do with external conditions, while the "perception of failure" phase has to do with internal psychological responses, and how the individual with authoritarian tendencies reacts to external conditions that are beyond his or her control. 

If you enjoyed this essay

Please consider picking up a copy of my book

Now available in the Kindle Store. 

Image Credit: detail from "The Harrowing of Hell", created by a student of Hieronymous Bosch. 
https://commons.wikimedia.org/wiki/File:Follower_of_Jheronimus_Bosch_-_The_Harrowing_of_Hell.jpg