Excerpt GPWN (2010):
3rd Rule of
Planning (or 3rd Paradox)
Any economic approach, system, argument or school of thought that does not equate growth with financing, in its diverse forms, will be unable to provide a complete solution to the problem of sustainable growth and development. It will simply create a new opposing argument and a new approach or dispensation that is itself confined to the same operating system’s [circular flow of Income’s] resource constraints, except in an alternate more fashionable position of discomfort and resource limitation.
Like the spring collection on fashion runways in Paris CE economics goes through periods when everybody becomes fascinated by a new concept that is thought to have a reason and a solution for decline or success in economics. It might be aid that is the solution or doing away with it, or money market operations or restructuring and so on. However, as long as the operating system [circular flow of income] remains the same (CE) there is no real change in the economy only a reorganization of how resources are distributed. The 3rd Rule of planning identifies this paradox. The paradox creates economic stagnation in the midst of progressive economic theory and policy. It is also the reason why every so often there will be excitement about a new theory or approach in economics that takes people by storm only to either fizzle out or eventually bring about little or no real change to the poverty and suffering experienced in the world. Economic theory confined to a specific operating system [CFI] where scarcity has become a reality is like a closed economy where productivity flourishes as producers have learned to make do by producing and consuming with whatever internal resources they can find. Despite the fact that they are poor they remain productive and, as observed in developed countries, may believe themselves rich whilst in fact being much poorer than they may think they are and much less wealthy than the wealth they could have. Like urchins discussing how to invest the only penny amongst them, it is the Achille’s heal of all genius in economics.
Arvind Panagariya, professor of economics and co-director of the centre for International Economics at the University of Maryland (2003) explains that having open economies creates newly industrialised economies such as those of Hong Kong, Singapore, South Korea and Taiwan. It may be prudent to make note that contemporary economics (CE) is founded on resource transfers or allocation, not resource creation. These fundamentals are taught regularly in colleges and universities across the world. Certain aspects of what is taught are not consistent with the fundamentals of CE and in fact create a conflict within CE theory that make some of the assumptions in economics fallible.
To remain consistent with CE theory, resources must remain persistently scarce, as a result, wealth is created primarily by the transfer of resources. Unlike resource creation, the transfer of resources must have a benefactor. The benefactor must have a reason for transferring those resources to the recipient on the scale observed. The recipient should also have the capacity to absorb and retain the resources provided by its benefactor. Scarce resource theory therefore influences not only the behaviour of benefactors, but recipients of transferred resources. Transfer of resources will take the form of extensive grants, technology, technical aid, loans, FDI and ‘buying and selling’, that is, access to consumer markets offered by the benefactor until a permanent symbiotic relationship characterised as self sustained development is formed. In the case of the aforementioned countries their dramatic growth and elimination of poverty will be linked to a benefactor and their willingness to tow the benefactors political and ideological line, in this case, either that of the United States or Great Britain who for strategic military and or political reasons may have felt it necessary to initiate and sustain the transfer of wealth in the mentioned forms to these nations in the manner, format and volume experienced. The Marshall Plan used to resuscitate West Germany and Western Europe, the economic intervention in Japan after the 2nd World War and economic intervention in Russia after the collapse of the USSR provides historic evidence of this strategy. The rules of the 2nd Paradox where closely followed. The most recent example is likely to be the post war reconstruction of Iraq, if the political will and economic gains from this intervention are justified by United State’s capacity to retain post war economic and political influence over the country.
There is a great deal of ‘loose theory’ in economics that sounds and feels good, but does not actually create resources. It is generally believed that those countries that have achieved large reductions in poverty are those that have experienced rapid economic growth spurred in significant measure by openness to international trade. However, for this to be true the transfer of resources would need to be considered the same as the creation of resources. The obvious result is a conflict in theory since the two cannot be one and the same. Countries that follow the same prescriptions and open their economies, like Zambia, experienced an increase rather than a reduction in poverty, the exact inverse of what some theorists believed. The logical reason for the conclusion he makes being incomplete is due to the fact that the transfer of resources, required to make the statement true for African nations, has not closely followed liberalization, neither has it been on a scale commensurate with the needs of poor African nations, most likely for the reason that they are not of political or strategic importance to benefactors. The resources transferred to African less developed countries (LDCs) have been meagre in comparison to need and have lacked the political will to eliminate poverty, the loans have had debt burdens that exceed domestic productive yields, loans have had self defeating strings attached, FDI has been meagre, market access has been closely restricted, balance of payments support is chronically withheld and the domestic political ethos has not consistently towed the line of the benefactor, thus bringing into focus the arguments of people like Professor Dani Rodrik and Professor Joseph Stiglitz.
Though some ideas on growth are persuasive, within the scope of the logic applied to them, like Professor Rodrik’s ideas, caution is required. CE is limited by scarce resource theory. What does this mean? As an African who must on daily basis see street children walking the streets begging, unemployed youth vending at the roadside, and read of orphanages filled with children whose parents would still be alive had anti-retrovirals been made affordable, one must analyse what people like Professor Panagariya and Professor Rodrik explain with even and practical clarity, to see whether their theories are as workable as they are sound. The resources that are available to the impoverished in their persistent suffering are the national cake that sits upon the table. Professor Rodrik explains that one should cut the cake using an anti-globalisation approach and scholars like Professor Panagariya explain that the cake should be cut in an alternative neo-liberal way. Both appear to assure the impoverished that they will have more resources or be better off by cutting the cake in the manner prescribed. However, the 3rd Paradox clearly reveals that, regardless of which of the two professor’s approaches are used, the design of the slices of cake may be rendered different, but the volume of cake on the table will remain the same thus indefinitely prolonging and protracting their argument while poor nations like Zambia starve – an example of the 3rd Paradox failing the outcome of analysis in economics.
Secondly, both approaches inadvertently fail the 2nd Paradox, which reads, “No amount of planning will take the place of the resources or financing required for the successful implementation of what has been planned.” Both their approaches require full access to resources to become successful, but neither guarantees their availability. Once again the sound economic reason provided by the two professors fails the test. In the laborious process of describing the difference between compass directions west and east, it is futile to keep misrepresenting one direction with the other. The result is utter disorientation. For a businessman to claim that he has ‘created new resources’ for his company by sourcing a loan from a bank is technically wrong, since a bank will transfer the loan or this ‘growth’ to him, he has not created the loan independently. Wealthy and emerging markets transfer resources to one another, but keep poor nations out of their system, yet they expect the poor to grow outside it. When it was discovered that the former energy giant Enron transferred revenues from loans from external subsidiaries and claimed this as growth from earnings at its US headquarters this was considered a scandal of monstrous proportions, yet when contemporary economics claims that it can create resources (growth) it immediately contradicts its very founding principles, namely, scarce resource theory (SRT) [approaches to growth that do not correct economic losses caused by subtraction in the CFI] and opportunity cost [zero growth in the CFI], but nobody bats an eyelid when this serious contradiction is made. CE teaches that for anything gained, something must be foregone (real cost). Therefore, exchanges in CE are predominantly resource transfers. This is an error that is refuted by the expenditure fallacy (see the GPWN: the expenditure fallacy chapter 11) the financial loss it creates in economics are quite simple to show mathematically. It costs each developed and developing nation a yearly loss in potential resources for growth and development that is equivalent to its annual GDP (see theory of economic implosion). Hence, annual growth in modern economies is artificial, residual and phenomenally slow, often ranging between 0% to 10%. Clearly, scarce resources are not a genuine economic problem, albeit the brunt of the loss in resources caused by this approach is shouldered by poor resource constrained economies. It is simply of unacceptable proportions. What Operating Level Economic (OLE) theory does is strive to recover this loss before it causes irrecoverable damage, the “Operating Level” being simply the level where allocation to factors of production takes place in the circular flow of income.
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