by Naresh Jotwani for The Saker Blog
Consider the hypothetical case of an economy with annual GDP of 5 trillion US dollars, the broad economic dynamics of which are the subject matter of this exploration.
The hypothetical country whose economy we analyse here is named AB, because its internal economy is composed of two distinct components A and B. The total population of AB is 100 million, but only about 2% of it belongs to B; the rest of it belongs to A. For the ease of dealing with round numbers, we shall say that A and B have populations of 100 million and 2 million respectively.
To a large extent, A and B are geographically separated within AB, but the separation is not total. Intermingling does occur. Main roads and highways, for example, carry cars belonging to members of both A and B. Commercial airlines also carry members of both A and B, whereas private and chartered airplanes carry mostly the members of B. Schools, residences, shops, recreation et cetera are largely segregated, since the members of B see themselves as being a class apart.
From the point of view of governance, the members of B have almost total control over how the country AB is legislated and governed. Any attempt by members of A to have their voice heard is met with hysterical and shrill denunciations by members of B – using terms such as “nationalism”, “populism”, “socialism”, “deplorable” and so on.
From the point of view of economic prosperity, the members of B are doing far, far better than those of A. In fact the total GDP of AB is about equally divided between A and B, which means that an average member of B earns about fifty times more per year than the average member of A.
|Share of GDP||2.5 trillion US$||2.5 trillion US$|
|Per capita income||25,000 US$||1,250,000 US$|
|Flow of funds from other countries||Negligible||0.5 trillion US$|
|Internal trade balance between A & B||Deficit 1 trillion US$||Surplus 1 trillion US$|
|Effect of monetary expansion||Negligible||0.5 trillion US$|
|Education||UG or less||UG or more|
Internal trade & governance:
The economy of A consists of low value and low profit margin goods and services – such as farm produce, basic industrial products, manual labour, security (including police and military), clerical, retail, supervisory and delivery services, transport, nursing, housekeeping, beauty/hair care, and so on.
Therefore A supplies to B such low value and low margin goods and services. Since a population of 100 million supplies these goods and services to the much smaller population of 2 million, the prices of these goods and services remain depressed. To make matters worse for A, the members of B have fiercely kept their options open of replacing suppliers from A with lower cost suppliers from any other country in the world. Thus the B-types have retained maximum bargaining edge in their purchases from A.
B supplies to A high value and high profit margin products and services, related to finance, insurance & real estate (FIRE), media, PR, pharmaceuticals and law. Since these products tend to be complex, the relevant legal terms of trade between B and A are heavily biased in favour of the former. In fact this situation reflects the fact that members of A have almost no influence in the governance of AB.
Low value products and services
High value FIRE products, media, PR, pharma, legal services
As a result of this rather one-sided trading arrangement between A and B, every year B enjoys an “internal trade surplus” with A to the tune of about 1 trillion dollars, which explains a large part of the difference between the annual per capita incomes of A and B.
B-types are addicted to chasing ever higher returns on their already huge assets; in fact that seems to be their only goal in life. They have fine-tuned to perfection their schemes of exploiting debt-financing and to-the-hilt leverage in all their financial ventures. To meet their growing demands for more and more debt, they have arranged for cheap and plentiful credit to be available “on tap” 24×7. For PR purposes, this “debt-on-tap” scheme is called “monetary policy”, and is touted as being good for AB.
From this “debt-on-tap” policy, the economy of B gains about half trillion newly-created dollars a year. No benefit of this accrues to A, however, since the economies of A and B do not overlap much at all. However, when things go wrong, the members of A are expected to bail out the bad debts in B – supposedly to maintain “financial stability” within the entire country.
Wealthy citizens of other countries around the world also participate in the free money party going on within B. Foreign money flows into B to the tune of about 0.5 trillion dollars a year. The spirit of the age seems to be this: As long as money can be created out of thin air, let the champagne flow.
The economy of B is run like a very exclusive and expensive club. Its entry charges and annual maintenance charges are extremely high. As a deliberate PR policy, the myth is created that the highest goal available to a human being is to become a prominent member of the economy of B. As a result, the life-goal of many a Tan, Deep and Ali outside AB is to become a recognized member of B.
The wealthiest among the members of B take great care to ensure that the hoi polloi of A have no say in how the affairs of AB are run. At the same time, however, they go to great lengths to convince the same hoi polloi that their best interests remain foremost in the minds of the wealthiest and the most powerful members of B. The PR term for this great manipulation of A by B is “the art of governance”.
Periodically, the wealthiest and most powerful members of B select a suitable person to act as the “front-person” for the great manipulation, with the understanding that the “front-person” will also become the “fall-person” if perchance the game of manipulation is in danger of being exposed.
B-types understand very well how useful it is for them to maintain the myth of AB being “one country”. After all, the multitudinous members of A are their dumb customers, low-cost labour, tax payers, fall guys, soldiers … and more. A “godsend”, one might say. How can B ever manage without them?
But the members of A must never be allowed to learn that they are being manipulated – in their own self-interest, of course. The poor folk of A would be so lost without the high cost governance provided by the smart people of B – all in the spirit of public service, of course.
We now extend this model to the 200 odd countries of the world. Admittedly, some countries are more “A-like”, while others are more “B-like”. By and large, however, most of the country economies around the world are divided somewhat as described.
The diagram below illustrates how the economic networks may operate among four countries AB1, AB2, AB3 and AB4. In the real world, similar networks span all the 200 odd countries.
We saw that, from the point of view of money flows, each of these legal countries is effectively divided into two parts A and B. The B parts of almost all the countries around the world – that is, B1, B2, B3, B4 and so on – collude economically when their interests coincide.
Typically, what are these coinciding interests? All the B-types around the world want maximum annual returns on their already massive assets. Therefore they – B1, B2, B3, B4 et cetera – compete, collude or collaborate with each other as the need arises. To them, the rest of mankind – A1, A2, A3, A4 et cetera – are people of a different kind: deplorable, underdeveloped, backward … whatever.
Consider an example of two countries, say AB1 and AB2. The economy of each is divided into two parts, as explained above. Within AB1, the two parts are A1 and B1; within AB2, the two parts are A2 and B2. For the reasons described, B1 and B2 are economically much closer to each other than A1 and A2 are to each other. This makes it possible for B1 and B2 to collude and exploit A1 and/or A2, as the need arises.
To keep the gravy-train rolling, the basic code of behaviour of the B-types is: Whatever it takes. There is no other morality or ethic underlying their behaviour.
You say 500,000 children may die? So what?
You say a region must be bombed back to stone-age? So what?
You say negative interest rates rob savers? So what?
Friction and resistance – here and there
A simple point missed by the B-types is this: Healthy, normal human beings – of whom the B-types have no understanding – resent being denigrated, insulted, exploited or manipulated.
To make one’s way in the B-world, one has to eradicate from oneself any trace of normal, healthy human tendencies. Otherwise, one would face daily conflicts between what is right and what one must do to survive in B. Since leaving the B-world is not an option for most B-types, the only way to survive is by quenching any sense of right and wrong. It is no surprise, therefore, that B-types do not understand the feelings of the rest of their countrymen. The two are practically strangers.
As understanding spreads around the world, evidence of friction and struggle is seen here, there and everywhere. Reaction of the B-types verges on the hysterical. That is not surprising because, after all, their much-trumpeted – no pun intended! – way of life is being questioned.
B-types’ lack of understanding has huge implications, calling to mind the famous lines of Robert Burns:
The best-laid schemes o’ mice an’ men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!
That’s where things seem to be poised rather precariously, Dear Reader, at this crucial juncture in the ever-unfolding story of mankind’s search for happiness on Planet Earth.
[Related earlier writing: Mapping the Global Divide.]