Economic theories aligned to the world order

A screen above the trading floor shows an intraday number for the Dow Jones industrial average, at the New York Stock Exchange, Wednesday, Aug. 14, 2019. Stocks are falling sharply after the bond market threw up another warning flag on the economy. (AP Photo/Richard Drew)

The world is evolving every single day. Changes happen at the blink of an eye and one cannot help but ask themselves, where are we in the midst of this global transition? Economists in the 1800’s defined, in their own ways, how economies should function. We had John Keynes, Adam Smith, Karl Marx to name a few who shaped the economies of today. 

However, in the 21st century, particularly with the emergence of a 4th industrial revolution, the world is required to reconfigure economic theory from what is traditionally known to be. Revived economic theories compel contradictions to the neoliberal approach of a transmission mechanism. A possible disregard of Karl Marx’s theory in that, through this growing capitalist system, labor is being replaced with robotics which then kicks out human capital. According to the Keynes transmission mechanism an economy grows through a transitional process defined as Gross Domestic Production. 

This transition process articulates that the motive forces of an economy, such as government, households and business all contribute to the growth of an economy underpinned by price and quantity. Households play the role of consumer and labor which is inherently the crux of this article. This new undefined economic theory disregards the presence of labor, to a very large degree. Does this mean that the growth of the 4th industrial revolution has a positive correlation with economic growth, because business will have enhanced production which then stimulates supply? 

However, there’s an implied negative correlation on the side of demand where we have unemployed households which are replaced by robotics? This is where the emergence of a new economic theory creeps in. An economic theory that creates a dichotomy between growth, unemployment and income, ii implying excess supply and low demand. It must then redefine the role of labor given the presence of robotics. It must redefine role of households given the negative correlation between employment and the 4th industrial revolution. It must inherently regulate ways in which business operates to realign the distorted relationship between demand and supply. It must enhance the role of government as a mediator and regulator to this economic revolution. 

This means that government must ensure that the ripple effects of this economic revolution does not lead to high levels of unemployment (which is what SA is currently confronted with), increased elitism and monopolies which dictate the terms of an economy. Moreover, government must improve tracking mechanisms used to tax the new robotics giants. Currently, particularly in the case of South Africa, there are global giants penetrating local markets, such Uber, Taxify, Airbnb, Netflix, Showmax, Amazon, etc. 

Now, due to lack of regulation, monitoring and evaluation, it has led to local industries either being forced to adapt to the current business trajectory or close shop. These new giants dictate prices and modus operandi which lead to local markets either shutting down due to extremely low prices or mass retrenchments due to the digitization of doing business. This has led to high levels of unemployment, low inflation, downward interest rates which shifts the conventional way of doing business, limiting the existence of human resources. 

Another avenue is that the current administration in government seems to be taking a more reactionary approach to this economic revolution. One of the initiatives are infusing data analytics and coding into basic education systems. As much as this is a good initiative, this economic revolution depicts signs of elitism towards human capital. This means that only few laborers will be absorbed into this iii new trajectory, despite the new set of skills. This avenue calls for a desperate need for a new and revived economic theory. 

An economic theory that will define the global system, it will redefine policies and programs. It will redefine the new world order and equally protecting business and households. The textbook of today must breed economists of the 4th industrial revolution, it must breed lawyers who will argue cases of robotics. It must breed engineers who will develop these robotics and digital systems. The current revolution is highly unregulated and penetrating global markets through technology. Technology through social media which makes it easier to infiltrate without government “boom gates”. 

As much as this is a fantastic evolution, it must be closely monitored to avoid the emergence of global giants controlling countries without notice. This new economy is currently sideling the role of government and labor, therefore leading to lack of regulation. Government must infuse itself into this robotics market and digitize its policies in that these regulations are loud enough even through these social media avenues. Creation of employment must be redefined in that; the conventional administrative or hard labor form of employment must be relooked. 

For instance, there’s an emergence of “social media influencers” where major corporations have redefined ways in which to market products through social media, such as Instagram. The role of government, in this case, would be to enhance regulation in which it does not lead to high levels, of unpresented prostitution and human trafficking. Furthermore, government must develop digital ways to ensure that tax revenue is increased through these influencers. iv However, back to the bone of contention, through this example there’s an entrepreneurial form of employment created by this revolution. 

Therefore, this means that this economic theory must redefine labor in a way that the definition aligns closely to business. Once this has been done, the dichotomy between unemployment and growth is curbed. The 4th industrial revolution, proves in so many ways how business continues to find ways to cement its presence in the global economy, even without due consideration to the ripple effects. But, as the saying goes, “there’s no use crying over spilled milk”. 

The economist and philosophers of today, whether leftist or neo liberals, must begin to rethink their theories incorporating the emergence of this revolution. White papers developed must shape the policy path in which the economies of today must take, given the realities. At the end of the day, the existence of humanity is defined by economics and science and it’s imperative they evolve parallel to each other. 

Noma Khethiwe Gamede is an Economist.