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It is a myth endlessly propagated as if it were self-evident truth that we really only have one choice : between a state-planned economy, as in the old Soviet Union on the one hand, and a free-market capitalist economy, as in the USA, on the other.
In the first, Soviet-style system, the government takes all the decisions as to what is produced, how much and what type of investment, the distribution and training of labour, the direction of research in industry and the universities, where people live and even what they eat.
In the second, ideal free-market model, the government’s role is limited to regulation of a few forms of business conduct and the maintenance of the legal system, principally that relating to companies, patents and contracts. Any departure from this mode, e.g. government planning, is seen as wrong-headed, reducing total welfare.
In practice both systems have departed significantly from these models under the spur of dire emergencies such as war and famine in the case of the Soviet Union, and electoral and consumer group pressure in the case of the USA.
However, even when systems operate under the influence of external uncertainties, as economies certainly do, they can be designed to minimise undesirable outcomes (like unemployment in the case of economies) and to maximise desirable outcomes such as growth in living standards for the population.
By design, we tend to mean the arrangement of things for a purpose. So in theatre stage design the props are physically arranged to create the effects required by the playwrite or their present-day interpreters. In engineering design, materials are designed or chosen to carry specific loads; in dress design materials are chosen and cut to achieve a pleasing visual effect, and so on. Design is in fact one of the two things which engineers mainly do. The other is to steer the operation of the things they have designed and built: chemical plant, aircraft, ships, for example. An aposite analogy for economic design is ship design. Ships have a fundamental purpose: to transport passengers and goods across the sea in the face of unknown storms.
It is a fundamental view of this page of Britain-Watch that economies in general , and the British economy in particular ,can be consciously designed over a period of time to be more stable in the face of forces such as world trade expansion and contraction or technical changes than it has been or will be if left to the haphazard make-do-and-mend approach of the last 100 years or so. Good design will build- in controls so that the economy can be steered in accordance with political and social objectives decided in a democratic society by the voting public.
Steering is what we do to respond to external, unpredictable events. It cannot ensure of course that a pre-planned path can be followed in detail But a good engineer will design in a number of controls, which can be used to steer the system so that, as with a ship, it gets as near to its chosen destination as possible. Again as with a mechanical or electrical systems costs can be attributed to this or that method of steering and can be chosen on that basis if desired .
A fundamental, unbreachable law of systems – any system – is that it must have at least as many independent controls as it has objectives to steer by.
In the British economy of the last 20 years or so only one variable has been allowed to governments and that is the Bank of England’s interest rate. It would be amusing, if it were not so deadly serious for all of us, to watch the Bank of England’s Monetary Policy Committee wrestle with the literally impossible task of trying to use its interest rate to achieve a given level of annual inflation (2% on the consumer price index CPI) while keeping growth “up” (or not too negative) and unemployment “down” (or not too high).
The standpoint of this page of Britain-Watch is that finance, while very important, is actually a sub-system of the wider economy. Economics more generally needs to be rebuilt on the basis of the firm. Firms represent the fundamental elements of any economy and a great deal is known of their individual characteristics from their annual accounts, their products, the equipment and labour needed to produce them, and their markets. A key ingredient of the firm’s own economy is their bank of knowledge about all these things.
To turn this huge amount of knowledge into a system which can be designed and steered for the benefit of our people is the task of what may be termed “Economic Engineering”, rather as the field of Chemical Engineering was established in the first half of the twentieth century to turn the chemistry of the fundamental elements into the production of chemical entities for consumer use.
A start on this task in the field of materials processing (polymers, chemicals, metals, foods) is described in the paper by S F Bush: ” A techno-economic model applied to the development of new products and improved processes.” published (2005) by Chemical Engineering Research and Design vol 83 pp 646-654.
The following articles have been written to show how consortia of small and medium-sized companies (less than 250 people, and £35M turnover) can collaborate in research and development to improve the competivity of their processes and products, so generating new jobs and sales.
Further articles will explore how SMEs can enter existing markets at home and abroad, which they are not currently selling into. A scheme will be set out to show how chains of companies called “Leopard Companies” (Leaping on Opportunities Provided by Applied Research and Design) combining research ,design,development, and marketing functions, will work in partnership with SMEs, major corporations, and government, to expand manufacture in any country, most particularly in Britain.
Stephen Bush 16/12/09
This is a paper by Stephen Bush and Caroline Doidge which was presented at the VII SMESME Conference, “Stimulating Manufacturing Excellence in Small and Medium Enterprises”, on 12-15 June, 2005, at Strathclyde University in Glasgow. To read the paper, click on the link NewProductDevelopment . See also www.strath.ac.uk .
This paper by Stephen Bush was presented to the Manchester Statistical Society in October 1999 and revised and extended in September 2000. Copies of the final version can be obtained from the Manchester Statistical Society at £10 each. To read the paper, click on Importance of Manufacturing to Economy. To obtain a paper-back copy please email to firstname.lastname@example.org.
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