The Incremental
Zero Impact Geisha-conomy (IZIGE)
Ganga
Prasad G. Rao
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It
is, to a small minority in the profession, a ninth wonder of the world that the
‘Nominal conspiracy’ got the better of the Real economy. Look around and the
signs are clear. Nominal inflation targeting, 'Anchoring' of inflation
expectation, inflation-indexed bonds, monitoring Consumer Confidence,
'tweaking' repo rates to fine tune money supply and thence control unemployment
at rates consistent with the views of political bigwigs...the list goes on. But, take a
hard look. Has the nominal economy contained inflation? Perhaps in the West,
but that is in no small measure to the prevalence of free trade and import
competition from umpteen nations. Elsewhere, as in India and other developing
nations where free trade is yet a luxury (but inflation not!), the nominal
focus has only served to up the upper bound of what is deemed the politically-permissible
inflation rate. Inflation has ruled at double-digits year after year at the
consumer end of the stick. In fact, the scourge of inflation is now compounded
as much by the inefficiency in the production of subsidized goods, as it is by
the fiscal necessity to cross-subsidized essentials, raising prices to the
middle-class sandwiched between the indigent supported by the Government and
the Rich exploiting an inverted economic and social system rotten to the core.
The cycle of subsidies, inefficiency and inflation feeds wage-inflation, and in
turn, feeds upon a per-capita economy stoked by subsidy- and welfare-supported
population growth. The Nominal economy, bloated with easy money, a falling
exchange rate, and rising prices, squanders its income on essentials, leaving
little by way of enhancements to the 'real' standard of living to the working
class. In fact, a real measure of GDP (rGDP) adjusted for inflation, financial-
and ESH-sustainability, might very well give the lie to the Government's claims
of economic growth. As bad as the situation is, the future could be worse.
Mandated or politically expedient subsidization of essentials, downward-wage
rigidity, and waves of QEs, ever popular among the financially empowered, that
flood the economy with tomorrow's money today, and which have brought the
economy to the edge of unsustainability, cannot but exacerbate the ills and
spark an economic crisis tomorrow. And while these might suggest an early
return to sagacious policies rooted in conservatism, it is opportune to
consider an alternative to the current system of production. The motivation
behind this alternative is a technological opportunity that would otherwise be
lost to social fears and political sensitivities; an opportunity woven in to a
new economic paradigm that competes against the unholy nexus between capitalism
and politics - and the corruption and malaise endemic to it.
The
decades of automation in manufacturing has culminated in diverse technologies
of mass production in advanced nations. As wages rose with increases in labor
productivity stimulated by technological innovation, the Robot-revolution,
stoked by a profit-seeking capitalist-economy, began taking its roots.
Originally limited to carrying out physical and mundane tasks, the
Artificially-intelligent Robots, AI-Robots, of today are capable of far complex
tasks, and potentially compete against human labor in more sophisticated
work-environments. Elsewhere too, advances in nanotechnology and biotechnology have
the potential to drastically transform society as we know it. However, the political
and financial suppression of innovation is a less-visible and less-acknowledged
conspiracy on its own. Unfortunately, these technological developments do not
seem to have been anticipated with appropriate social and economic policies. To
the contrary, many labor, social and political entities have raised a red-flag
to the vision of a high technology, robot-dominated economy that would pull
wages down, reduce lifestyles, incomes and livelihoods to further the
capitalist vision of perpetual growth in profits and appreciation of share
values. The fear is not only one of rampant unemployment and its social
consequences, but also of a further concentration of economic, political and
social power among the already rich who control the nerve points of the capitalist
economy and the pulse of the society. Detractors fear an AI-Robot economy
would, eventually, enslave all but the richest and the most entrepreneurial in
the society. These fears are amplified when politicians, with an ax to grind,
manipulate the political process to further their parochial vision. Frontier
technology with the potential to reduce costs and boost production efficiency,
reduce environmental footprints, reduce the cost of living of the millions and increase
the size of the social pie and, lies today at the mercy of partisan politics
and financial skulduggery, and is perhaps doomed to technological deep-freeze. Frontier
technology developed with billions in tax-payer money shelved until Mars? Perhaps.
How
could we rescue such frontier, albeit labor-saving technologies, such as AI-Robots,
from 'Absolute-zero' ....and apply them to human welfare as opposed to a
socially-untenable 'zero-sum' against them? Could we, conceivably, 'partition'
the economy in to a conventional-'status-quo' and a novel-'incremental' economy
- the conventional economy referring to the increasingly unsustainable, employment-centric
domestic consumption economy, and the incremental economy, limited to net
zero-impact and competitive exports? The strategy 'insulates' the existing
social and conventional economic system from the employment consequences of technological
innovations. It motivates the initiation and expansion of a
technological-frontier economy with 'zero incremental net-impact' on the
environment; in other words serving the incremental demands on the global
production system while internalizing all its environmental impacts. If one
grants that these incremental demands are those with the highest marginal
social costs – both pecuniary and non-pecuniary, then, addressing them with net
zero impact would also help put a break on the waves of unsustainability that
would otherwise accompany the expansion of the conventional economy. The
'partitioning' strategy, imperfect as it might be, permits - lets christen it -
the ‘Incremental Zero-Impact Robot Economy’, IZIRE, to adopt an entirely
different capital and management paradigm, avoid the onerous requirements of
the existing regulatory system, and simultaneously the pressures of participating
in the global financial system.
Conceived as an unlisted,
multinational, hierarchical conglomerate of AI-Robot-friendly, manufacturing
firms located in resource-rich, infrastructure-abundant, coastal regions around
the globe, the IZIRE exploits the superior agricultural productivity and
advanced commodity markets (in developed nations), as well as their coastal,
trade-friendly location and transport infrastructure, and marries it to
Next-Gen AI-enhanced Robot technology to fulfill basic human needs and
essentials among the subsidised poor and working class worldwide. Conforming to
a ‘Mei Truth I-Grid Balance’ filter that ensures a near zero-impact on the host
nation, the IZIRE
would seek county/district sponsorship to locate as an extra-national entity.
Competing against exporters in host nations and domestic producers in
importing nations,
the IZIRE would negotiate with the host jurisdiction site-specific agreements
that specify the sequential sharing of surplus between county, state and
federal authorities. The surplus-sharing agreement free IZIRE firms from
obligations to follow laws and regulations of the land that govern the conventional
economy. IZIRE firms would hence be free of labor regulations, (OSHA
restrictions), as well as tax and financial reporting requirements. In return,
the IZIRE entity would commit to a full-cost pricing of its inputs and limit
itself to exports of goods (Essentials or otherwise) to the subsidy- and
inflation-ridden, populous nations of the world. The surplus-sharing would
determine the degree of access to host-country Infrastructure, the scale of IZIRE
operations and the choice of goods to produce and export. Competition across
alternative IZIRE sites would bring about the familiar resources- and
factor-/geographical advantage-driven siting and production decisions.
Fancy a Geisha Monopoly
Administrator, GMA, who heads the IZIRE in each host nation. Entrusted with
serving the basic needs of the lower and middle classes worldwide, the GMA
seeks to maximise aggregate, undiscounted, inter-temporal consumer utility from
the supply of IZIRE consumables, durables, and services (so the Geisha may take
a 'Mirror Keycopy' on it for her 'Meanya' constituency of the future!). Having negotiated a non-linear
profit-sharing agreement with the host jurisdiction that permits unfettered use
of the public infrastructure and the Commons, and with the authority to act as
a monopoly channelling agent for member firms, the GMA seeks entrepreneurs who
subscribe to her low profits-large volume strategy. Toward this goal,
the GMA makes a two-step offer to prospective entrepreneurs who must compete against
each other and the GMA's own Geisha 'Residual-Swing' Producer. Consistent with
the Geisha-vision, and in the first step, the GMA invites 'long-run, low-cost –
low-return' capital (through an 'Industry I Capital Commerce FV Dionysus PV'
filter) specifically from 'non-capitalist' sources such as Sovereign funds,
Religious establishments and Trusts to capitalise the Geisha 'Residual-Swing'
firm, GRSF. The filter ensures that the consumer-oriented capital is directed
at producing goods that sustainably enhance the lifestyles of the indigent
masses abroad. In the second step, the GMA volunteers the Geisha’s private
store of 'seed capital' to entrepreneurs who subscribe to her business
perspective. Prospective 'Entrepreneur Member Firms', EMFs, bid for incremental
capacity by accepting the GMA's profit-sharing formula. The formula relates the share of the aggregate
surplus pot due an EMF to three variables: projected ‘variable profits’ as
modified by i) the amount of Seed Capital leased from the Geisha, GSC, and ii)
the (growth in) ‘Revenue to Variable Cost’ ratio, RVCR. The GMA requires EMFs share
a certain percent of their projected variable profits to compensate her for the
lease of seed-capital in its capital structure. EMFs may, however, compete for a
larger share of the common surplus pot by enlarging their RVCR relative to that
of the aggregate EMF Group. Thus, surplus dividends that accrue to EMFs relate as
much to their revenue-intensiveness relative to the group, and its projected
growth as they do to their projected variable profits. Post sharing the gross
surplus with the host jurisdiction, and post the fulfilment of its zero-impact
commitments, the GMA apportions IZIRE surplus first to EMFs and the residual to
the GRSF.
To achieve its
goals, the GMA resorts to an opaque production and accounting strategy that,
both maintains confidentiality and concentrates authority and control upon
member firms. The GMA Monopsony-Monopoly aggregates input demands and
bulk-purchases them; it also channels outputs on behalf member IZIRE firms. Strategically,
the GMA acts on behalf member firms in matters of common costs and extraneous
impacts and pays for environmental damages/taxes on behalf and aggregated
across member firms within a jurisdiction, thus enabling it to leverage
economies of anticipation and scale in the environmental and financial markets.
The GMA also hierarchically and sequentially allocates variable, transportable
inputs such as Energy and Raw materials amongst its members by order of
decreasing profit share, starting with infra-marginal EMF firms and extending
to the marginal EMF firm, at which point it switches to allocate the rest to
the (infra-marginal) GRSF (which buffers output fluctuations due supply and
demand factors). This is consistent
with the larger share of surplus that infra-marginal EMFs offer the GMA, and
with the 'Residual-Swing producer' nature of the GRSF.
The ‘Dynamic Geisha’ recirculates her seed capital, on one hand
from firms that fall to the bottom of the ranked RCR list and therefore exit
the IZIRE, and on the other, from EMFs that redeem her seed capital, to next-gen
EMFs with new technologies and strategies. Given the structure of the
profit-sharing formula, EMF firms have an incentive to return the 'leased
capital' at an early date, which in turn enables the GMA to recirculate it to a
new cohort of EMFs boasting of next-generation technologies. Should the RVCR be
benchmarked to the Group average or other statistic, EMFs, either to exploit their
advantage and apportion more of the surplus to themselves, or fearing its
diversion to other firms, continually seek to both enhance volumes and reduce
variable costs. This ever-pervasive incentive also turns the IZIRE more trade-competitive
and enlarges the size of the global trade economy.
Aware entrepreneurial member firms have an incentive to free-ride
upon the environment, the GMA positions the GRSF in the product-quality/environmental/labor-opposite
of the EMF. When the EMF group adopts a ‘Green-cum-Volume’ strategy, the GRSF
turns a follower and shrinks its output. Should EMFs choose to free-ride
environmentally on the GMA, the Geisha firm switches to a 'lean-labor' mode and
competes actively for output against the group of entrepreneurial firms. This
'Residual Opposite Swing' strategy obtains a measure of control upon
environmental outcomes and provides a natural hedge against fluctuations originating
in economic-, financial- and environmental markets. The GRSF also serves as
'technology-follower', buying in to obsolescent robots and other technologies
as EMFs race to be the forefront of emerging innovations and technologies.
Conceived
as a ‘net zero-impact’ proposition against the conventional capitalist economy,
the IZIRE anticipates and seeks to correct its impacts. Foremost, the IZIRE is
likely to deepen the schism in the host nation economy between firms serving
domestic demand and export-oriented firms. Export-oriented capital in the host
nation could seek the auspices of the IZIRE depending on the degree of
regulatory and financial control within the conventional economy and prospects
under IZIRE. While such a switch might endanger jobs in the host nation, their
expansion in IZIRE might create sufficient employment opportunities elsewhere to
offset the loss. Due its Robot-intensive manufacturing, labor impacts, post
IZIRE initiation, are likely minimal (and absorbed by the GRSF). In fact, the
IZIRE is an apposite concept to create a dual-economy wherein capitalism
balances its various excesses by supporting a patriotic labor work-force,
whereas IZIRE earns the right to robotize as a net zero-impact entity. As an
export-intensive economy, the IZIRE economy anticipates and takes an exchange
rate hedge that compensates the likely appreciation of the currency of the host
nation. Commodity inflation in the exporting economy, a pecuniary externality
from the expansion of the IZIRE, may be compensated with an ‘Inflation Bakey’
from importing nations sourced through IZIRE FX transactions and channelled as
TIPS-Commodity market ZS-Volatility (which also serves to signal an expansion
of commodity supply). By pursuing a technology-driven, export-intensive niche opportunity
targeted at achieving the welfare goals of foreign governments, the IZIRE
provides a potentially credible alternative to the conventional capitalist system
now hijacked by political and financial manipulators in to furthering
inflation-rampant, inefficient, subsidy economies. The IZIRE is also a credible alternative
to the inefficient, labor-intensive domestic industry in importing nations;
IZIRE exports potentially limit the burgeoning domestic subsidies, are ‘anti-inflationary’,
and yield environmental benefits in the developing, importing nations. The IZIRE
strategy supports the economies of host (developed) nations by incentivizing
enhanced productivity in the supply of raw materials and intermediate goods. The IZIRE, by
favouring and buying in to cost-reducing high technology innovations, stimulates the continuous development of AI-Robots and other
frontier-technologies that find applications in serving the needs of the masses.
By tapping long-run, low-cost, low-return capital, the IZIRE avoids the financial,
ethical and environmental excesses attached to capital from the conventional economy.
Its presence across developed nations, its integrated and centralised control
and multiple export destinations provides it the diversification and the economies
of scale necessary to take on the export sector of the conventional economy. This
net zero-impact philosophy, its potential to rein-in inflation, subsidies and
environmental damage in developing nations and its stimulation of advanced
technologies to serve the needs of the indigent lends credence to the IZIRE
claim of furthering an export-based and technology-intensive, sustainable expansion
of the global society.
