Economics 101

[breadandcheese]

 

Apple is famous for being a patent troll and has been criticised with stifling innovation. If their technology was freely available to all then they would not make the massive profits they do, and we probably would have even better technology available. The patent regulations need changing btw.

 .

I'm not sure that's true regarding having better technology if patent law was relaxed. Whilst I'm no fan of Apple as a company or their products, you only have to look at the pharmaceutical industry to see how patent law has been disregarded in developing markets to allow for the production of cheap generic drugs. We now have a situation where antibiotics are running out as bacteria become drug resistant, yet the developmental pipeline of new antibiotics is slowing. Strong patent law goes hand in hand with increased R&D development.

[ozleicester]

The financial crisis was caused by many things, but to me, lack of regulation in financial services was easily the biggest.

 

IMO, the chase for the massive profits was the cause, the lack of regulation allowed  (even encouraged) it.

You can't cap profits on corporations - for a start it would destroy every single private pension in this country.

 

My point exactly, as we believe we are completely tied into the markets for our pension/superannuation there will always be resistance and challenge to any change, BUT... we cannot expect an ever growing economy, we cannot expect to keep selling more widgets as there is a finite market for them and then we will have to either, increase the price of widgets, or reduce the cost of making them,.  But even then.. it is finite... Growth cannot be infinite.

In terms of pay vs performance re the other posts - I think you have to bear in mind that it's the shareholders who have the say, not the customers. People forget that running multinational corporation is a huge responsibility and they will be paid the going rate.

 

The shareholders are the same people making the profits, its in their interest to continually expect and encourage growth... growth is not infinite. Running a multinational is a great responsibility but at the moment, the measure of success is ONLY about share price, success is entirely judged and rewarded by the increase in $ profit... what if we changed the expectations to include areas like, increased employment, corporate responsibility, community benefit. impact on climate change.

 

So for example... yes you increased profit, but you cut 1000 jobs... therefore we reward you $10,000 for your profit, but we fine you $10,000 for your employment falls, you improved the working conditions of your staff..heres $10,000... you built 3 playgrounds in your community, heres $10,000. You developed a new better widget, heres $10,000 (oh by the way, thanks to your improved working condtions and community support, an extra million people bought your widget and your profits went up)

 

Its about changing what we see as valued and worthy of reward.

Also a company can perform well and still make a loss. Lloyd's are a classic example where they have paid huge fines for PPI which is several years in the past, but on a day to day basis have performed well. If you don't reward those top people at the going rate you risk losing them.

 

That still assumes that money is all that people care about. A more  fulfilling and responsible position with a good paycheck could become what attracts the best people... the best people arent just in if for the money, or maybe they are presently, but that can be changed.  (IMO)

[Merging Cultures]

Apple is famous for being a patent troll and has been criticised with stifling innovation. If their technology was freely available to all then they would not make the massive profits they do, and we probably would have even better technology available. The patent regulations need changing btw.

.

I'm not sure that's true regarding having better technology if patent law was relaxed. Whilst I'm no fan of Apple as a company or their products, you only have to look at the pharmaceutical industry to see how patent law has been disregarded in developing markets to allow for the production of cheap generic drugs. We now have a situation where antibiotics are running out as bacteria become drug resistant, yet the developmental pipeline of new antibiotics is slowing. Strong patent law goes hand in hand with increased R&D development.

OK, I was being a bit rough on Apple. I am not a fan. However, the patent laws in the US do need a lot of work. Obviously the intention with patent law is to encourage R&D, however there is a situation whereby people are buying up patents to get the royalties. I think anyone owning a patent needs to show how they are still using it otherwise it becomes openly available.

As far as i am aware generic drugs are only produced once the patent is expired. 20/25 years.

A short article from The Economist Dec 2013

IN SCANDINAVIAN folklore trolls were dumpy with grotesque faces and uncontrollable hair. These horrifying creatures have given their name to patent trolls, who buy up lots of vaguely worded patents and then use them to extract cash from unsuspecting victims—who pay them off rather than risk a pricey lawsuit. It is not hard to identify the obvious ones, but writing laws to catch them without endangering everyone else is. Having tried once with the America Invents Act of 2011, Congress is having another go. The Innovation Act looks set to become law by the end of the year, after attracting an unusual amount of support from both parties.

Over the past few decades there has been a rapid increase in the number of lawsuits over intellectual-property infringements. According to Jim Bessen of Boston University, since the early 1980s the number has increased sixfold. That might merely be a sign that there has been lots of innovation, but the threefold increase in the number of lawsuits per patent filed over the same period suggests that something else is going on.

Many patent cases involve companies defending real innovations from copycats. But a large number are “pure shakedownsâ€, says Josh Mendelsohn of Engine Advocacy, a lobby group for startups. He says some venture capitalists have to give extra cash to the firms they have backed just to fight off trolls. Since patent lawsuits can be filed against the end users of new technologies, startups can find that customers will only deal with them if they are indemnified against future infringements. It is often cheaper and quicker to pay up.

Though the patent system touches all areas of business, the problem is concentrated in software. Such patents are often abstract, dealing in descriptions of what the software does rather than in lines of code. Timothy Holbrook of Emory University in Atlanta doubts that fixing the problems caused by these abstract patents requires a new law. Todd Dickinson, of the American Intellectual Property Law Association, says that the 2011 law has provisions to deal with such problems and just needs time to settle in.

Those arguments have been brushed aside, for two reasons. First, the troll problem faced by tech investors is not getting better. Second, the sending of threatening patent-infringement letters has become speculative. Even restaurants and grocery shops have received letters threatening them with a patent lawsuit, over such things as offering Wi-Fi to customers or mapping their locations online. Not all congressmen have tech startups in their districts, but most have constituents who have had letters telling them to pay $500.

Those threatened with lawsuits must pay just to find out about their alleged infringement and can run up large legal bills even when they win. By shifting the costs of litigation on to the loser and forcing patent holder to disclose what the infringement is, the Innovation Act hopes to change this. There is probably no perfect equilibrium that protects inventors without stifling new inventions. At the moment the scales are weighted in one direction. The new act would add some balance.

[Monk]

 

The financial crisis was caused by many things, but to me, lack of regulation in financial services was easily the biggest.

 

IMO, the chase for the massive profits was the cause, the lack of regulation allowed  (even encouraged) it.

You can't cap profits on corporations - for a start it would destroy every single private pension in this country.

 

My point exactly, as we believe we are completely tied into the markets for our pension/superannuation there will always be resistance and challenge to any change, BUT... we cannot expect an ever growing economy, we cannot expect to keep selling more widgets as there is a finite market for them and then we will have to either, increase the price of widgets, or reduce the cost of making them,.  But even then.. it is finite... Growth cannot be infinite.

In terms of pay vs performance re the other posts - I think you have to bear in mind that it's the shareholders who have the say, not the customers. People forget that running multinational corporation is a huge responsibility and they will be paid the going rate.

 

The shareholders are the same people making the profits, its in their interest to continually expect and encourage growth... growth is not infinite. Running a multinational is a great responsibility but at the moment, the measure of success is ONLY about share price, success is entirely judged and rewarded by the increase in $ profit... what if we changed the expectations to include areas like, increased employment, corporate responsibility, community benefit. impact on climate change.

 

So for example... yes you increased profit, but you cut 1000 jobs... therefore we reward you $10,000 for your profit, but we fine you $10,000 for your employment falls, you improved the working conditions of your staff..heres $10,000... you built 3 playgrounds in your community, heres $10,000. You developed a new better widget, heres $10,000 (oh by the way, thanks to your improved working condtions and community support, an extra million people bought your widget and your profits went up)

 

Its about changing what we see as valued and worthy of reward.

Also a company can perform well and still make a loss. Lloyd's are a classic example where they have paid huge fines for PPI which is several years in the past, but on a day to day basis have performed well. If you don't reward those top people at the going rate you risk losing them.

 

That still assumes that money is all that people care about. A more  fulfilling and responsible position with a good paycheck could become what attracts the best people... the best people arent just in if for the money, or maybe they are presently, but that can be changed.  (IMO)

 

 

The chase for profits caused the crash? Company profits underpin the entire global economy - they may have been a symptom of the boom years leading up to the crash, but it wasn't a cause. The crash could have been prevented through regulation on mortgages and investment products in the UK and US. Greed can be controlled. As Mr Gordon Gecko says in Wall Street - greed is good - at least to an extent. You wouldn't have all the consumer goods in your life for a start, if that wasn't the case.

 

Whether infinite growth is possible is not the point - what shareholders expect profit to be is what matters. There are plenty of successful companies around the world who are profitable but not growing.

 

Corporate/environmental responsibility should be worked into pay, I agree, and where the shareholders just want profit and care about nothing else, perhaps regulation is the answer rather than directors renumeration.

 

Just because people care about money doesn't mean they don't care about other things and it doesn't mean they should earn less just because they find the job interesting.

[MooseBreath]

If social responsibility is what people want from their corporations, wouldn't the market evolve in that direction in time to fulfil the demand? And therefore can we not infer from the lack of movement in that direction that the demand is low? Are the services offered by the market not ultimately already an accurate representation of the sum of what people currently want? And if the market is essentially a democratic voting machine then who is anyone to claim that he knows differently what other people want?

[leicsmac]

If social responsibility is what people want from their corporations, wouldn't the market evolve in that direction in time to fulfil the demand? And therefore can we not infer from the lack of movement in that direction that the demand is low? Are the services offered by the market not ultimately already an accurate representation of the sum of what people currently want? And if the market is essentially a democratic voting machine then who is anyone to claim that he knows differently what other people want?

 

You're assuming that the market is totally free and dependent on the will of the customers, and is as you say, a 'democratic voting machine'. It is not.

 

A combination of regulation through big business being aligned with Government and the absence of intervention to prevent serious competition and maintain the status quo is the reason the financial - and indeed many other - markets are not moving, not mass agreement with their practices from the populace. People can't move their custom elsewhere as an act of protest (the classic free market argument) if there's nowhere different to move to.

[MooseBreath]

I can change my financial service providers with ease. I'm completely free to choose what products I buy and bar a couple of exceptions, who I buy it from. As far as I can see those choices exist for everyone in the UK.

[leicsmac]

I can change my financial service providers with ease. I'm completely free to choose what products I buy and bar a couple of exceptions, who I buy it from. As far as I can see those choices exist for everyone in the UK.

Almost all financial service providers offer similar packages (barring the odd perk) for your custom based on how much money you have, do they not? That's the kind of lack of choice I'm referring to, not lack of choices in providers per se.

I've made this argument about the energy markets before but it's prevalent in other markets too.

Make no mistake, I wouldn't trust government control of these markets either through excessive regulation, as you'd just end with the same problems; too few people having too much power.

To be honest I'm not sure what the solution is...it would be ideal to have the financial/business sector and government remain totally separate and accountable to each other but given the influence money can buy over politics now that's an impossibility.

[Merging Cultures]

 

William Wright, investment banking columnist at Financial News, also criticised Barclays' decision to increase its bonus payouts. 

 

"Barclays can talk until it's blue in the face about it being in the longer-term interest of shareholders, but from the outside, it simply looks wrong," he said.

 

Treasury Select Committee chairman Andrew Tyrie also waded into the debate over Barclays' decision to increase its bonus pool.

 

"Shareholders need to make up their minds whether aggregate remuneration is justified by the return on equity," he said. 

 

 

Shouldn't the onus be on them to give complete transparity to customers to  justify the huge bonuses rather than you and I just guessing why or if they deserve them or not .

The results look pretty unspectacular to many commentators  and nothing like the examples that Monk used in his post  as justification for them. 

 

 

The customers don't really figure in these discussions, it is about the Shareholders. As I've mentioned before, and as this quote highlights, the issue is on the Governance and Shareholder side. If the board members, who represent the shareholders, believe that the remuneration package will increase the shareholders wealth, then they will approve the policies and procedures that allow for these bonuses to be approved. 

 

Note that Barclays are still making a profit, it is just less than what the market expected. Therefore, they are cutting costs but trying to retain talent that will make them money when the investment opportunities improve and therefore increase the shareholders wealth further.

 

From the Economist:

 

Barclays was criticised for increasing its bonus pool by 10%, despite reporting a 32% drop in annual pre-tax profit, to $5.2 billion. Antony Jenkins, who took over from Bob Diamond as chief executive promising a new era, defended the bonuses as necessary to retain talent in a highly competitive market. Profit at its investment bank fell by 37% last year; bonuses rose by 13%. Barclays is shedding thousands of jobs.

[Merging Cultures]

If social responsibility is what people want from their corporations, wouldn't the market evolve in that direction in time to fulfil the demand? And therefore can we not infer from the lack of movement in that direction that the demand is low? Are the services offered by the market not ultimately already an accurate representation of the sum of what people currently want? And if the market is essentially a democratic voting machine then who is anyone to claim that he knows differently what other people want?

 

The market is evolving in that direction, there are more and more social investment funds (I work for one ) and social enterprises that have a joint mandate of profit and social responsibility.

 

The markets are not efficient, hence the need for Government intervention, as long as it doesn't make the markets less competitive (as per my argument about patent laws). 

[Merging Cultures]

I can change my financial service providers with ease. I'm completely free to choose what products I buy and bar a couple of exceptions, who I buy it from. As far as I can see those choices exist for everyone in the UK.

 

I think his point was that they all offer the same products.

 

In the US, Bank of America was going to start charging us to use our debit card and a monthly fee. We went with an online bank, free everything, they even reimbursed us ATM fees when we got charged by other banks.

[MooseBreath]

Almost all financial service providers offer similar packages (barring the odd perk) for your custom based on how much money you have, do they not? That's the kind of lack of choice I'm referring to, not lack of choices in providers per se.

I've made this argument about the energy markets before but it's prevalent in other markets too.

Make no mistake, I wouldn't trust government control of these markets either through excessive regulation, as you'd just end with the same problems; too few people having too much power.

To be honest I'm not sure what the solution is...it would be ideal to have the financial/business sector and government remain totally separate and accountable to each other but given the influence money can buy over politics now that's an impossibility.

They all offer similar products and services yes, but I thought we were talking more about what they do with their profits.

[Merging Cultures]

They all offer similar products and services yes, but I thought we were talking more about what they do with their profits.

 

Haha sorry, just jumped in during a quick break from work.

 

I doubt there is much different with how they use their profits either

[Captain...]

where's the incentive to improve quality of services and products, increase their value, take on more staff and expand if you've got a ceiling to how much you can make.

you also assume that the state is going to be altruistic in its spending of these tax revenues. whats to stop the government from giving this revenue to the people who'll make it worth their while like big business. government is ultimately as self serving as any private company and have a poor track record of picking winners. 

 

But why do they need to do that? The death of most small businesses is over reaching, but could a company survive by just plodding along in it's own little niche. Obviously technologies and competition could wipe them out, but can a company actually survive with a business model that is not based on expansion, and from an economic point of view would that be damaging to the economy?

 

The agrressive expansion and marketing of brands such as Tesco, McDonalds, Starbucks has seen the death of many small businesses, surely it is not sustainable having the same big companies squeezing out the smaller ones competing for market share, without (artificially) increasing demand. We are in a world that is trying to curb it's population growth and not consume all of its natural resources, and yet the business model is sell, invest, expand, repeat.

 

Basically my question is do companies need to expand to survive and can this world sustain ever increasing growth?

[The God Emperor]

But why do they need to do that? The death of most small businesses is over reaching, but could a company survive by just plodding along in it's own little niche. Obviously technologies and competition could wipe them out, but can a company actually survive with a business model that is not based on expansion, and from an economic point of view would that be damaging to the economy?

 

The agrressive expansion and marketing of brands such as Tesco, McDonalds, Starbucks has seen the death of many small businesses, surely it is not sustainable having the same big companies squeezing out the smaller ones competing for market share, without (artificially) increasing demand. We are in a world that is trying to curb it's population growth and not consume all of its natural resources, and yet the business model is sell, invest, expand, repeat.

 

Basically my question is do companies need to expand to survive and can this world sustain ever increasing growth?

companies need to expand due to population increases. the only way to stop that is for plagues/huge destructive wars/forced sterilisation to kill large numbers of people off. not every business is going to expand like tescos or mcdonalds but to survive they will need to expand to a degree. like a local butcher getting more meat in due to more people moving to the local area. 

the world at the minute wont sustain ever increasing growth, but new technologies will help us cope until we're able to start colonising other planets.

[Jon the Hat]

Just a thought... basically really really high "superprofit" taxes

Very confused post there. Why would you want to take a large chunk if that $4bn out of your pension / super and hand it to the Government? Even if you assumed the government spending this is a better idea than you spending it (seriously doubtful) you are taking from savings and putting it into current spending. Stupid plan.

[Captain...]

companies need to expand due to population increases. the only way to stop that is for plagues/huge destructive wars/forced sterilisation to kill large numbers of people off. not every business is going to expand like tescos or mcdonalds but to survive they will need to expand to a degree. like a local butcher getting more meat in due to more people moving to the local area. 

the world at the minute wont sustain ever increasing growth, but new technologies will help us cope until we're able to start colonising other planets.

 

But population growth is slowing, and yet we are still pursuing market growth and measuring economic success and strength of companies and countries by growth, does that not seem a bit perverse?

 

Growth equals success, but growth is only sustainable by increasing population, which is not sustainable, especially in this country, so should we continue down this path?

[The God Emperor]

But population growth is slowing, and yet we are still pursuing market growth and measuring economic success and strength of companies and countries by growth, does that not seem a bit perverse?

 

Growth equals success, but growth is only sustainable by increasing population, which is not sustainable, especially in this country, so should we continue down this path?

but population is still growing even if its slowing so the people that provide them with stuff need to expand with them. companies may well over extend and collapse, but when they do others will appear to take their share of the market so in the long long run there's no harm done. 

Growth equals success has always been the path we've been on, what alternative is their?

[Captain...]

but population is still growing even if its slowing so the people that provide them with stuff need to expand with them. companies may well over extend and collapse, but when they do others will appear to take their share of the market so in the long long run there's no harm done. 

Growth equals success has always been the path we've been on, what alternative is their?

 

I don't know, that is why I am asking questions on an economics thread, if the population stops growing do we need an alternative, does a negative population growth mean the whole model collapses?

[MooseBreath]

You don't need population growth for economic growth, you need growth in efficiency and productivity. This relies a lot on the advancement of technology (witness how well that has worked over the last few decades) so more than likely isn't possible 'forever', but it's not a bad thing to be aiming for. Personally I believe we still have a long way to go before we've maxed out on efficiency and productivity and we should ride the wave of technological innovation until the last.

[ozleicester]

The chase for profits caused the crash? Company profits underpin the entire global economy - they may have been a symptom of the boom years leading up to the crash, but it wasn't a cause. The crash could have been prevented through regulation on mortgages and investment products in the UK and US. Greed can be controlled. As Mr Gordon Gecko says in Wall Street - greed is good - at least to an extent. You wouldn't have all the consumer goods in your life for a start, if that wasn't the case.

 

Whether infinite growth is possible is not the point - what shareholders expect profit to be is what matters. There are plenty of successful companies around the world who are profitable but not growing.

 

Corporate/environmental responsibility should be worked into pay, I agree, and where the shareholders just want profit and care about nothing else, perhaps regulation is the answer rather than directors renumeration.

 

Just because people care about money doesn't mean they don't care about other things and it doesn't mean they should earn less just because they find the job interesting.

 

What came first the chicken or the egg... if the chase for profits wasnt the cause what was?... regulation certainly wasnt the cause, it simply allowed it to happen. The "Greed is Good" mantra is a lie we dont have to be greedy, Wanting more is human nature, but greed can exceed that.

 

IMO, Whether infinite growth is possible IS PRECISELY the point, because we are fostering a belief that increasing returns every quarter is the only option and therefore we invest only in those business's providing that growth, that growth often comes from cost reduction, and that cost reduction usually revolves around reducing labour costs.

 

What about if the regulation is... to regulate remuneration?

 

Im not suggesting that people who care about money are heartless bastards... i just dont subscribe to the theory that more is always better

 

 

 

 

Very confused post there. Why would you want to take a large chunk if that $4bn out of your pension / super and hand it to the Government? Even if you assumed the government spending this is a better idea than you spending it (seriously doubtful) you are taking from savings and putting it into current spending. Stupid plan.

 

Not confused at all... incredibly simple, spread the wealth and reduce the gap between the super wealthy and the poor.

 

We have a business model that will fail... we cannot keep producing and keep downsizing the workforce. where will the unemployed get the money to buy all the wonderful widgets and how will they borrow money to build homes etc?

 

I need enough to live in relative comfort ( I acknowledge that varies for every person) but the simplistic and obsessive accumulation of money isnt necessary, so i will happily (and yes i mean happily) pay more tax to hopefully improve society as a whole. 

 

Australia is about to introduce a  National disability insurance scheme  (http://www.adhc.nsw.gov.au/about_us/strategies/national_disability_insurance_scheme) which will of course add to my tax bill, but ti seems like the right thing to do, so go for it, tax me baby!

 

If after all my extra taxation etc, my savings arent enough to see me through my retirement, there will be a society that will make sure i can still live a reasonable life.

[Captain...]

I'm still waiting for BB's response to my question, but I have another one.

 

What are Germany doing so differently to be the strongest economy in the EU, it's population is pretty stable, and manufacturing is reputed to be the leanest and most efficient, what lessons can we learn from their economic model? Are they doing anything radically different, or is it just that they are still a manufacturing nation and rely on exporting goods?

[Monk]

What came first the chicken or the egg... if the chase for profits wasnt the cause what was?... regulation certainly wasnt the cause, it simply allowed it to happen. The "Greed is Good" mantra is a lie we dont have to be greedy, Wanting more is human nature, but greed can exceed that.

 

IMO, Whether infinite growth is possible IS PRECISELY the point, because we are fostering a belief that increasing returns every quarter is the only option and therefore we invest only in those business's providing that growth, that growth often comes from cost reduction, and that cost reduction usually revolves around reducing labour costs.

 

What about if the regulation is... to regulate remuneration?

 

Im not suggesting that people who care about money are heartless bastards... i just dont subscribe to the theory that more is always better

 

Again, the chase for profits did not cause the financial crisis. The chase for DEBT did, and it was fuelled by a lack of regulation.

 

Regulate renumeration - see my previous point on capping salaries - wouldn't work. Even if you do it through tax - it won't work. It will just cause the money to move somewhere else. Banks are already working towards bonus schemes where they can claw back bonuses made which were later found to be based on fraudulent activity. What are you proposing?

 

Infinite growth - you are oversimplifying it. No single industry or company has infinite growth, but the economy as a whole can. The oil industry, for example does not have infinite growth as they are extracting a finite resource. Companies and industries come and go. Apple have achieved growth through going into new industries - like the iPad. Others go stagnate or go bust. When global population growth falls to zero, perhaps yes we will see negative growth - but new industries, technologies, products etc will arrive and there will always be some large corporation that is growing at any point in time. 

 

The value of a stock or share does not take 'infinite growth' into account - it takes into account the foreseeable future based on the information available. Otherwise - who would invest in Exxon if they know that infinite growth in oil isn't possible.

 

Also - infinite growth doesn't mean 'an infinite amount of growth' it simply means ongoing growth, indefinitely. When you look at it from that point of view, then yes it is possible and happening all around us.

[Merging Cultures]

I'm still waiting for BB's response to my question, but I have another one.

 

What are Germany doing so differently to be the strongest economy in the EU, it's population is pretty stable, and manufacturing is reputed to be the leanest and most efficient, what lessons can we learn from their economic model? Are they doing anything radically different, or is it just that they are still a manufacturing nation and rely on exporting goods?

 

Hi CPF! Sorry, missed your question.

 

Essentially what's the link between population and economic growth, and with a declining pop growth rate can we maintain economic growth?

 

Immigration can help to maintain population growth, which stimulates the economy. Obviously, there is going to be a maximum number of people in the UK, but we are not there yet. Also, there continues to be growth in the middle class in developing countries who have an appetite for British brands, especially luxury ones. So, if we manage immigration and exports correctly then our economy can continue to increase. Businesses need to be flexible too, and we need to be able to respond to changing global demand. That might mean having to fight the unions again, it will definitely mean needing to invest in education, especially the sciences and maths.

 

What is Germany doing?

 

Obviously, they do have a larger population. Yes, they are highly dependent on exports, and they've benefited from being on mainland Europe. Despite their traditionally inflexible labour policies their economy is largely made up of SMEs that have been quick to respond to changes in demand. They also benefited heavily from post-war immigration.

 

Interestingly, productivity is down, they've kept people employed but per person they are producing less. This is probably due to their labor laws which make it difficult to let employees go. But this is having an effect on economic growth through the 'production function'. The production function can be expressed as output is a function of physical capital and the number of workers, multiplied by productivity. Higher productivity leads to higher growth. Germany are going to suffer from their welfare politics.

[Captain...]

Hi CPF! Sorry, missed your question.

 

Essentially what's the link between population and economic growth, and with a declining pop growth rate can we maintain economic growth?

 

Immigration can help to maintain population growth, which stimulates the economy. Obviously, there is going to be a maximum number of people in the UK, but we are not there yet. Also, there continues to be growth in the middle class in developing countries who have an appetite for British brands, especially luxury ones. So, if we manage immigration and exports correctly then our economy can continue to increase. Businesses need to be flexible too, and we need to be able to respond to changing global demand. That might mean having to fight the unions again, it will definitely mean needing to invest in education, especially the sciences and maths.

 

What is Germany doing?

 

Obviously, they do have a larger population. Yes, they are highly dependent on exports, and they've benefited from being on mainland Europe. Despite their traditionally inflexible labour policies their economy is largely made up of SMEs that have been quick to respond to changes in demand. They also benefited heavily from post-war immigration.

 

Interestingly, productivity is down, they've kept people employed but per person they are producing less. This is probably due to their labor laws which make it difficult to let employees go. But this is having an effect on economic growth through the 'production function'. The production function can be expressed as output is a function of physical capital and the number of workers, multiplied by productivity. Higher productivity leads to higher growth. Germany are going to suffer from their welfare politics.

 

SMEs? (this is Econ 101)