EUROPEAN PAPERS ON THE NEW WELFARE

Abstracts from The Employment Dilemma and the Future of Work

A second important change intervened in the 1970s when, due to the modification in the way to produce wealth and the new rigidities of supply, the nominal rate of economic growth in the industrialised countries started to decline. The notion of vulnerability therefore extended to the social systems, and the welfare state in general. It is from this analysis that we can open the door to reconsider adequate social policies in the future understanding of the changing conditions of economic development to increase of the wealth of nations and cope with risks and vulnerabilities.
1973 was not only the year of the first oil crisis but also the year when the international monetary authorities decided to abandon the fixed exchange-rate system. At the same time, inflation started soaring after a period of lower, creeping inflation. The mainstream economic community took some time to recognise that inflation was in fact a structural and not simply a cyclical problem. As a consequence, the central banks and the monetary authorities took time to come to the conclusion that it was essential to reduce inflation to a minimum in order to avoid the economy going wildly astray.
But for many years, it was not recognised that something fundamentally new had occurred in the economy (the impact of a service based economy) and so, for a while, the dominant policy of many governments during the 1970s was to accept and even stimulate deficits and to rely on a future ‘normal’ recovery (a historically rather exceptional 6-percent GDP growth per year was expected to return for good) to re-establish some sort of equilibrium. This never happened and all the major turmoils experienced in the industrialised countries during the 1970s and into the 1980s are largely due to this misjudgement.
In the meantime, the basic constituents of monetary uncertainty like inflation rates, interest rates, exchange rates etc. started to modify the nature of the banking system and to a large extent of the functioning of industrial companies. The latter began to realise that the abrupt modifications in monetary conditions were in many cases having more impact on the profitability of their activities, than their main industrial performance.
The banks and the other financial institutions, following in industry’s footsteps, were soon to begin talking about risk management, modifying fundamentally the role and conception they had of their own business and becoming involved in managing monetary risks as well as starting to work on their own investment programmes. The development of derivatives and other systems was the consequence of this situation. We are currently in the middle of this other gigantic wave in the global revolution of the economics of uncertainty and risk management, as a key feature of the global Service Economy.
The concept itself of risk management has become common also for the financial community and for the development of the wealth of nations, it is now clear that it is a strategy for managing risks which is the key issue in order to develop the wealth of nations in all directions and sectors of activity.

3.3 The role of demand and supply in the service economy

Whereas priority in economic theories could in the past swing from supply to demand, considered individually and separately as workable instruments, we now need not only to reassess the importance of the supply-side, (i.e. service-based production in a period of time) but also the fact that the selection function of demand is an absolute necessity, that is a complement to the production function.
We would stress that in the new Service Economy, demand is not simply confined to its traditional function as an indicator of equilibrium. For in the changed circumstances of the Service Economy, systems of production and consumption are extended in a time whose length in each specific case is merely a probabilistic assumption.
In this context, the role of demand is much more important than it was in neo-classical economics. Demand represents a selection mechanism which is not only confined to selecting products and services offered on the market. A large number of production proposals and ideas for new products and system are submitted to this selection process and many never reach the market and will never be priced. This is particularly the case with formulating strategies for technological innovation which frequently involve a portfolio of projects — each requiring separate investment — only few of which have any chance of success and will actually ‘appear’ on the market.
This role of demand, recognised as being essentially a selection system, is also an indication of the change of the philosophical system of reference. As Karl Popper noted, in the Lamarckian system, selection functioned as a kind of normative activity of nature, whereby demand would indicate to production what was to do. This might be partly true of known products, but clearly no consumer ever told Mozart to compose his operas or a computer manufacturer to invent computers. In fact, selection is essential to maintain the normal working of a system and to checking the efficiency for production in the economic and social sense. It is the ‘producer’ who invents and proposes new or different ‘products’.
It is furthermore obvious that, at a time when performance represents the value of production, the consumer becomes much more than a simple ‘user’: s/he invests time or money, or both, in the utilisation of systems, products and services in order to insure that they work and perform satisfactorily. The consumer has become prosumer.
It seems clear that in the modern Service Economy, consumers are ceasing to be passive buyers and are beginning to make their own contribution to the utilisation and wealth creation which have very much become a part of production. They often co-produce.


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