Static, Dynamic, and Traditional Sectors
The demands of consumers often change, and products that seem to have insatiable demand one day, could prove fleeting the next. Tastes change, trends change, and fads come and go.
The market adapts accordingly by producing goods and services to meet these changing demands, and with it the labor market adapts too.However, there are some things in which consumer demand for is much more stable — sometimes nearly static —because they are essential for human survival. The demand for food, water, clothing, and housing is universal among people, and although the quantities demanded may fluctuate, there is always a baseline demand for these goods. In a modern society, this may be (perhaps with some debate) expanded to include electricity, medicines, telecommunications, and transportation. Let’s define the sectors producing these essentials as the Static Sectors.
The importance of Static Sectors is their effect on purchasing power. What good is a salary of 4000 per month without knowing whether your total cost of housing, food, and utilities is 3000 or 300? As the Static Sectors produce goods that every person needs, changes in the prices of these goods affects the broadest possible segment of the population and their purchasing power. Discussions about boosting wages are meaningless without putting the issues in the context of purchasing power.
We define Dynamic Sectors as those that produce products for whose demand (in aggregate) can change dramatically, or disappear quickly. This category particularly applies to many high-tech consumer items which can be easily displaced, as well as non-essentials and luxuries. The importance of these goods to a population’s standard of living can be debated endlessly, but they differ from basic essentials in that they’re not needed for survival, they don’t have a guaranteed base level of demand, and they’re more elastic.
The Dynamic Sectors also tend to be the most productive, competitive, and efficient, and are imperative to a country’s wealth.Because everyone uses Static Sector goods, ensuring that the prices of these are as low as possible, would provide a boost in real incomes to the broadest possible segment of the population. Their prices are also felt the most for those in the lower ends of the income spectrum, in addition to the middle class. At the same time, as demand for these goods are especially stable, this area of the economy can act as a stabilizer and a floor to economic activity. While they may not necessarily be the most productive or profitable sectors for all countries, they are strategic for these reasons. There should be special effort to keep these goods as inexpensive as possible to maximize national purchasing power, and to maintain these areas of the economy for their stabilizing effects. Supporting Static Sectors is notably different from picking winners, as it is grounded in guaranteed demand and physical security concerns. Slight overcapacity in these sectors may even be beneficial to protect the public against price shocks.
An economy that’s both stable and prosperous must have both Static and Dynamic Sectors, and the ability to shift resources from one sector to another, depending on the conditions in either. In times of hardship, having a Static Sector to fall back on is invaluable. In times where a country is well positioned to take advantage of innovation and change, the Dynamic Sectors take the leading role. A similar situation arises in the discussion of domestic versus export-oriented sectors. Preserving a country’s Static Sectors prepares the economy for future shock, and employs those who are left behind when the Dynamic Sectors move full steam ahead.
Finally, we define Traditional Sectors as those producing goods or services with particular cultural significance to a country or region, and those that have a particular heritage. This is appears quite subjective at first, but we will define it more explicitly in the next chapters.
In a country like France, you could say cheese making would fall under this category. Production of particular textiles, clothing, and handicrafts would also be appropriate for this classification for some countries. While preserving Traditional Sectors might be economically inefficient, as many of them are small-scale or cottage industries, they are significant contributors to a country’s standard of living. One of the main reasons tourism thrives, and people spend vast amounts of money on travel, is to experience traditional local cultures. Although the value of experiencing architecture, cultural events, and traditional lifestyles is intangible, the prices that people are willing to pay for exposure to them is telling. Despite the immense wealth that the modern, globalized economy has provided, the intense backlash against open borders (for both trade and culture) only furthers the point about what people value. While on one hand people have embraced modernity, on the other hand people have felt an urge to seek something more. Yet the more the economy grows, the more we see cultures erode, and the population uses its new wealth to travel further and further afield to seek out culture. The New Physiocrats answer to this with the creation of a Cultural Bank, spaces for cottage industry, economic empowerment of rural areas, and legal mechanisms for tribal ownership of property.Typically, any industry that is protected in some way, results in it being utterly inefficient, and produces an overpriced, lower quality product as a result of not being adequately exposed to competition. So how can we ensure the lowest possible prices for essentials, while maintaining the economy’s Static Sectors?
Revenues from applied tariffs and taxes, must be returned to the Static Sectors which produce the country’s essential goods. In addition, tax revenues from all other non-priority sectors, must be fed into the Static Sectors as well, and vice versa, so that both sectors are maintained.
It must be done in a way that dramatically reduces costs, boosts supply and availability, while at the same time maintains intense competition, and does not harm the economy’s Dynamic Sectors. It also must be applied transparently, and not to favored companies, as a traditional subsidy might do.For a start, this means keeping corporate tax rates very low, so as not to damage the Dynamic Sectors, and to minimize the distortions that a corporate tax has on the economy. Tariffs necessary to maintain the country’s Static Sectors must be kept at rates precisely high enough to compensate for unfair advantages of foreign competitors, and natural, or domestic regulatory disadvantages the domestic firms face. The rates must be low enough so that firms must still feel intense competitive pressures from abroad, and for the benefits of competition to be seen.
The Housing Union
Locations, unlike goods or services, are monopolies. Therefore, even with an abundance of housing (as a result of the New Physiocrats’ policies), there is still an opportunity for monopolists to take advantage of consumers in a manner that’s against the principles of a free market. To mitigate this, we propose the Housing Union. This would be a portal in which renters or buyers who are obtaining housing from the same building, property owner, or developer, can join forces to receive a better deal, and to prevent landlord abuse.