The Purpose of Productive Powers

A Once Prosperous County Capital Region

Think of how a typical county capital region looked 50 years ago.

Main Street businesses are busy. Local shops are thriving. Several manufacturing plants provide the town with great employment opportunities. The town's culture and community spirit is on full display.

Let's contrast that with today's reality.

Many of these county capital regions have been hallowed out. Manufacturing plants have been shut down. Empty storefronts line Main Street. Populations are declining. Businesses that were once owned by people living in the local community are now dominated by big-box store and chains such as Walmart and Dollar General. The community's once vibrant culture is now one of decay.

How did these once thriving county capital regions fall into such heavy decline over the course of the last several decades?

Friedrich List, a German economist, identified the economic principles that enabled these areas to thrive. Sadly, these principles have been completely abandoned across the United States.

What Creates True Wealth

List's core economic findings focuses on what creates true wealth.

Most modern economists emphasize Exchange Value.

Exchange Value is all about buying things as cheaply as possible, regardless of where they come from. This is what free trade economists believe will lead to economic prosperity. By buying goods for as cheap as possible, people are wealthier because the same amount of dollars is able to purchase more goods.

But has that really led to economic prosperity in America?

List argues that Productive Powers is the real measure of wealth. The ability to produce is creates true wealth. This requires skills, knowledge, factories, infrastructure, and innovation within a community and/or nation. The ability to create things is what actually matters.

America has solely focused on Exchange Value for far too long. The results are devastating, especially to these county capital regions.

Global corporations such as Amazon and Walmart have excelled at maximizing Exchange Value. They are able to provide the lowest prices possible by sourcing products manufactured anywhere in the world.

This inevitably leads to offshoring of manufacturing industries. County capital regions were especially vulnerable to this. When nations such as America prioritize buying everything for as cheap as possible, they neglect and ultimately erode their own Productive Powers.

The apparel industry is a great example of how the focus on Exchange Value over Productive Powers plays out.

In the 1960's, over 90% of apparel was domestically produced and consumed in the US. We now import 97% of apparel from foreign producers as of recent years. The town that used to have the textile plant loses jobs, skilled labor, and the inflow of money created by exporting locally produced apparel to the surrounding area and other countries evaporates overnight. The local employees who once commanded higher wages see their earnings fall. They are no longer are able to spend as much within the local area. This creates a cascading effect. The total spending power within the community plummets, jobs from supporting businesses such as those found on main street can no longer operate, more jobs are eliminated, wages continue to fall, and the little money that remains leaves the community as there are no longer local businesses to purchase from.

This impacts the local governments as well. Unemployment increases, tax revenues fall, and local governments aren't able to replace their existing infrastructure. School districts begin to consolidate. Things start to fall apart. Blight begins to take place. Crime increases. The community's next generation leaves for opportunities in big cities. The soul of the town is lost as there isn't anyone to continue the town's culture as the population either ages or is replaced by migrants.

We can see that pursuing the cheapest goods possible, regardless of where they comes from as seen by focusing on Exchange Value has not produced the promised results of wealth prosperity. County capital regions have been gutted. How can these once thriving communities rebuild their economic strength and compete against foreign producers?

Reversing The Decay

To reverse the economic decay in county capital regions, we must focus on increasing productive powers.

Increasing productive powers, such as those found in the manufacturing industry, acts as a pipeline for the local area. This pipeline brings money into the community via exporting goods to areas outside the community. This inflow of money is used to create local jobs. As the demand for local jobs increases, so do wages. Those wages can be spent on other local businesses, which in turn creates more demand for local jobs. When the owners of those businesses also locals, those profits can be invested within the local community, fueling more prosperity.

For productive powers to be truly successful, we also have to redirect capital flows.

This means moving local government, business, and resident spending from that which is imported from areas outside the community to those that are produced locally.

For example, instead of importing apparel from a foreign producer, local businesses and consumers purchase apparel produced from a local textile manufacturer. That textile manufacturer likely chose to operate in the local area because it is near an agricultural industry that produces raw materials such as cotton and wool that is required for their products. This increases the demand for those agricultural raw materials, which increases the prices they are able to command. The local agriculture industry and the textile manufacture work together to increase demand for local jobs, which boosts wages. The change in purchasing habits by the end consumers (local government, businesses, and residents) keeps money circulating within the local economy, instead of seeing it flow out by importing goods. This acts as a wealth multiplier as a greater percentage of every dollar spent remains in the local economy.

Where money is invested is just as important. Instead of money being held by large banks who invest money abroad, that money can sit within a local bank or credit union. These types of lenders tend to invest all their depositor's funds into local projects and businesses. So instead of that money being used to build another plant in China's sock city (literally the entire town is dedicated to sock production), that money is invested to help expand a local business. This creates more jobs and increases productive powers locally.

The final component to rebuilding productive powers is human capital. This means the local workforce must have the education, skills, and knowledge required to operate the businesses that increase productive powers. The current and future local businesses must provide the right training for new employees, whether through internships, apprenticeships, and partner with the local schools. Doing so will help put an end to the brain drain from the exodus of young people leaving the areas they grew up for the big city. It also helps develop the skills and talents required to be effective in production.

Why does local matter so much to me?

Think about your typical day. How much time do you spend within your home, local town, even the greater county area. I'm guessing over 90% of your days in any given year are spent at least within the county you reside, if not in an even smaller area. Shouldn't the vast majority of your wealth be spent and invested to help build up the area you spend the most amount of time in?

The purpose here at Productive Powers is to provide content tailored to increasing the performance of existing manufacturing businesses in these county capital regions and the surrounding area.

We'll cover topics such as strategic planning, evaluating financial performance, investments needed to improve future results, finding ways to increase productivity to become more price competitive, helping find ways to reallocate existing spend to local businesses to increase the local economy, and more.

It is far easier to grow an existing business than to start one from scratch. As these existing businesses grow and hire more people from the local area, the local median wages will increase. This provides a virtuous feedback loop as aggregate purchasing power for the local community increases, allowing for more goods and services to be purchased locally and also enables new business opportunities.

Productive Powers isn't just a theory. It's a blueprint for action. It created the historic economic booms seen in England, Germany, Japan, and America. It's worked before, it will work again.

Rebuilding productive powers will revitalize these once prosperous county capital regions.

In our next episode, we'll dive deeper into how to use business finance to create competitive advantages that allows manufacturers to increase profits, cash flow, and ultimately expand and help create a strong local economy.