The reference for this post will be a recent article titled “Charity needs capitalism to solve the world’s problems” ,written by former US President Mr. Bill Clinton (“Financial Times” website). The article opens with the following statement:
“Charity alone will not solve the world’s problems. Capitalism can help and at the same time put people back to work……” (FT , January 20, 2012)
The cooperation plan between Capitalism and Charity are explained along the article, resumed in one of its ending paragraphs.
“These efforts ( of Charity and Capitalism E.F.) benefit both the communities they target and the corporations and philanthropists involved, diversifying their businesses, expanding their markets, training more potential workers and helping to create a culture of prosperity. All this enhances profits, increases economic inclusion and gives more people a stake in a shared future”
Mr. Clinton actually offers a “Win- Win” deal: Achieving a moral end (“Solve the world problems”…. “Gives more people a stake in a shared future”) by appealing to the Capitalist intuition of profits seeking, a deal adorned with an unequivocal MBA new speak (“Diversifying business….expanding markets…training potential workers…). Social responsibility at its best!
In the philosophical sense, there is nothing really new in Mr. Clinton words. The idea a moral end (such as general prosperity) can be achieved through the pursuit of self interest has been already expressed some 250 years ago by the Philosopher/Political Economist Adam Smith.
“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages” (Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations)
These 18 century ideas were developed on later decades, becoming the pillar of free market ideology, the foundation of the Globalization for the last 20 years. If so can Mr. Clinton call for a “Capitalism and Charity” system considered as an implicit recognition that the original version of “Smithian” Globalization (launched along his own Presidency years…) actually failed ?
In order to answer the question we address the question what Globalization is all about?: One possible answer is "… (Globalization) When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, and services and labour... (UN agency (ESCWA) From the Wikipedia)
True, barriers to Goods, Capital and Services were (partially) removed: The globalized world allows you an easy transfer of money abroad, the purchase of foreign currencies and/or financial obligations…. Alternatively when landing in a remote country you will find out that you and the native share not only the “human condition” but products, services, and corporations so familiar at home.
But, the above definition got another twist. UN agency is aware that “….although considerable barriers remain to the flow of labour... “
The observation that our “Globalized World” still impedes (20 years since its launch…) from human beings to move freely in the search for a decent life abroad is self evident. Still, the exclusion of labor from the free movement scheme has serious consequences on the whole Globalization edifice.
The theoretical framework of Globalization (or free markets as a general frame) requires that ALL production factors and products should be allocated freely. ALL. Theory can easily demonstrate that restrictions on freedom impacts competition, prices and quantities, all for the worst. Moreover, if the free movement of one “player” in the model is being restricted, the rest must be accommodated, even restricted, something that could unleash a dynamic of more restrictions and protectionism. In other words, Game over….
So, if the outcome from restrictions on labor is BAD, why the system operates this way? Well, it could bad for all,,,, but good for some players . The answer lies in the relative position of the countries and the short term benefits. Rich countries, the ones who dominate the scene have plenty of Capital and products in relation to their workforce. From the other side, Poor / Developing countries have to offer in that scheme plenty of labor and relative shortage of Capital.
It is turning to be a longer than planned post…. So in a very shortly comment, labor restrictions ( in addition to the imposition of production quotas on some products … that is another story …) favors rich countries as it permits to export their excesses and create a two tier production/ consumption system, poor workers vs. rich consumers .That is the main line that explains the widening gap between countries, that feeling we share with Mr. Clinton that his Globalization did not deliver the expected welfare fairly . Just have a look on wages, prices, working conditions, social security nets around the world to understand the bridge, better put the abyss between countries.
So, instead of embrace a half baked Capitalism/Charity ideas in the spirit of Mr. Clinton article, maybe the world should go a step forward and implement a full globalization and fair scheme, without restrictions simply frictionless as possible. The economy will do the rest, and no need for charity.
Even Mr. A. Smith would agree with such proposal. How do I know that? Last quote for today…. (the outlines are mine )
"It is not by the importation of gold and silver, that the discovery of America has enriched Europe. ...The commodities of Europe were almost all new to America, and many of those of America were new to Europe. A new set of exchanges, therefore, began to take place which had never been thought of before, and which should naturally have proved as advantageous to the new, as it certainly did to the old continent. The savage injustice of the Europeans rendered an event, which ought to have been beneficial to all, ruinous and destructive to several of those unfortunate countries." (An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith : Book IV: On Systems of Political Economy Chapter I: On the Principle of the Commercial, or Mercantile System )
Showing posts with label capitalism. Show all posts
Showing posts with label capitalism. Show all posts
Sunday, January 22, 2012
Globalization : The Unfinished Job
Wednesday, March 23, 2011
Profit Margins and Crisis
Figures can be interpreted in many ways. Lets take for example the following grap which depicts the evolution of the margin earning in the US:
That picture is reflected in other parameters, especially the shape of the main stock market indices. So many could argue that the graph reveals that the situation is just fine, we are back in business and the crisis is over. Is it so?
First of all, you can notice that the American business sector enjoyed the same extreme margins just before the last financial bubble exploded into the worst recession in 70 years. So the margins by themselves can be hardly regarded as a signal for “ Business as usual”.
As a matter of fact that profit rates are a genuine alarm before the next round of crisis. Let me explain: Business profits are the mirror picture of purchasing power of the average citizens or in simple words, every cent out of the total sale goes to the profit is taken from salaries. Therefore the graph means that the average citizen , the one that may own some shares or funds and predominantly lives from his salary is in nowadays worst shape than in the midst of the crisis .
But that is not just a question of justice and distribution but a very serious economic issue. If the average worker is poorer, then to whom will the business sell their products? That is exactly the very root of t he economic crisis we are still in , the unbalanced growth and concentration of wealth and profits among too few hands that are not able to consume the excessive production. The credit bubble was just a mean to cover that lack of purchasing power until it could not be sustained. As the crisis developed, the public sector stepped in to cover that lack of demand … ( no more taxes… but a lot of debts ). So the imbalance went from private hands into public hands.
So we are once again experiencing an unbalanced growth, though this time the reaction capacity of the governments will be much more limited. Under these circumstances a more intense crisis is just waiting around the corner or for the most a sluggish economic growth.
That picture is reflected in other parameters, especially the shape of the main stock market indices. So many could argue that the graph reveals that the situation is just fine, we are back in business and the crisis is over. Is it so?
First of all, you can notice that the American business sector enjoyed the same extreme margins just before the last financial bubble exploded into the worst recession in 70 years. So the margins by themselves can be hardly regarded as a signal for “ Business as usual”.
As a matter of fact that profit rates are a genuine alarm before the next round of crisis. Let me explain: Business profits are the mirror picture of purchasing power of the average citizens or in simple words, every cent out of the total sale goes to the profit is taken from salaries. Therefore the graph means that the average citizen , the one that may own some shares or funds and predominantly lives from his salary is in nowadays worst shape than in the midst of the crisis .
But that is not just a question of justice and distribution but a very serious economic issue. If the average worker is poorer, then to whom will the business sell their products? That is exactly the very root of t he economic crisis we are still in , the unbalanced growth and concentration of wealth and profits among too few hands that are not able to consume the excessive production. The credit bubble was just a mean to cover that lack of purchasing power until it could not be sustained. As the crisis developed, the public sector stepped in to cover that lack of demand … ( no more taxes… but a lot of debts ). So the imbalance went from private hands into public hands.
So we are once again experiencing an unbalanced growth, though this time the reaction capacity of the governments will be much more limited. Under these circumstances a more intense crisis is just waiting around the corner or for the most a sluggish economic growth.
Tuesday, March 22, 2011
The Modern Habitat
Watching TV on a rainy weekend afternoon is THE choice when I wish to turn off my mind for a while. However, since the options are rather limited to recycled movies or insignificant sports events I end the zapping round watching in a nature documentary. The last piece I´ve watched described the struggle for survival of a group of lions somewhere in Africa as filmed by a team that followed a herd in their search for food. With such perspective in mind, it is obvious that the film must lead to the typical hunting scenes (zebras in that case): Slow motion shots of feline movement ...the focus on the sharp eyes ... the zebras running away and finally the inevitable feast of flesh and blood with the resulting pile of dry bones Not for weak stomachs.
Notwithstanding that the film describes life of the wild habitat; the “struggle” motif is being frequently imported into the human social fabric by many ideologies. One of the well known translations was performed by the recalled “Social Darwinist”, which developed a whole theoretical edifice about the “survival of the fittest” , a theory that basically implies a binary code: Life is a jungle so the question “To be or not to be” is equivalent to “ Eat or be eaten”. That survival code became the foundations of ultra Capitalist ideologies and, ironically, Fascist streams.
We can argue that the binary scheme cannot be translated “as it is” into the human social much sophisticated social fabric .But even if we accept such direct and simplistic approach, there is still a question to be asked: Assuming that there are only two choices around (Eat or be eaten), the conclusion is that after many rounds,at some point in the future the “fittest” lions should be able to devour all the animals around. And what´s next? Even if the members of the majestic herd start to swallow each other, eventually, the last lion on Earth will perish from hunger (unless it becomes vegetarian ....). Therefore the dichotomised system is deemed to vanish with its fittest member.
Thus, the main underlying and unintended conclusion of the film is a bit different than the social Darwinist interpretation. The fitness to survive (BTW that concept was not developed by Darwin himself) should not be understood as the deepness of your stomach, but as the capacity to adapt to a given system in order to preserve the specie. As the term “system” implies, by definition, interdependence, such perspective means the irrelevance of a dichotomised /binary approach which , as we´ve seen , leads to its own demise.
Moreover, nature shows us the need to maintain a balance and to some degree opens the way for cooperation based on interdependence. True, there always will be some competition for limited resources but it is obvious that the interdependence requires some degree of cooperation. A smart lion would rather negotiate with the zebras instead of just killing them all, thereby guaranteeing a steady flow of food for the long run.
In such systemic approach, the term weak or strong became relative as even the apparently weak members got some power as the system relies also on their wellbeing and wishes, while the “strong guys” can impose their own rules without considering the reactions of the rest of the system. Since human beings are able not only to adapt to nature but modify the survival terms, the strength or weakness depends up to certain point on the power of will and consciousness.
That lesson is more acute in modern times. Why is it? We live in a society that managed to create a lot of wealth and well being through the division of labour and specialization. People nowadays can hardly handle elemental tasks in their daily life without some sort of specialist, let alone tasks that require long periods of training and study, while most of us are experts in our very little niche. That social economic edifice human beings totally dependent on the system in ways someone could not imagine a few decades ago. If Robinson Crusoe is an impossible fantasy ( or nightmare) for our civilization, thus the wellbeing of all the society rests on each one of the members.
So the modern hungry lion can get its loot by force only if other members are not conscious of their own strengths or just do not care. However, but it can work only on a short run, as the long run imbalance can be disastrous for the whole system.
As a final note, it seems that I should look for another distraction during the rainy afternoons , since even in front of lions and zebras the mind keeps on wandering .....
Notwithstanding that the film describes life of the wild habitat; the “struggle” motif is being frequently imported into the human social fabric by many ideologies. One of the well known translations was performed by the recalled “Social Darwinist”, which developed a whole theoretical edifice about the “survival of the fittest” , a theory that basically implies a binary code: Life is a jungle so the question “To be or not to be” is equivalent to “ Eat or be eaten”. That survival code became the foundations of ultra Capitalist ideologies and, ironically, Fascist streams.
We can argue that the binary scheme cannot be translated “as it is” into the human social much sophisticated social fabric .But even if we accept such direct and simplistic approach, there is still a question to be asked: Assuming that there are only two choices around (Eat or be eaten), the conclusion is that after many rounds,at some point in the future the “fittest” lions should be able to devour all the animals around. And what´s next? Even if the members of the majestic herd start to swallow each other, eventually, the last lion on Earth will perish from hunger (unless it becomes vegetarian ....). Therefore the dichotomised system is deemed to vanish with its fittest member.
Thus, the main underlying and unintended conclusion of the film is a bit different than the social Darwinist interpretation. The fitness to survive (BTW that concept was not developed by Darwin himself) should not be understood as the deepness of your stomach, but as the capacity to adapt to a given system in order to preserve the specie. As the term “system” implies, by definition, interdependence, such perspective means the irrelevance of a dichotomised /binary approach which , as we´ve seen , leads to its own demise.
Moreover, nature shows us the need to maintain a balance and to some degree opens the way for cooperation based on interdependence. True, there always will be some competition for limited resources but it is obvious that the interdependence requires some degree of cooperation. A smart lion would rather negotiate with the zebras instead of just killing them all, thereby guaranteeing a steady flow of food for the long run.
In such systemic approach, the term weak or strong became relative as even the apparently weak members got some power as the system relies also on their wellbeing and wishes, while the “strong guys” can impose their own rules without considering the reactions of the rest of the system. Since human beings are able not only to adapt to nature but modify the survival terms, the strength or weakness depends up to certain point on the power of will and consciousness.
That lesson is more acute in modern times. Why is it? We live in a society that managed to create a lot of wealth and well being through the division of labour and specialization. People nowadays can hardly handle elemental tasks in their daily life without some sort of specialist, let alone tasks that require long periods of training and study, while most of us are experts in our very little niche. That social economic edifice human beings totally dependent on the system in ways someone could not imagine a few decades ago. If Robinson Crusoe is an impossible fantasy ( or nightmare) for our civilization, thus the wellbeing of all the society rests on each one of the members.
So the modern hungry lion can get its loot by force only if other members are not conscious of their own strengths or just do not care. However, but it can work only on a short run, as the long run imbalance can be disastrous for the whole system.
As a final note, it seems that I should look for another distraction during the rainy afternoons , since even in front of lions and zebras the mind keeps on wandering .....
Subscribe to:
Posts (Atom)