Tuesday, December 8, 2009

Socialism vs. Capitalism: Does the system itself really matter?

I've been spending a lot of time lately thinking about what is wrong with our economic structure and how the policies of market liberalization and privatization have led to increasing inequality throughout the world. It seems that the belief in market efficiency that has led to this policy serves only to concentrate wealth in the hands of few who are already wealthy enough to afford to purchase these valuable resources once they are made available on the market. This belief that an efficient market will create wealth and spread welfare is flawed, I believe, primarily because the incentives for any single firm do not correspond with the incentives for the overall economy of a nation or the world as a whole. If a single firm chooses profit maximization as its main priority, as is encouraged by corporate governance laws on directors duties to shareholders, then they are likely to reduce wages and labor supply if possible and purchase goods from other countries where they are less expensive. However the impact on the local economy or even national economy can be negative because of the impact of job loss and/or wage reduction on overall demand.

I was fortunate to learn about these economic theories in class with Professor Joseph Halevi so at the end of the course I asked him if he had any ideas of how we may be able to regulate or influence the incentives of single firms to make them compatible with an economic ideal of full employment and growth for the whole economy. His reply, though not exactly an answer to my question, sums up the issue very well: the economic policy that is put in place reflects the current political mood and beliefs of the time, so even if it would be possible to change the incentives it is unlikely without an overall change in our political culture.

And actually, perhaps in that case we wouldn't need regulations at all! It seems that we are stuck in a catch 22: regulation is necessary because the current system is unfair, however regulation is not possible because it goes against the current belief system which is again the result of our current system. It also reflects the age-old problem of the chicken and the egg. Is the economic situation unfair because the system itself is flawed, or is the system unfair because our society simply does not believe in fair distribution of wealth?

I was inspired by this short clip of an interview with the Dalai Lama:

Dalai Lama - Capitalism, Socialism and Income Inequality

He also agrees that the system itself is not as much an issue as the society and motivation of individual actors. Perhaps we all need to take a moment to consider our own objectives. Are we greedy? Do we think we are better or more deserving than others? If we do believe that everyone is equal and has a right to a fair share of global wealth, then what can we do to spread this belief? Let's see what we can do to change the system from within by first taking a close look at our own desires and changing them for the better.

Wednesday, November 11, 2009

Is Profit Moral?

I recently saw this question posed and I've been mulling over it for the past week or so.  The problem is, I do think that a certain level of profit is immoral or at least becomes exploitative, but where do you draw the line?  How can anyone make a judgment on when profit is too much without being discredited as a crazy left-wing socialist?

The issue popped into my head again this evening while I was reading this article by Maureen Dowd: "Virtuous Bankers? Really!?!" (http://www.nytimes.com/2009/11/11/opinion/11dowd.html?em). She points out that while the banks believe they are providing a virtuous service - providing capital to spur economic growth - in fact the banks are growing and profiting while the real economy itself is faltering, with rising unemployment and underemployment. 

Despite myself, I have to agree on a certain level with the CEO of Goldman Sachs, that banks provide an important service for the creation of wealth and along with it jobs, though in this case that hasn't been happening.  We are back to the issue of how much profit is too much?  When do the banks stop providing a valuable service and become just plain greedy?

In the end I think that profit and morality are actually unrelated.  I don't believe that you can say profit in itself is immoral.  Without profits there would be nothing to invest back into the economy and create growth to improve living standards or grow society.  Perhaps the problem arises when people who already have enough, more than they need, continue to accumulate wealth for themselves, rather than sharing it with the broader community. 

In conclusion, some words on greed from a wise man: "But if they perished, in his possession, without their due use; if the fruits rotted, or the venision putrified, before he could spend it, he offended against the common law of nature, and was liable to be punished..." - John Locke, Second Treatise of Government (1690)

Monday, November 2, 2009

New Journey, New Questions

My newest adventure officially began about one month ago when I arrived in Turin, Italy for a 2 year master program in comparative law, economics and finance.  But the story really began 6 years ago in New Zealand when I took an anthropology class on the legacies of colonialism.  It was the first time that I could see for my own eyes and start to understand the negative side of globalization.  Although it is often portrayed as a neutral process, it is largely the result of political and economic policies that are intended to benefit the countries that have enacted them (i.e. the wealthy nations on the West). 

My application to the program at IUC Torino was largely based on this experience:

"We learned about how the structures set up by colonial governments continue to control local people through IMF and World Bank loans among other means.  And the impact goes beyond financial or governmental control as many people willingly adopt Western culture.  At times this new global culture of materialism seems inevitable. It seems that some people are destined to poverty while others can have it all.  However I believe that it could be possible through regulatory action to slow down the procession of money and resources into the hands of the rich.

"Many would argue that capitalism does not need to be regulated because the system is self-regulating, but the system as it is does not seem to be working.  Although some externalities, such as pollution may be taken into account to shift supply and demand, the welfare of individuals is not as easy to quantify and not generally considered as an externality.  In addition, there are actually many regulations in place that prevent the system from working fairly.  An example close to home is the impact of US farm subsidies, which prevent other countries from being able to produce goods at a competitive price for export.  It is clear that the odds are stacked against small players.

"I think that a large barrier facing anyone who wants to challenge the current system of global capitalism is a general lack of understanding.  I was struck by a particular phrase when reading the introduction to Plunder, specifically that most Western intellectuals do not recognize that underdevelopment in some parts of the world is directly linked to the rapid development in the West.  After an undergraduate course on the legacy of colonialism, it seemed all too apparent.  I have to wonder then, why is it that most intellectuals fail to make this connection?  I think there are a number of reasons, the first of which must be that many are happy not to question a system that works in their own favour.  In addition, there are many mechanisms by which research may be prevented or discredited.

"I have known two professors who conducted research on how governmental or economic policies impacted local people.  Both were denied visas to return for further study.  Another professor, who taught one of the most popular classes at Dartmouth, was denied a renewal of his contract because, by his estimation, his theories were too ‘liberal’.  His course on American foreign relations from 1945 was very enlightening and the first time I learned about the military industrial complex in any detail. An overarching theme of the course was the use of American military power, whether or not it was legal and how it was justified.  There are many examples of questionable application of international law, for example carpet bombing in Laos during the Vietnam War.  And although America is portrayed as a force for good, we have to question the true goals of American foreign policy.  I can understand that we want to encourage a world where America can be prosperous, but then the question becomes who exactly is it in America that prospers?  What I took away from that course is that the corporations at the heart of the military industrial complex have much more to gain from recent foreign policy than your average American.  I do not know why Dartmouth decided not to renew his contract, but I could imagine that such a topic is politically unpopular.

"In order for change to occur there needs to be a broad understanding of how the current system of global capitalism works.  I think that the current economic crisis provides the perfect backdrop to bring this issue to the forefront.  Many people who were previously happy not to question the status quo may be asking themselves if there isn’t a better way of doing things.  I would like to take advantage of this opportunity to learn as much as I can about the means available to fix what has gone wrong and then share this information with others."

My courses this semester on the Patterns of Imperialism, the Legal and Economic Institutions of Capitalism and Financial Market Regulation are all giving me the opportunity to understand the global financial system better, which is exactly what I was hoping for.  But I am also finding many more questions than answers. 

I wrote at the end of my essay that my intention is not to argue against capitalism.  However at this point I'm not entirely convinced that capitalism can be regulated in such a way as to make it fair.  If the system needs to be regulated in order to be fair, then there must be something else that would work better.  As one visiting professor said recently, I don't know what that is, but I would welcome your suggestions!

Many more questions to be answered, but I will keep exploring and searching for the truth...