by Torchwood » Thu Dec 30, 2010 9:39 pm
Endo doesn’t understand profit. It is not to exploit the workers, but to signal where resources should be allocated , and that is by far best left to the market. Planners nearly always get it wrong, and are far more open to corruption. The market works if high profits are allowed to bring in new market entrants, who then drive the profit down. It stops working if there are barriers to doing so – monopoly/collusion, or barriers to entry which are too high. Government has a role there, if it can be trusted to police and regulate impartially; by and large, in the developed world, it can, and by and large in the developing world, it is too corrupt and incompetent to do so. There are also well known market imperfections through externalities, either where negative (the provider does not pay costs e.g pollution) or positive (does not reap the benefits e.g infrastructure investments). These also require government action. Above all, capitalism requires a rule of law (which may be China’s great weakness, in the end).
It’s not a perfect world; an outrageous private effective monopoly like Microsoft is a second best to an international standard like GSM for phones – but better than no common standards (anyway, Gates is going to cure malaria with the money, but it is still a regulation failure). In the case of banking, the barrier to entry is trust; governments reduce this by giving guarantees, but we have seen how doing too much of this just transfers to sovereign risk, and unreasonably reduces the penalties for failure, to mutterings from lobbying bankers of (“1930s, liquidity trap, we ‘ll move to the Caymans if you regulate us too much”). However the real scandal which has led to the overexpansion of the fire economy is the fact that employees of banks were allowed to write risks which they benefitted from if they paid off, but were not penalised if they went wrong. That was regulatory failure.
You should support globalised capitalism, Endo, because it has led to a massive reduction in inequality. The Gini coefficient for the world (0=total equality, 1= one person owns everything) seems to have gone down from about 0.65 twenty years ago to about 0.55 now, due to superior growth in the developing world , especially China and India. Of course there are losers, and if they seem to be more in the developed world it is because they are more voluble, there are plenty in the developing world but fewer than winners. In most developed countries the Gini coefficient has gone up a bit (from 0.35 to around .4 in the US, but that is an unequal place). Given the more equal places tend to be pleasanter it does not have to be that way. Alph is right that in a globalised world there are big winners, but there is also the “long tail” of global niches, and you can make money out of them in a way that spreads the wealth.
The prize example is Germany, where all the little mittelstand engineering companies have done very well out of global niches, especially machine tools, and the place has not become more unequal But then, Germans save a lot and don’t spend it on unprofitable speculation such as property. We hear so much about what’s wrong with Germany (demographics, can’t absorb immigrants, cultural desert etc.) let’s at least hear it for their economy. Trade deficits and net lost jobs in southern Europe and the Anglo world is from spending more than saving, not globalisation.
What makes an honest society is still not well understood. 18C Britain was deeply corrupt, and became more or less honest in 19C: USA much less corrupt in 20C than 19th, yet, as in corrupt India and China, today , the 19C was when growth was fastest. Immature institutions?
Jokey discussion with an Indian friend:
A road cost $20m
In developed world the full $20m is available, but permitting, unions, health and safety etc. means it now costs $40m.
In China, $10m disappears in kickbacks, but they can still build the whole road for $10m.
In India , $10m disappears in kickbacks, you get half a road.
In Nigeria, $20m disappears, no road.
Pessimism is the soft option.
