Wednesday, August 24, 2011

Things They Don't Tell You About Capitalism, 2

Thing 1: There Is No Such Thing As a Free Market

(Italics indicate direct quotes from the author)

The free market doesn't exist. Every market has some rules and boundaries that restrict freedom of choice. This "free" is a political definition. It cannot be objectively defined. Government is always involved and those free-marketeers are as politically motivated as anyone.

In 1819 new legislation to regulate child labour, the Cotton Factory Regulation Act, was tabled in the British Parliament. This bill would ban the use of children under nine in these factories. It was quite controversial. Those opposing the proposed legislation saw it as the sanctity of freedom of contract and thus destroying the very foundation of the free market. They argued that children under nine should be allowed to work in the very unhealthy environment of the cotton factory  -- if this is what they wanted to do. Laborers should have freedom to work or not to work. Thus seen, the freedom of a market, is like beauty, in the eyes of the beholder.

The same arguments used in 1819 were used when regulations on automobile and factories were considered in the past century.  The opponents are argued that people should be "free" to drive polluting cars if they wanted to. The same with factory owners. They had the freedom to operate their plants in the way they chose. It was their private property. If they felt like reducing harmful decisions  -- that should be their choice. Once again the government (the people acting through their government) were interfering with individuals who simply wanted to act in their own "self interest".

People began thinking: Should morality enter into the ability for individuals or corporations (now considered "persons" by a recent misguided Supreme Court decision) to do whatever they wanted?  And, should the common good of the people as a whole have any influence on individual freedom, including the "free" market? Electoral votes, government jobs and legal documents are not for sale. Neither are human organs or narcotic drugs.  ... just as the ban on selling human beings ( the slave trade) and half centuries ago.

In addition, when examined the so-called "free" market itself has built-in restrictions governing its operations. No one can just show up at the New York Stock Exchange and say, "Hi, I've got some shares I would like to enter on the exchange." Companies have to be registered on the NYSE; follow certain procedures while active; use licensed brokers and traders and on and on. I.e,
the NTSE knows it can't be "free" in the way it functions or "all hell would break loose".

The market is not "free" in that product guarantees must be honored, list of ingredients on packaged food be accurate; there are zoning laws in residential areas, restrictions on street vending; rent controls, etc.

Interest rates are set by the central bank in most countries. Another example of part of the market that is not free and is greatly influenced by political considerations.

We see a regulation when we don't endorse the moral values behind it.  Milton Friedman the father of extreme free-market capitalism is remembered for saying that the economic system, the free market, should be amoral. Think of the implications of his belief. Thankfully, we can see that in practice the operations of the economic system is not and should not be free of the needs, opinions, desires and ideals of the people. Or  -- what's a democracy all about? For every freedom there is a responsibility, and this is true in the operations of corporations too -- at least it should be in a democracy. The purpose of a democracy is to fulfill the common good -- to foster the health, the values,  the personal growth of its citizens. Fostering the production  of wealth is not at the top of the list. And wealth should be fostered in a way that is not too "costly" i.e. that does not, e.g. damage the environment; lead to an unfair and irrational distribution of wealth; destroy the moral and social fabric of society, and so on. The author puts it this way: Thus seen, the debate about fair trade is essentially about moral values and political decisions, and not economics in the usual sense.

In the U.S. government's bailout of Wall Street to the tune of 700 billion, President George W. Bush said that he was saving our economic system from "socialism". (??) Apparently, state intervention into the economyin the hope of saving the so-called free market from itself ---is certainly nothing close to socialism. The author argues that there is no scientifically defined boundary for free market. Our Civil War was in a in part over a disagreement over free trade  --- the free trade in slaves by the South.

Free-market economists may want you to believe that the correct boundaries of the market can be scientifically determined, but this is incorrect. .... economics is not a science like physics or chemistry, but a political exercise.

Their (free-market economists) ideological cloak is to pretend that their politics is really not political, but rather is an objective economic truth, while other people's politics is political. However, they are as politically motivated as their opponents.

Friday, August 19, 2011

Things They Don't Tell You About Capitalism by Ha-Joon Chang

My intention is to summarize the important points as I read this book. I will be sending an announcement to my Political//Economics Email Group as I complete each chapter, I will send you an email with a link to the next chapter. If you know how to add this blog to an RSS or Atom feed you can do that also.
>>>Ha-Joon Chang teaches in the Faculty of Economics at the University of Cambridge, His books include the bestselling "Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism", which has been translated into nine languages. His "Kicking Away the Ladder" received the 2003 Myrdal Prize, and in 2005 Chang was awarded the Leontief Prize for Advancing the Frontiers of Economic Thought. (from back cover)

Chang seeks to know why there was a total collapse of the global economy in 2008. This catastrophe has ultimately been created by the free-market ideology what has ruled the world since the 1980's. The world was sold a bill of goods that the free-market ideology would result in the most efficient and fair economic system possible  rewarding productive people ---- were given maximum freedom. Firms, being close to the markets, know what is best for their businesses. Great wealth will be produced and everyone will benefit. Government intervention is unwise. Government does not understand business, doesn't have enough information and lacks the incentives to make good business decisions. In sum, we were told to put all our trust in the market and get out of the way. This resulted in privatization, deregulation, reduction in corporate and income taxes and welfare payments, as well as liberalization of international trade and investments.

The results of these policies has been the polar opposite of what was promised. Chang says that the result of these policies has been slower growth, rising inequality, and heightened instability in most countries.  In the United States there was a huge expansion in credit expansion, e.g. use of credit cards, borrowing on homes, etc. which dulled the brunt of the developing disaster  -- for awhile.
If things were bad because of free-market capitalism in the developed world, the consequences were even more deadly in the underdeveloped nations. Countries that were not harmed, in fact, seemed to avoid these evils were China, India, South Korea, etc. who refused to introduce full-blown free-market policies.

This book is not an anti-capitalist manifest. Being critical of free-market ideology is not the same as being against capitalism.  Despite its problems and limitations, I believe that capitalism is still the best economic system that humanity has invented.

The author believes that ordinary educated persons are suffering from the misconception that economics and economic problems are just too complex for them to deal with. This is a serious mistake, Chang says, and allows business, corporations and financial institutions to do what they think is best and which often is not best for the nation, for its people and even for these powerful entities themselves. 95 per cent of economics is common sense made complicated, and even for the remaining 5 per cent, the essential reasoning, if not all the technical details, can be explained in plain terms.

Professor Chang says must stop assuming that what most experts believes must be right. Then  --- you can begin doing some real good as  active economic citizens.

[Text in italics are direct quotes from Dr. Chang.]