Ch. 5: "I've Seen the Future, And It Works": Growth Under Extractive Institutions
Posted: Thu Dec 26, 2013 10:54 pm
Ch. 5: "I've Seen the Future, And It Works": Growth Under Extractive Institutions
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Right to flourish
TIM Wilson's excellent analysis ("Narrow focus confuses intent", 23/1)helps to explain how the human rights provided by capitalism enable people to flourish in a dynamic, growing society. Social inclusion is another idea that should be reinterpreted against this broader framework. Inclusion requires the rights to speak your mind and to compete fairly in business under rule of law. It should not focus on use of the tax system to extract ever more wealth from those who earn it to give to those who don't.
But the reason the private sector was able to become extractive is because the financial sector is a special interest served by a powerful government, which crafts regulation in the interests of these firms (the sector was far from deregulated). Part of what led to the crisis was the fact that firms were insulated from risk -- creditors ended up being bailed out, and as long as that was a real possibility, they had less incentive to be concerned about risk.DWill wrote: Can't the private sector itself be extractive in terms of the welfare of the nation? Any sector that is able to concentrate power can operate at the expense of the rest.
If you read the Wikipedia page on Libertarianism you will see it is a diverse concept, with various economists and philosophers asserting views about how to promote individual liberty. In Why Nations Fail, the thread is that individual liberty should be the goal of an inclusive state, with rule of law as the guiding central principle. This idea of rule of law has been controversial in the work of the libertarian Nobel Economics Laureate Friedrich Hayek, who held that a strong state is essential to secure property rights, and thereby to promote individual liberty. The phrase “all out libertarianism” is quite vague, covering everything from anarchism to Hayek’s views on the central role of the state.DWill wrote:But what is your test case for the success of libertarian economic policies, Robert? Maybe you really don't mean all-out libertarianism, but the philosophy that prevails in the West and places like Australia, which I believe has been called state capitalism.
Later in the book, WNF explains how England established a constitutional alliance between a range of interests who were united by a common interest in rule of law rather than absolutism, and how this happy confluence was the basis for the growth of empire. While some strands of supposed libertarian thought are anarchist in the way you describe, this is more a corruption of the theory of liberty, an attempt by vested interests to co-opt moral philosophy. It is basically a recipe for disaster, and does not fit with the inclusive goals of WNF.DWill wrote: The subject of regulating commerce has to come up, for which libertarianism has no or very little tolerance. Yet in 2008 in the U.S. and elsewhere, lax regulation was fingered as the cause of market crashes and catastrophic unemployment. And government action to bail out the auto companies appears to be exactly the right thing to have done, according to the experts.
Yes of course, and this is a big theme in WNF, with examples from history of the use of the state to create commercial monopolies aimed at extracting wealth from the people. The concentration of power is precisely what the USA sought to undo in the great trust-busting period of the breakup of Standard Oil. Unfortunately, in more recent times it seems that commerce has bought the government so the US is headed on a path towards stagnation and conflict and poverty.DWill wrote: Can't the private sector itself be extractive in terms of the welfare of the nation? Any sector that is able to concentrate power can operate at the expense of the rest.
Not that I'm well schooled in any of this, but it was supposed to have been a piece of deregulation--repeal of Glass-Steagall, allowing commercial and investment banking to join forces--that led to the financial crisis. And it didn't even take a Republican to do it. Did Clinton do that for political reasons or because he thought it would make the economy more robust? It doesn't have to be one or the other. It worked brilliantly and Clinton left office with a budget surplus.Dexter wrote:But the reason the private sector was able to become extractive is because the financial sector is a special interest served by a powerful government, which crafts regulation in the interests of these firms (the sector was far from deregulated). Part of what led to the crisis was the fact that firms were insulated from risk -- creditors ended up being bailed out, and as long as that was a real possibility, they had less incentive to be concerned about risk.DWill wrote: Can't the private sector itself be extractive in terms of the welfare of the nation? Any sector that is able to concentrate power can operate at the expense of the rest.
What is there within Libertarianism that ensures wealth inequality wouldn't grow? It seems the call for increased freedoms would benefit those with leverage more than those without. As in, the market will set the appropriate minimum wage, and so we shouldn't restrict the business owner from hiring people for less.If you read the Wikipedia page on Libertarianism you will see it is a diverse concept, with various economists and philosophers asserting views about how to promote individual liberty.
Thanks Interbane, good comments. Maybe I should not have introduced libertarianism into the discussion, since it is an idea that is corrupted by anti-government zealots in the USA. A bit like trying to talk about Christianity, where everyone has quite different experiences.Interbane wrote:What is there within Libertarianism that ensures wealth inequality wouldn't grow? It seems the call for increased freedoms would benefit those with leverage more than those without. As in, the market will set the appropriate minimum wage, and so we shouldn't restrict the business owner from hiring people for less. I would think that in a perfectly "free" market, the stratification of wealth would be even more severe than what we currently see.
Why should my taxes go towards Walmart's employees because Walmart executives refuse to pay their workers more? To hell with that. That is NOT what my taxes should be used for. Walmart easily nets enough to pay all of their employees over the welfare limit. Having government subsidize the underpayment of workers is ridiculous, especially when the company can afford to pay more. Use those taxes to build infrastructure or invest in research.My view is that in a rich country such as America the government should augment wages through welfare to provide a social safety net with low effective marginal tax rates, but that anyone should be able to employ people for whatever they can negotiate.
In order to have more jobs, businesses need to do more business. That won't happen unless we have a middle class with more purchasing power. We won't have that middle class unless there is upward mobility from those in poverty. That won't happen until they make more. This simple formula is at the heart of an insanely complex set of causes and effects, so it's easily confused.It would cause the market clearing minimum wage to rise, since you would not be able to find anyone to work for less.
In climbing out of the recent recession, the pie has grown. And only a small percentage of people are better off. The majority of people are worse off than they were before. A rising tide only seems to lift the yachts, and the trickle down smells like urine.If we can grow the pie, everyone will be better off.
There are slothful, useless people where I work that do terrible work because they simply aren't motivated in the right way(a terrible supervisor). Under the same set of laws, two different companies can have entirely different work environments. It's like working for Sears vs Google. It's night and day. If a company's employees aren't motivated, there are ways to change the internal formula regardless of the existing labor laws."He described European workers as "slothful" and "indolent" and blamed Europe's outdated labour laws and welfare systems."
Your phrase "seems to" reflects the perception, often false, that the poor are getting poorer. Research such as the World Bank's influential report Growth is Good for the Poor has proved strong correlation between growth and poverty reduction. People feel resentment about growing inequality, but that does not prove that inequality as such is a bad thing. In fact, inequality is good, reflecting reward for talent and risk.Interbane wrote:A rising tide only seems to lift the yachts, and the trickle down smells like urine.