Tue Apr 21st, 2009 at 03:17:12 AM EST
The shakeup in the world financial system has brought forth a lot of hand-wringing over the future of capitalism. Most commentators devote themselves to how best to get capitalism back onto whatever their preferred path is. Thus, we see a range of ideas from improved regulation, corporate governance, compensation restrictions or, at least, review, and changes to tax policy.
What we don't see, at least among the most quoted commentators, is any examination of the basic economic foundations of modern society. I'll summarize.
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The prevailing picture is that a market economy is the only viable system, where "market" is taken as a synonym for capitalism. That is, entrepreneurs raise capital to start an enterprise with a promise of returning more than they borrowed. They harness natural resources and workers to generate products which they can sell for more than the cost of production and the excess is "profit". This is used to pay off investors (including the owners).
The "market" idea comes in because each enterprise needs to trade with suppliers and customers. The ability to negotiate terms between parties is assumed to be based upon supply and demand. The more ideological think that this is sufficient to insure a smoothly running exchange, while the more pragmatic expect to see some sort of rules imposed and enforced by government. How many rules and how vigorously enforced are the subject of hundreds of years of debate.
There are two problems with this model, it ignores the role of the "externalities" of resource availability and waste disposal and it ignores the structure of the market for labor.
For much of the history of the human race, people could barely support themselves by their own labor. Work was by hand and mostly consisted of agricultural production, tools and shelter. The rise of the industrial revolution and the machine age changed this. A few people could now produce enough for many. This has led to a permanent condition where the labor supply exceeds demand, except in unusual circumstances, like war or pandemic. The result has been that wages have always remained low relative to the total wealth produced. In an earlier age it was royalty or the aristocracy that absorbed the excess wealth. With the rise of the corporation it was the big industrialists.
This has now reached a new crisis moment. Advanced agriculture requires only 2-3% of the work force to feed everyone and even can provide export capacity. Manufacturing is highly automated and factories that a few decades ago required hundred's now make more with only dozens of workers. To pick up the slack wealthy societies have invented a large number of "service" jobs, which resist mechanization. Hardly anyone makes their own clothing, or bakes their own bread anymore. With many more women in the workforce, child care is now given over to a service sector as is much personal care. The rise of the financial sector and "intellectual property" has also absorbed a goodly number of workers.
Even with all this make-work we still have excess labor. In many places chronic unemployment reaches 30% or more. This leads to a permanent class of disaffected young people who are under educated, have few marketable skills and are prone to civil unrest and criminal mischief. If we can make everything that we truly need with 20-30% of the population what are we to do with everyone else?
In an earlier time when there was excess population a variety of solutions were used to bring things into balance, some deliberate and some not.
- Pestilence caused by overcrowding and malnutrition caused large numbers of deaths, especially among the very young and old. This left the more productive members to do the work.
- Military adverturism was used to obtain resources from neighbors or to expand the land available for cultivation. This remained a popular option up through the end of WWII. It is still going on in poorer regions of the world, especially in parts of Africa. The loss of life also helped restore the balance between workers and consumption.
- Emigration was handy as long as there were places for people to go. The safety valve of the US frontier allowed for the huge influx of people to be accommodated for 200 years. This has ceased to be an optimal solution since only poor lands are now available for new settlement. In the US it has meant moving into the desert areas, while Europe is under strain from those from the east and south who are attracted to its relatively better living conditions are are becoming immigrants, in many cases unwanted.
- Make-work projects were popular in the USSR and in Maoist China. The ideology demanded that everyone work, so to maintain the myth that the system was functioning well, jobs were invented for everyone. It also helped that both societies were coming off a feudal base and still had large peasant populations that engaged in inefficient agriculture. Thus the need for many superfluous factory jobs was kept to a minimum. The succession of wars and civil unrest from the 1890's to the 1990's also meant that there was a continual drain on the work force due to excessive death and disease.
- Localism also limited labor competition. With transport being expensive and difficult and the lack of a reliable international system of trade funding and commerce, regional labor inefficiencies could be maintained despite potential competition from further away. Now a farmer in rural Africa can be put out of business in a few days by a shipment of cheap grain from the US. Similarly labor intensive work in high wage countries can be replaced by low wage work elsewhere and cheap transport of finished goods to the final market.
There have been two fundamental changes in the past 50 years that make all prior solutions unworkable for the future. They are interrelated and both relate to population. In 1950 the world had 2.5 billion people, it now has 6.5 and will reach 9.5 by 2050. Such growth is unprecedented both in the rate of increase and in the actual growth in numbers. This sudden population growth has created the second change - limits on resources on a global scale. In the past when local resources became overused people would migrate as I mentioned above. The world was "empty" enough that this was frequently not too difficult. Furthermore the absolute numbers tended to be small. So that even if an entire society failed only a few thousand would be affected.
People can no longer migrate in large numbers, in fact the movement from the land to cities which has been taking place in poorer countries is only making the situation worse since these people have no way to make a living off the land as their ancestors did. The world is now mostly "full" and this is putting a strain on resources, including arable land and water. So what is to be done?
1. Population growth control must become systematized. Only China has any sort of policy in place for limiting population growth and it is highly flawed. The latest defect to emerge is the rising imbalance of boys over girls as families abort girls so that their one child will be male. There are stories about similar happenings in India.
The best way to limit population growth in high growth areas is through the education of women and changes in cultural patterns which will allow them to earn money outside the home. Educated women have less children and those that they do have are also better educated and more productive. Educating women is one of the cheapest things that can be done in a developing country since teachers are paid at the local wage level and there is no need for massive development or trade policies to be put in place. There is also little scope for corruption which may be why this isn't a more popular option.
In developed countries birth rates have already dropped and if governments would only stop fretting these societies would be stable or even start to decline in size slowly in the future. I'll discuss why this is opposed later.
2. Consumption must be equalized and constrained. Those at the top must consume less, a lot less, while those at the bottom must get more that the $1-2 per day that over one billion subsist on. Giving each of these people an extra $1 per day would cost about $400 billion per year. We just gave one firm, AIG, $180 billion. I think the world can afford the $400 billion, it's all a question of priorities. How to inject this money into local economies is a subject of endless debate and I won't go into it here, but there are enough examples of successful anti-poverty programs in poor countries to serve as templates. Done right those who could be working would be under this policy.
In the wealthy countries we need to shift away from consumerism. I realize this will decrease the demand for labor and I'm arguing that we have too little work to go around as it is, but we now insist on generating demand so that people will have to work to satisfy it, I want to break this connection.
3. Break the work to live cycle. Advanced societies don't need to work full time to live. In fact I've already stated that we have more people than are needed to supply the essentials. Several hundred years of (mainly) Christian teachings have promoted the "virtue" of work, but societies outside this tradition have viewed things differently. Many of them regard living as the essential thing and do just enough work to meet needs. When such societies have come up against the Protestant work ethic described by Max Weber they have been regarded as lazy and in need of missionaries to show them the error of their ways.
Some of this still exists in the US, although I don't think most people would state it in the same terms. There are certain sectors of the population that prefer leisure to work and do just enough to get by. Rather than understanding that they have other priorities in life they are treated as loafers and free loaders. I'm promoting adopting lifestyles which can get by on less work. So instead of being forced into make-work jobs people would just do more rewarding things with their time.
With people doing less work then what needs really to be done can be spread around to more people. Traditional job sharing is usually cast in terms of fewer hours per week, but what about a shorter career period? In the Utopia "Looking Backward" by Edward Bellamy, not only were hours worked inversely proportional to the unpleasantness of the task, but people retired at 45. They then spent the rest of their lives on self improvement, communal activities and the arts.
4. There are many tasks that are not being done adequately, but many of them are because they are "uneconomic". If we paid people to take care of their children and the elderly we would improve the lot of many. Right now we have perverse incentives in place. A woman can go to work and then pay someone to care for her children. This adds to the GDP while having her stay at home and do the same task herself doesn't. Because the "success" of a society is measured by GDP and other financial yardsticks human welfare and life satisfaction are left out of the equation and policies to promote them are not instituted.
There have been cases where women have been paid baby bonuses, because leaders were afraid there wouldn't be enough men to fight future wars and staff the factories. If incentives can be paid under these conditions why not as a regular feature of life?
In addition paying people to do tasks now usually considered as volunteerism would add an overall benefit to society. This means things like mentoring children, teaching reading and language to immigrants, driving people to doctor's visits and the like. Much unemployment exists while there are unmet needs. This is all because everything is measured in financial terms, not in humanistic ones.
5. Finally we need to support leisure. For centuries people have been persuaded to give up their free time because hard work will be rewarded in the hereafter, but there is no evidence for this. Better to enjoy the one life you know you have. Society can foster leisure activities that don't consume large amounts of resources. This means more arts, sports and community activities. A bit of sitting at a local bistro and chatting with friends can go a long way. The popularity of online communities shows that people are starved for this type of interaction. People are not by nature solitary creatures and more community is a net gain for all. I call it dancing in the streets.