[R-P] (Inglés) Comercio, desarrollo y mercados "monstruosos" (2 de 2)

[Nestor Gorojovsky]

Utilitarian ethics presumes that moral discussion originates from the
point of view of the individual ego. It consequently construes all
values as personal possessions. Christianity, Islam, Buddhism,
Confucianism, Marxism and other similarly comprehensive outlooks 
believe
that utilitarianism is mistaken in this. These outlooks begin by
recognizing that individuals do not atomically exist: "The real 
nature
of man is the totality of social relations," as Karl Marx asserts. 
Hence
values are social and cannot be adequately defined by an inventory of
personal possessions. Quality of life cannot be measured by a bank
account or by similarly assessing personal possessions, including,
perhaps, how a person is progressing in his or her self-chosen life
purpose. Somehow the public dimension must also be assessed, not as
utilitarians would do this - to reduce obstacles to private projects -

but in the sense of measuring dedication to a goal, such as justice, 
or
realization of other social values, such as brotherly love.

The issue of wages is a serious one in market economics. The 
suppression
of normal wage rises from truly free-market forces is accomplished by
government anti-inflation policies based on a "natural" rate of
unemployment - what economists call non-accelerating inflation rate 
of
unemployment (NAIRU).

American writers such as Henry Demarest Lloyd (Wealth Against
Commonwealth), Ida M Tarbell (History of The Standard Oil Company), 
and
Lincoln Stephen (The Shame of The Cities) exposed the inequity to 
herald
the rebirth of American populism in early 20th century. In 1912, a 
third
political party came into existence in the US, known as Progressives. 
In
response, monopolists rallied around Herbert Spencer's Social 
Darwinism
of "survival of the fittest". The problem of Social Darwinism is that
all workers will eventually die off and the rich would have to wash
their own dishes, a fate the rich avoid by keeping the unfit 
surviving
at subsistence.

Social Darwinism went out of fashion in the US in the 1920s, defeated 
by
undeniable socio-economic litters of its failure, but conservatives
found a new line of defense against organizing the economy for
collective benefits. They argued that while the aim was desirable, 
the
task was beyond human capacity and that even if doable, the direction
was alien to American values. The October Revolution gave this line 
of
argument substance. If Russia had it, Americans did not want it, 
despite
the fact that much of the economic planning by the early USSR was 
copied
from highly successful US war planning efforts.

During World War I, while money wages increased all around, the lower
wages increased more than the cost the living. Labor benefited from 
full
employment. The railroads, shipping and shipbuilding were taken over 
by
government, resulting in huge increases in productivity. The same
happened after World War II.

The theory of rising wages asserts that employers should understand 
that
rising wages are the only venue of assuring strong demand for their
products, supported by the theory of technology-driven productivity
increases, and the broad-based ownership of securities to spread 
wealth.
The historical data show that the largest average increases in
purchasing power have taken place at recession times when employers 
and
bankers tried their best to keep wages down, but the stickiness of 
wages
made wage deflation slower that price deflation, as in the 1920-22
depression. The result was that when full employment returned in 
1923,
US workers had higher purchasing power than they had in 1920. But
average manufacturing worker's yearly income decreased by $55 between
1923 and 1928, a miner's income by $187. Falling wages amid 
prosperity
was a major structural cause, albeit little noticed, of the 1929 
crash.
If wages had been higher, equity prices would not have risen as much,
thus dampening the speculative fever. Wealth effects from the
speculative boom made low wages tolerable and caused a corresponding
rise in debt without altering prudential debt to equity ratios. But 
when
the speculative bubble burst, debt-equity ratios skyrocketed and 
there
were insufficient wage levels to sustain consumption. Similar 
conditions
appear to be facing the US economy now.

After the 1929 crash, the economic downward spiral was caused mainly 
by
falling wages. Despite all promises of maintaining production, goods
could not be sold as fast as they were produced because of a collapse 
of
income due to layoffs and wage reductions. Globalization in the past 
two
decades temporarily kept US purchasing power increasing despite a 
slow
growth of domestic wages. This resulted from still lower wages in the
emerging markets. Now the world is awash with overcapacity in 
relations
to low demand caused by insufficient wage levels. For the past three
years, China is the only nation that has adopted a wage policy to
stimulate domestic demand, which has been largely responsible for
China's continued growth in the face of global recession.

The failed first Hoover Plan of holding the industrial status quo and
injecting "confidence" was built on the theory that nothing much was
fundamentally wrong and that what was needed was for everyone to go 
on
as before. When this theory failed to arrest the downward spiral, US
president Herbert Hoover shifted to a second phase, admitting that
something was amiss, that in mysterious ways the system had gone off
track, but the remedy was to let the excesses run their natural 
course
without government interference. The economic system if left alone 
was
deemed a self-compensating mechanism through market forces, and would
eventually restore equilibrium. Wages should be allowed to sink, 
which
would reduce costs and profit would return and give incentive for
renewed production, which would create jobs, etc. No one asked how
falling wages could promote sales and what good were low production
costs without sales. This was the forerunner of supply-side 
economics,
which even in the early phase of a boom would accelerate the downturn
because it by design leaves demand behind supply - a classic case of
increasing speculative risk for production in hope that demand will
follow. Production in the absence of ready demand is pure speculative
investing. It is suicide as a cure for a recession. Yet current
policymakers in many countries subscribe to the same faulty theory,
hoping for a "recovery" without having to correct structural defects 
of
the system.

The notion that market capitalism is superior as an economic system 
is
only a recent invention. And its success in the past decade has been
propped up by complex geopolitical factors. From the 1930s to the 
1950s,
the US in fact adopted many aspects of the Soviet model of planned
economy. In 1931, a book about Russian planning, New Russia's Primer 
by
M Ilin, was one of the more popular monthly choices in the Book of 
the
Month Club. Stuart Chase, an economist at the Massachusetts Institute 
of
Technology (MIT), proposed a Peace Industries Board as a successor of
the War Industries Board of 1918 and historian Charles Beard 
suggested a
National Economic Council to organize industrial syndicates regulated
under the theory of public-utility control and supplemented by 
planning
agencies for agriculture, public works, foreign trade and the 
rebuilding
of cities. A committee of the National Progressive Conference in 1931
published a memo on "Long Range Planning for the Stabilization of
Industry". Schemes for planning by separate autonomous industries
according to the principles of trade associations or cartel came from
many business sources, from Gerald Swope of GE and even the US 
Chamber
of Commerce. National planning was the mantra of the day. The 
National
Bureau of Economic Research put together the figures that came to be
known today as GNP (gross national product), NNI (net national 
income)
and other indices. The growth of US higher education was a centrally
planned affair. The Federal Reserve Bulletin on money credit and
industrial production was issued for the purpose of planning. The
profession of economics itself grew up in the US under the aegis of
planning. Hoover was also a planner. He attempted to save capitalism
through government planning by abandoning laissez faire and threw
government credit into the breach to protect the great capital hoard
from the onslaught of deflation, not unlike what US Federal Reserve
chairman Alan Greenspan is trying to do to prop up the over-valued
equity markets today.

Hoover, while in the name of laissez faire vetoing government 
measures
to help the unemployed, was at the same time unleashing government to
interfere with the free play of market forces to protect the centers 
of
economic power. The net result was history. Not until president 
Franklin
D Roosevelt adopted Keynesian and many so-called socialist measures 
of
demand management did the US economy stir, and it remains 
controversial
today whether a Keynesian program could have succeeded without World 
War
II. The RFC (Reconstruction Finance Corp) was established at the end 
of
1931 to prevent pending bankruptcies by lending government guaranteed
funds raised from tax-free debentures ($1.5 billion) to banks and
business corporations that were frozen out of the credit market - and
the loans were even kept secret to protect the credit ratings of the
corporate borrowers. Its original two-year temporary life was 
extended
to well beyond the end of World War II, until 1950, financing war
expenditure in the interim. The planned economy did not came under
attack in the US until well into the final phase of the Cold War, 
with
the rise of supply-side economics in the late 1970s.

Warren Nutter made a well-known study in 1962 for the National Bureau 
of
Economic Research: The Growth of Industrial Production in the Soviet
Union. It estimated the percentage of planned output achieved by
important industries at the end of successive five-year plans, in
"value-added" terms. The first five-year plan (1928-32) achieved 75
percent of its target, the second (1932-37), 76 percent. The plan 
ending
in 1950 achieved 94 percent and 1955 achieved 99 percent. The area of
trouble in Soviet planning was in agriculture, not so much in the 
state
farms but in the collective farms made of small farmers. The knotty
problem of reward and incentive in collective enterprise has yet to 
be
solved by human ingenuity. The same was also true in China. When 
China
abandoned collective farming, the agricultural problem also eased. 
Even
in the US, free-market principles never touched agriculture, which 
has
remained a fortress of government subsidy.

The Agenbeguan report, published on July 9, 1965, in the New 
Statesmen,
gave a revealing assessment of the Soviet economy as still backward 
in
industrial production compared with other developed economies, even
though Russia had come from a lower base. The USSR had as many 
machine
tools as the US, but some 50 percent of them were in constant repair.
Production was siphoned off to maintenance. The report proposed a 
form
of just-in-time inventory (in 1965!). And the agricultural problem 
had
not been solved (and would not be solved by the end of the USSR and 
is
still not solved today). The report focused also on rising 
unemployment,
which had been denied in official figures. The report identified the
defense sector as the cause of these problems. It was a direct attack 
on
incompetent management disguised as planning.

This is an important point. The US excels in corporate and strategic
planning, despite the myth of free enterprise and competition. The
Soviets erred by neglecting the science of management and suffered 
from
both excessive centralization and excessive democracy at the 
operational
level. Workers could not be fired or laid off by mangers and were not
particularly obliged to carry out instructions, on the ground of
political equality. China was faced with the same problem with its
copying of the Soviet model, which Chinese planners did not correct
until after 1978. In management terms, production increased in the
Chinese economy when management was given more autocratic power, not
less, despite Western wishful thinking. General Motors was not run by
democracy. There is no democracy in the corporate organizational
structure or governance, power being vested in the number of shares
rather than the corporate population. In fact, the American managers 
in
the GM joint-venture operation in Shanghai repeatedly complained 
openly
about increasing Chinese political liberalization and its damaging
effect on productivity. They longed for a return of the good old days
when the Communist Party commissar called all the shots and problems
could be solved by getting the approval of a few powerful persons 
rather
than endless levels of power centers. The Central Intelligence Agency
never predicted the collapse of the USSR, especially from structural
economic shortcomings.

There is a fundamental relationship between wages and prices. Pricing
policies of firms as they are actually practiced in the real world, 
both
by cartels such as the Organization of Petroleum Exporting Countries
(OPEC), and by market leaders in pharmaceuticals, software,
communication and by commodity producers, have one thing in common.
Pricing policies across all these different economic sectors are
predicated on the proposition that price is seldom, if ever, set by 
the
intersection of supply and demand, as neo-classical economics 
textbooks
teach. The bottom line is that price determined not by supply and 
demand
but by strategies that aim at optimizing the long-term value of 
assets
and political power.

OPEC pricing is a good example. Throughout the history of oil, price 
has
been set by highly complex considerations and supply has always been
adjusted to maintain the set price. In pharmaceuticals, price is set
neither by cost nor demand. The pricing model of any new drug aims at
achieving maximum lifetime value of the drug that has very little to 
do
with current supply and demand. Microsoft's pricing model for Windows
has nothing to do with supply and demand, or marginal costs, which 
are
close to zero. Telephone charges are similarly disconnected from 
supply
and demand, or marginal costs. Even in the auto industry, the 
dinosaur
of the old economy, where cost input is high and discounted return on
capital low, pricing is based more on complex considerations than
demand. With 80 percent of autos financed or leased, subsidy of
financing costs is the name of the game, not sticker price. Farm
commodities prices are definitely not set by the intersection of 
supply
and demand. They are set artificially high by political 
considerations
by practically all producer governments; and both supply and demand 
are
artificially distorted to maintain the politically set price. The
general consensus of mainstream economists on the global steel
overcapacity problem is to reduce capacity, not to let prices fall. 
The
Bank of Sweden Prize in Economic Sciences (Nobel Prize) was awarded 
to
Joseph Stiglitz, George Akerlof and A Michael Spence for "their 
analyses
of markets with asymmetric information". In his acceptance press
conference, Stiglitz said, "Market economies are characterized by a 
high
degree of imperfections."

Price in fact is the most manipulated component in trade. That is the
fundamental flaw of market fundamentalism. Friedrich Hayek's 
rejection
of socialist thinking is based on his view that prices are an 
instrument
of communication and guidance, which embodies more information than 
each
market participant individually processes. To Hayek, it is impossible 
to
bring about the same price-based order based on the division of labor 
by
any other means. Similarly, the distribution of incomes based on a 
vague
concept of merit or need is impossible. Prices, including the price 
of
labor, are needed to direct people to go where they can do the most
good. The only effective distribution is one derived from market
principles. On that basis, Hayek intellectually rejects socialism.

The only trouble with this view is that Hayek's notion of price is a
romantic illusion and nowhere practiced. That was how the native
Americans sold Manhattan to the Dutch for a handful of beads.

In Hayek's social philosophy, value and merit are and ought to be two
distinctly separate issues. Individuals should be remunerated purely 
on
the basis of value and not in accordance with any concept of justice,
whether it be the Puritan ethic or egalitarianism. Hayek went so far 
as
to deny that the concept of social justice had any meaning whatever, 
on
the basis that justice refers to rules of individual conduct. Since 
no
rules of the conduct of individuals can determine how the good things 
of
life should be distributed, the question of justice is moot. Since a
free market is the natural outcome of a multitude of individual
decisions, how the market decides is amoral. Yet basic human needs 
such
as safe shelter, food, health care and education are not 
distributional
issues. The world's economy can supply every human being with 
adequate
needs, but for the "market".

But according to Hayek, a spontaneously working market, where prices 
act
as guides to action, cannot take account of what people need or 
deserve,
because it operates according to a neutral distribution system that
nobody has designed. Such a distribution system cannot be just or
unjust. And the idea that things ought to be designed in a "just" 
manner
means, in effect, that one must abandon the market and turn to a 
planned
economy in which somebody decides how much each ought to have. And 
the
price for that justice is the complete abolition of personal liberty.
So, in the name of liberty, the world is forced to go hungry while
economies suffer overcapacity.

Hayek's free-market ideas have been applied to much of unregulated
globalization in recent decades, and the socio-economic damage is now
very visible. Not withstanding Hayek's repugnant social philosophy, 
even
his "scientific" claims on the effectiveness of free markets has not
been substantiated by events. A transaction requires a buyer and a
seller at a price. It is easier for a camel to go through the eye of 
a
needle than for both buyer and seller to be satisfied with any given
price. One side of a "win-win" transaction is always an idiot.

All economies are planned. Some are planned through "market" 
mechanism
in order to deny societal values, while others are planned according 
to
societal values. Demand, in the sense neo-classical economists use 
the
term, has to do with untainted market forces. Yet the manipulation of
demand against market forces is widely practiced. It is intervention
against "free" markets. Free marketeers consider the unseen hand of
government as intervention, but the unseen hand of price setters as a
cannon of natural laws.

What about supply? Neo-classical economists do not propose supply 
curves
for non-competitive markets. However, supply curves in competitive
markets are just cost summaries, and every firm has a cost structure. 
So
in that sense, the supply considerations are also completely 
relevant.
Supply and demand are two sides of the same coin and in fact quite
inseparable. In pharmaceuticals, demand is related to the illness, 
not
the availability of drugs. Many useless drugs are marketed and sold 
with
proper warnings, often at great profit (a perverse version of Say's 
law
- supply creates its own demand). Addiction to cigarette smoking 
creates
demand that leads to supply in the form of tobacco production, which 
for
centuries received government subsidy in tobacco farming. Smoking 
causes
cancer. The tobacco industry contributes to cancer research on cure 
but
not on prevention, because the hope of a cure for cancer will 
neutralize
the great threat to the future of the tobacco industry, while 
prevention
directly threatens the industry. Now, all that eventually comes out 
of
the wash in cigarette pricing models. Take the case of drugs for 
AIDS.
There is an intense debate going on regarding the pricing and
availability of "promising" drugs for human immunodeficiency virus 
(HIV)
infections. And the drugs are not available for those who need them
most, nor in areas that need them most to reduce HIV's spread, but to
those who most are able to pay for it or who are adequately covered 
by
health insurance.

It's time for a fundamental rethink of the theology of supply and 
demand
and the function of price in so-called free markets. To start with, 
all
markets are coercive, participants are seldom, if ever, free to act, 
but
are compelled to act, with very little room to reduce their 
individual
disadvantages. The law governing markets is power, with government,
being as institution endowed with the most power, always the most
influential participant. Some governments choose to control the 
market
indirectly while other choose to control it directly. All governments
reserve the right to set the rules of the market. Some governments
subscribe to ideologies that tilt toward equalization in the name of
fairness, while others subscribe to ideologies that tilt toward
hierarchy in the name of efficiency. These rules predetermine the
winners and losers, while the average market participant innocently
hangs on to the Horatio Alger myth.

Friedrich List, in his National System of Political Economy (1841),
asserts that political economy as espoused in England, far from being 
a
valid science universally, was merely British national opinion, 
suited
only to English historical conditions. List's institutional school of
economics asserts that the doctrine of free trade was devised to keep
England rich and powerful at the expense of its trading partners and 
it
must be fought with protective tariffs and other protective devises 
of
economic nationalism by the weaker countries. Henry Clay's "American
system" was a national system of political economy.

Market fundamentalism has wrecked economies all around the world. Yet
neo-liberals continue to promote the false hope that the market will
save the world from the onslaught of a severe depression. It is time 
to
rein in this monstrous institution known as the market and to plan
rationally for human development.

Henry C K Liu is chairman of the New York-based Liu Investment Group.

(©2002 Asia Times Online Co, Ltd. All rights reserved.

Néstor Miguel Gorojovsky
nestorgoro en fibertel.com.ar

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Compañeros del exercito de los Andes. 

...La guerra se la tenemos de hacer del modo que podamos: 
sino tenemos dinero, carne y un pedazo de tabaco no nos 
tiene de faltar: cuando se acaben los vestuarios, nos 
vestiremos con la bayetilla que nos trabajen nuestras mugeres, 
y sino andaremos en pelota como nuestros paisanos los indios: 
seamos libres, y lo demás no importa nada...

Jose de San Martín, 27 de julio de 1819.

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