Thursday, November 06, 2008

Democracy=capitalism=evolution part 3: The Bad

"We can have a democratic society or we can have the concentration of great wealth in the hands of the few. We cannot have both. "

-Louis Brandeis
This is part three of a series of posts on capitalism, democracy and evolution. Please make sure you have read parts 1 and 2 first.

Addmittedly, this post has gotten much easier recently. Ever since the worldwide financial markets melted down, massive goverment bailouts were floated and financial institutions collapsed under the crushing weight of their own poor choices, it has become much easier to note and explain the flaws in capitalism. But I want to conclude this blog post series by looking at the issue from the same specific vantage point as the others in this series: a comparison between the forces that drive democracy, evolution and capitalism, and the parallels between them. Because there are perils inherent in these forces, and we would do well to heed and mitigate those perils, as much as we can.

Perhaps the single greatest mover in evolution is species extinction. Species extinction is required for the continual pace of evolution. We exist on this planet and thrive largely because of the billions of species who have been wiped off. Whether they were exterminated by a meteor impact, as were all species of dinosaur, or by being out-competed (as were the Neanderthals who once co-existed with our ancient acenstors), countless species no longer inhabit the earth. Extinction is required for new species to thrive because of the limited nature of resources. If a given species no longer competes for food, habitable land or other commodities, it opens up a niche in which a new species can emerge. So extinction is often the instigator of evolution. Further, it can also be the product of evolution. A new species better able to compete for a limited resource will often push another to extinction simply because they are better evolved to harness that resource. Nature is a harsh mistress, and we would all do well to remember that we exist merely as a result of the billions of species who died out to make way for us.

The problem is, when we extend this concept to capitalism, we can see it destroy people's lives. The clearest example of this is the current trend of outsourcing manufacturing to China. This has resulted not only in a raised standard of living for China, but for ourselves, as well (from a consumer products point of view). The massive drop in the prices of consumer goods has allowed us to explore new products to an extent we never would have otherwise. This isn't just pointless consumerist crap theory either. Everything from clothing to housing materials, from computers to telecommunications has been affected by this; it has allowed new ways of doing business and has drastically affected our ways of lives. But at what cost?

Because you see, nothing is really produced in the West any more. GM and Ford are struggling and relying on government handouts to stay afloat. Technology and textile companies have either closed up shop or moved overseas (even Levis, long a bastion of American production, no longer make any jeans in the United States). The American, Canadian and British manufacturing sectors are dying. And this trend will only continue: consumers pick less-expensive products, so nearly any company that chooses to produce locally will be out-competed by those who take advantage of the cheaper labour overseas; companies that produce in America will be rewarded with their own extinction. Many people feel that we are shopping ourselves into unemployment.

Of course, the market will correct for this. We will develop new avenues of revenue, new ways of doing business, and new areas of specialisation. If the global free market is about only one thing, that's it: specialisation. China has been able to leverage its huge population and lack of employment and safety standards to create a cheap, disposable workforce capable of churning out discount shoes by the cargo shipload. We blithely look the other way on human rights issues and the health and safety concerns, because who wants to pay double prices for their Nikes? Our specialisation has gone the other way: we focus on innovation and finance, service and ideas. These are the specialisations where our comparatively-highly-educated workforce can thrive. And in time, it will all balance out. As more and more of china's labour market is put to work, internal competition for jobs will increase and prices will rise. Eventually, the massive advantage they enjoy will dissipate. Simply put, the rising standard of living in China is a double-edged sword for them: soon there will be so much internal wage competition that it will be too expensive to hire them. This has already started to happen in India, where rising salaries have made offshoring less desireable than it used to be.

But the catch to these forces is time. Are we willing to watch the American economy spiral into depression in order to wait for Chinese labour to get more expensive? What if it takes 25 years? Evolution is amoral-it's a natural process and bears no thought to what we think of as right and wrong; if a species is ill-adapted, it will die, and that's just the way it is. But we as a people do care about right and wrong. Are the cheap televisions and shoes worth seeing average working people in our nations suffer for decades? Is it worth losing (possibly forever) control over our own production? There's a balance to be struck, when weighing up such options, and far too little thought has yet been paid to that.

The second danger that emerges from the evolution-capitalism parallel is that of short-sightedness, and it is this danger which has so recently and dramatically reared its ugly head. Because both forces (and political evolution too) are short-term reactionary processes. Species don't evolve according to what the conditions will be like, they evolve to what the conditions are now. People vote based on the current issues and political climes, not what they predict the world will need in some years' time. And stockholders make decisions for the direction of their companies based on short-term projections and market conditions. Often to their detriment.

Nowhere is this clearer than in the current "credit crunch", which was sparked by the failure in the US sub-prime lending market. A lack of regulation allowed (and almost required in many cases) banks to lend money to people who realistically were never going to be able to pay back the loans. And the thing was, from a typical capitalist point of view, this totally made sense. There was intense competition for new loan customers, and the US and UK were in the middle of a huge housing boom. Surely the money wold come back somehow. And further more, all those competitive forces, so shrewdly modelled after evolution? They would have crushed banks that didn't do it. The shareholders would have seen a dwindling of market share and revolted, and any potential customers would see that bank as small and less-capable. Further, the short-term loss of revenue would have made the banks less competitive. So from a pure market standpoint, in the short-term, the banks had to give these stupid loans. Because the market tends to ignore the long-term in favour of the short.

Similarly, many companies, when faced with slowing profits or a soured economy, will dump employees left and right, trying to cut costs. However, this is often a terrible strategy in the long-term. Apple is as successful as it is today largely because it bit the bullet and kept on its employees in the early 2000s, after the dot-com bubble burst and the tech industry took a pounding. They poured money into research and development, and were able to innovate their way to success. IBM did a similar thing, with equally successful results. On the other hand, Gateway divested itself of thousands of employees, and eventually tanked, selling off parts of itself to a variety of different countries; Motorola similarly laid off a staggering 50,000 employees, and is now struggling to find its place in the market. In both cases, short-term decisions were made that hurt the companies in the long haul.

Finally, the weakness in the market is where the evolutionary comparison falls down. That is the issue of collusion. Because we don't work solely on our instincts or what is best individually. Cartels such as DeBeers will actively work to counter market forces, one of the few times that the long-term is actually examined thoroughly. Companies will create artificial product differentiation, mislead consumers or spread FUD (fear, uncertainty and doubt) about a competitor to try and trick people into buying a specific product. All of these work against the idea of a natural selection.

That fault, however, can actually be our salvation. Because humankind is unique on this planet in our ability harness foresight. We are not slaves to our instincts, nor are we incapable of thoughtful reactions. We can plan, scheme and werigh up different alternatives. And to my mind, this can be our greatest strength. Clearly the market forces are powerful. Also, as I stated in earlier posts, there are significant benefits to the market; I would never espouse a fully socialist/communist agenda, as such a concept has been shown time and again to be inefficient and a poor methodology for giving people what they want and need. However, equally crazy is an unfettered, unregulated free market. As the former employees of the Lehman Brothers about the perils of letting the market rule your every whim.

Only the craziest of free marketeers would ever espouse a total lack of regulation. Without regulation, companies would pollute the land, slaughter innocents and consume every resource they could lay hands on, all if it would attract a single new customer. They would lie, cheat and steal their way to profit, the only motivator that would matter. So clearly we need regulation to some degree. This article from Yahoo shows how thoughtful, well-planned regulation can be used; the Canadian banks have remained largely strong during this economic storm, due largely to legislation that prevented them from wantonly giving loans to everyone with a pulse.

Government has a role to play in all of this. I am not a bleeding-heart socialist, but neither am I a total libertarian. Government can use a light touch to mitigate the failings of the free market system in a ways that the businesses themselves never will. Whether that's limiting trade with China, or applying conditions that make them adhere to basic working standards, or whether it's preventing greedy, short-sighted financial institutions from running amok with the public's money, governmental regulation has a role to play in the market. But it's difficult for them to do, because they are open to extinction as well, from a short-sighted public; a group of people who want prosperity and splendour, but lack the motivation and training to truly evaluate long-term consequences (good and bad) of policy. So sometimes the government has to make choices that are unpopular. It might mean you can't afford to buy a house right now, but if you couldn't truly make the payments anyway, that's a sacrifice that might have to be made to prevent another depression.

Our role in this is as the evolutionary force behind the political wing. We can push our politicians to do better. Reward those who make the difficult but correct decisions. It might mean your next TV costs more, it might mean that your line of work is made obsolete and you need to re-train. But try to evaluate the politics and the economy for what it is: a fragile balance between the immediate future and the generations to come. We are more than merely a collection of instincts honed by millennia of evolution: we can plan for the future in a way nothing else we've known can. Let's flex those muscles and demand a better world.

Sidebar: VHS vs. Beta This is a small note to respond to a comment that came in the facebook note of my first posting in this series. The assertion that was made in that comment was that the VHS vs. Beta format war of the 1980s was an example of collusion-that JVC and co. basically paid the movie industry to side with them, and Beta-a better technology-was killed off. THis has repeated itself to a degree with BluRay vs HD-DVD.

What I would say to this is yes, collusion between companies to subvert market forces played a significant role. However, the "Beta is better" claim is one of the assertions I hear all the time, and I wanted to clear one thing up: Beta was not better in every way. Picture quality was better, and the tapes lasted longer. True. However, at the time VHS was released, Beta could only hold one hour of video. This made it unsuitable for taping movies off the TV, as well as for containing an entire feature-length film from the studio. This, it turns out, was a major failing for the format. Sony had gambled that picture quality was more important to the public, and they were wrong. YouTube shows that people prize convenience over image quality in many cases.

So I think that Beta died quite rightly. By the time Sony released a version with an extended playback time, it was too late. VHS had become the format of choice (it was also much cheaper, incidentally) and Beta eventually faded to obsolescence, witht he exception of its professional counterpart, BetaCam, which was a different format and was used for decades in professional recording. In this case, though collusion was present and counter-acted the market forces, it was the market that decided: Sony had created a format well-adapted to some things, but not those things which the market prized. They were poorly adapted for feature-film recordings, and were thus made extinct by the comet of VHS.
"Having created the conditions that make markets possible, democracy must do all the things that markets undo or cannot do."

-Benjamin Barber

1 comment:

John said...

In democracy, votes are the ballots. In capitalism, it’s money. In democracy, a clinic will be built if the majority of voters vote in its favor. It will keep in operation as long as people don’t vote it out of existence. In capitalism, a clinic will be built if enough people pool the money for its construction and it will keep in operation as long as it makes a profit—that is, as long as it ends up receiving more money than it gives away.

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