Tuesday, January 21, 2014

the strengths and weaknesses of capitalism

A recent article by Bill and Melinda Gates (Three Myths on the World's Poor) gives the impression that capitalism is an unparalleled success story:
In our lifetimes, the global picture of poverty has been completely redrawn. Per-person incomes in Turkey and Chile are where the U.S. was in 1960. Malaysia is nearly there. So is Gabon. Since 1960, China's real income per person has gone up eightfold. India's has quadrupled, Brazil's has almost quintupled, and tiny Botswana, with shrewd management of its mineral resources, has seen a 30-fold increase. A new class of middle-income nations that barely existed 50 years ago now includes more than half the world's population.

And yes, this holds true even in Africa. Income per person in Africa has climbed by two-thirds since 1998—from just over $1,300 then to nearly $2,200 today. Seven of the 10 fastest-growing economies of the past half-decade are in Africa.

Here's our prediction: By 2035, there will be almost no poor countries left in the world.
This reminds me of a stunning video by Hans Rosling, the Director of the Gapminder Foundation which shows how much the wealth of the world has increased in the past 200 years:
You Tube version

brown – Europe
red – Asia
green – Middle East
blue – Africa
yellow – Americas

Most of the commentaries on the web praise this video to the skies. It deserves praise for its overall assessment of the progress of capitalism but there is also a tendency to fast forward through the bad times.

In 1810 the wealthiest countries were the UK and the Netherlands. The average life expectancy of every country was below 40.

Enter the industrial revolution and the wealth and life expectancy begins to dramatically improve for the countries which do industrialise. This is true although there is no mention of the appalling working conditions, the very long working hours, the child labour in the emerging factories of Britain and elsewhere. The birth pangs of capitalism led to major upheavals in 1848, the shortening of the working day, the Factory Acts, etc.

As the wealth of countries increases then so does the gap between rich and poor countries. Rosling does mention this (at 2:35). It also needs to be emphasised that the scale he is using on the horizontal wealth axis is logarithmic, showing the per annum categories of $400 (roughly one dollar per day), $4000 ($10 per day) and $40,000 ($100 per day). If he had used a linear scale then the gap between rich and poor countries would be far more pronounced. The gap between the richest and poorest countries taken from the closing and opening screens of this video is at least 100 times today compared with less than 10 times in 1810

He does mention the catastrophe of WW1 but then fast forwards through The Great Depression and WW2. It is far easier to fast forward through the bad times than live through them or explain them.

His focus is on post 1948, the boom years of capitalism.

By 1985 even in the poorest country, Mozambique on just $366 per year, the average lifespan was three years higher than Britain in 1810.

Wealth has increased but so has inequality. Rosling visually extracts Shanghai out of China towards the end, showing that it is similar in wealth to Italy. Then he extracts the poor inland province, Guizhou, and compares it to Pakistan. Finally, he shows how the even poorer rural part of Guizhou has a wealth index similar to Ghana, Africa. Certainly in this section there is no brushing over the real world problem of inequality in China.

He finishes on an optimistic note. The gap between the rest and the west is now closing. In the future it is possible that everyone can make it to the healthy and wealthy corner with more aid, trade, green technology and peace. Rosling slips into an optimistic version of political correctness in this parting message.

Some people are optimistic about the future of capitalism because of its productivity; others are pessimistic because of its inequality, anarchy of production, environmental destruction, and alienation . We need to see both sides of this picture. In evaluating the rosy picture of Gates and Rosling, I would use three criteria: standard of living, inequality and stability.

The overall standard of living has increased dramatically. Correct, capitalism has delivered in this respect.

Inequality has increased too. This is totally ignored by Bill and Melinda. It is mentioned by Rosling in places but the logarithmic wealth scale distorts the huge and growing gap here

Stability: Apart from the post war boom period (relatively stable and prosperous) capitalism has been an unstable system which can’t seem to avoid periodic economic crises. Over the next few years we will see how acute this problem will become. I'm really uncertain. I don't think anyone fully understands the inner dynamics of capitalism and its tendency to crisis. That elephant is still in the room.

1 comment:

intuitivereason said...

I'm suspect that democracy is more the problem than capitalism. Most of the problems that have occurred are more associated with firstly the transition to democracy from hierachial rule, and secondly, the long term effects of democracy. But capitalism does lead to a focus on the immediate and on the self that is not always healthy.