BASIC CONCEPTS TO UNDERSTAND OUR ECON CRISIS

BASIC CONCEPTS TO UNDERSTAND OUR ECON CRISIS

Objetive:  Provide a report on “Current Economic Situation”

Google search: MAIN TENETS OF SMITH, KEYNES, MISES AND MARXISM ON ECONOMY

Departure article explored:

Capitalism - Wikipedia, the free encyclopedia.  http://en.wikipedia.org/wiki/Capitalism : and  "Free enterprise",  1999 film. Open Free Enterprise (film).

Here it goes: Part 1. Hugo Adan, Nov 11, 2014

(Search the meaning of all blue prints in http://en.wikipedia.org )

1- CAPITALISM (K) is an economic system in which trade, industry, and the means of production are largely or entirely privately owned and operated for profit (Oxford dict). Main features of K includes: capital accumulation, competitive markets and wage labour (Palgrave Dict of Econ). In a capitalist economy, the parties  in a transaction typically determine the prices at which assets, goods, and services are exchanged. Parties means: private-corporate owner of K goods (investment) & by competition in  production n distribution of goods in a free market (FM= free competition). (Merrian-webstern Dict:K). (Check: where a FM really exist?, if exist as pure system. If you have time to explore this, focus on condition for its existence and the minimums of states regulations to correct its defects.)

2- The degree of competition, role of intervention and regulation, and scope of public ownership varies across DIFFERENT MODELS OF CAPITALISM. These models include laissez-faire capitalism, welfare capitalism, crony capitalism and state capitalism 

(a)  laissez-faire capitalism = not State rules: no tariff, subsidies, nor public goods and services provided by the State;  only by private-property  of rich individuals or their Corp, they rule all businesses. Meaning : ”let it be, let them do, leave it alone”=jungle rule. I don’t plan to waste time on explaining this; this  belong to the past, to the time when darwinistic laws of the emerging capitalism were imposed brutally on humanity;  laissez-faire exist only in the mid of lazy people, educationally brutish people.

(b) welfare capitalism (WK): welfare means public aid to assure minimal level of well-being and social support for all citizens (specially the left behind, incapacitate, elders..) It is not charities deliver by relig groups nor cramps give away by the rich. WK=welfare State= assure basic public goods and services like universal healthcare , unemployment insurance, free basic education and housing help for the poor. In XVI-XVII Cts some utopian socialists from Europe launched ideas of  welfarism that became so popular that even entrepreneurs adopted. Then after (WK) become associated with industrial paternalism for two aims: foster skilled labor & to prevent thief, sabotage, riots & social violence form the dispossessed. In the XXCtry (WK) was considered a social right in  Northern Europe (case the Nordic model, also known as social market economy  in Germany, though with some particularities. In general this is called  Rhine capitalism). WK is also considered a social right in capitalist model s named   MIXED ECONOMY (where some features of capitalism K & Socialism S are mixed); that is a model in which market competition and planned economy  goes hand on hand.

The  Nordic model, social market economy and Rhine capitalism are all local variants of welfare capitalism (WK) and social-democrat policies.  The Nordic model or Nordic social democracy refers to  economic and social  models  of Denmark, Finland, Iceland, Norway and Sweden, which involves the combination of a free market economy with a welfare state. Rhine capitalism is the name give it by Michel Albert to describe the model of WK in Germany and France and differentiated from the Reagan-Thatcher neoliberalism. While the neo-American model builds largely on the ideas of Friedrich von Hayek and Milton Friedman, Rhine capitalism, according to Albert, has its foundations on publicly organized social security. Albert analyzes the Rhenish model as the more equitable, efficient, and less violent one.

Although there are significant differences among the Nordic countries, they all share common traits. These include support for a "universalist" welfare state (relative to other developed countries) which is aimed specifically at enhancing individual autonomy, promoting social mobility and ensuring the universal provision of basic human rights, as well as for stabilizing the economy, alongside a commitment to free trade. The Nordic model is distinguished from other types of welfare states by its emphasis on maximizing labor force participation, promoting gender equality,  and extensive benefit levels, the large magnitude of income redistribution, and liberal use of expansionary fiscal policy.

The Nordic model, however, is not a single identical set of policies and rules in every country; sometimes each country show large differences among neighbors. Sweden's neoliberal reforms have reduced the role of the public sector over the last decades, and saw the fastest growth in inequality of any OECD economy, even though Sweden still remains more equal than most societies in Europe.

The umbrella  mixed economies  includes economies ranging from the ones in USA, Canada, Russia, Cuba, China, and the Nordics, all of them with different degrees of K and S. Some of them are mixed with strong K (they are called neoliberals, neocons and their clients in developing  countries are called globalized pawns) and others with strong S (socialists, like the sieged and blockaded Cuba). The strong K is not strong anymore, it suffers a terminal cancer (the mix of frauds, corruption and wars), they have their days counted, they are obsolete and disposable specie. The  dominant trend is mixed Economy, they imply degrees of regulatory oversight and government provision of the basic public goods and services mentioned above.

The mixed economies with strong S are the ones that now leading the world in terms of Econ Growth & Development. This is the case of China, Russia, and the Nordics: Germany and the others that are now in serious Econproblems (classic ex of M Lowy dilemma: think globally and lose locally. Meaning:  They are not alternative to the US model of neoliberalism). Germany and associates can die if now they do not get vaccinate against a lethal flu that is worse than ebola: the epidemic of current US neoliberal rule.  Other common feature in all mixed economies is that they have state-run enterprises, also called SOEs (State Owned Enterprises) in strategic sectors of the economy like energy, satellite-communication tech and national security related Companies. This option is best described by some scholars as “state capitalism” and I will go further on this topic in point d.

(c)  crony capitalism . Madison stated, "Wherever there is an interest and power to do wrong, wrong will generally be done, and not less readily by a powerful & interested party than by a powerful and interested prince." From here crony capitalism can be defined as wrong cooperation between government  and business.  While this cooperation benefits the involved business and politician(s), it generally hurts the politically unconnected, and since this power and benefits relation is and foster general corruption, the whole nation is hurt by crony capitalism. Under crony capitalism it is often more profitable for businesses to spend resources lobbying  legislators for handouts in the form of grants, loans, or tax advantages, and protections against competition in order to increase their profits. In turn, the government's willingness to hand out special privileges promotes the politically well-connected rather than those who seek to earn the preference based on merits. The gains of such activities usually accrue to the businesses and politicians involved at the expense of consumers and taxpayers. Consumers have to pay higher prices due to decreased competition, and taxpayers have to foot the bill for loans, grants, bailouts, and tax breaks. Thus, crony capitalism creates a system of privatized gains and "socialized losses."

In recent years, the collaboration between corporations and government has increased. A major example of crony capitalism occurred late in the Bush administration with the large corporate bailouts implemented under TARP. Another more recent case is the Obama administration using part of the 2009 Recovery Act stimulus to support alternative energy companies like Solyndra, which declared bankruptcy shortly after accepting the government’s loan.

The mechanisms of crony capitalism are numerous: Bailouts, stimulus, special loans, too-big-to-fail, favors, mandates, barriers to entry, political appointments, tax breaks, campaign contributions, 'sole-source' procurement, “connections”, grants, government-union “cooperation”, exemptions, political insider trading, and legal bribery.  This is the real existent neoliberal capitalism in our time. Changing politicians won’t affect much this reality, doing so while pursuing the strategy of restoring the Glass-Steagall Act with a mobilized PEOPLES’ FRONT  is the only solution to crony capitalism.

d) state capitalism. Aldo Musacchio, a professor at Harvard Business School, has a broader definition of state capitalism: it is a system in which governments, whether democratic or autocratic, exercise a widespread influence on the economy, through either direct ownership or various subsidies. He also emphasises the difference between today's state capitalism and its predecessors. Gone are the days when governments appointed bureaucrats to run companies. The world's largest state-owned enterprises are traded on the public markets and kept up to snuff by large institutional investors.

This hybrid form of capitalism—state support disciplined by the market—gives state capitalism three huge advantages, according to Mr Musacchio. It produces global champions that have quickly risen up the ranks of the world's top companies. It gives companies the freedom to invest for the long-term rather than obsessing about short-term profits. And it smooths the economic cycle: state-capitalist countries such as China were much faster to cope with the consequences of the financial crisis than liberal-capitalist countries. Read the debate between Aldo Musacchio   and Ian Bremmer by opening:  http://www.economist.com/debate/days/view/802

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