Posts Tagged ‘incentives’
All that is solid melts into air, all that is holy is profaned.
Occupy Wall Street is the visible symptom of societal sickness induced by “bad” capitalism. It highlights the fact that more and more people are starting to think Karl Marx was right about unregulated/loosely regulated markets. An image below does a pretty good notional mapping.
Marx welcomed capitalism’s self-destruction. He was confident that a popular revolution – a grassroots revolution of proletariat spreading from city to city – would occur and bring about a communist system, an egalitarian and fair system where everyone will have his/her chance to be heard, get an employment and lead a happy life.
He understood well how capitalism destroys its own social base, the middle-class. A self-sustaining middle-class is essential for any healthy and happy society. That was the greatest contribution of Henry Ford, who created the middle-class America. As economists realize, middle-classes are the ones being most affected by bad economic practices on corporate/institutional levels and it is their movements that are currently showing their lion’s head.
Marx considered capitalism as the most revolutionary economic system in history. Hunter-gatherers persisted in their way of life for thousands of years, while agricultural and feudal societies have been in existence many hundreds of years. In contrast, capitalism (with its early roots in 9th century Muslim world) is evolutionary. It transforms everything it touches, making and unmaking societies, industries, markets and companies.
Most importantly, capitalism also destroyed the very way of life which it preached and depended upon. In the UK, the US and other developed countries over the past 20-30 years, industries have stalled, markets stagnated, job security gone away and jobs outsourced or discontinued.
More and more people live from day to day, with little idea of what the future may bring. 18th-19th century middle-classes used to think their lives unfolded in an orderly progression. It seems no longer to be the case with middle classes of 21st century. There seems to be no upwards stairs. We’d be happy if we could stay on the same level.
While capitalism created and accelerated the industrial revolution, its detrimental effect, especially during last few decades, has given to most people unstable, precarious lives. Admittedly, middle-class incomes are higher then 100 years ago, but there is little effective control over the course of our lives/careers.
Unfortunately, Western governments are quite reactive. Their panacea to the crisis is austerity. Even rich from the West now ask for austerity. They don’t realize one important thing. In Victorian times, the rich could afford to relax provided they were conservative in how they invested their money. It is no longer possible in 21st century, where even the rich get bankrupt from one day to another even without any risky undertakings.
Austerity is a band-aid, a short-term relief against current economic and social sickness afflicting most of the developed world. In a time of zero-interest rates, spending/consuming cuts, melting savings, rising prices, and contracting industries, thriftiness and austerity will yield a negative return on money and over time erode the accumulated/preserved capital.
In a society that is being continuously transformed by market forces (capitalism), one cannot abide by or get used to traditional values (and life standards) for long time, risking to end up on the scrapheap. It’s a person who borrows heavily, who starts a business, who goes on creating jobs and initiatives that survives and prospers. That is the foundation of Schumpeter‘s ideology.
Being sympathetic to Marx’s cause but going one step further, Schumpeter realized the inherent self-destructive nature of capitalism and preached entrepreneurship and disruptive innovation to counter this effect by creating and recreating new economic values, in turn resulting in societal values and traditions. Schumpeter, while thinking that capitalism will cause its own demise, didn’t think it would be by means of communism. His idea, “creative destruction,” explains well why grassroots instability takes place and what the potential cure might look like.
Our single-minded focus on the expectations market will continue driving us from crisis to crisis to ruin—unless we act now.
Says Roger Martin, author of Fixing the Game. Perhaps, he is right. Perhaps, we need to lower our expectations. Perhaps, we need to love what we already have rather than want what we don’t. That and “creating incentives for individuals to act in mutually beneficial and productive ways” (Schumpeter would agree) is what might save the Western world.
Perhaps, there is still hope.