I recently took a class based on David Korten’s Change the Story, Change the Future. I would call his view of economics as pessimistic and his solution as overly optimistic. I would also say that his book was repetitive; he could have put his message in about ten pages.
He thinks that if we have a “living economy for a living earth” that life will be so much better for everybody. My thought is that it ain’t going to happen.
He envisions us living in small communities that rely on local resources. We will have more public transit and trains for travel between communities. Instead of flying between continents we will take ships. Oh, yes, we will be connected by high-speed internet.
First, I don’t think most of us want to live on local resources. We want our bananas, coffee, and chocolate: none of these can be grown locally without lots of well-insulated greenhouses. And will every local community have access to sufficient glass for these greenhouses?
Second, we will need large corporations to provide the steel for the rails, build the trains, provide the fuel or electric power to drive them, and provide the Internet. But he repeatedly dismisses large corporations and their “corporate robots”.
Third, by having ships instead of planes, he will deprive many of visiting other continents. If a ship takes four days to cross the Atlantic, then a vacationer would use up over a week getting to Europe and back. I wonder how soon a four- or five-week vacation would be available to most Americans.
A more realistic bit of optimism is provided by No Ordinary Disruption by Richard Dobbs, James Manyika, and Jonathan Woetzel. It is subtitled “The Four Global Forces Breaking All The Trends”. These trends are urbanization, accelerating technological change, an aging world, and greater global connections.
More and more people want to live in large cities, not on farms, small villages, or even exurban developments. They want to be in large cities where there are more opportunities for work and leisure. China, once a land of peasants has several mega-cities and dozens of cities with populations of 250,000 or more. Many people whose parents were peasants now have middle-class jobs.
If you are over thirty, you can remember when cell phones were not ubiquitous. Now even farmers in Africa have them. Now even grandmas can’t do without their cell phones. They have more computing power in their purses than I had on mainframes in the early 70s. If you are over fifty, you may remember when 256KB was high-speed Internet. Now many areas have 100GB Internet. Given the U.S. with its quasi-monopoly of telecommunications, is it any wonder that large cities in other countries are growing faster than in the U.S.?
As more and more of us live longer, we are seeing retirement age later, more health-care costs, and higher pension costs. The number of workers that can support these trends is becoming a decreasing portion of the populace.
The greater global connections are helping in the urbanization on all the continents. An idea created in one country can spread to another country almost overnight. eBay went world-wide and soon imitators sprang up. A former school teacher, Jack Ma, started Alibaba which is now dominant in China and elsewhere. Global connections are helping money move around faster, sometimes just for increased profit, sometimes for a greater good. Reliance Communications of India was able to get three billion dollars from several Chinese banks, at interest rates significantly lower than they could from Indian banks.
Korten writes negatively about economists, basing this on the thoughts of some long dead economists and possibly Milton Friedman. Many often misquote Friedman. Paraphrasing him, he wrote “The only purpose of a corporation is to provide profits to its shareholders, within the law.” That last part is ignored by the self-serving who want to increase their own power.
This gets us to the third book, Saving Capitalism by Robert Reich. Reich is one of the many economists that Korten doesn’t even consider, like Paul Krugman, Thomas Piketty, and John Maynard Keynes.
Robert Reich rephrases Friedman with “Capitalism, alas, depends on trust.” If a car company produces cars with defects because it costs too much money fix it, will they lose money in the long run because they have lost the trust of potential customers?
Many large corporations have become untrustworthy but hide their sins by blaming the government. Reich points out that the purpose of government is to regulate the market so that it is fair to all. Remember the constitutional purpose to “regulate commerce”? The actuality is that large corporations are now regulating government in their own interests.
These interests seem to be getting themselves bigger and bigger shares of the “pie”. To do so, they hire legions of lawyers and lobbyists to sway members of Congress, state legislatures, and the regulators. They also “bribe” these government employees by hinting at corporate jobs after they leave government.
These interests also are controlling the terms of many political discussions. They complain about government regulations, but they work hard to make the regulations favorable to themselves. Have you really read the “Terms of Agreement” for which you clicked “Agree”? Some of these agreements are longer than this article. We don’t bother. But if we do have a complaint, most of these agreements state that our complaint will be settled by binding arbitration. Guess who will select the arbitrator?
Oops! I’ve run out of space. I recommend you read both No Ordinary Disruption and Saving Capitalism. Then be sure to vote next year.
This was also posted in the Reader Weekly, 2015-12-02 at http://duluthreader.com/articles/2015/12/02/6338_three_views_of_economics.
Showing posts with label Milton Friedman. Show all posts
Showing posts with label Milton Friedman. Show all posts
Thursday, December 03, 2015
Thursday, March 26, 2015
Corporations and governments: can’t have one without the other
Considering some of the shouting, one might think that politics has divided into two camps: government is bad and corporations are for the common good, or corporations are greedy and government is for the common good.
As too often is the case, the truth lies somewhere in the middle.
First, let’s look at the similarities.
Corporations and governments are organized by people for a large number of reasons. The people who organize these entities do so to provide goods and services, to make money, to be famous, or to push certain views, both altruistic and selfish. Neither type of organization is any better than the people who run the organization. Success depends more on the leadership and the resources available than on the form. Success also depends on the circumstances of the time. If a large segment of the population is not interested in an idea, it will take a lot of effort to promote the idea, whether a new product or a new law. On the other hand, if a very large segment of the population is interested in an idea, somebody in corporations or government will be working overtime to fulfill the population’s wishes.
The big difference is that the corporations are run by the few and governments are run by the many, if the many show up and vote.
As many misinterpret Adam Smith’s “invisible hand”, many misinterpret Milton Friedman’s the only purpose of a corporation is to “increase profits”.
“[t]here is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." - Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970
Many interpret this as the only purpose of a corporation is to increase shareholder value. Unfortunately, they ignore “rules of the game” and “without deception or fraud”. But what is shareholder value? Is it a continued gain in stock price? Is it a continuous stream of increasing dividends? Or could it be the long-term provision of a good or service? For example, do investors want to create a product that could take years to bring to market? Do investors want to insure that medical services can be provided to a community for decades rather than maximize profits for the short-term and destroy the community long-term?
Many point to the problems of MNSure and ObamaCare as examples of government inefficiency. But guess who provided the computers and software for these health insurance programs? Private companies!
And private companies have not been known for efficient, trouble-free rollouts of new products. How many auto recalls are there every year? Has every computer program or system you purchased or downloaded been free of bugs? It seems every time I get a notice of an app update, the description includes “bug fixes”.
In the “bad old days” of mainframes, it was really a major milestone when a computer ran a whole day without a crash. Now things are much better. My laptop, which is more powerful than any mainframe I worked on, might go a whole week without some kind of frustrating error, including freezes.
MNSure and Obamacare are massive systems requiring massive co-ordination of many pieces. As we don’t give up on our computers, we shouldn’t give up on massive projects that don’t work perfectly on the first day.
"I'm as confident of this as I would be that when the first cars didn't work well, it wasn't time to return to horses and buggies; it was time to improve the cars. This is the new technology; there are kinks to it and it's going to take some time to work them out.”
Joel Ario, quoted in “Contractor’s report slams MNsure weaknesses, readiness”, Elizabeth Stawicki, MPRNews, 2014-06-18
Are you collecting Social Security? Is your check posted to your bank account on the promised day every month? But it was not always so. Like getting computers to not crash, the rollout of Social Security was not without glitches or without critics who claimed dire consequences. Like “nationalization of wheat fields would soon follow” and Americans would be reduced to passive servility. It would take forty years of tinkering to have ninety percent of Americans covered by Social Security.
See “What about Social Security’s rollout?” Bruce J. Schulman, 2013-10-29, Reuters
An interesting contrast to the call for less regulation and taxes is the call by some of the same people for government subsidy. How many stadiums for billionaires have been built without government subsidies? How many companies have chased after the best subsidies and tax breaks to determine the location of a new office or factory? Are these the same people who say government shouldn’t be picking winners and losers?
Consider the big howl from Congress when Solyndra collapsed. But nothing was said about the success of Tesla. Both received start-up subsidies from the Federal government. Tesla paid its loans back! Also among those who received subsidies were Compaq, Intel, and Apple. Now Apple is the largest company in the world in capitalization! And looking for ways to avoid paying back its benefactor through taxes.
For a lot more on how government has fostered many other successful innovations, see “The Innovative State: Governments Should Make Markets, Not Just Fix Them”, Mariana Mazzucato, Foreign Affairs, January/February 2015.
- Mel wishes a few far-sighted Republicans and Democrats would start a Pragmatic Party.
This was also published in the Duluth Reader, 2015-03-26 at 2015/03/26/5005_corporations_and_governments_cant_have_one_without
As too often is the case, the truth lies somewhere in the middle.
First, let’s look at the similarities.
Corporations and governments are organized by people for a large number of reasons. The people who organize these entities do so to provide goods and services, to make money, to be famous, or to push certain views, both altruistic and selfish. Neither type of organization is any better than the people who run the organization. Success depends more on the leadership and the resources available than on the form. Success also depends on the circumstances of the time. If a large segment of the population is not interested in an idea, it will take a lot of effort to promote the idea, whether a new product or a new law. On the other hand, if a very large segment of the population is interested in an idea, somebody in corporations or government will be working overtime to fulfill the population’s wishes.
The big difference is that the corporations are run by the few and governments are run by the many, if the many show up and vote.
As many misinterpret Adam Smith’s “invisible hand”, many misinterpret Milton Friedman’s the only purpose of a corporation is to “increase profits”.
“[t]here is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." - Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970
Many interpret this as the only purpose of a corporation is to increase shareholder value. Unfortunately, they ignore “rules of the game” and “without deception or fraud”. But what is shareholder value? Is it a continued gain in stock price? Is it a continuous stream of increasing dividends? Or could it be the long-term provision of a good or service? For example, do investors want to create a product that could take years to bring to market? Do investors want to insure that medical services can be provided to a community for decades rather than maximize profits for the short-term and destroy the community long-term?
Many point to the problems of MNSure and ObamaCare as examples of government inefficiency. But guess who provided the computers and software for these health insurance programs? Private companies!
And private companies have not been known for efficient, trouble-free rollouts of new products. How many auto recalls are there every year? Has every computer program or system you purchased or downloaded been free of bugs? It seems every time I get a notice of an app update, the description includes “bug fixes”.
In the “bad old days” of mainframes, it was really a major milestone when a computer ran a whole day without a crash. Now things are much better. My laptop, which is more powerful than any mainframe I worked on, might go a whole week without some kind of frustrating error, including freezes.
MNSure and Obamacare are massive systems requiring massive co-ordination of many pieces. As we don’t give up on our computers, we shouldn’t give up on massive projects that don’t work perfectly on the first day.
"I'm as confident of this as I would be that when the first cars didn't work well, it wasn't time to return to horses and buggies; it was time to improve the cars. This is the new technology; there are kinks to it and it's going to take some time to work them out.”
Joel Ario, quoted in “Contractor’s report slams MNsure weaknesses, readiness”, Elizabeth Stawicki, MPRNews, 2014-06-18
Are you collecting Social Security? Is your check posted to your bank account on the promised day every month? But it was not always so. Like getting computers to not crash, the rollout of Social Security was not without glitches or without critics who claimed dire consequences. Like “nationalization of wheat fields would soon follow” and Americans would be reduced to passive servility. It would take forty years of tinkering to have ninety percent of Americans covered by Social Security.
See “What about Social Security’s rollout?” Bruce J. Schulman, 2013-10-29, Reuters
An interesting contrast to the call for less regulation and taxes is the call by some of the same people for government subsidy. How many stadiums for billionaires have been built without government subsidies? How many companies have chased after the best subsidies and tax breaks to determine the location of a new office or factory? Are these the same people who say government shouldn’t be picking winners and losers?
Consider the big howl from Congress when Solyndra collapsed. But nothing was said about the success of Tesla. Both received start-up subsidies from the Federal government. Tesla paid its loans back! Also among those who received subsidies were Compaq, Intel, and Apple. Now Apple is the largest company in the world in capitalization! And looking for ways to avoid paying back its benefactor through taxes.
For a lot more on how government has fostered many other successful innovations, see “The Innovative State: Governments Should Make Markets, Not Just Fix Them”, Mariana Mazzucato, Foreign Affairs, January/February 2015.
- Mel wishes a few far-sighted Republicans and Democrats would start a Pragmatic Party.
This was also published in the Duluth Reader, 2015-03-26 at 2015/03/26/5005_corporations_and_governments_cant_have_one_without
Friday, January 09, 2015
Incomplete quoting to fit ideology
Many who want government to stay out of corporate affairs quote Milton Friedman with “The only purpose of the corporation is to maximize shareholder value.”
However, he actually had a more nuanced statement:
"There is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
See “The Benefits and Costs of Social Investing”, Alex Brian, Morningstar, 2015-01-07.
Too many forget everything after “so long as it stays within the rules of the game…”
Also, who should be the arbiter of “the game”? The Chambers of Commerce? But Chambers interests are those of its members. Government? Horrors! Who else do we have that could be “impartial”?
Note my use of “could” rather than “can”. Too many corporations work to get government to make decisions favorable to themselves without regard to the “General Welfare” stated in the U. S. Constitution.
What we have is that the “rules of the game” as manipulated by corporate interests often lead to lots of “deception or fraud”.
However, he actually had a more nuanced statement:
"There is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
See “The Benefits and Costs of Social Investing”, Alex Brian, Morningstar, 2015-01-07.
Too many forget everything after “so long as it stays within the rules of the game…”
Also, who should be the arbiter of “the game”? The Chambers of Commerce? But Chambers interests are those of its members. Government? Horrors! Who else do we have that could be “impartial”?
Note my use of “could” rather than “can”. Too many corporations work to get government to make decisions favorable to themselves without regard to the “General Welfare” stated in the U. S. Constitution.
What we have is that the “rules of the game” as manipulated by corporate interests often lead to lots of “deception or fraud”.
Friday, April 12, 2013
Dictatorship of the directorate
I've long promoted the idea of withholding votes for directors of companies who are paid too much. Well, even if all the shareholders withhold their votes, the directors of many companies get to keep their jobs. All that is required is a plurality of votes. Since one vote with no opposition is a plurality, they get to keep their jobs. And their perks. And accumulate more shares. And run the company without any consideration for the owners. Instead of Milton Friedman's corporate purpose of "shareholder value", they run the company for "director value".
For more, see "When Shareholder Democracy is Sham Democracy", James B. Stewart, New York Times, 2013-04-12.
For more, see "When Shareholder Democracy is Sham Democracy", James B. Stewart, New York Times, 2013-04-12.
Tuesday, November 22, 2011
Economics made too simple
As I scanned through Yahoo Finance's main page I came across an interesting title:
"4 Misconceptions About Free Markets", Andrew Beattie, Investopedia, 2011-11-18
Because I have been writing a lot about free markets, I thought I should read this.
His list of misconceptions is
Inflation is Inevitable
Governments Can Save Us
Free Market Means No Regulation
Taxes Don't Affect Output
He writes that inflation is a result of printing presses and is a tax on income. He writes that because inflation lessens the real value of debt, then only government benefits. Oh, others that borrow money don't benefit from inflation? And inflation is not caused by companies raising prices to increase profits? Or workers wanting higher wages? Or…
I won't go into his government section. Suffice it to say that he treats government as some foreign king that rules over us. He forgets that government is us, and we get only as good a government as we choose to elect. He does perpetuate the myth of "the expensive toilet seat". The toilet in question was a specialized toilet for a reconnaissance plane that would be aloft for 24 hours or more.
He thinks that customer feedback is sufficient regulation. Oh, and what customers were giving feedback to factories polluting air and water? And what customer regulation is going to prevent somebody putting a junkyard next to Beattie's house?
He looks as taxes as only something shifted from one group to another. Taxes are really a mixed bag. Without government investment in roads, schools, science, and many other things, much economic development would not have happened. Ironically, his article is available to the whole world at the click of a mouse because the military financed and promoted research into interconnected communications.
Finally, he writes, "The economics of Adam Smith, Fredrik Hayek and Milton Friedman are simple and straightforward…" Well, I haven't read much Hayek but I've read a couple of Friedman's books. These had much too praise, but also a lot of wishful thinking. If you've read any of my excerpts from the "Wealth of Nations" you know that Adam Smith is anything but simple and straightforward.
"4 Misconceptions About Free Markets", Andrew Beattie, Investopedia, 2011-11-18
Because I have been writing a lot about free markets, I thought I should read this.
His list of misconceptions is
Inflation is Inevitable
Governments Can Save Us
Free Market Means No Regulation
Taxes Don't Affect Output
He writes that inflation is a result of printing presses and is a tax on income. He writes that because inflation lessens the real value of debt, then only government benefits. Oh, others that borrow money don't benefit from inflation? And inflation is not caused by companies raising prices to increase profits? Or workers wanting higher wages? Or…
I won't go into his government section. Suffice it to say that he treats government as some foreign king that rules over us. He forgets that government is us, and we get only as good a government as we choose to elect. He does perpetuate the myth of "the expensive toilet seat". The toilet in question was a specialized toilet for a reconnaissance plane that would be aloft for 24 hours or more.
He thinks that customer feedback is sufficient regulation. Oh, and what customers were giving feedback to factories polluting air and water? And what customer regulation is going to prevent somebody putting a junkyard next to Beattie's house?
He looks as taxes as only something shifted from one group to another. Taxes are really a mixed bag. Without government investment in roads, schools, science, and many other things, much economic development would not have happened. Ironically, his article is available to the whole world at the click of a mouse because the military financed and promoted research into interconnected communications.
Finally, he writes, "The economics of Adam Smith, Fredrik Hayek and Milton Friedman are simple and straightforward…" Well, I haven't read much Hayek but I've read a couple of Friedman's books. These had much too praise, but also a lot of wishful thinking. If you've read any of my excerpts from the "Wealth of Nations" you know that Adam Smith is anything but simple and straightforward.
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