Friday, November 19, 2004

The Fallacy of Economics?

"And this is why I think the foundation of economics is totally wrong!"

Try understanding that when it's said by an economics professor. Well, it was something close to that, I'm sure; I can't remember the exact wording. It was many many weeks ago.

This one is for 9race, regarding a discussion from a while back. While Andrew applies his little quote specifically to the Christian movement, rather than general ideological movements as the author does, I have some comments regarding the author's economic analysis. Mind you, I totally agree with Andrew that the quote epitomizes the state of many churches and "Christians" today; churches in general have devolved from their original status as faith institutions created for a specific purpose to become social institutions where people can simply be part of a community. There's nothing wrong with such a social institution existing. However, those are called community centres. The church was originally supposed to be much more. One can trace a similar devolution in the YMCA, which was once an amazing parachurch organization, on the frontier of the Christian movement in the United States. I mean, excuse me, it's called Young Men's Christian Association.... Now it's... a place where you can go to work out. And in both the YMCA and many churches, the understanding of what being a Christian means is lost. Even the understanding of how to become a Christian is lost. One is not a car because he/she sleeps in a garage. One is not a Christian because he/she attends church.

But the economics in Wendell Berry's article. My main issue is that he focuses more on rhetoric to present his argument; I'd argue that his underlying logic has some faulty premises, creating an unsound, if not invalid, argument. I shall pull some quotes of my own from the article:
The global "free market" is free to the corporations precisely because it dissolves the boundaries of the old national colonialisms, and replaces them with a new colonialism without restraints or boundaries. It is pretty much as if all the rabbits have now been forbidden to have holes, thereby "freeing" the hounds.
Berry decries free trade and globalization precisely because of the control that corporations get in manhandling the little guy. But in taking his stance, he makes several assumptions that I believe are not true. Perhaps he makes them inadverdantly. They seem to be as follows:
1. Free trade and globalization in their current forms today truly constitute free trade
2. People are incapable of ownership, enterprise, and learning new tricks
3. Corporations are unwilling to act in a socially responsible manner
If these three points are true, then I think Berry's argument stands. However, I really do not concur that they are true.

Firstly, tariffs, quotas, and subsidies exist aplenty in this world that prevent the economic output of poorer nations from reaching the markets that are willing to buy them. Here's a quote:
The mandate of the NAMA Negotiating Group also includes further efforts to reduce or remove existing non-tariff barriers that act to unduly restrict trade. In this regard, Canada has stated that governments must retain the right to apply measures in support of legitimate objectives while regulating in the public interest in the least trade-restrictive manner possible. It is Canada's view that the NAMA Negotiating Group's mandate covers only those non-tariff barriers that are not covered by existing rules and agreements, and the scope of the Group's eventual work in this area remains to be seen.
I'm not one to say that our farmers need to become poorer. However, their self-interest in wanting to protect themselves through means like the Canadian Wheat Board, tariffs, and subsidies are slaughtering the abilities of poor nations to export agricultural products. Let's face it: the less a nation's economy is developed, the greater percentage agriculture composes for that economy. Hence, poorer nations are able to export mainly agricultural products. Except those exports hit a wall of trade barriers that exist because Canadian farmers are afraid to compete on a fair and level playing field. Free trade is not actually happening today, and what we really are seeing is an attempt by richer nations to protect themselves from becoming poorer. IMHO, this is a fallacy. But people are unwilling to look at the potential long-term benefits of comparative advantage and instead focus on maintaining the status quo because it's "safe and secure."

This leads right into my second point regarding Berry's stance. He assumes that workers are forever members of the proletariat, and are incapable of working for themselves. Free trade benefits people when they actually participate in the trade. The problem with Berry's viewpoint is that he argues that corporations have all the ownership, and therefore all the exploitation; the corporations are consequently the sole beneficiaries of free trade. No, not true. Free trade by its very nature necessitates ownership on both sides of the trade. Of course it's impossible for people to have ownership if they are only employed by the corporation; employment is an awfully one-sided trade. I think there have been plenty of cases where citizens of poorer nations have reaped the benefits of free trade precisely because they had private ownership. It means they get to keep the profits, after all. In fact, Berry makes some of these very points in the latter portion of his essay, where he talks about his idea of local economy. It's ironic that he's on the verge of actually supporting free trade; it demonstrates his potential misunderstanding of the status of "free trade" in the world.

But for private enterprise and free trade to operate properly, we need respect for the law, integrity in the system, and peace in the region. It's impossible for one to operate private enterprise if an area is run over with crime, has corruption in the government, and is constantly at civil war. This is precisely why it would be so difficult to have free trade work to improve the economic wealth of specific African nations. The droughts are a large factor as well, I'll admit. We thus have a difficult scenario: can crime decrease when one of the greater causes of crime is poverty? But poverty cannot be improved upon by free trade unless the crime is reduced. However, this issue doesn't nullify the positives of free trade, it only prevents them from working. I may also add in that I believe that such a situation is a clear result and manifestation of humanity's general sin.

As well, education is necessary. It's not free trade that caused those farmers to raze the forests to sell timber; it was short-sightedness. A wiser farmer would have seen that it was in his interest to fulfill long-term demand by responsibly harvesting timber, while at the same time maintaining the agricultural potential of the soil. Once again, this doesn't make free trade a bad thing. It only demonstrates that certain prerequisites are necessary before free trade can be implemented.

However, if these prerequisites are met, then it's perfectly possible for members of the proletariat to become members of the bourgeoisie. It is possible to teach an old dog new tricks. Just as a plumber can do plumbing jobs for himself and receive all the revenue for his services, a farmer can reap his harvest and take all the profits, or even change his vocation. People are more capable of things than they think. The Joy of Freedom - An Economist's Odyssey is filled with some great examples. I have a copy if anyone wants to borrow it. :) There is no need for us to underestimate the ingenuity, innovation, and work ethic of our fellow man (or woman!). Free trade has many general social benefits as well, that extend beyond the individual. For example, my thoughts on the effects of free trade on environmentalism can be found here. And The Joy of Freedom has some excellent commentary on how private ownership can improve the environment.

The final assumption to be rebutted is the thought that corporations are unwilling or incapable of acting in a socially responsible manner. Well, I have to admit I agree with this quote:
The folly at the root of this foolish economy began with the idea that a corporation should be regarded, legally, as "a person". But the limitless destructiveness of this economy comes about precisely because a corporation is not a person. A corporation, essentially, is a pile of money to which a number of persons have sold their moral allegiance. As such, unlike a person, a corporation does not age. It does not arrive, as most persons finally do, at a realization of the shortness and smallness of human lives; it does not come to see the future as the lifetimes of the children and grandchildren of anybody in particular. It can experience no personal hope or remorse, no change of heart. It cannot humble itself. It goes about its business as if it were immortal, with the single purpose of becoming a bigger pile of money. The stockholders essentially are usurers, people who "let their money work for them," expecting high pay in return for causing others to work for low pay. The World Trade Organization enlarges the old idea of the corporation-as-person by giving the global corporate economy the status of a super government with the power to overrule nations.
Well, I haven't seen The Corporation yet, nor have I read the book. But I have heard amazing things about it that seem to relate to Berry's words. I hope to see The Corporation soon, it was first recommended to me by a co-worker at TELUS, and I've been hearing about it ever since. But what Berry says is true. What Berry fails to realize is that the corporation caters to the customer because the customer gives the corporation bread and butter. And I think that the customer is naturally demanding ethical conduct. Nike has vastly improved its standards for labour in overseas nations. Although it still has a bad sweatshop reputation, it's nowhere near what it used to be. On the other hand, you have companies like Mountain Equipment Coop that focus on corporate environmental and social responsibility. Heck, Ben and Jerry are still a couple of hippies at heart. But my point is that if the customer wants it, the corporation will change. And the customer wants it today. So corporations are changing, while others started out that way in the first place.

Perhaps Berry's biggest problem with the concept of free trade is an ethical issue.
These assumptions clearly prefigure a condition of total economy. A total economy is one in which everything — "life forms", for instance, or the "right to pollute" — is "private property" and has a price and is for sale.
According to efficiency maxims, it is actually not optimal to eliminate crime. It is not optimal to eliminate sickness. This is because the price is too high. Eliminating crime is perfectly possible. We just need to have secret police patrolling every square inch of the street, creating systems that virtually eliminate the existence of black markets for weapons, invade the privacy of every family's home 24 hours a day, 7 days a week, etc. 1984 is a world that we do not want (though the US heads closer to it every day after 9/11). Likewise for sickness. We could pour the nation's entire economic output into AIDS research, cancer research, heck, even flu research. We could force everyone to walk around in astronaut suits to make sure that germs are never spread from one person to another. Do you see my point? Society actually prefers to endure some crime, some sickness, some social unrest, because it is not willing to pay the cost of eliminating those social bads.
And likewise, many things are consequently for sale. The right to pollute is for sale because it's too costly to absolutely eliminate pollution, and society deems the economic output of the polluter to be worth the pollution. According to this same economics professor I mentioned at the beginning, Ralph Nader once came to SFU and gave a talk. He said, "You know what's not right? If you pee into the Detroit River, you get slapped with a fine, but GM pollutes that river every day and receives no fine!" It was obvious what the fallacy was. GM creates economic output and gives back to the community something that the community deems worth an amount equal or greater than the pollution. However, when you piss into the pollution, you're not contributing anything. So you get fined for causing a net damage.

Let me be blunt. It seems to me that advocates of protectionism would rather piss on society than contribute to the economic welfare of society.


  1. I like your analysis, and I agree with you on many points. I am less optimistic about how much people are really capable of and how much corporations really cater to their public. This is because, at least to some extent, I believe that corporations create their public, and people, to some extent, are lazy and uncaring. More money is spent on creating demands and continuing wasteful lifestyles in our day than ever before. we call it advertising. Though not total, TV is one of the more effective forms of mind control ever invented. I realize that sounds harsh, and a bit out there, but the exageration is draw attention to the fact that less people have less control over things than we like to think. The moment business stopped being about meeting needs and started being about creating desires, power shifted to those with the money and ability to infiltrate the minds of the masses... its nice the corporations will give people what they want, but as often as not, the corporations already decided what we wanted becuase they could sell it to us at immense profit.

  2. Points well taken. However, it also seems to me that corporations are gradually seeing that acting in a socially responsible manner is great for their brand equity. But I'll admit that it's a difficult paradox to accept when the part of the point of marketing is to create demand; perhaps the paradox should even be rejected.

    But I have hope because of various companies that do focus on the ethics over profits (eg. Merck with their ivermectin for river blindness, Ikea and their standards for manufacturing, etc.). I joined a new group this semester: is an organization comprised of MBAs that focus on corporate environmental and social responsibility (CESR for short). However, they let pretty much anybody join the chapter at SFU. It's really interesting to see how this kind of movement is gaining steam.