One Major Reason Inequality Matters

One Major Reason Inequality Matters

August 27, 2014

To judge for yourself whether inequality matters, just take a look at this comparison of what happens in college completion for the best scoring of low income kids vs. the lowest scoring high income kids. What happens is that 29% of the low income kids with highest scores complete college, while just about the same percentage (30%) of high income kids with low scores complete college. How can this be right?

In asserting that this set of outcomes means that inequality matters, I acknowledge a key assumption, which I believe is solid, but each can decide for herself/himself:

  • I assume we agree that graduating from college is highly determinative for the vast majority in regard to their future opportunity, range of choice in their lives, and success, no matter how each individual defines that. We all recognize there will be a small minority who succeed without college, a few spectacularly, but should this mean we can all bet on such rare proceedings? Business week reports that 19 of the Fortune 500 CEO’s have no college degree at all. But, 100 of them had degrees from just three schools–Harvard, University of Pennsylvania, and Columbia. Ivy League schools had a disproportionate share.

In my post on public and private schools, also dated today, I comment on the exorbitant cost of private schools in Pacific Heights where I live. I believe these kinds of schools garner disproportionate shares of Ivy League admissions, and that an Ivy League degree is usually a ticket to a comfortable life, if not in fact, an outstanding financial success.

    The New York Times (August 26, 2014) reports that there has been little improvement in the admission of less well off students to selective colleges between 1990 and 2012–only about 15% of admissions are from a poor family background.

    To be fair, there are lots of reasons for this, and it’s not right to blame the universities for all of them. Some of it stems from the need to educate the students about those possibilities, while they are in high school. Many of the poorer families have a big need for someone with college experience and perspective to advise or even mentor their children, to get them prepared and encouraged to try for the best schools. Cost is not the main problem, since there is financial aid available, but it is also true that many colleges have to balance the low and no pay against the paying kids to achieve financial break-even.

    One example of how such support can be availed is described in another NYT article. “Communities in Schools” operates in 26 states, had 75% success in remedying cases of chronic attendance problems through mentoring and counseling, and claims a cost of only $189 per student per year.

    This is an example of the kinds of tools we can work with, even within our starved school budgets, with the help of community support organizations.

    I keep thinking we should have no disagreement between the rich and the poor on the importance of education. Isn’t this piece of it about “equal opportunity,” as distinguished from redistribution?

    References:
    Business week: http://www.businessweek.com/bschools/blogs/mba_admissions/archives/2011/01/harvard_columbia_penn_claim_most_fortune_500_ceos.html

    NYTimes Aug 26 2014: http://www.nytimes.com/2014/08/26/education/despite-promises-little-progress-in-drawing-poor-to-elite-colleges.html?hpw&rref=us&action=click&pgtype=Homepage&version=HpHedThumbWell&module=well-region&region=bottom-well&WT.nav=bottom-well&_r=0

    Communities in Schools: http://www.nytimes.com/2014/08/26/opinion/to-keep-poor-kids-in-school-provide-social-services.html?hpw&rref=opinion&action=click&pgtype=Homepage&version=HpHedThumbWell&module=well-region&region=bottom-well&WT.nav=bottom-well

    Let’s Join to Fix Public Schools–A Reflection from Pacific Heights

    Let’s Join to Fix Public Schools–A Reflection from Pacific Heights

    August 27, 2014

    Anyone who questions inequality in our society need only look at schools.
    My perspective reflects my own experience. I went to public schools through high school. My kids went to public schools through college. I’m proud of our public education. 
    School was in the 1950s and 60s for me and the 1970s and 80s for my kids.
    Since then, things have changed and the quality of many public schools has declined. My kids and I were educated before public schools were forced to campaign for donations to sustain even basic programs. 
    Today, within a three block radius of where I live in the Pacific Heights section of San Francisco, there are four private schools. According to their websites, their tuitions are:
    Drew School:              $38,500 plus estimated costs of $2,000
    Town School:              $28,170-29,245
    University High:          $37,200 plus estimated costs of $3,000
    Waldorf School:
          Nursery students:   $14,800
          Grades 1-12:          $21,400-32,400
    Together, these schools enroll 1,539 students.
    One of these schools started in 1973 and another in 1979. That was when income inequality began its steady upward rise, returning the United States to where it was at the end of the Gilded Age. The shift marked a reversal of a roughly 30-year period of egalitarianism in much of the Western world. According to the French economist Thomas Piketty, this period of greater equality reflected massive social policies enacted in response to the Great Depression and the two World Wars. Without such future epic events to serve as catalysts for social change, Piketty forecasts that inequality in wealth and income will continue to widen. I agree.
    The way education fits into the inequality story is plain. Can a family with two workers making San Francisco’s minimum wage get the kind of education for their kids provided by these Pacific Heights private schools? Can even a family making San Francisco’s median household income of about $75,000 afford such educational expense?
    In 1970, the economist Albert Hirschman advanced his “exit voice” theory. He explained that when the wealthy choose to buy high quality private services such as private schools, their exit from public services leaves only the poor to support those services. But the poor do not have much “voice” to influence government, so public services continue to deteriorate. That sets in motion a vicious circle of declining public school resources, rapid school deterioration, and more exits of those with means from the public school system.
    Where I live, enough families have incomes sufficient to pay steep private school tuitions and also contribute generously to capital campaigns.  Three of these schools have had major capital campaigns, and significantly upgraded and expanded within the past 5 years.   But, not far from me live other good parents. Their ambitions for their kids are no different than those of my wealthy Pacific Heights neighbors. However, those less affluent parents mostly cannot touch these feeder schools to Ivy League universities. The gap between the rich and everyone else is perpetuated for another generation.
    I don’t blame these four private schools–they’re all excellent. And, to be fair, they each offer financial support to some students. Nor do I blame the parents who send their children to these schools. They’re good parents and I might do the same if I were in their shoes today.
    But I am increasingly troubled by the growing disparity in quality of education, which translates into differences in job opportunities, social mobility, and prosperity. The sum of say $30,000 per year for these 1,539 private school students compares with approximately $9,000 for each of the 53,000 students in the San Francisco Unified School District. Student/teacher ratios of about 8:1 compare with 18:1 in our public schools.
    I appeal to the wealthy to recognize that quality education like what their children get should be available to all children.  For conservatives who do not believe in redistribution, but do believe in equal opportunity, I appeal especially to you.  You undoubtedly agree that quality education is critical, or as parents you wouldn’t pay these prices. By all means, parents should provide their children with the best. But let’s join together to make sure similar opportunities are available for all by providing public schools the resources they need and restoring excellence to public education.  
    Fixing our public schools will go a long way toward reducing inequality.

    What China Needs

    What China Needs
    August 23, 2014

    The current issue of The Economist features what the editors of the magazine think China wants at this point in its development.

    Here are a few of the major findings/opinions of these writers and editors. China wants:

    • Continued growth.
    • Ideas, markets, raw material, investment.
    • Stability.
    • China feels a long period of its historic prestige and supremacy was lost or stolen and it wants that prestige and recognition back. 
    • China wants a seat at the tables of world power, but China doesn’t want to exert power in those forums by leading global initiatives. China does not want to upend the global order. China does not want to emulate America’s failed global military experience.
    • China does not want to make other nations to be like China.
    • China wants to use its unitary power to its advantage.
    • China wants to use nationalism to distract its citizens from local problems.
    • China wants to protect the control of the maximum empire China ever had–e.g., as in the Qing dynasty, thus the disputes with neighboring countries over small islands.
    • China does want to improve the environment and conduct other reforms.
    While The Economist feels China resents the US “Asia pivot,” they say China is nevertheless amenable, as should the US be, to more collaboration of the two great powers–as with the Trans-Pacific Partnership, the new Asia regional trade plan.
    The Economist comments on the ideological dilemma China faces in its global image. To the extent that China fails to show steady progress in the resolution of its domestic problems, it weakens what could be a huge advantage. One might say China has everything else going for it–an astounding 30 year unbroken economic miracle, and amazing economic efficiency which most democratic countries cannot match–certainly not the US, gridlocked as we are. William Kirby of Harvard is quoted as saying China once had an ideology, a soft power, so strong that “neighbors converted themselves.” Nowadays, The Economist argues that the world sees the flaws in the ideology.
    The Economist argument ends with a prognostication that unless China moves to give more power to the people, its world power will continue to suffer–“neighbours will continue to cling to the coat-tails of Uncle Sam.”

    Having studied modern China diligently last year in London, I agree with most of what The Economist says.  No one believes that autocratic rule there for the next century would be best for China’s sustainable development. However, moving sharply to democratic rule is idealistic, impractical, and perhaps not in the best interests of China and the world.

    Here’s why:

    As we watch other countries struggle with the outcomes of early democracy, we see chaos, conflict, civil war, battling religions and ideologies. Examples include Egypt, Syria, Algeria, Iraq, Afghanistan, and young democracies in Africa. Moving steadily, but cautiously and slowly toward that objective might well yield a better outcome, especially considering that such unrest as we see in other young democracies might be catastrophic, not only for hundreds of millions of Chinese, but for the world, considering that China is nuclear armed, and is generally supportive of world order and peace, plus a critical element of the global economic system. A meltdown in China might bring down the entire world economy.

    Second, lets consider what the Chinese want, as somewhat distinct from what the leadership want (the latter being what The Economist is talking about in this edition). Chinese citizens are indeed protesting for more democratic rule, but they’re also protesting about the environment, about inflation, food safety, water, pollution, inequality, human rights, rule of law, poverty, the rights of rural migrants to the cities (“houkou issues), healthcare, corruption, and a slew of local matters. Setting aside democratic rule for a moment, many of these issues can be addressed under the autocratic system just as well as under a democratic system.  Maybe even better.

    In fact, significant progress has been made on a number of these issues. For the additional benefit of protecting major cities from the dust and sand from nearby deserts (a major problem in Beijing), The Guardian reports that Chinese citizens have planted 56 billion trees in the last decade. There appears to be an increase in charges and prosecution for corruption, even at high levels, example being the recent investigation of Zhou Yongkang, former security head for the CCP. Progress on these and other faults is insufficient. China ranks poorly on these matters. But, the point is that progress is being made on many of these issues.

    Pew studies indicate that of 21 nations surveyed, Chinese surveyed have the highest rating of all nations in seeing their financial status better than their parents at the same age. They are second only to Brazil in seeing their current situation better than 5 years ago. Pew indicated a majority of citizens are strongly favorable to their government. Other studies show the same. Indications from the surveys are that the tradeoff is the benefits of the continuing economic growth, vs. other reforms which are desired. It appears that as long as China can deliver continued economic growth and make some progress on other complaints, albeit slow progress, the citizenry support their government.

    One matter some of us liberals wish was not the case is a basic economic reality: There is a necessity for governments to make painful tradeoff decisions between growth and the kind of reforms listed in the above paragraphs–in China and everywhere. Why? Because the government revenue available is always limited. It can be invested in things which produce growth and jobs, like infrastructure. Or it can be invested in controlling pollution, as an example. This usually imposes additional costs on manufacturers, reducing their ability to grow and hire more people. Imposing pollution controls on automobile drivers means more public transportation must be built and paid for, and fewer cars will be sold, meaning fewer jobs in the auto plants. Bottom line–most reforms cost money and many result in slowing growth. These are the kinds of tradeoffs which must be made. And, as indicated above, while Chinese (like Americans) want everything, as indicated in the Pew survey, net-net, up to now, they vote for growth at the expense of these other reforms.  

    There is virtually no way to reduce poverty without solid economic growth. China since 1980 prioritized economic growth and reduced poverty from 65% of the population to 10%, according to the World Bank. I would argue that China’s leadership has done a rather good job of making the painful tradeoffs, all things considered. Their citizens complain, as do Americans, but they like their government perhaps more than we like ours.

    Finally, let us examine ourselves before urging our system onto others. How well is our democracy working as it relates to reforms? Consider our President’s attempts to regulate coal mining. Fox news and The Heritage Foundation, a conservative think tank argued on Fox News today that our President is impeding growth, costing job, and costing the consumer by trying to reduce pollution from coal. The Keystone pipeline,  to bring oil from Canada to the US, was first proposed in 2005, and it still not decided. Such delays in deciding would never occur under the autocracy of China. 

    It may sound unpatriotic to suggest democracy is not always, under all circumstances, the best form of government for all countries. However, history and current events do not support this thesis. I would say that China need not feel too anxious about the pace of its move toward democracy. Our government’s poor performance is hardly drawing converts to the coattails of Uncle Sam. If China makes steady progress yielding visible continuing improvement in the reforms Chinese want, albeit measured and slow progress, while continuing steady growth in its economy, their autocratic government may well have a decent remaining lifespan.
    References
    The Economist: http://www.economist.com/printedition/2014-08-23
    The Guardian: http://www.theguardian.com/environment/2010/sep/23/china-great-green-wall-climate
    Pew: http://www.pewglobal.org/2012/10/16/chapter-1-domestic-issues-and-national-problems/

    Ferguson Postcript

    Ferguson Postscript

    Aug 18, 2014

    Following on the thoughts I shared in my post of yesterday, I want to highlight this Brookings Institution article of today:

    “Ferguson, Mo. Emblematic of Growing Suburban Poverty”

    (link below)
    Here is an excerpt from the article: 
    But Ferguson has also been home to dramatic economic changes in recent years. The city’s unemployment rate rose from less than 5 percent in 2000 to over 13 percent in 2010-12. For those residents who were employed, inflation-adjusted average earnings fell by one-third. The number of households using federal Housing Choice Vouchers climbed from roughly 300 in 2000 to more than 800 by the end of the decade. Amid these changes, poverty skyrocketed. Between 2000 and 2010-2012, Ferguson’s poor population doubled. By the end of that period, roughly one in four residents lived below the federal poverty line ($23,492 for a family of four in 2012), and 44 percent fell below twice that level.”

    And, as I argued yesterday, Ferguson is just an example of widespread increases in poverty: 

    Within the nation’s 100 largest metro areas, the number of suburban neighborhoods where more than 20 percent of residents live below the federal poverty line more than doubled between 2000 and 2008-2012. Almost every major metro area saw suburban poverty not only grow during the 2000s but also become more concentrated in high-poverty neighborhoods. By 2008-2012, 38 percent of poor residents in the suburbs lived in neighborhoods with poverty rates of 20 percent or higher. For poor black residents in those communities, the figure was 53 percent.

    And, lest one think this phenomenon occurs only in suburbs, there are numerous studies of growing urban poverty and inequality. See my previous posts regarding San Francisco.

    Poverty is one of the elements making up the reality for those in the lower income classes in the US and the world, along with homelessness, inadequate housing, health care, educational opportunity, safety, and a number of other challenges.

    We won’t know exactly what happened between Michael Brown and officer Darren Wilson until the investigation and/or the trial are completed, and most likely some will not be convinced then. But we do know one thing for sure, no investigation or trial necessary: Poverty and inequality have risen dramatically across the last 30 years.  There can be little doubt that this is a contributing factor to incidents such as we see today in Ferguson, MO.


    Ferguson MO August 2014

    Ferguson MO August 2014

    August 17, 2014

    A week ago, unarmed 18 year old black man Michael Brown was shot and killed in an altercation with 28 year old white police officer Darren Wilson in this small town near St. Louis. What has transpired since then has been continuous media coverage of massive demonstrations (not only in Ferguson, but in other cities across the country). Most of these demonstrations have been peaceful, but some have involved heavy police force and there has been some looting and lawlessness.

    At one extreme, some may believe or at least hope that the police officer had justified cause to kill the young man, perhaps because the officer was in fear of his own life, that there may have been a scuffle over the officer’s gun. At the other extreme, parents of the young man, friends in the community and sympathizers in our nation, feel this may have been an unprovoked killing, believing that eye witnesses are telling the truth–saying the young man was holding his hands in the air to surrender when shot.

    This brings back to mind for many the still recent killing of Treyvon Martin by white neighborhood watch volunteer George Zimmerman, and the 1991 Los Angeles policy killing of Rodney King, resulting in massive riots in Los Angeles.

    The Ferguson case is tainted by a video which shows the deceased young man only a few minutes earlier stealing some cigars and appearing to physically threaten a convenience store owner. The Rodney King case evolved from King taking police on a high speed chase, presumably to avoid capture. And, in the Martin/Zimmerman case, although Zimmerman was acquitted, his personal life involves troublesome misdemeanors. Yet, we know that whatever may have been the behavior of Michael Brown before the altercation with the policeman, that should not result in an unarmed man being killed, if indeed he was not wrestling for the gun or somehow threatening to kill the officer.

    No one knows yet what really happened. We have to trust our justice system to try to get to the right answer, while knowing our system is not always perfect. I commend the young man’s parents for consistently only asking for an honest and fair answer, and for only peaceful protests, as has our President.

    I’m not writing this Sunday afternoon to opine on the right or wrong of this case. I don’t know. I am writing to agree with commentators of both races who say we have seen too many thousands of young black men die at the hands of our justice system, whether it was lawful or not at the time. We need to acknowledge that behind the difficult and sometimes troubled lives of many of our young black men is a societal system which provides little help for the underprivileged of any color, and undoubtedly less for those who are black than for those who are white, in general.

    I’m talking about inequality, and all the critical elements associated with it. There can be little doubt that the inequality and the poverty our system increasingly imposes on the underprivileged results in desperate attempts of the young to find fairness or push back in the form of petty crimes such as stealing cigars, or worse. No one condones such crimes, but to a certain significant extent our society is responsible for this behavior. We could do something about it. We could provide less inequality without destroying incentives.

    In a TED talk (reference below) which TED was reluctant to release, billionaire Nick Hanauer makes a powerful plea to “fellow plutocrats” to support the minimum wage increase. He forecasts that we will have “pitchforks” or worse to fear if we do not–the threat of revolution. He also makes a strong argument that providing more support for the underprivileged is beneficial to everyone–even the rich–with more opportunity, the poor will spend more and thus grow the economy. This would also reduce crime.

    Hanauer also makes a point I have made before in these posts: like me, he was born in America, white, anglo-saxon, protestant. He says that with the same natural talents that propelled him to the .01%, born elsewhere, he might well have spent his life selling fruit by the side of a dirt road in some lesser developed country in the world–because, as he says, this might have been all that could be sold in those countries. So unlike the US. I feel the same. I am not a plutocrat, but I acknowledge the benefits of circumstance such as Hanauer’s. And the obstacles and limitations our system imposes on the lowest income categories make life feel like living in a poor country with no opportunity to get out. And, it’s worse when not far away you see people driving Bentleys and living in mansions in gated communities.

    Today, Martin Luther King III spoke at the Greater Grace church in Ferguson. He said we go around the world promoting our democracy, and our democracy is failing us. Jesse Jackson spoke also, and called the Ferguson situation a metaphor for abandoned urban America. I agree with both.

    I address some of these issues in my previous post “Capitalism and Democracy.” I hope “democracy” is not defined for us simply by “one person, one vote.” It took us a long time to even get that, but I hope we include other definitions, such as an organization or situation in which everyone is treated equally and has equal rights,”  and “ the absence of hereditary or arbitrary class distinctions or privileges.” (Webster)

    An effective tax rate of say 15% for the ultra rich can only be considered arbitrary. Likewise, sending your high school kids to private schools costing $35,000 per year, and leaving the woes of the public school system to the declining prospects of continuing tax cuts can only be considered arbitrary. And that’s not equal rights.

    Inequality is a good thing, up to a point. Capitalism is a good system, up to a point. We’re well beyond the beneficial point in both. We need to acknowledge we must soften the excesses of capitalism if we want to keep the pitchforks at bay and keep the system.



    Nice Hanauer video: https://www.youtube.com/watch?v=CKCvf8E7V1g

    Government–Some Things the Right and the Left Can Agree On

    August 11, 2014

    Government–Some Things the Right and the Left Can Agree On

    I am sometimes among those on the Left who waste my voice trying to criticize or persuade the Right to concede some of their seemingly flawed positions.

    The liberal desire to expand government to better meet social needs is met today by a conservative determination to continue reducing taxes and government.  Considering the stalemate, there are nevertheless some important things conservatives and liberals can agree on.

    • There are some needs the free market alone cannot meet, but…
    • Government is inefficient
    • Government costs too much
    So, why not focus on what can be done to reduce the cost and improve the effectiveness of government? There can be no doubt that substantial savings can be achieved. Perhaps the savings could be split 50/50 between reducing the federal debt and strengthening some programs critical to benefitting the underprivileged, such as education and infrastructure.


    Where is government better than capitalism in dealing with society’s needs? In an op-ed cited below, Paul Krugman suggests one good example is protection of the environment. In 2008, I lived for a year in China, and I studied China last year in London. A good example of a loose rein on capitalism is found in China’s rivers today, where factories and farms leave the water supply endangered for Chinese and other nations farther down the major rivers. Maybe China is a bit extreme, but we have examples in the US. The free market is not designed to always do the right thing for the environment. 

    Having lived for a year in London recently as a student and qualifying for British health care, I could also propose health care as an area for improvement in the US. The British system is government owned and managed, far less costly, and it works rather well. It costs 9% of of GDP. Singapore spends only 5% of GDP on healthcare with its public system. We spend 18%. (World Bank figures)

    But even if you regard government health care as too socialist for consideration as a legitimate further extension of US government (albeit one which might well reduce the cost of health care and cost of government), we still have trillions of dollars in current federal, state, and local spending which can be reduced, without reducing the value delivered. After all government activities regarded as unnecessary (or as better transferred to local governments) are adjusted out, there remain many to focus on improving (e.g., military, all the untouchable entitlements, the governmental cost of health care), and this is true at all levels of government.

    Can we be fair in expectations of government? The image is that government is just plain inefficient–the private market does much better. But, I have some doubt we’re being realistic. Krugman asks whether the much cited DMV is really worse than anything you’ve experienced in the private economy. Worse than Comcast? Take a look at the Customer Service Scoreboard (cited below) for a long list of poor service providers in private industry. 

    So, with the caveat that perfection is not easily reached in either public or private endeavors, there is still much to be saved.  The Economist addresses the opportunity in the current issue and some of the suggestions I provide come from The Economist articles cited below:

    • We could end tenured government jobs.
    • We could rotate government officials into private sector and back.
    • We could pay more for performance–Singapore pays up to $2 million for high level government officials.
    • We could set performance targets and attach compensation and job tenure to meeting those.
    • We could sunset all programs and all regulations, many of which are outdated and useless anyway. At expiry, we could vote them back in if still useful.
    • We could make more services pay as you go–e.g., public transportation and toll roads
    • We could reduce corruption in welfare, social security, health, procurement, and elsewhere.
    • Our criminal justice system is in serious need of being re-structured–we have the highest percentage of our population incarcerated, and many for minor offenses.
    • Some approaches to reducing poverty actually result in reduced long term cost to the government–less health care, less incarceration cost, less welfare.
    • More transparency of the cost of government–public awareness of where the money is spent will add pressure on low value government expenditures.
    • The Right could come forward with their cheaper alternative to Obamacare so that we can all evaluate and decide. I’m nor irrevocably committed to Obamacare. I think it is a good step in the right direction, but I’m sure there can be improvements.
    • And, finally, a complex subject best left to another post or a much longer article: We can re-vamp our form of government to better meet the true needs of the people, not just special interests. Our form of democracy is coming under justified fire and dissatisfaction, from Americans and around the world. We need to re-vamp it. See the Magalhaes article and the
    •  Vigoda-Gadot and 
    • Mizrahi article
    •  cited below. In addition to globally damaging the perception of our ideology, there is a huge financial cost to the government behaving as ours does now. No one can realistically doubt that our growth rate would be significantly higher with a more effective government.

    What am I missing? This list, which could certainly be expanded, seems to me to be an easy appeal to the Left and to the Right? Why don’t we spend some of the energy wasted in criticism to work together to make these bi-partisan advances?



      References:

      Krugman: http://www.nytimes.com/2014/08/11/opinion/paul-krugman-the-libertarian-fantasy.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region&region=c-column-top-span-region&WT.nav=c-column-top-span-region

      The Economist: http://www.economist.com/news/leaders/21611068-governments-need-rethink-how-they-reward-and-motivate-civil-servants-mandarin-lessons

      http://www.economist.com/news/international/21611149-tight-finances-and-rising-expectations-are-remaking-civil-services-modernising; Singapore delivers high-quality public services remarkably cheaply—spending less than 5% of GDP on health care, for example, around half the global average. 

      Magalhaes:  Democracies are not immune to the consequences of government ineffectiveness and bad policy-making. Ineffective democracies are likely to suffer in terms of their legitimacy near mass publics. And there are signs, to be confirmed with better data, that effective autocracies may be more stable than what we think, by diminishing demand for democracy and increasing their own legitimacy. http://www.pedro-magalhaes.org/government-effectiveness-and-support-for-democracy/


      Eran Vigoda-Gadot and Shlomo Mizrahi
      Managing Democracies in Turbulent Times
      2014, pp 37-64
      Date: 11 Feb 2014The Relationship Between Citizens and Government in Modern States: Threats and Challenges

      World Bank: http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS

      Customer Service Scoreboard: http://www.customerservicescoreboard.com/


      Capitalism and Democracy

      August 7, 2014

      David Brooks’ NYT Op Ed of August 5 addresses the challenges facing democracy and capitalism in the developing countries of Africa, and by implication, anywhere in the world. The hoped for “Fourth Wave” of democracy across developing countries in Africa, Asia, and the Middle East is not progressing well. See the Council of Foreign Relations brief of 2013 (cited below). Brooks begins by calling for “democratic capitalism,” as in the case he cites of a Kenyan entrepreneur who built a successful company from scratch–a kind of Horatio Alger of Africa story, in a country which is a seemingly regressing democracy. He concludes with a prediction that autocratic developing countries will end up like Putin’s Russia. With different language, another favorite of mine, Fareed Zakaria, makes similar statements in his “GPS” of August 3, 2014, both in response to a recent speech by the Prime Minister of Hungary.

      Here is an excerpt from Brooks’ article: “On July 26, for example, Prime Minister Viktor Orban of Hungary gave a morbidly fascinating speech in which he argued that liberal capitalism’s day is done. The 2008 financial crisis revealed that decentralized liberal democracy leads to inequality, oligarchy, corruption and moral decline. When individuals are given maximum freedom, the strong end up stepping on the weak.” I can find no scholarly definition of “liberal capitalism,” so I’ll go with Yahoo’s definition: “capitalism based on free market economics.” Since Brooks doesn’t define it for us, I’ll have to assume this is also what he is referring to as “democratic capitalism.” So, basically, we’re talking about a democratic government which allows free trade with open borders. It starts to sound like the prescription of the Washington Consensus, which did not result in favorable outcomes for many developing countries on which it was imposed by the IMF in the 80s and 90s.

      I am an admirer of both Brooks and Zakaria. But these arguments leave me unsatisfied. First, there is an assumed connection between democracy and capitalism–they don’t necessarily go together. Second, this warning doesn’t effectively deal with the realities of developing nations. Third, there are no prescriptions for just how these nations are to develop “democratic capitalism,” except the prediction that autocratic governments will prevent it. And, how to prevent autocratic governments, since the American public seems fed up with militaristic interventions around the world?

      Consider China, arguably a great example of the advantages of an effective autocracy. China knows how to make decisions and get things done.  And, as Brooks acknowledges, credible polls show most Chinese citizens strongly support their autocratic government, at least as long as the economy keeps growing. There are many other examples, especially during early stages of development. Consider S. Korea, which could hardly be called a democracy under the autocratic presidency of Park Chun-Hee (1962-1979). This was a period of autocratic human rights abuses, but clearly also a period of amazing economic growth, and Korea certainly has not ended up looking like Putin’s Russia. I leave open the obvious question: is a period of autocracy sometimes a reasonable price to pay for outcomes like those of present day China and Korea? Before answering, consider that there are no economists who have found a path to poverty reduction without economic growth.

      On the other hand, to my regret and embarrassment, the US has been vividly displaying major flaws in liberal democracy–we can’t get things done, This is very costly.  Many scholars attribute China’s performance advantage vs. India in recent decades (3-5% stronger annual growth) in large part due to the burdens of India’s democracy vs. China’s autocracy, i.e., the costs and delays in trying to reach agreement between different constituencies in India, a weight China does not carry.

      Some will say there are huge problems with autocracies–human rights, corruption, inequality, environmental damage, and others. But it’s easy to find comparables in regard to all these categories of problems in countries which are democratic. India is one good example, abundant in all those elements. Zakaria particularly calls out a few objectionable behaviors of “illiberal democracies”: nationalism, religion, and domination of the media. But consider some of the near equivalents in the US: attitudes toward immigrants; attitudes toward muslims, and religious attitudes toward abortion; and the media domination by wealth interests after the Citizens United Supreme Court decision. Consider our Civil War and our civil rights abuses to African American citizens–all in the growth period of arguably the world’s most successful democracy. In fact, perhaps the US only arrived at democracy in 1965 with the Civil Rights act, and it’s still far from well functioning.

      We are only better by a degree, and perhaps only at a point in our short history. There are other democracies performing better than us. The US does not rank at the top by the best accepted international gauges of pollution, human rights, corruption or inequality. See below rankings.

      China and the US now have in common a dedication to capitalism, but China’s version involves a great deal more government control of banks and businesses than does the US version. We have regulations. They have downright state control. Although those controls are weakening as a result of joining the WTO in 2001, a significant portion of the Chinese economy is still made up of state owned enterprises. The comings and goings of foreigners are still controlled far more than in other developed countries.  China cannot yet be called a “free market, open borders” economy. And, it is ridiculous to suggest that China’s “not free, not open” economy performed poorly for Chinese across the last 30 years. It has been one of the most stunning economic success stories of all time. For example, in that short period of time, according to the World Bank, it has reduced the percentage earning less than $1 per day from 65% of its vast population to less than 10%!

      It’s been 22 years since Francis Fukuyama’s famous proclamation in 1992, with the fall of Russia, that the world had achieved the end state of history with the victory of liberal democracy and free market capitalism, a statement from which he has now distanced himself. Indeed, the world did not subsequently sharply move to adopt our version of liberal democracy with our imposed attachment of free capitalism, and among countries which did try, many did not fare well. When we urged our form of “democratic capitalism” on them, we forgot to tell them that when we were in the same early stage of growth, we controlled our economy much as China has done, to protect infant industries, and even today we are two-faced, still subsidizing farmers in the US, at the expense of poor farmers in Africa. Many new democracies have floundered, while a few autocracies (e.g., Rwanda and China) have fared spectacularly.

      This is not to say that China’s form of rule is better than ours or that it will last. Scholars I respect predict that it will be necessary for China to move gradually toward democracy to sustain its long term growth. However, it is almost impossible, in my opinion, to make the case that a democratic Chinese government could have accomplished as much as China has, under autocracy, across the last 30 years. Its growth has been astounding, and hundreds of millions have been brought out of poverty. This is something to think about, because the China of thirty years ago is the approximate stage at which many African countries are now starting to grow.

      I’m strongly in favor of democracy and also capitalism. I only seek to remind of three things:

      (1) Neither democracy nor capitalism are without their flaws–and we are certainly demonstrating some of the flaws here in the US at this time. Democracy requires a high degree of fairness in electing officials and in their unbiased influence in their jobs. Among other things, our politically gerrymandered election districts and our allowance of big corporate and billionaire spending distort the fairness of our democracy.

      Our form of capitalism could also do with some adjustments. A good start would involve simplification of regulations and tax codes and gradual re-balancing of the inequality pendulum, which is moving us toward the type of oligarchy that Brooks and Zakaria fear of autocracies. The people need to control government and government needs to control capitalism. Left unchecked, capitalism will indeed sacrifice the lesser privileged to the benefit of the capitalists, as Orban says (and as Karl Marx predicted).

      (2) We are prone to forget that we and most other developed countries were not “open” capitalist countries in our beginnings. Most developed countries imposed strong controls over foreign engagement on home soil, for a long period of developmental history, in order to protect fledgling industries. Only now can we rail for openness, so that our vast corporations can advantage themselves as they wish in foreign countries. This is not always in the best interest of the developing nations or the world as a whole. We need to concern ourselves with the economic welfare of the world, not just the US.

      (3) We have not fared well in our foreign relations by attempting to either impose or glorify our preference, especially for a combination of democracy and capitalism. Our seemingly arrogant approach only tends to weaken our relations with other countries and add tension. This is evident in the Muslim world just now, where our “better than thou” approach, taken with our interventionist wars and quasi military intrusions, has only fueled hatred and heightened terrorism.

      One thing I learned well in my study of globalization: There are few, if any, universal prescriptions that can be applied across the board to all countries at all times. Maybe we should work to restore the quality of our democracy and our capitalism before we proselytize about it. Victor Orban’s speech should not be so discounted. His outlook provides legitimate and dire warnings for the continuance of trends in our valued forms of democracy and capitalism.

      References:

      World Bank on China’s poverty reduction record: http://www.worldbank.org/en/news/feature/2009/04/08/poor-areas-poor-people-chinas-evolving-poverty-reduction-agenda

      Council of Foreign Relations Brief: http://www.cfr.org/kenya/democracys-decline-case-kenya/p30116


      Kicking Away the Ladder: The “Real” History of Free Trade,  Ha-Joon Chang, Foreign Policy, 30 December 2003


      David Brooks: http://www.nytimes.com/2014/08/05/opinion/david-brooks-the-battle-of-the-regimes.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region&region=c-column-top-span-region&WT.nav=c-column-top-span-region&_r=0


      Negatives ratings for US:
      Where #1 is best:
      18th in world pollution (http://www.statisticbrain.com/countries-ranked-by-air-pollution/)
      18th also in human rights (http://www.ihrri.com/contry.php) Some surveys rate US much worse (higher number in ratings: http://www.globalresearch.ca/the-us-is-the-worlds-worst-human-rights-violator/5377997)
      Corruption: US ranks 19th (http://cpi.transparency.org/cpi2013/results/)
      Income inequality: US ranks #62, slightly better than China, slightly worse than Russia (http://www.indexmundi.com/facts/indicators/SI.POV.GINI/rankings)
      Where #1 is worst:
      Wealth inequality, US is 4th from bottom (http://inequalityforall.com/fact-4/)
      Note: Other rating sources may have different results. These are offered not for endorsement of methodology, but as illustrative that US does not rank at the top of any of these troublesome indicators.