Wednesday, July 09, 2008

Unequal Growing Share versus Equal Shrinking Share

Mark Anderson (The Ottawa Citizen, 8 July) discusses ‘Beleaguered Capitalism does a pretty good job defending itself’ and after a discussion of the issues he inserts this piece in the middle:

In the National Post last week, columnist Yaron Brook noted that capitalism is becoming a hard sell, and not just in places like South America, where a handful of countries lead by Venezuela and Bolivia have pretty much abandoned free-market economics in favour of various nationalist, socialist, or national-socialist programs. According to Brook, everything from England's nationalization of the Northern Rock bank, to the U.S.'s rejection of trade bills with Colombia and South Korea (and threatened renegotiation of NAFTA), to the massive sovereign wealth funds of countries like China and Brazil, bespeaks a global pull-back from the principles of free-market economics.

The reason? "The lack of an intellectual defence of capitalism has left free markets vulnerable," writes Brook. "No one could morally defend self-interest."
Well, perhaps not no one. Next to Brook's column is another by Peter Foster eulogizing the great Adam Smith, capitalism's founding father. Smith argued that free market economics -- industry in the explicit service of self-interest -- was not only morally OK, but necessary to increase a nation's overall wealth and living standard.

Far from being a flint-hearted ogre, "Smith was very concerned with improving the lot of ordinary people," writes Foster.

The problem, though, is that in a free-market economy, the lot of some people (owners/executives) improves faster than the lot of others (workers), which eventually breeds resentment, which gives rise to socialist/nationalist sentiments, which hampers business and throttles the free market economy, which decreases national wealth and overall living standards.

A rational analysis of the two competing systems, capitalism and socialism, would lead one to conclude that a society is better off if everyone gets a piece, however inequitably shared, of an ever-growing pie, rather than equal pieces of a shrinking pie.”

That seems a pretty good and clear statement to me. Read it all HERE:

From this and other columns by Peter Foster I have seen, The National Post must be a pretty good newspaper, especially because it prints discussions of the issues from more than one perspective; always a sign of serious debate that is worth thinking about.

I think the basic issue is summed in the last sentence I quoted: ‘society is better off if everyone gets a piece, however inequitably shared, of an ever-growing pie, rather than equal pieces of a shrinking pie.”

I would add ‘growing’ after ‘everyone get a piece’ to read ‘everyone gets a growing piece, however inequitably shared, of an ever growing pie, rather than a equal pieces of a shrinking pie'.



Blogger Emmanuel said...

I've made this same point with regard to the most recent IMF figures on inequality. In their particular study, the IMF finds that while inequality has been increasing either on a state-by-state or a population-weighed basis, incomes separated by quintiles among the world's regions have been increasing except for the lowest quintile in Latin America.

I hope this example can complement the fine commentary here.

9:17 am  
Blogger Gavin Kennedy said...

Thank you for your comments. They are much appreciated.

I think the case for it being better for most individuals to lives in unequal richer countries that continue to grow than in equal, poorer countries that are stagnant or declining, is supported by the flow of migrants is always from poorer towards richer countries, or from well paid jobs in richer countries to even better paid jobs in poorer countries.

Contrary comments from some who are disatisfied in richer countries is not to stay put and do not migrate to poorer countries.

6:32 am  

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