In the previous posts we discussed the transformative effect the flow economy can have on the structure of society; turning a largely rigid and hierarchical capitalist society into a truly egalitarian society, that is non-hierarchical, highly dynamic and collaborative. A society where each individual can contribute more to the world and at the same time have greater economic freedom and enjoy a higher standard of living.
We also explained why in every area where the market economy fails - from intellectual property to natural monopolies, to externalities, to public goods, basic research, healthcare, and so on and so on - the flow economy excels. And why when we eliminate the need for government intervention we also eliminate the need for taxation!
Now we turn to the problem of bureaucracy. Quite simply, bureaucracy gets in the way of getting things done. We’re all well familiar with government bureaucracy - it gets in the way of getting the desired economic outcomes (and at times prevents such outcomes altogether). The reason for this is that the mechanism of government itself is inherently inefficient - and this is the case irrespective of the goodwill of the bureaucrats. The more businesses have to deal with the bureaucratic process the less resources they have to grow the business.
As we’ve previously discussed, in a laissez-faire economy the role of government is limited solely to protecting private property and enforcing contracts. The market economy is driven by the profit motive – individuals and corporations making money by selling commodities (products and services) in the marketplace. The problem here is that if a product or service is not easily commodifiable or profitable it is not likely to get much investment – no matter how vital it is to individuals or society as a whole.
The flow economy has profound implications on the structure of society. When we look at how capitalist society is organized, generally speaking, we see a somewhat rigid and hierarchical structure that resembles a “mountainous” topography. At the mountain peaks we have a small superclass of several hundred extremely wealthy and powerful individuals. These are the industrialists, heads of massive corporations, and heirs to great fortunes. Below them – at the mountain tops – we have the upper class, which constitutes about 1-2% of society. These are the top brass of businesses and corporations – the top executives and managers and so on. On the slopes of mountains we have the middle class – about 50% of society. These constitute mostly professionals, white collar workers and small business owners. Below these we have the working class, which constitutes about 30% of society. Finally, at the foot of the mountains, we have the underclass, which constitutes about 20% of society. These are the working poor and those who do not participate in the labor force and rely on public assistance.
The higher up you are in this social hierarchy the better the treatment you will receive. This is true both within the market itself and outside of it, and in nearly every area of life. The higher up in the hierarchy you are the better access you’d get to resources and political power, to healthcare, to education, to nutrition and so on. You will even get preferential treatment by the justice system. For example, late historian Howard Zinn wrote in A People’s History of the United States:
We may extol the virtues of the flow economy, and show how it is superior to the market economy in so many ways, but still one question remains: how do we transition from the Market Economy to the Flow Economy?
The beauty of the Flow Economy is that it does not require nationalization of industry or private property, violent insurrection or anything of that sort. The Flow Economy isn’t a totalitarian system – it is the exact opposite of a totalitarian system.
We began this series with the prediction that in the next few decades disruptive technologies will bring the global economy to a total collapse.
We also stated that before we show what can be done to prevent such collapse, we need to understand how the market economy operates, and what are its strengths and weaknesses. For that purpose we devoted the previous two posts in the series (Part II : What Is Capitalism? and Part III : 12 Capitalist Myths) to explaining how the market economy works, and describing some of the problems of the market economy; the fact that it rewards marketability over merit, it is driven by corporate-induced consumerism, it overcompensates those at the top and disparages those at the bottom, it is inherently exploitative, its highest ideals are cynicism, nihilism and greed, and the economic theory behind it is based on flawed assumptions, such as the premise that humans behave like profit maximizing automatons.
So how do we confront such an immense and complicated challenge as preventing a global economic collapse and putting the economy on a path to prosperity? What should be evident by now is that the current economic system is hopelessly beyond repair; no amount of reforms can solve its problems or prevent it from total collapse. What we need therefore is a fundamentally new economic paradigm - one which can put us on a path to sustained growth and prosperity, and at the same time be robust enough to address all of the issues above.
“What human motivation gets the most wonderful things done?” The answer is that human greed is what gets wonderful things done. I wasn’t talking about fraud, theft, dishonesty, special privileges from government or other forms of despicable behavior. I was talking about people trying to get as much as they can for themselves. (In Greed I Trust, Walter E. Williams)
…We don’t give second thought to the many wonderful things others do for us. Detroit assembly-line workers get up at the crack of dawn to produce the car you enjoy. Farm workers toil in the blazing sun gathering grapes for our wine. Snowplow drivers brave blizzards just so we can have access to our roads.
Do you think these people make these personal sacrifices because they care about us? My bet is they don’t give a hoot. Instead, they along with their bosses do these wonderful things for us because they want more for themselves. (Economics 101, Walter E. Williams)
Despite what Professor Walter E. Williams and other Libertarians would like you to believe, greed is not good. Greed means doing whatever you can get away with to get more for yourself. Greed does not motivate people to do the most wonderful things. It motivates people to do the least to get the most. It is the reason why so many of our best and brightest - 47 percent of Harvard University seniors in 2007 – head to Wall Street, and not to science, medicine or engineering. It is the reason why banks sold subprime mortgages to families who could not afford them. It is the reason why in 2006 financial sector profits constituted 27% of all corporate profits in the United States. And it is the reason why the New York State Comptroller’s Office in 2006 had this to say about Wall Street traders:
Let’s make this perfectly clear: there is nothing wrong with people being confident in their abilities. There is also nothing wrong with people being proud of their achievements and success. No one is denying their initiative. No one is denying their talent or their hard work. However, there is something very troubling about people who believe they are self-made men. Because what’s implicit in their belief is the denial of the role of others in their success, and ingratitude for their contribution.
There is a certain absurdity about the way capitalist society is organized. The reality is that those who are at the top are treated best, and those who are at the bottom are treated worst. Therefore, everyone has the incentive to strive to get to the top. Yet, no matter how hard we try – no matter how much education or skills we have - we cannot all make it to the top. It is simply a logical impossibility.
At the same time, there are certain lines of work that are simply indispensable for the economy and for society to function - in agriculture, construction, manufacturing, education, healthcare and so on. Though the work itself is indispensable, in a capitalist society the workers are not. And though these workers labor for long hours, doing physically and mentally exhausting work, they receive low pay and few if any benefits. That is because in a free market economy the intrinsic value of their labor does not matter.
When John Donne wrote No Man Is An Island he probably was not thinking of a capitalist society. Because in a capitalist society every man is an island – an island of self-interest and profit maximization. And though It is true that capitalism is not exactly a zero-sum game, the system is such that the interests of people - as consumers, producers, workers or simply human beings - perpetually come in conflict with one another.
Under capitalism one company’s success may be another’s loss. Less emissions may be good for the environment, but they are bad for business. Higher wages may benefit workers, but not the employer. Technological progress benefits everyone, except for those who get laid-off because of it.
Corporations are not interested in well informed customers. Fast food chains and soft drink companies do not want people to eat healthy. Credit card companies do not want people to be responsible or pay their bills on time.
The prison-industrial complex is not interested in public safety or reducing crime, it wants more prisoners. The military-industrial complex is not interested in peace, it wants to sell more weapons.
There are certain things that the free market does exceptionally well; it makes people industrious and productive, it is responsible for the incredible abundance of products and services we have, and for our high standard of living. Yet, when it comes to providing many essential products and services the free market fails. Why does this happen? Imagine the following two scenarios:
In the first case a scientist is researching a cancer that affects 100,000 people every year. After years of research the scientist discovers that there are two chemical compounds that can effectively treat and cure the cancer. The scientist develops a drug and sells it in the market for $500 per pill.
The second case is very similar to the first. A scientist researching the same cancer discovers two compounds that can effectively cure the cancer. The only difference is that in this case these chemical compounds occur naturally in oranges and pecans.
Though the intrinsic value in both cases is the same – curing a cancer that affects tens of thousands of people every year, the market value is different. In the first case the scientist can expect to make millions, if not billions, of dollars by selling the drug in the market. In the second case the scientist cannot profit from selling any drug when natural substitutes are readily available, so she can at best expect to make a modest income. That is, if she doesn’t first go broke from repaying the loans for the research.
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