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View Full Version : So Much for the 'Free' Market. Now What?



Hanna
Sunday, November 9th, 2008, 05:38 PM
Thomas Walkom
National Affairs Columnist

In 1944, a Viennese-born economic historian named Karl Polanyi wrote that the world was at a turning point.

The events of war and depression, Polanyi said, showed that the self-regulating free market was no longer viable. Its cycles of boom and bust were too destabilizing.

As a result, he wrote in The Great Transformation, nations faced a choice between authoritarianism and democracy. But even democrats would have to realize that their economies required regulation, needed to be "embedded" in society so as to meet social aims.

As it turned out, Polanyi was ahead of his time. But the financial crisis now unfolding around the world suggests that he was not that much ahead.

The collapse that began on Wall Street has finally put paid to the myth of the free market. As Polanyi predicted, the world has been left with two alternatives, albeit not quite the ones he envisioned.

On the one hand is authoritarian capitalism, as practised by China, Singapore and (with less success) Russia. On the other is social capitalism, as practised by some Western European countries and, until recently, Canada.

Under authoritarian capitalism, the state tends to resolve any contradiction between markets and society by favouring markets.

Under social capitalism, it tends to do the reverse.

Modern China is the most brutal example of modern authoritarian capitalism, and the most successful. In China, the Communist Party maintains a hold on political power in part to prevent citizens from disrupting the market economy that has allowed that country to thrive.

Read the rest:http://www.thestar.com/News/World/article/512006


Many of you might disagree with the Scandinavian socialism, but its about the making the market to work for our system.

lei.talk
Monday, November 10th, 2008, 08:45 AM
http://en.wikipedia.org/wiki/Federal_Reserve_System

http://en.wikipedia.org/wiki/Central_bank

http://en.wikipedia.org/wiki/Adjustable-rate_mortgage

http://en.wikipedia.org/wiki/Prime_rate

http://en.wikipedia.org/wiki/Monetary_inflation

http://en.wikipedia.org/wiki/Fiat_currency

http://www.capitalism.net/

Patrioten
Monday, November 10th, 2008, 09:45 AM
This idea that there is a perfect economical system out there which is flawless and immune against reoccuring recessions and downturns, is simply false. There is however a noticable trend: the freer the market the stronger the economy. But this freedom also leaves room for major failures (just as in any other system). This does not mean that the free market is a failure, it simply means that it is imperfect. Are regulations necessary in some areas and could they work to create more stability in the system? Probably.

For those of you who believe in socialism, do you care to tell us how socialist policies create jobs? How does high taxes on work and wealth combined with high benefits, a luxurious wellfare system and a public sector not run for profit create a stronger economy?

Hauke Haien
Monday, November 10th, 2008, 10:25 AM
Many of you might disagree with the Scandinavian socialism, but its about the making the market to work for our system.
There have been many attempts at mixed economies that claim to achieve this, but the flaw common with a free market is that it still ends up serving individuals and their narrow needs. It is technically possible to run an economy that generates high profits without sustaining the existence of the folk body enmeshed in it, as is evident today. It is necessary to remove or mend the economic causes of this situation and maintain an efficient economy that satisfies the important precondition that it does not kill our folk. This is, in my opinion, a real problem and of much higher interest than the cartoonish disputes over welfare benefits between 'capitalists' and 'socialists' which capture the public imagination at present.

DanseMacabre
Monday, November 10th, 2008, 07:56 PM
I believe the ideal economic system, at least for America, is a synthesis of the Free Market and Socialism.

Economic Democracy (http://en.wikipedia.org/wiki/Economic_democracy)

Economic Democracy an Alternative (http://en.wikipedia.org/wiki/Economic_democracy#An_alternative_model)


According to Schweickart, "Economic Democracy, like capitalism, can be defined in terms of three basic features:

Worker Self-Management: Each productive enterprise is controlled democratically by its workers.
The Market: These enterprises interact with one another and with consumers in an environment largely free of governmental price controls. Raw materials, instruments of production and consumer goods are all bought and sold at prices largely determined by the forces of supply and demand.
Social Control of Investment: Funds for new investment are generated by a capital assets tax and are returned to the economy through a network of public investment banks."[4]
Schweickart concedes this basic model might seem stylized and oversimplified, as analysts tend to use simplified models to explain the basic laws of any system. In real-world practice, Economic Democracy will be more complicated and less "pure" than this abstract model. However, to grasp the nature of the system and to understand its essential dynamic, it is important to have a clear picture of the basic structure.

Capitalism is characterized by private ownership of productive resources, the market, and wage labor. The Soviet economic model abolished private ownership of productive resources (by collectivizing all farms and factories) and the market (by instituting central planning), but retained wage labor. Economic Democracy abolishes private ownership of productive resources, and wage labor, but retains the market.[4]


[edit] Worker self-management
In Schweickart’s model, each productive enterprise is controlled by those who work there. Workers are responsible for the operation of the facility, including organization, discipline, production techniques, and the nature, price, and distribution of products. Decisions concerning proceeds distribution are made democratically. Problems of authority delegation are solved by democratic representation. Management is not appointed by the State nor elected by the community at large, nor selected by a board of directors elected by stockholders. Whatever internal structures are put in place, ultimate authority rests with the enterprise's workers, one-person, one-vote.

Although workers control the workplace, they do not "own" the means of production in Schweickart's model. Productive resources are regarded as the collective property of the society. Workers have the right to run the enterprise, to use its capital assets as they see fit, and to distribute among themselves the whole of the net profit from production. Societal "ownership" of the enterprise manifests itself in two ways.

All firms must pay a tax on their capital assets, which goes into society's investment fund. In effect, workers rent their capital assets from society.
Firms are required to preserve the value of the capital stock entrusted to them. This means that a depreciation fund must be maintained. Money must be set aside to repair or replace existing capital stock. This money may be spent on whatever capital replacements or improvements the firm deems fit, but it may not be used to supplement workers' incomes.
If a firm is unable to generate even the nationally-specified minimum per-capita income, then it must declare bankruptcy. Movable capital will be sold off to pay creditors. The workers must seek employment elsewhere. In such economic difficulty, workers are free to reorganize the facility, or to leave and seek work elsewhere. They are not free to sell off their capital stocks and use the proceeds as income. A firm can sell off capital stocks and use the proceeds to buy additional capital goods. Or, if the firm wishes to contract its capital base so as to reduce its tax and depreciation obligations, it can sell off some of its assets, but in this case proceeds from the sale go into the national investment fund, not to the workers, since these assets belong to society as a whole.[4]


[edit] The market
According to David Schweickart, Economic Democracy is a market economy, at least insofar as the allocation of consumer and capital goods is concerned. Firms buy raw materials and machinery from other firms and sell their products to other enterprises or consumers. "Prices are largely unregulated except by supply and demand, although in some cases price controls or price supports might be in order -- as they are deemed in order in most real-world forms of capitalism."[4]

Without a price mechanism sensitive to supply and demand, it is extremely difficult for a producer or planner to know what and how much to produce, and which production and marketing methods are the most efficient. It is also extremely difficult in the absence of a market to design a set of incentives that will motivate producers to be both efficient and innovative. Market competition resolves these problems, to a significant if incomplete degree, in a non-authoritarian, non-bureaucratic fashion.

In Schweikart's view, centralized planning is inherently flawed, and schemes for decentralized non-market planning are unworkable. As theory predicts and the historical record confirms, central planning is both inefficient and conducive to an authoritarian concentration of power. This is one of the great lessons to be drawn from the Soviet experience.

Since enterprises in Economic Democracy buy and sell on the market, they strive to make a profit. However, the "profit" in a worker-run firm is not the same as capitalist profit. It is calculated differently. In a market economy firms, whether capitalist or worker-self-managed, strive to maximize the difference between total sales and total costs. But for a capitalist firm, labor is counted as a cost. For a worker-run enterprise it is not. In Economic Democracy labor is not another "factor of production" technically on par with land and capital. Labor is the residual claimant. Workers get all that remains, once non-labor costs, including depreciation set asides and the capital assets tax, have been paid.[4]

Because of the way workplaces and the investment mechanism are structured, Schweickart's model aims to facilitate fair trade, not free trade, between nations. Under Economic Democracy, there would be virtually no cross-border capital flows. Enterprises themselves will not relocate abroad, since they are democratically controlled by their own workers. Finance capital will also stay mostly at home, since funds for investment are publicly generated and are mandated by law to be reinvested domestically. "Capital doesn't flow into the country, either, since there are no stocks nor corporate bonds nor businesses to buy. The capital assets of the country are collectively owned -- and hence not for sale."[4]


[edit] Social control of investment
Under Schweickart’s model of Economic Democracy, a flat-rate tax on the capital assets of all productive enterprises replaces all other business taxes. This "capital assets tax" is collected by the central government, then invested back into the economy, assisting those firms needing funds for purposes of productive investment. These funds are dispersed throughout society, first to regions and communities on a per capita basis, then to public banks in accordance with past performance, then to those firms with profitable project proposals. Profitable projects that promise increased employment are favored over those that do not. At each level, national, regional and local, legislatures decide what portion of the investment fund coming to them is to be set aside for public capital expenditures, then send down the remainder to the next lower level. Associated with most banks are entrepreneurial divisions, which promote firm expansion and new firm creation. For large (regional or national) enterprises that need access to additional capital, it would be appropriate for the network of local investment banks to be supplemented by regional and national investment banks. These too would be public institutions that receive their funds from the national investment fund.

Economic Democracy does not depend on private savings or private investment for its economic development. In Schweickart's model, banks are public, not private, institutions that make grants, not loans, to business enterprises. According to Schweickart, these grants do not represent "free money", since an investment grant counts as an addition to the capital assets of the enterprise, upon which the capital-asset tax must be paid. Thus the capital assets tax functions as an interest rate. A bank grant is essentially a loan requiring interest payments but no repayment of principal.[4]

While an economy of worker-self-managed enterprises might tend toward lower unemployment than under capitalism, Schweickart says it does not guarantee full employment. Social control of investment, under this model of Economic Democracy, serves to mitigate this defect. If the market sector of the economy does not provide sufficient employment, the public sector will provide all but the most severely disabled with the opportunity to engage in productive labor. The original formulation of the U.S. Humphrey-Hawkins Act of 1978 suggests that full employment can be assured in a market economy only if the government functions as the employer-of-last-resort. In Economic Democracy, the government assumes this role, something a capitalist government cannot do. Thus, social control of investment also serves to block patterns of cyclical, recessionary unemployment typical of capitalism. [

Kreis AnnA
Monday, November 10th, 2008, 10:10 PM
This idea that there is a perfect economical system out there which is flawless and immune against reoccuring recessions and downturns, is simply false. There is however a noticable trend: the freer the market the stronger the economy. But this freedom also leaves room for major failures (just as in any other system). This does not mean that the free market is a failure, it simply means that it is imperfect. Are regulations necessary in some areas and could they work to create more stability in the system? Probably.


No economic model can insure outcomes because there is no way to obtain "perfect" information in any given situation. Even the necessities of life are not predictable since the value of necessities shift, depending upon a number of variables that are not simply contigent upon need. The simplest example is crops and weather. But this can be extended to all levels of production and consumption.

Do we need computers? In reality we always needed computers. So the first modern computers were incredibly expensive. Their value was so high that most governments could not afford them. The demand inspired competition and innovation to make computers affordable to the point where we are today. None of this could have occured without a free market determining the allocation of resources in the form of capital. Allocation was not determined by a government or collective, except in basic research and engineering. Instead, many individuals were willing to make an irrational choice by assuming the risk of failure and loss through investment in the possibility of affordability. In essence, behavior made modern, inexpensive PCs. Not some centralized "rational" plan which excludes possibilities, limiting flexibility and discouraging adaptation.

When we turn to the irrationalty of markets we are dealing with human behavior. There will be excesses and inefficiencies, but there will be reactions to these as well in the form of revaluation. Careful regulation as a collective measure limits social impact. And effective taxation creates common wealth to provide for the common good where markets are insufficient and incapable.

SwordOfTheVistula
Tuesday, November 11th, 2008, 07:28 AM
If anything, this crisis proves that 'managed capitalism' or some kind of 'market socialism' doesn't work.

Fannie Mae and Freddie Mac were intended to be just that sort of 'making capitalism work for the people': government pushing the market to 'make home loans more affordable' and 'more available' to those who had previously been 'discriminated against' through denial of credit or higher interest rates. The real reason that these people had been treated in such a way is because banks doubted they would repay the loans, and as such either refused credit or charged higher rates to make up for the increased risk of loss.

As to some banks going bust, that's the way capitalism works to the benefit of the people. If the Federal Department of Capital Distribution does a poor job, nothing happens, and the Federal Department of Capital Distribution keeps on doing a crummy job. If a bank makes stupid decisions, it might coast along in economic upturns, but will eventually go bankrupt, eliminating the inefficient entity and allowing a better bank to rise and take its place.





Worker Self-Management: Each productive enterprise is controlled democratically by its workers.

Dude, have you seen the people who work at McDonalds? I don't want those people being in charge of McDonalds-or anything else for that matter. I like the idea of having shareholders and managers who make them clean the bathrooms and grills, minimize the drug usage during work, actually show up somewhat close to on time, be polite to customers, and so on.

DanseMacabre
Friday, November 14th, 2008, 01:19 AM
Dude, have you seen the people who work at McDonalds? I don't want those people being in charge of McDonalds-or anything else for that matter. I like the idea of having shareholders and managers who make them clean the bathrooms and grills, minimize the drug usage during work, actually show up somewhat close to on time, be polite to customers, and so on.

That's a weak argument against co-op's. If a workers controlled co-op is filled with idiots it will fail and go out of business.



As to some banks going bust, that's the way capitalism works to the benefit of the people. If the Federal Department of Capital Distribution does a poor job, nothing happens, and the Federal Department of Capital Distribution keeps on doing a crummy job. If a bank makes stupid decisions, it might coast along in economic upturns, but will eventually go bankrupt, eliminating the inefficient entity and allowing a better bank to rise and take its place.


I disgree with Schweickart's model when it comes to the banking system. I think coopertive banking or a larger credit union system would be better.

SwordOfTheVistula
Friday, November 14th, 2008, 04:02 AM
That's a weak argument against co-op's. If a workers controlled co-op is filled with idiots it will fail and go out of business.

Well the idiots have to find employment somewhere.

It's not so much just 'idiots', but people who are not sophisticated or educated enough to run a large enterprise.