Tuesday, December 15, 2009

The Economy Is Doomed Forever? - Part 1

by Jahaberdeen Mohamed Yunoos

It is almost a truism to say that there will always be problems in life. I would add “in all aspects of life”. Often times, I do not see what occurs as a problem but a hurdle or an event that needs to be addressed. It only mutates into a problem when the event or thing is not addressed or is addressed but inappropriately.

For example, one may see it as a problem that one has to move from point A to point B. But to me, it is simply a life situation that needs to be addressed with several options – walk, use a bullock cart, bicycle, car, train, plane, etc. The choice of the option is critically important – short term measure or long term, expedient or fundamental and so on. Unfortunately, I have seen that Governments (due largely because of the nature of the citizens themselves) often opt for the short term and expedient option. Since it is short term and expedient, the so called ‘solution’ itself raises a host of diverse other problems. I see this happening particularly in developing countries that refuse to learn from the experiences of the developed countries.

Take the economy, for example. Up to the time of writing this article, Laissez faire or free market enterprise is being taught in the universities as if it is being practiced in any part of the world. Adam Smith’s ideas as expounded in his book “The Wealth of Nations” and the magical ‘invisible hand’ that will equitably distribute resources in the economy is a Shangri La that does not exist in real time. Today, one cannot really describe accurately what the nature of the economy of any country is.

The reality appears to be an arbitrary concoction of free market, state controlled and everything else thrown into the boiling economic pot in the spirit of fire fighting which we have been accustomed to since the depressions of the 1930s. Hence, we are crisis managing the economy all the time. The so-called economic experts justify our inability to confront the truth of our refusal to address fundamentals by inventing jargons like “cyclical phenomenon”, “overheating”, “financial meltdown”, and so on. The fact is: we are in a major world economic crisis and it will recur even if we “recover” in the short term. The crisis started long ago when we imported the capitalistic model and then became worse when it silently mutated into financial capitalism.

Fundamentals are never addressed, largely due to the existing vested interests of the very people who are supposed to be the caretakers of the economy and our paid, appointed thinkers. This will be addressed subsequently in this article. Let me move to an issue which is more easily discussed – living with misconceptions or in simple words – believing the lies that are told to us.

Everyone who wakes up wakes up accepting that we live in a free market capitalistic economy. What this implies is that people believe that, basically, demand and supply proceeds unhindered, there is movement of capital towards the creation of good and services (hence employment) and that competitiveness ensures efficiency and quality. The reality however shows this perception to be largely untrue for several reasons. I will discuss three of them here.

Firstly, there are many aspects of our life where the goods and services are not actually desired but they are just put into the market. Your needs are created for you and you do not really have much choice. Houses are built and if you can afford it (economists call this affordability as “demand’), you buy it. Demand has nothing to do with desire. If you want to buy a car, the economy dictates the process through which you can own the car – get a bank loan and service the interest.

The economy dictates that since you live in a terrace house and therefore own no land to grow your food, you have to find a job to buy your food. And to satisfy your other needs (clothing, education, medical, etc), you have to be gainfully employed.

Effectively, to live or survive in this economy, you must be healthy, and able to work until your dying day. In this economy, you will have been converted into a slave of the economy for the purposes of “sustaining” the economy. We have all, through years of indoctrination accepted this as a reality. We do not think of other available options because they will be presented as unavailable by the vested interest groups which you are blissfully ignorant.

Secondly, and I have argued this even when I was a mere student of economics, the so-called free market will mutate naturally mutate into monopolies and oligopolies. This is the natural progression of human caprice and the power of capital when left unregulated by responsible governments.

For example, small banks have systematically been eased out and replaced by a few banks – oligopoly. How much bargaining power do you have with banks? How many contract terms with the banks have you negotiated? You just sign! Everyone seems to have forgotten that commercial banks are businesses like every other business with the aim of maximising profits. However, they enjoy greater advantages and power over the so-called “customers”. Raperas must see that there are increasingly greater oligopolistic tendencies in the financial market and hence greater control over the customers. Those who control the very medium of exchange (money) needed in this economy controls your life. As a reminder, the banks are lending you "credit" - what is that??? (Another area where the public should be educated on)

Raperas should be worried that almost all the essential industries are largely in the hands of oligopolies – food, water, medical, etc. The argument often advanced is that of economies of scale and efficiency but I am certain it is going to and has lead to profiteering and bondage of the ordinary people. This will lead (if it has not already) to the phenomenon of “corporatism” – where corporations controls our lives in every aspect. Almost everyone today is getting caught up with the hype of "food biotechnology" without having thought out the longer term repercussions.

Thirdly, the rise of financial capitalism disguising as free market capitalism. Malaysians have an apt description for this phenomenon – “rise of the alongs and gamblers”. Finance capitalism has nothing to do with developing the real economy. It is characterized by the pursuit of profit from the purchase and sale of financial products such as bonds, stocks, futures and other derivatives.

It also includes the lending of capital at interest and trading in currencies. Financial capitalism destroys the philosophy behind free market. Financial capitalism puts income into the hands of those who do not produce any real goods and services – they have the “demand”. In simple language, these groups can and do price out goods and services beyond the reach of ordinary people. Some economists explain this away as "inflationary tendencies". What I am saying is this: the majority WILL get poorer sooner or later!

NEXT: The Fundamental approach verses the current vested interest approach. God Willing.


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