The Wealth Gap : Should We Be Concerned?

The Wealth Gap : Should We Be Concerned?

  March 03, 2014    Surath Giri

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Relationship between Economic Freedom and Inequality

Last month international development organization Oxfam released a startling figure about the wealth gap between richest people in the world and the poorest half. According to the report, 85 of the wealthiest people in the world own as much wealth as the poorest half of the world. In other words, less than a hundred people have control over half of the world’s current wealth. The revelation has appalled many people and has refueled the tirade of criticisms being raised against capitalism and free enterprise. Nepalese media and intellectuals too have picked up the issue and resumed their criticisms against market. Income inequality is an issue Nepal should be concerned with too. It ranked 157th in the Human Development Index 2013 and the Gini Coefficient is 32.8 suggesting a significant income inequality. In this context, it is imperative to dwell on whether such income inequality is desirable for a society and what can be done about it.

Not just economic implications

High levels of income inequality and concentration of wealth among a few people is certainly not desirable for a society. It can dampen the benefits of democracy and skew national policies making them favorable to the political and economic elites only which in turn will have negative effects on economic growth and development process and poverty alleviation measures. Income inequality has been found to correlate with violence and higher crime rates in a society too. 

However, it is essential to dwell on whether income inequality is a problem in itself or is it a symptom of underlying structural problems in the economy. Hence, the question is not just why 85 people own half of the world’s wealth but it is also why the poorest half of the world is producing and creating so little wealth when there seem to be immense possibilities for creating a wealthier world.

Lack Economic Freedom: The main cause

It is interesting to note that majority of the poor in the world live in societies that are miles away from free market system and are supposedly pursuing policies aiming equality and wealth redistribution. India alone hosts one-third of the world’s poor and until 1990s, its major policy thrust had been wealth redistribution and state control of the economy. China which is another major home for world’s poor, started down the path of market economy only after disastrous 3 decades of anti-market and supposedly pro-poor policies. By moving towards market economy and promoting growth rather than redistribution, India has reduced its poverty rates from 51% in 1991 to 22% in 2013. China has achieved an ever more impressive progress by reducing poverty rates from 84% in 1981 to around 12% in 2013. What critics of market system have left out is the fact that the wealth distribution around the world was even more skewed before 1990s when many countries around the world started moving towards market economies.

Empirical studies conducted in the context of developing countries have also found that economic freedom and income inequality have inverse relation suggesting that higher degree of economic freedom would result in lesser income inequality. For instance, a study titled “Economic Freedom and the trade-off between inequality and growth” conducted by economist Gerald W. Scully has found that economies with higher economic freedom not only enjoy higher growth rates than less free economies but they are also more equal. Economic freedom reduces inequality by increasing the share of market income going to the poor and lowering the share going to the rich. Economic Freedom of the World Index, a cross-country study on economic freedom conducted by Fraser Institute of Canada also shows that freerer societies are comparatively more equal than societies with lesser economic freedom.

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Why the world is getting better: A retrospect of 2013

Why the world is getting better: A retrospect of 2013

  December 31, 2013    Surath Giri

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Source: The Spectator

The rapid spread of globalization and capitalism has benefited millions of people around the world, especially in the developing societies. At the same time, it has annoyed and disappointed countless people, especially leftists, environmentalists and clergy. As per them, the world is coming to an end and the rapid economic growth has only accelerated our journey towards doom.  But, rarely do their gloomy predictions withstand the test of empirical evidence. If only the prediction of doomsayers governed the world, the world would have perished of global cooling in the 1970s, massive starvation in the 1980s and is supposed to end within a decade or two because of global warming (Hope you noticed the irony here). Despite their predictions, the life, in general is getting better for majority of the humanity as they have become richer and hence in a better position to attack enemies of humans such as poverty, illiteracy, operation, natural calamities and pollution to name a few. 2013 also saw a few changes that indicate a better future for human beings.

Fraser Nelson, editor of The Spectator has pointed out these changes in his article The biggest shocker of 2013? That it really is a wonderful world. As shown in the article, 

1. Deaths by malaria is decreasing rapidly as countries prone to it have grown richer and now are able to afford basic necessities like malaria nets. Places like Cambodia believe they’re three years away from extinguishing Malaria deaths. 

2. Looking at a broader picture, the world is living in the most peaceful time in modern history. The world-wide battle deaths per 100,000 people is decreasing rapidly. As economies are getting more integrated and interdependent, the war is becoming a costly thing day by day. This does not mean, every place in the world is peaceful. Many African countries are still engulfed in nasty civil wars but the overall trend is decreasing.

3. Global death rates due to extreme weather events is also declining. From 485 deaths out of 1000 deaths per year in 1920s, it has declined to 35 deaths out of 1000 deaths per year.

In the end of the article, the author has recommended a book which explains about the positive trends in the world and the causes behind them. In defense of Global Capitalism by Johan Norberg, happens to be one of my most favorite books and one of the few books that shifted my viewpoints very significantly. This book is a must read for anyone wishing to know about the status of the world and willing to do something to makes lives better. 

Fortunately, the book is available for free download. I have uploaded the book to slide-share and embed it below. Please feel free to read the book online or download it (recommended) for better reading.

In Defense of Global Capitalism by Johan Norberg from Surath Giri

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What does the Arab world need more? Democracy or Capitalism?

What does the Arab world need more? Democracy or Capitalism?

  July 05, 2013    Surath Giri

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Image Source: Wikipedia

Egypt's misfortune seems to know no bounds. It was not much long ago, I was among the millions of people around the world congratulating Egypt for overthrowing its dictator. Now, Egypt's history seems to have re-winded itself. Military has deposed the country's first democratically elected leader and has appointed head of the country's Supreme Constitutional Court the President. 

Fraser Nelson of Telegraph has written an excellent article titled "It is capitalism, not democracy, that the Arab world needs most". He argues that Arab people revolted for their freedom (especially the economic freedom), not necessarily for democracy. He says:

Take, for example, the case of Mohammed Bouazizi, who started this chain of events by burning himself alive on a Tunisian street market two years ago. As his family attest, he had no interest in politics. The freedom he wanted was the right to buy and sell, and to build his business without having to pay bribes to the police or fear having his goods confiscated at random. If he was a martyr to anything, it was to capitalism.

In fact, Hernando De Soto , the well-known Peruvian economist who studied about how excessive regulations and lack of property rights are keeping people poor in the developing countries had written about this as early as November 2011. In his article titled The free market secret of the Arab revolutions he had written:

According to research by colleagues of mine, at least 35 businessmen followed his desperate example and set themselves on fire (13 more in Tunisia, 17 in Algeria, four in Egypt, three in Morocco and so on).

People identified with his dire situation: like 50 per cent of all working Arabs, he was an entrepreneur, albeit on the margins of the law, who died trying to gain the right to hold property and do business without being hassled by corrupt authorities.

If the region’s new leaders want to make a difference, they have to appreciate the underclass of such aspirant capitalists, a supranational movement that spans Arab cleavages, different languages, political environments and cultures. That will be the driving force in the months ahead.

Hence, without economic freedom, democracies are very likely to fail. As seen from Nepal's own history, if democracy results in exclusion of majority of people from economic prosperity and an extractive government, it won't last long. If we want the Santa called "Democracy" to deliver us the gifts of peace and prosperity, we should make sure that his bag contains "Economic Freedom" among other things.

What's your view on this? Feel free to share in the comments below!

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Moral Criticisms of Capitalism: Paul Heyne's Thoughts!

Moral Criticisms of Capitalism: Paul Heyne's Thoughts!

  November 30, 2012    Surath Giri

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Paul Heyne

Yesterday I stumbled upon a lecture titled 'The Moral Critics of Capitalism' by Paul Heyne. It's a shame that I had never heard of him before. Paul Heyne, as I have come to know now, is the author of the acclaimed textbook "The Economic Way of Thinking" and was one of the legendary teachers of economics in United States. I loved this lecture which happens to be his last public lecture and was delivered on given February 17, 2000 in Seattle.

In this lecture he talks about the moral criticisms of capitalism or as he would prefer to say 'market-coordinated' system. As a person who came to the field of economics from theology, he indeed has interesting perspectives on the morality of free market system. Previously an ardent Marxist, Haynes started reading economics when his friends suggested him that he might be on the right track by criticizing capitalism but it would help him if he studied some economics as well. He says later on he found  that 'almost all of the moral criticisms of capitalism that he had been triumphantly parading around in the seminary campus were misunderstandings'. He argues that capitalism evolves naturally and competition is an inevitable thing as long (Read forever) as there is scarcity.

He also says that there, however, is a very valid moral criticism of capitalism that is often forgotten by the moral critics. Capitalism subverts community which almost every one of us are fond of. He suggests people to find ways to nurture community without destroying the market so that we can get the best of both worlds.

You can listen to the lecture here:

So what do you think? Feel free to post your comments below:

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China's Capitalist Revolution

China's Capitalist Revolution

  April 22, 2012    Surath Giri

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While in Hong Kong for a summer course at the University of Hong kong in July 2010, a Chinese student asked me, "It really surprises me. How come you guys have Maoism so popular in Nepal when even we Chinese have largely abandoned his philosophy?"

I struggled for an answer. Jokingly, I said , "Come to Nepal. You would know for yourself." But on a serious note, I added "There is a widespread myth that China developed because of Maoism. Everyone knows Mao but very few know about Deng Xiao Peng and his reforms. The so called critical mass and public intellectuals never really bother to learn the truth or go beyond the popular rhetoric and propaganda."

And I believe it's really true. I have learned from my interactions with people that very few out the many who eulogize China's communism tend to know about Deng Xiao Peng and his reforms. Had it not been for Deng's reforms, China would still be languishing in poverty and millions of more Chinese farmers would have perished. I recently discovered an interesting documentary depicting Deng Xiao Peng's role in the economic transformation of China. I hope watching this documentary will help viewers enhance their understanding of China's economic transformation from a poverty ridden Third world country into an economic powerhouse.

The question that bothers me now is: We have more than enough Maos in Nepal. Mohan Baidhya, alone would be more than enough for that purpose. But do we have or can we expect to have any Deng in Nepal?

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Top 10 quotes from Milton Friedman's Capitalism and Freedom

Top 10 quotes from Milton Friedman's Capitalism and Freedom

  April 20, 2012    Surath Giri

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I recently finished listening to the audio book of Milton Friedman's Capitalism and Freedom.Friedman was indeed a great economist whose articulation skills and influence indeed provided a major contribution in reviving classical liberalism in the Western world and introducing it to the Eastern world. Although, I have found many libertarians quite critical of Friedman's for his support for government actions in some context such as education and monetary policies, I think, had it not been for him, free market economics would not have received as much recognition as it did since 1980s. In this book also he has made compelling arguments in favor of liberty and free markets. He has with enough arguments and reason (for the logical minds that is) made a very compelling case for free markets, limited government and capitalism. In my view, the most appreciable aspect of the book is the way he has simplified economic arguments and made them understandable and interesting for a layman.

As Friedman was very well-known as one of the smartest and quickest debater, I have presented here the top 10 quotes (in my view and not in any particular order) from his book Capitalism and Freedom:

• "To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served."

• "Indeed, a major source of objection to a free economy is precisely that it does this task so well. It gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself."

• "Humility is the distinguishing virtue of the believer in freedom; arrogance, of the paternalist."

• "Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated — a system of checks and balances."

• "Concentrated power is not rendered harmless by the good intentions of those who create it."

• "The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rule of the game" and as an umpire to interpret and enforce the rules decided on."

• "Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp."

• “There is still a tendency to regard any existing government intervention as desirable, to attribute all evils to the market, and to evaluate new proposals for government control in their ideal form, as they might work if run by able, disinterested men free from the pressure of special interest groups.” 

• "The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government."

• "Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power."

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Occupy Wall Street movement: Good Capitalism, Bad Capitalism

Occupy Wall Street movement: Good Capitalism, Bad Capitalism

  December 13, 2011    Surath Giri

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Image Source: watchdocumentary.tv

Occupy Wall Street movement which started as a series of demonstrations in New York City based in Zuccotti Park in the Wall Street financial district has gained worldwide momentum. Over 900 major cities of the world are reported to be buzzing with replica protests of Occupy Wall Street currently. Nepal didn’t remain untouched by the wave. Nepalese intellectuals paid their tribute in their usual way, declaring it an end of capitalism, blaming capitalism for anything and everything that has gone wrong in this country and calling for similar protests. 

The shallowness of their understanding is evident by the way every major disturbances in the West is heralded as the ultimate endpoint of capitalism, and a vague alternative system promising utopia is promised. It is very unfortunate that while spewing hairsplitting criticisms of capitalism most usually the income inequality, critics forget to acknowledge that capitalism as compared to every other political and economic system so far known is better at creating wealth and lifting millions of people out of abject poverty. It is surprising that advocates of social justice and equitable distribution of wealth find that capitalism is the only system that creates enormous wealth, so indigestible. To understand the Occupy Wall Street movement objectively and its relevance to Nepal, it is necessary to understand what exactly gave rise to the protests and also that, rather than a monolithic form as described by its critics, capitalism has different forms. It is imperative to understand that there is good capitalism and bad capitalism, and the distinction between them is the first step towards solving the aforementioned problems.

Crony capitalism, which is the form of capitalism where wealthy corporations and politicians tie up in a “you-scratch-my-back-I scratch-yours” fashion to abuse power and wealth for each other’s vested interests, is bad and is one of the true causes of discontent among the protesters. Two of the major issues raised in the Occupy Wall Street movement are bailing-out failing banks with the taxpayers’ money and rising income disparity among the citizens. If one digs deeper, both of these are results of crony capitalism. The banks having close ties with the politicians are rescued with the taxpayers’ money instead of letting them face the consequences of their mistakes. Similarly, income disparities rise because of governments providing special privileges to those wealthy corporations through various means such as subsidies, tax-rebates, special licenses, and favorable policies.

Free market capitalism that rewards entrepreneurship, risk-taking and innovation, and at the same time provides easy universal access to economic activities to all citizens is a blessing. There are enough evidences that when allowed to work, the market has lifted more people out of the mud and misery of poverty than any government. And it has been true regardless of the culture, tradition, religion, economic base, and civilization of the society practicing it. The most prevalent myth about free market capitalism in Nepal is that in free market capitalism the economy is dominated by cartels and syndicates. 

Source: Facebook

Whatever little degree of capitalism Nepal has practiced so far has been riddled with practices of crony capitalism. The majority of the wealthy class of Nepal were either born rich or became so by political and bureaucratic connections. Why do few business houses thrive whereas majority of the populace languishes in poverty? Why do few industrialists dominate the economy? Not because they provide quality goods and services to satisfy the customers but because they happen to have political and bureaucratic connections. License permit regime has been a key factor in sustaining and fostering the close ties between politicians and businessmen. The few people who supposedly control the majority of the wealth of the nation do so because they are politically powerful and well-connected. But, despite this, there are also entrepreneurs in Nepal who came from a humble background and made a fortune by providing goods and services to the hundreds of thousands of satisfied customers. If we criticize capitalism blindly, we are also criticizing these people who risked everything they had and provided something useful to the society and made fortunes. It would be mere foolishness to criticize these ‘job creators’ for the unemployment problems in the country. Even our neighbors -socialist India and Communist China, who didn’t look at capitalism with favor in the past have embraced it after realizing their folly. It would be a hug mistake for Nepal to take the already abandoned path.

Fights against capitalism have already become the war of the past. Today’s interconnected and globalized world begs for a different fight. A fight to ensure the benefits and privileges of capitalism to even the poorest of the poor. A fight to eliminate close ties between politicians and large corporations and let the markets work freely. The debate for the future is not whether to have capitalism or not, but what kind of capitalism to have- the crony capitalism that plagues the economy of Nepal or a free market capitalism that ensures equal access to economic activities and equal respect of rights of every individual citizen.

-Surath Giri

(Published in The Himalayan Times of 13 December, 2011.)

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पूँजीवादलाई पूँजिपतीहरुबाट बचाऊ

पूँजीवादलाई पूँजिपतीहरुबाट बचाऊ

  December 22, 2010    Surath Giri

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हिजो प्रकाशीत डा. भोला चालिसेको "सार्वजनिक निजी साझेदारी र समाजवाद" नामक लेख साह्रै नै सान्दर्भिक  र तथ्यपरक छ । लेखकले भनेझै नेपालमा पूँजीवादलाई पूँजीपतीहरू  बाट नै ठुलो खतरा छ । अधिकान्श विश्वले बढ्दो ब्यक्तिगत र आर्थिक स्वतन्त्रता तर्फ पाइला चाली रहेको र सम्मुन्नत हुँदै गैरहेको अवस्थामा नेपालमा भने पूँजीवाद भन्ने शब्द उच्चारण गर्नै डराउनुपर्ने हुनु दुर्भाग्यपुर्ण कुरा हो।   आजको विश्व को एक आम नागरिकलाई बुझ्न हम्मे हम्मे पर्ने बिषय हो -सारा विश्वले अन्तरस्थमै खराब सिध्दान्त हो भनेर स्वीकारेको ,जस्को प्रादुर्भाव भएको समयलाई डर , त्रास र अन्धकारको युग भनेर विश्वले स्वीकरिसकेको र जस्का गलत नितिका कारण करोडौ मानिसले ब्यर्थमा ज्यान दिनु परेको , देशहरुको अर्थतन्त्र ध्वस्त भएको साम्यवाद, समाजवाद जस्तो निति नेपालमा चै किन यस्तो हाबी भएको होला । तर जब हामी हाम्रो नीजी क्षेत्र र पुजिपतीहरुको क्रियकलाप हेर्छौ , त्यो हाम्रा लागि आस्चर्य को बिषय रहदैन । प्रतिस्पर्धा र जोखिम उथाएर ब्यापार गर्नुको साटो राज्यको खर्चमा आफ्नो ढुकुटी भर्न लागि परेकाहरुले अर्थतन्त्रमा राज्यको भूमिका बढाउनु पर्‍यो भन्नु नौलो कुरा नै भएन । राज्यका मार्फत प्रत्यक्ष वा अप्रत्क्ष्य रूपमा एक्लौटी अधिकार र जनताले तिरेको करको पैसा ब्यक्तिगत रुपमा प्रयोग गर्न पाइने भएपछि सार्वजनिक-निझी साझेदारीका लागि उनिहरु कस्सियेरै लाग्ने त भए नै । राज्यको अहिले सम्मको प्रदर्शननै, अर्थतन्त्रमा राज्यको भूमिका न्युनिकरणका लागि जोडदार तर्क हो । नीजी क्षेत्रको यस्तो अनैतिक व्यबहारले नीजी क्षेत्र झनै बद्नाम हुने र अर्थतन्त्रमा आघात पुग्ने भएकाले आजको एउटा आवश्यक्ता पूँजीवादलाई पुजिपतीहरुबाट बचाउनु पनि हो ।

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