The Dearing Dialogue

There is a curious relationship between democracy and market-capitalism.  On the one hand, they appear to support each other, whereas on the other hand, they appear to alter and confine each other.  This essay will examine that relationship under the assumption that these two concepts are inherently opposed to each other when examined under constraints of human necessity.  However, the ability for a society to find a balance between these concepts is dependent upon that society’s level of political culture.

Man is ultimately a biological creature with biological needs.  The need for food, shelter, and procreation brings man into a relationship with other men and women in order to provide the necessary resources for survival.  As Hannah Arendt aptly describes, man is not born free, nor equal, but is subject to the constraints of the human condition[i]. In the state of nature, this consists of a daily struggle in which only the strong survive.  To escape this predicament, man enters into a relationship; a society to ensure the survival of all members, strong or weak. 

Market-capitalism is premised on the promotion of self interest.  Democracy is based on the promotion of majority interests in society.  Karl Polyani suggests that market capitalism is “entirely unnatural” in a society; that economics were traditionally embedded within the social construct of society so as to justify one’s position within that social hierarchy[ii].  Throughout most of history, man’s needs were met through “reciprocity and redistribution”, which ensured society’s continuation and prevented winner-take-all transactions that could alter the existing social structure[iii].  Under conditions of economic distress, members of a community could look towards the existing political culture to reestablish equilibrium in society.  In such tribal societies, a balance of democracy and economics existed.  Economics were based on redistribution of goods, not an individualized capitalist system that prevented redistribution in order to justify profits.

Without equilibrium, market-capitalism will run contrary to democratic ideals.  A market-capitalist system must be balanced by a democratic form of government to ensure the reigns of capitalism are controlled by society.  Market-capitalism, as described by Marx, transforms traditionally social transactions (labor, money, materials) into commodities that lose their value over time[iv].  That labor provides nothing more to the worker but wages.  Under a pure market system, society would be as Marx describes, squeezing greater quantities of labor out of fewer workers until the costs are as minimal as possible.[v]  Looking at the historical Greek polis, slave labor was justified and used as a commodity, while the slaves were separated from the framework of the polis.  But, balanced with an all-encompassing democracy, market-capitalism is controlled and compelled to consider the interests of all in society.

Like the Greek polis, the birth of the United States forced difficult questions upon the founders of our republic.  Preaching equality of all people in their Declaration of Independence, the founders overlooked the dilemma of slavery, gave in to market forces, and ultimately wrote slavery into our Constitution.  By doing so, the slave class took on the burdens of necessity for male, white, propertied elites. Slaves were property, and property was a market force held outside the reigns of the limited “democratic” government.  By creating a structure where half of society was overlooked, market capitalism ran its course without the constraints of an impoverished class demanding representation or justice.  Thus democracy for all was set aside for the interests of a market-capitalist system.  It would ultimately require progress in the political culture of the United States for it to find equilibrium between market-capitalism and democracy.  As Larry Diamond alludes, the level of a political culture often determines the “status, strength, or stability” of a democracy.[vi]

The equilibrium we enjoy in the United States is constantly in jeopardy.  Markets are controlled by large corporations which are not reigned in by democratic governance.  Corporations are generally run as authoritarian regimes.  Equally dangerous is the role corporations play in public demands like a free press, electoral equality, and the environment.  Corporations are willing to buy legislation from candidates willing to sell it while the public often remains unaware or apathetic due to corporate control of the media and overall cynicism.  The level of political culture will ultimately decide whether democracy or markets will find their balance.

Last week, President Clinton and Scottish philanthropist, Sir Tom Hunter, visited Malawi to sign a memorandum of understanding (MOU) with the people of Malawi through President Bingu wa Mutharika.  The MOU is designed to provide private money for rural development projects.  The unique quality of this MOU is that it keeps power and decisions in the hands of locals in the community, as opposed to outsiders with little understanding of local needs.

 

Too often in the past, development aid initiatives had been disconnected from the participation and fundamental ownership of the people at grass root level who were the ones heavily affected by poverty,” said Clinton.

Speaking with locals in Malawi, I learned that many programs failed to fund the needest people because of a lack of both local and cultural understanding.  While the intent of international donors may be noble and altruistic, they often fail to meet the needs at hand due to misunderstandings and a lack of local control.  This program looks like it can solve many of the past shortcomings, and will be one which researchers of development should follow.

See Video of Clinton visit: Clinton Foundation

“Malawi cannot feed its present population of 13 million - and every year its soils become more degraded and yields steadily fewer crops.

By 2050, the UN forecasts that it will have almost 32 million people - more than twice as many as today. Population growth on this scale will almost certainly leave Malawi permanently dependent on international food aid to keep millions of its people alive. (Telegraph online)”

These are harrowing statistics.  While urbanization is an important factor towards economic development, it is also dependent upon an industrial economy - in the demographic sense, an asset Malawi lacks.  Malawi’s chief exports are tobacco and maize, not cars and computers.  Farming exports typically grow GdP at a slower rate since the price of these products, especially tobacco, are typically weak in a marketplace dominated by international buyers with greater influence and options then the weak and powerless growers. 

Malawi’s cities are lacking in development focused on future population growth.  What is growing are the amount of slums in Malawi.  Currently 1.8 out of a 13 million Malawian population live in slums.  Trash is typically burnt on the city streets, power cuts are a daily occurrance, water is rationed for a few hours a day.  Transportation is painfully lacking.  Mini-buses clog the crowded streets, their exhaust spewing black fog on every corner.  Foot-traffic blocks the roadway and the news of a pedestrian being hit by a car or bus is a daily occurance.  Most city streets remain in the dark as pedestrians come within inches of passing cars as sidewalks are either lacking or blocked by makeshift vendors. 

Unemployment is rampant as more people arrive from the villages in hopes of capturing some of the riches they hear of from outside the tribal community.  The reality is that rural areas are increasingly unable to support the amount of people living there (UN Habitat).  Environmental disasters such as drought and the degradation of land from farming and deforestation has made life less habitable.  While the small amount of money they may earn as servants, vendors, or day-laborers help the home village, it also creates a reliance upon outside income, bringing more people from the rural areas to the city. 

The condition of Malawian health is at risk as well.  With a growth in urban slums, the opportunity for diseases like HIV  spreading is increased.  According to the UN, malnutrition, hunger, and disease are increasing in the urban slums such as Ndirande township in Blantyre, or Area 19 in Lilongwe.  With such growth in urban population, Malawi and development institutions will face difficult obstacles and critical decisions as economic and social problems persist. 

See State of World Population 2007

Open up this week’s New York Times Magazine and you find an interesting article on the 200 million migrants worldwide that send billions of dollars home every year.  The article features Phillipino workers in the Middle East that make around $200 a month sweeping the floors of Saudi princes.  They send the money home to unemployed family members.  The Phillipine government supports and encourages the practice, namely because it protects against an othewise impoverished underclass revolting against an entrenched bourgeois elite.  What struck me was not the excellent article, but the flair surrounding it.  The magazine is written for an educated, urban elite.  The magazine is filled with real estate adverstisments for the upper class.  Homes, condos, resorts that start at 1 million dollars.  I suspect that a great majority of readers flip through more for perusing the elegant lifestyle, then for the fine articles.  It is somewhat ironic that the magazine covers the life of impoverished migrant workers confined around the castles of elites.  Is it a conveniant propaganda scheme by ideologues of the free market, or simply the nature of the beast?  I don’t know.  But this form of servitude that has been a fundamental element of market capitalism, where a worker owns only their labor, is growing exponentially around the world.  Displaying the process in a sympathetic manner around the advertisments of glamorous homes, which those migrants will undoubtably be employed, is somewhat unsettling.

Corruption is nothing to be surprised about.  Whether it is corporate or political elites in the West, Russian oligarchs in the East, or third-world dictators in the South - matters very little.  But Paul Wolfowitz holds the position of President of the World Bank, an institution that governs the economic and some would say, social policies of the developing world.  If any country, such as Malawi, wants a loan, certain conditionalities are typically placed on that country in order to secure the funds.  That may incluce instituting stronger goveranance laws within the country’s poltiical economic establishment, or opening up business to outside corporate interests, or floating a currency to hostile market forces.  The stigma placed on the developing world after the fall of colonialism and the rise of dictatorships and their ensuing wave of corruption is something one is constantly reminded of when pondering why a country has not developed.  We are quick to blame corruption amongst the ruling elite and a protected civil service class.  While true, it can not be outweighed over the obvious corruption reigning in from the developed world, that is well practiced at pillfering all it can from the developing world. 

Paul Wolfowitz holds a position that must stand for integrity.  Giving salary raises to girlfriends or spouses is something we typically condemn in Africa.  If the developing world is too believe in the ideology of the World Bank, namely a free market, it must see justice carried out.  Paul Wolfowitz must resign while he can, otherwise I believe it is just and acceptable to terminate him immediately.

In credit to the World Bank’s development committee, they released a statement condeming Wolfowitz and calling for immediate action:

“We have to ensure that the bank can effectively carry out its mandate and maintain its credibility and reputation as well as the motivation of its staff. The current situation is of great concern to all of us.”

See more at: The Guardian

Evraz, the coal mining company in Russia that just suffered a disaster of 106 deaths and is facing criminal charges of negligence, is taking over Oregon Steel Mills in Oregon and Colorado.  It’s been cleared by US regulators according to the Russia Journal

Evraz was also penalized for water pollution, poisoning the drinking water of the City of Novokuznetsk in Russia. 

Do we really want this company doing business here?

Why sub-prime mortgages may have impact on the whole economy

Exactly how far could this cotagion go?  I suspect it has alot to do with expectations.  Right now, the public can not stop talking about the sub-prime mortage fiasco, which I think should have been picked apart a long time ago.  This “adjustment” is long overdue.  Maybe society is just coming to that realization and going overboard, however, the Fed is remaining extremely calm.  Tomorrow will tell us a lot on just how calm they are.  If they raise interest rates, its likely to fight inflation and likely to create even a greater and quicker demise to borrowers and lenders in the sub-prime market.  This can have a ripple effect over the next few months on consumer spending in the economy.  Given the fact that much of the spending over the last 5 years has been fueled by home equity loans, a rise in interest rates will likely curtail the behavior of home owners to spend - thus shrinking the prime mover of our economy, asset allocation. 

The Global Urban Real Estate Boom

With the end of ARMs, Interest Only Loans, and other conveniant gimmicks thought up by unregulated mortgage brokers, borrowers will be forced to put down anywhere from 5 - 20% on loans for new homes.  But how many in our debt-laden economy are going to be able to come up with 20k or 40k on a 400k home?  The inevitable conclusion is a decline in home prices.

Now the other option for Chairman Bernanke is to lower interest rates in order to spur consumer spending.  But that will tank the US dollar and only make a bad, inevitable conclusion, much worse.

It’s gonna be a wild ride down!