Thursday, August 16, 2007

Getting Rich, Pt. 2

(This is in response to the anonymous blogger who posted his/her comments to the previous article. I realized the potency of his arguments and have decided that adequate justice can only be done by re-posting my response as an article instead of a comment.)

Hi Anonymous.

You have misunderstood the purpose of this article. What I am getting at is the fact that a liberal democracy (as opposed to the social or christian variants), for all its flaws, is arguably much better equipped to ensure its citizens have at least a semblance of equal access to opportunity. And it is this very access that is responsible for innovation, and cultural and technological progress, those very broad movements with attendant massive trickle-down effects touching all sections of society. The end result is the creation of a more educated and equitable society.

I am fully aware of the fact that one could justifiably dismiss most Americans as uneducated. Be that as it may, the drivers of the American economy are, surprisingly enough, substantially more educated than one would expect.

Of course, it is patently unfair to posit education as both the pre-requisite as well as the eventual end-result of being rich. Correlation is not equivalent to causality and all that jazz, i.e. just because most economic drivers are educated does not imply that education is a pre-condition to getting rich.

However, one need not believe in the Hegelian creed of historicism and feel doomed looking at the inexorable march towards communism; as an educated individual, one ought to realise that a capitalist form of society is the sole doctrine which has embedded within itself the precious idea of "wealth creation", plainly expressed as the scope of "making money".
Making money and being rich is not the end-goal of human existence; rather, it is a means of achieving a more richly-textured existence during one's lifespan, along with the rest of society. To be human is to derive joy from the interactions one has with one's society and culture; to be human is to explore and push out the boundaries of the known and to fight back the fearsome puzzles of the not-yet-known.

Coming back to the purpose of this essay, I strongly believe it is imperative for our generation to be rich, and to plough back the generated wealth into a bootstrapped next generation which is sufficiently educated, civilized, and cultured, and which makes human existence in the subcontinent much more pleasant and pregnant with possibilities. That is our duty to society, if any; that is our dharma.

Now, coming to the points you have raised:

Your article amply proves the age old saying of "Little Knowledge is Dangerous".
1. Accepted - nation state was a specific European creation created during those turbulent days of 18th and 19th centuries, under the guise of western liberalism - although I doubt to what extent nation states had anything to do with the core liberal ideas of Kant, Adam Smith, etc.

RESPONSE: I shall ignore the ad hominem attack and simply state that classical liberalism is what defined to a great extent, in close conjunction with Westphalia, the modern nation state. It was the liberal doctrine that powered most of the popular revolutions of that age, and which created most of the pillars of modern societies that we take for granted, viz the primacy of parliament, the independence of the judiciary, and the codification of accepted social practice as law. Again, I am not too sure why Kant was included in your list of liberals; Kant was a mystic and a pessimist, one who believed in the eventual fallibility of reason when faced with the unknown. I do not care to share such a dismal view of Man's place in the universe.

2. What do you mean by this fanatical belief in "Liberty"? Have you ever thought about whether you are really "FREE" in any philosophical sense of the word? If I may use John Stuart Mill's words, it is basically the freedom to do whatever one wants without impinging on others' ability to do the same. Do you in anyway fulfill these definitions ? I am not talking about petty day to day activities but more systemic things. This brings us to the title of your essay. Are you willing to enshrine it as the foundation of our society? Are you willing to make the freedom to make money as the only real "freedom" and reduce the populace into dumb consumerist monsters devouring the world's resources - at least that is what one generation of Americans have been able to do quite efficiently. This paramount freedom of the market necessarily undermines all other freedoms - making people like you fanatical adherents to this get rich mantra. I am not suggesting that you cannot think, rather that the whole logic is so compelling that most people fall for it and become willing slaves.

RESPONSE: Liberalism and the utilitarian doctrine share a lot in common; among them is the non-impingement of free acts upon the freedom of others. What I find fascinating, though, is the Left's paranoia about the preservation of capital. (I use capital in its broadest sense.) I have sufficient faith in human ingenuity to realize that issues such as global warming, the depletion of natural resources and the impending collapse of the oil-fuelled economy are best solved in a political framework that encourages entrepreneurial behaviour with its attendant risk-return tradeoffs. A short exercise is in order here: witness the mental association of soot and grime with the cities of the erstwhile Soviet Union and Eastern Europe. Capitalism recognizes that pollution leads to sub-optimal productivity; entrepreneurs realize that a business opportunity exists in catering to people who want a cleaner environment more than anything else; a true education makes people realize the numerous benefits of preserving the Earth's fragile ecosystem over the often shoddy benefits of owning a gas-guzzling SUV. All of the above components must exist in order to correct the mistakes of the past and to catalyse human progress. Other doctrines, be they theocratic or left-leaning, fail precisely because they do not take into account the primacy of the free market in regulating the pulse of human life.

3. I don't fault you very much for this essay. Lots of countries have gone through the same phase as India is going through. Look at Latin America - it was once the most radical adherents to neoliberal policies and look what happened to them - a fact that people in that part of the world are quickly realizing. I am sorry to say this, but India seems to be going towards the same direction - 20-30% rich and the rest poor. Only, the misery will be much more with such a large population.

RESPONSE: It takes a lot of meddling with the definition of neo-liberalism to extend it to the form of economy currently extant in Latin America. If you declare yourself a free market solely for the purpose of looting wealth, it is scarcely capitalism at fault. Crony capitalism, for such is what it is, is what exists in most parts of India, and we Indians have much more in common with goons such as Cheney or Chavez than we would care to acknowledge. In fact, it is only in a truly free market that alternatives such as Linux can spring up. As an example of attacking the weak points of the competitor, it is a shining beacon of the open possibilities that capitalism embraces; its proponents barely realize that they are simply pawns in the free market. Having said that, I reiterate - being rich is not an end in itself, but a means to achieving social progress. I have far more respect for Andrew Carnegie, the steel baron who established CMU, than I do for Stalin, who established the famous gulags and concentration camps of Siberia. Capitalism, the resultant drive to be rich and the need to invest in social upliftment is the one thing that can help Indians break through the barriers erected by the Pareto Principle.

4. On a more philosophical note, I would like you to think about this - the tremendous fragmentation that we suffer from, do you think we can be really free with this kind of segmentation? we are constantly torn apart by all kinds of stimuli, essentially becoming slaves of our mind. I somewhat agree with your prescription of an educated person, but I think it lacks a deeper understanding of how our mind works and hence how to "educate" it.

RESPONSE: As you have rightly pointed out, in all probability I lack a deeper understanding of the cognitive process, and of how best to work through it. Be that as it may, it does not give us enough of an excuse to sit back and not do anything. We need to create providers of education that can, at the very least, ensure equitable access to opportunity here in the subcontinent; it is the one thing that we Indians lack. I agree with your prescriptive advice that more needs to be done in terms of finding the best means to educate minds, but, in the absence of such panaceas, we are left with no other option but to at least try and inculcate the best practices that human civilization and culture have worked out.

5. Finally, regarding the optimality of free market capitalism, you have got it badly wrong. When you give the example of Henry Ford, remember his continued success was mainly due to his monopoly in the car market. This is precisely what laissez faire economists would despise.

RESPONSE: I beg to differ with your understanding of Henry Ford's place in the pantheon of the free market. When Ford started his company, there were over a hundred such car makers creating automobiles the same way medieval guilds crafted tools. It is to Ford that we owe the creation of the modern assembly line, with consequent order-of-magnitude gains in productivity; it is Ford who exploited the crucial insight that in order to establish a market for his goods, he first needed to ensure a much higher level of work-life balance among his workers. It is Ford who established the five-day week, instead of the then-standard six days of work except Sabbath, so that families get one more day for leisure. Of course, it was purely selfish capitalistic motives that drove Ford, since he knew that two days of leisure every week would encourage families to go out on trips to the countryside, and this push would consequently expand the automobile market. It is not for us, though, to question Ford's motives, because, yet again, we notice how the pressures of a true free market work in "mysterious" ways to establish a greater dignity for life. Having done all that, however, Ford never managed to gain a monopoly on the American car market, as Sloan and others in General Motors ran away with his organizational principles and, in doing so, created modern management science. To summarize, a monopoly is inherently unstable in a true free market, and there are enough rational agents in such an economy who can wobble, if not topple, the status quo-ism of such a state.

And what is this optimal thing? can you be more concrete? does it really lead to happier people? or is it just pareto optimality you are talking about? what about wastage, over-production, exploitation, ecological destruction? what about the marketplace destroying all semblances of diversity?

RESPONSE: I am not competent enough to answer whether ANY form of economy leads to happier people, though I have a fair amount of doubt and suspicion as to whether communism can do anything of the sort. Wastage and over-production exist in ALL economic systems; they are a consequence of incompetent planning, which at a macro-level is the hallmark of a communist economy. At a micro-level, as management systems get stronger in control and planning aspects, and as improvements such as JIT and Kaizen are introduced in a large scale, such inefficiencies tend to disappear. This is a byproduct of human progress and ingenuity, and one hopes the best for the future. As for exploitation and ecological destruction, a liberal free market based economy consisting of educated citizenry would take more than adequate steps to ensure these evils are stamped out. And, finally, a true free market would ensure adequate recognition of diversity, and place due emphasis on catering to its needs. Witness the huge market that has been brought into creation due to the existence of the GLBT community. Diversity can only be destroyed if people believe it's unnecessary and not worthy of preservation. As long as there is sufficient education in the world, cultural artifacts, if deemed important enough by the market, and if even a single person believes in their preservation, will exist. If not, perhaps they deserve a decent burial.


Anonymous said...

I will give a very detailed answer, with my mistakes and responses. Fro the time being I would like you to see this
and the other two parts

or this

smashit said...

the urls got truncated

and the two other parts

or this

P.Sainath is a very well known reported who, unlike us, spends most of his time in rural India. He recently received the Magsaysay award.

Renie said...

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Chandan Kumar said...

very nice post...was going through your books list on . Could help notice the absence of Fooled by randomness on that list. If you havent read it, do read it. Its by the same guy who wrote the black swan(Nicholas Taleb) and along the same lines(In fact, its a precursor to the black swan). This and another book on George Soros(Soros:times...something) are fantastic if you're interested in how popper's ideas show up in finance/trading and how the popperian mindset can be invaluable in trading.