Saturday, August 9, 2008

Creative Capitalism

A few months ago Bill Gates made a speech at Davos imploring the world's corporations and civic leaders to help harness the powers of capitalism and use it to reduce inequity and poverty around the globe. This speech ignited a debate amongst many economists and other generally very smart people at the blogsite Creative Capitalism. There are many interesting perspectives on the issue, which makes the site worth sorting through, and I do think the overall goal of the project was to produce a book, but a few highlights can be found here, here, here, and here. There are many other good posts that I've failed to highlight (Nobel Laureattes too!).

Overall, I think the debate was informative, but it was obvious that many of the writers were arguing past one another. The variety of backgrounds that the writers were drawing from made it where many arrived with their own preconcieved--though very detailed and well supported--notions about what institutional structures and economic theories identify the best method for producing a well-functioning wealth generating society. Some of the posters merely provide nice sounding platitudes and high-minded ideas about reforming the system. Others slog through the gritty circumstances that exist where much of the world's poor live. I doubt anyone changed positions in the entire debate.

My view is this:

1) It was capitalism--only capitalism--that produced the awe-inspiring wealth found in most of the western world. Much of the world remains poor because they have yet to embrace this socio-economic system.

2) The extent of inequity and poverty throughout much of the rest of the world remains not due to any inherent defect found in the capitalistic economic system, but is instead the product of poorly structured institutions designed to maintain order and stability. In much of the world, governments frustrate the efforts of private individuals trying to increase and build wealth through forced expropriation of personal property, or other policies that erode the ability to calculate the relative values of things in the economy (Zimbabwe serves as a striking example). Much of the problems are created by and due to poor government.

3) Some cultures maintain beliefs that stigmatize wealth creation and hard work. This places a check on productive activity.

4) The first goal should be to seize at the low hanging fruit. Almost immediate improvements in the lives of the world's poor can emerge from the elimination of our agricultural subsidies and trade restrictions. By eliminating subsidies and embracing free-trade, we will provide to the world's poor access to the largest market in the world, as well as allow them to increase production in the areas where they already have an existing comparative advantage. Though this seems unlikely with the interest groups vying for control an influence in the US Government. Virtually everyone is aware of the ethanol debacle, yet we still have the ethanol subsidies after all.

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