Category — Socialism

The opening session today in the ongoing OECD Forum 2010 was on the future of capitalism, where economic historian Anatole Kaletsky argued that “we’re entering a new period of pragmatism, when ideology will give way to a more “common sense” approach.” Arguably, this is not such a radical notion; the financial crisis has shown in a dramatic way that there have been some serious cracks in what has commonly been accepted as “good” economic policy. It is easy to blame greed and carelessness in the financial sector, but that hardly goes to the heart of the problem. At the end of the day, even if the greed and carelessness of a few “evil bankers” really is to blame, policy has to change if the economic structures have been conducive to making it cause despair for millions of people.

Aside from highlighting dysfunctional economic structures and the need for reform, a very immediate consequence of the crisis is that Governments have been [Read more →]

During the year and a half since Barack Obama got elected president of the United States the country has been awash in hysteric conservative paranoia. One of the last incarnations of this amongst the conservative grassroots movements are so-called “open-carry” demonstrations. That is, demonstrations where people show up carrying rifles and loaded handguns in order to show how committed they are to the United States Constitution and American democracy.

Yesterday, one of these these rallies, [Read more →]

How about a really big steel plant… right here?

A friend and fellow Technology Governance student here at the Tallinn University  of Technology shared with me two papers by Tatiana Mikhailova from Harvard’s Davis Center and Boston University’s economics department, in which she argues that spatial inefficiency caused by Soviet planning may be costing Russia more than 1,2% of their GDP annually compared to a market-based counter-factual scenario, chiefly because of higher energy costs necessitated by cold weather.

I’ve included the abstract of Mikhailova’s paper The Cost of the Cold: The Legacy of Soviet Location Policy in Russian Energy Consumption, Productivity, and Growth below:

The spatial allocation of productive resources in present day Russia is inherited from the Soviet Union. Soviet system allocated investments without regard to economic efficiency, as the result the colder regions of Russia are significantly overpopulated compared to the market-based counterfactual. This paper estimates the cost imposed on Russia by this excess exposure to cold through excess energy use and loss of productivity. We show that the inherited spatial inefficiency costs Russia above 1.2% GDP annually in extra energy consumption and construction productivity alone.

Thanks to Mihhail, a loyal Evolution-Revolution reader, for sharing the papers.

Above: Nanotech is coming to get you

One of the first definitions of Economics I came across in my life was “the study of scarce resources and unlimited wants.” That is, how choices are made with regards to which of the unlimited wants are to be met and not, or in other words, how resources are allocated. Here, markets come in as one of many possible mechanisms for making such choices socially.

In the context of Technology Governance, another way of understanding economics appears. That is, in recognizing that in the presence of innovation and changing technology, economic systems are not static, the extent to which resources are scarce depends on our ability to produce. As such, economics in this context can be better described as the study of how humans mitigate scarcity of resources by means of technology. Here, the core questions do not so much relate to allocation of scarce resources but to our changing capacity to make available those resources.

However, technology does not only change which resources or goods are available in which quantities, they also strongly influence the market (or other) mechanisms by which they get distributed. [Read more →]

Picture from http://www.jimrlong.us/

On our recent and very pleasurable trip the the United States, some of my more conservative friends who we were visiting insisted on showing us one of their new favorite movies - An American Carol. The movie is a railing if highly inconsistent criticism of any and every idea championed by liberal America anno 2008, in particular its anti-war sentiment. The main character of the movie is Michael Moore (“Malone” in the movie), who takes the role as the scrooge of 4th of july – and is visited by three ghosts, amongst them General George Patton and country singer Trace Atkins (proudly playing himself). On his way to salvation and pro-war attitudes, he is slapped in the face repeatedly by an (as always) morally righteous Bill O’Reilly (also played by himself), who warns Moore that he is abusing his freedom of speech by preaching pacifism. In particular, the film echoes conservative America by claiming that Michael Moore and his followers – by questioning the moral superiority of the United States at war [Read more →]

The authors of Evolution-Revolution are currently visiting New York as part of our January tour of the United States. A proud bastion of capitalism and free markets, Manhattan also has some fine examples of what decent government can accomplish. Try asking a New Yorker whether Central Park ought to be sold off to a real-estate developer because having it government-owned is socialism.

The Wall Street Journal reports today that the United States Federal Government is dwarfing private investors in providing venture capital for new high-tech startups – in particular in “clean technology”. Predictably, many (Americans) are worried that this is another step in the direction of a socialist United States. This is worrying too much.  There are abundant examples of governments successfully investing in industry – especially “infant industry” – in non-socialist countries with weaker constitutional safeguards than the U.S. If anything, it is a much more sensible way to do stimulate the economy during a recession than having people paint lamp-posts or pick leaves.

More importantly, the surge of public investments into high-tech business is probably very good for the private sector, both in the long and short run. Already, private venture capitalists are eager to invest in companies that receive loans or equity investments from the government. This, of course, can simply be attributed to the fact that more access to capital and concessionary interest rates should make lower risks and higher returns more likely. However, the much more significant effect – especially over time – is the establishment of strong intrasectoral networks that are necessary for any advanced industry to flourish. Such networks – prominent examples are Silicon Valley and (until recently) the car manufacturing clusters around Detroit – allow for specialized production knowledge to be developed and disseminated, specialized suppliers and consumers to gain sufficient economies of scale, and for consumers to “learn” new products; all necessary ingredients for dynamic economic growth. Notably, a high degree of geographic concentration is not always necessary, but a fairly large number of firms and a significant industry size is.

The network dynamic also highlights a particular reason why it may be appropriate for taxpayers to be venture capitalists. Because many of the benefits of venture capital investments – such as new innovations or other “network benefits” as outlined above – are external to individual firms and investors, but still benefit the economy as a whole, VC investment incentives are in some ways more symmetrical with those of taxpayers than private VC firms.

Of course, the establishment of strong dynamic intrasectoral networks can and has many a time been achieved without government intervention. However, it has not been achieved without plentiful financing – plentiful financing clearly not available in the wake of a financial crisis, especially for small firms. When the Federal Government is able and willing to make the necessary investments, why not be pragmatic rather than paranoid and let it? If anything, in five or ten years the U.S. might just find that they paid off.