It's all about Amelioration

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The Free Market Rhetoric…

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photo by Limbic

We all know the  story of Robinson Crusoe. He survived a shipwreck and found himself on an inhabited island. In order to survive, he started gathering resources like wood, stone, plants, water, fruits in order to provide for his basic needs of food, shelter and clothing. To build a shelter, he then use wood and vines from a tree and debris from the ship wreckage to make a shovel. In economics, what Crusoe did was create factors of production, that is natural resources, labour and capital. Capital is comprised of any resources, other than land or labour, that may be employed in the production of goods and services. In this case, it would be the creation of the shovel to make his shelter. Thus far I have established what we call a very basic form of a labour intensive economy, which many third world countries are still relying on.

The story goes on when Crusoe rescued a prisoner (Friday) from native cannibals in the island. Friday became the second inhabitant of the island and he, similar to Crusoe when he first landed, needed to gather resources for food, clothing and build a shelter as well. Crusoe agreed to lend Friday his shovel, in return for 5 coconuts. What Crusoe just did was being a capitalist, that is someone who profits from the economic employment of his capital, even though he does no work with that capital himself. In the true sense of capitalism, instead of lending Friday his shovel in exchange of coconuts, Crusoe should encourage Friday to build his own shovel so that both of them can increase production. Two shovels can be twice as productive as one. Even better if Friday built an axe, so while he focuses on gathering wood, Crusoe can use his shovel to dig for food and they can basically trade with one another. Another economics concept of comparative advantage is introduced here.

However, the question is will Crusoe encourage Friday do build his own tools (capital) or will he continue to exploit his labour and benefit from it? This brings about the current social dilemma in many developing and developed countries. A good government will always encourage capitalism oriented towards the economic self-sufficiency of its citizens. It can do this by facilitating labour oriented toward the creation of equity, and by legislating other economic practices and institutions that do the same. That includes creating level playing fields, allowing for trade unions, curbing elitism or for that matter nepotism.

Essentially, capitalism thrives in all form of governance. The main difference is the ownership and control of the means of production. A communist government for example practices state capitalism, in which all or most means of production are owned and controlled by “the state”. We in Singapore are more familiar to Laissez-faire capitalism, or elitist/corporate capitalism, where most of the wealth is hoarded by small percentage of the population. A majority of us slog for corporations sometimes up to 12 hours a day, six days a week  but we don’t fully get to enjoy the fruits of our labour. Besides getting that salary or bonus, we are essentially building equity for the corporation, not for ourselves. In fact most of us are motivated to work in such a system not by wanting to build our own equity but because of fear of unemployment. This is what I call perpetual indebtedness to the system. A corporation that includes stock options as part of its compensation to employees is a good measure to alleviate corporate capitalism.

What inspired me to blog about capitalism is because I find the words” market forces” being used a bit too regularly whenever a member of our ruling party is  defending the party’s policies. Yes, while free market forces are needed to encourage capitalism and wealth creation, a government’s role is also to ensure that no corporation or wealthy individuals or themselves even hoard the means of production for individuals to build equity. To think of it, how much equity does an average Singaporean create for himself? We rent houses from the government and the banks as we live in a 99 year lease public housing and borrow money from banks in huge amounts to pay for the rent. Unless we fully own equity like private housing or a business, could we then be our own Robinson Crusoe and use our capital to create more equity. The relentless rise of cost of living, corporate bullying (Shen Siong anyone?), no minimum wage structure, ignoring speculation in public housing, cheap foreign labour are signs of Laissez-faire capitalism. Such form of capitalism can be detrimental to an economy as can be seen in the Great Depression under Herbert Hoover, where the government failed utterly to provide desperately needed economic sustenance to working Americans. Or the very recent Great Recession where too much wealth is hoarded in wall street in the absence of regulation and ethics,  and a fall in them posed a systematic risk to the economy.

Capitalism is great in encouraging ambition, but it also can create an increasing income gap and inequality  that can harm the very fabric of our society like a higher crime rate and more broken families. Our gini coefficient, which measures income inequality is already one of the highest among developed countries. A government should ensure that ownership and control of means of production is dispersed as wide as possible to promote enjoyment by the individual of the fruits of his own labour.  The very basic thing it could start with is by ensuring that income levels commensurate with the cost of living.


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Written by Nabs

May 7, 2010 at 10:37 am

5 Responses

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  1. […] Review: Pushing for Freedom of Information laws in Singapore – It’s all about Amelioration: The Free Market Rhetoric.. – Fridae.com: Transgender women in Singapore launch campaign to end […]

  2. Your equity is useless unless it is unlocked.

    thepropertyspruiker.blogspot.com

    http://thesglottery.blogspot.com/2010/05/singapore-banks-locs-and-prime-rate.html

    Melbourne

    May 8, 2010 at 10:34 am

  3. […] Review: Pushing for Freedom of Information laws in Singapore – It’s all about Amelioration: The Free Market Rhetoric.. – Fridae.com: Transgender women in Singapore launch campaign to end […]

  4. Inspirational article. Tx Nabbedd.

    Ummie

    May 13, 2010 at 11:06 pm

  5. Good to hear Ummie. Thanks for reading!

    Nabs

    May 16, 2010 at 2:11 pm


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