Tuesday, August 29, 2006

Low-intensity Democracy


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All the fuss about Arroyo establishing a Marcos-style Martial Law is nothing but white noise, I realized recently. After all, that was what Arroyo construed the purpose of her recent antidemocratic measures to begin with – to be a weapon of distraction against her opponents, or maybe another bargaining chip against the opposition (which she can use to buy time by “waiving” in “good faith”). That is not really particularly interesting. What is interesting, however, is how her style of governance (or more aptly, tyranny) imposes a change to the very nature of our democracy – a change which may very well be irreversible if unmitigated.


Arroyo may have vested interest in keeping dissent in check, and thus she may just have been using everything at her disposal, legal (such as EO493) or extra-legal (extra-judicial killings), in order to do that. She may very well relinquish her draconian measures if conditions become more favorable to her, since these measures are just hinged on her interest to survive politically. But this is not the case. More than ever, what Arroyo did actually was to establish a philosophy – a concept on how a modern state like the Philippines should be run.

To quote economist John Maynard Keynes “Sooner or later, it is ideas, not vested interests, which are dangerous for good or evil.” What strikes me thus as particularly ominous about Arroyo’s recent policy against the opposition is not the motive behind it but the policy itself, and its future effects on the public’s philosophy of government. The more frightening thing is, it is not her idea to do so. It is an imposition of global movement hell-bent on establishing a new world order.

What Arroyo is trying to do is to establish the Philippines as what had been called as a “low-intensity democracy”. According to Bonn Juego, low-intensity democracies are “characterized by limited accountable government, relatively unfree and unfair competitive elections, partially curtailed substantial civil and political rights, and compromised associational autonomy… (It) alienates the idea of democracy from its social connotation as popular power, in favour of ‘formal’ and procedural criteria that safeguards the dominance of the elites and of the market.” Malaysia, China, and India, and recently, in Singapore and Russia seem to have such type of democracy.



A low-intensity democracy is banked on public pragmatism and disinterest on government affairs. It wants the public to leave the affairs of the government to itself and focus instead on their individual livelihood. Furthermore, it operates under the “no politics outside the government” philosophy. Its methodology would be to shun away from street parliamentary and other extra-legal methods as means of political change (ironically the very institution that placed Arroyo in power in 2001).

Low-intensity democracies, incidentally, are also low-cost democracies. Combining the paleoconservative precept of a minimalist government and the neoliberal principle of decontrol to market forces, low intensity democracies take as a policy to gradually devolve the functions of the government to private sector. That is the reason why social services such as welfare, education, energy, water, and healthcare are slowly being privatized in various countries which adopt neo-liberalism. In conjunct to this, these countries also streamline government functions by cutting on public spending and rationalizing the bureaucracy.

To prove that such a trend is really happening, we only need to take a look on the Arroyo’s rhetoric on governance. Getting her technocrat training from the UP School of Economics, Arroyo declared as a policy to continue Ramos-initiated liberalization economics. Arroyo called for a stop in politicking, and had forwarded government non-intervention on businesses, all the while implementing maximum government intervention on mobilizations and democratic protests.

But more than that though, is an effort to integrate to the country’s constitution this political-economic philosophy. Charter Change, if one will look at the bigger picture, is actually a tactic towards establishing a low-intensity neoliberal democracy. Arroyo sees as a more sustainable solution to her political quandaries, because the new constitution will ensure a toned-down, depoliticized democracy, with institutions bent on protecting property rights by limiting political rights. The result of such is exactly what she wants, an apathetic and disinterested public that would be willing to forget and ignore (or else) the illegitimacy, corruption, and anti-poor policies of her government. Juego excellently characterized the recent Cha-Cha as the “constitutionalization of authoritarian liberalism”.

But let us take aside what purpose can a low-intensity democracy possibly serve Arroyo; let us just take low-intensity democracy at its face value and answer the question: Will it be good for us?

My take on this is simple. Low-intensity democracy may be good for developed countries (and even this is subject to debate, particularly because economic development had always been more or less at par with the rise in public involvement in government policy-making, at least in liberal democracies), but certainly not in an underdeveloped nation-state like us. The problem, in fact, can be rooted to three basic features of our country.

First is the information gap. The government seems to know very little of the causes of poverty and on how it can be addressed. If you try to dissociate the public more from the government, the more the government will not know of the nature of the public’s problem, nor will they be able to respond accurately. This is similar to Ludwig von Mises’ “calculation problem”. In matters of nation-building, what you don’t know will certainly hurt you.

Second is corruption. Of course, we all know that a corrupt government, left on its own, will never be able to fix itself. The solution is not just a strong and continuing public vigilance, but actual and direct participation of the civil society on the affairs of the state. This is what Hong Kong did when it created the Community Relations Department of the Independent Commission against Corruption (ICAC), which is responsible towards mobilizing public support and cooperation against corruption. The solution to corruption had always been placing civilian controls over government’s agencies.

Finally and most importantly, people are not empowered enough to take on the immensity of our social problem through non-governmental solutions. There is simply not enough impetus within the private sector to help the underprivileged, and the only agency which can bring about immediate change would be the government. And this is where the paleoconservative-neoliberal approach fails – the gains promised by that approach is hinged on the assumption of equal economic potential. Without that equality, there can be no significant articulation of social benefits. Any kind of progress, should there be, can only reach only a segment of the populace.

The solution then can only be localized direct democracy, with political power emanating from local level up to facilitate forward and bottom-up transmission of what social needs are and how they can be addressed. We cannot afford to minimize public participation in a government with weak institutions vulnerable to abuse and dereliction – we must instead maximize involvement of all public sectors in order to strengthen our institutions. We do not introduce autocracy in order to protect democracy – we promote democracy to protect ourselves against autocracy.

The solution for us cannot be a low-intensity, state-managed democracy, especially with a state bereft of moral ascendancy, competence, or even decency like Arroyo’s.

8 comments:

James Miraflor said...

I got some comments when I posted this article into what was then theintellectualfreemarket.blogspot.com. I'll post it here as reference:

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mark said...
I don't get your argument. The justification for a low intensity democracy is precisely because of government incompetence and/or corruption. The less a corrupt government intervenes in market exchanges; the less costly they'll be and the more likely the benefits will benefit private individuals directly involved rather than bureaucrats.
You said: "people are not empowered enough to take on the immensity of our social problem through non-governmental solutions." What is your proof? Private NGOs have done more to protect the environment, children, women, etc. than any government agency and at less cost. Implicit in your arguments is the belief that government is the only way out of our mess and that simply relying on free private individuals isn't going to do anything. It seems impossible then to cure ourselves of a corrupt government. Perhaps you have an impossibly high standard wherein no one is starving and poor.
Mises' calculation problem in fact justifies more limited government because it emphasizes government's inherent inability to get the required information because it doesn't always know what information is relevant, when it is relevant, and how to make use of it. And the larger the government is, the worse this problem becomes.
In addition, a free market and limited government does not require "limited accountable government, relatively unfree and unfair competitive elections, partially curtailed substantial civil and political rights, and compromised associational autonomy… (It) alienates the idea of democracy from its social connotation as popular power, in favour of ‘formal’ and procedural criteria that safeguards the dominance of the elites and of the market." And I'd like to hear the argument that makes you think so.
1:29 PM

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James Miraflor said...
Hi Mark! I just have a few responses on your rebuttals, and I would hope this would trigger a livelier debate.


On minimizing government intervention. You argued that "less a corrupt government intervenes in market.. the more likely the benefits will benefit private individuals directly involved rather than bureaucrats". Well, this is assuming that the market/private sector itself is free from corruption, and/or value distortion. This is ranking "government failure" over and above "market failure" which is really much the same in order. But I will discuss market vs. government at length later.


On NGOs and their capacity to solve fundamental problems. I work in an NGO, and I know that while it can do a lot in providing services directly to the people, and influence governments to do the right thing, it can only do so much. I think your statement that "private NGOs have done more to protect the environment, children, women, etc. than any government agency and at less cost" is a bit overstated. While able to mobilize funds towards specific societal purposes, NGO actions are at most palliative solutions to fundamental problems which only the governments of the world can address, no matter how corrupt they are (because corruption is implicit in any human institution). And this is not excluding the fact that while at most only indirectly accountable to the people, they aren't immune to corruption. Governments can be corrected by public vigilance. Most NGOs can't when they go haywire, unless there is some government regulation on NGOs.


On Mises' calculation problem. I quoted Mises' sarcastically (pardon to Mises, which despite the degree which I challenge some of his ideas, I have deep respect to the intellectual), but now I would have to rebut him. Mises argues that without information provided by market prices it is impossible to rationally allocate resources. Mathematically, what markets do through market price signal is to simply compute a system of equations to optimize resources in such a way that as much as possible demand is satisfied by as much as possible supply available.


At this point, we can think of the market and government here as two competing calculators. Technically, a system of dispersed calculators (i.e. a market) has no in principle advantage over one central calculator, as any Universal Turing Machine has no advantage over any other Turing machine. In practice, governments are already technically equiped to have such centralized economic systems. Look at command economies such as Singapore and China outpacing the most open of market economies.


In fact, markets while good at microeconomic allocative efficiency (see Pareto), sucks at macrosocial and macroeconomic multi-generational allocative efficiency. It had already been proven that open and uncontrolled markets tend to exhaust future resources and options, tend to externalize costs to the most marginalized, and tend to disconnect traded value from fundamentals of production or real value (just look at the bubbles like the speculative credit crunch). It is also blind to human-accepted values, which are in fact fundamental in any civilized state, such as decent and humane living and social justice.


You may have heard of the Lange model, an economic model which combines heuristics and public ownership to determine output and equilibrium. It was, in fact, designed, as a rebuttal to Mises - it states that an economy in which all production is performed by the state, but in which there is a functioning price mechanism, has similar properties to a market economy under perfect competition.


As for your last assertion, I do believe that rent-seeking is an inevitably under a capitalist system. To use financial terms as analogy, power is a fungible resource. Financial power almost always translates to political power. Economic capital almost always translate to political clout, and political clout is a prime determinant of laws.


And of course, rules of the game (rebutting the ordoliberal paradigm) is almost always determined by power differentials. The only way to make sure that the rules of the game, once designed as most just, will not change as much as possible, is to minimize power differentials, as much as possible.


I enjoyed writing this, and I would appreciate a continued debate with you on this. =)
9:46 PM

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mark said...
Hello James,

I'm glad you replied. I've been trying to find a genuine "lefty" to debate with. I've sorry my reply is so long. It is partly due to my poor editorial skills and partly because you've raised a lot of issues implicit in your arguments. I sincerely believe many of your ideas rest on incorrect premises.

"Well, this is assuming that the market/private sector itself is free from corruption, and/or value distortion. This is ranking "government failure" over and above "market failure" which is really much the same in order."

First some definitions:
1.) Corruption is moral perversion; depravity.
2.) Free market exchanges can only take place if it makes the participants better off. Otherwise buyer and seller wouldn't make the exchange.
3.) A free market is defined by people being able to trade anything with anyone without coercion or fraud at a mutually agreed price.

The free market has only one kind of virtue that needs to be preserved, freedom (of the negative kind). Your statements of corruption and value distortion seems inapplicable because the market leaves moral evaluations to the individuals and participants of the market. To say a free market is corrupt and/or has value distortion is the same as imposing your own (or someone else's) value judgments on other people. In case your worried about self-interest and greed ruining society I offer these quotes:

"Narrow preoccupation with the economic market has led to a narrow interpretation of self-interest as myopic selfishness, as exclusive concern with immediate material rewards. Economics has been berated for allegedly drawing far-reaching conclusions from a wholly unrealistic "economic man" who is little more than a calculating machine, responding only to monetary stimuli. That is a great mistake. Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy —all are pursuing their interests, as they see them, as they judge them by their own values."
-Milton Friedman "Free To Choose" p27

here: www.youtube.com/watch?v=RWsx1X8PV_A
and here: http://www.acton.org/commentary/commentary_360.php

On NGOs and the capacity of government to solve problems and create new ones. First let me make two distinctions between NGOs and government.

1.) When NGOs fail or go "haywire", another one can take it's place. Nothing stops the volunteers and donors of one NGO to bail and form another one. When a government welfare program fails, it gets more funding. It is the eternal characteristic of government programs, they only fail because of a lack of money. Almost never a question of sustainability. I mean how many bureaucrats are going to say: "Please stop paying my salary and deny my fringe benefits so you can close down this unsustainable government program and release the resources for better use." not enough. All the while crowding out private charities by being overly generous.

2.) NGOs are voluntary. Meaning people there are more passionate and effective in what they are doing. Donors will be much more watchful. I quote Milton Friedman again:

"There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government."

Your assumption on interventionist government can be corrected by public vigilance is in theory correct. But in practice, a dismal failure. One very big problem is you do not fully account for the cost of public vigilance imposed on bureaucrats and the public when you have a highly interventionist government. A highly interventionist gov't inevitably must be given a large degree of discretion in carrying out its duties. It is inevitable in order to judge specific cases "on its specific merits". This makes more difficult and expensive to persecute them. The cost to a bureaucrat to look the other way or sit on his hands is almost nil. The cost to a citizen to rally on the streets can mean not eating for that day.

On Singapore and China. What do you mean by command economies? Because these two countries are far from what is economically considered command economies. They have largely embraced free markets and given their citizens far more economic freedom to decide what to buy and sell than the Philippines. A command economy is defined by governments giving commands what, when, how much, how to produce goods and services.

On markets tendency to exhaust future resources and options. First much of world's worst ecological disasters were perpetrated by communist and other dictatorial countries. Much of the drive and recognition for ecologically sustainable development came from economically open societies. China before capitalism had plenty of man-made disasters and famines. Now China is more worried about cleaning up its environment due to pressure from the growing middle class and affluent. Milton Friedman was onced criticized for saying we should put a price in everything (even the air we breathe). But he was correct, the problem of sustainability can only be solved if we are able to put the right costs of our actions. It isn't a moral thing but a reality thing, it costs less to protect the last hundred trees than the first hundred.

tend to externalize costs to the most marginalized. Can you give a specific example? Often, when I come across these situations I find that markets aren't to blame but governments.

"tend to disconnect traded value from fundamentals of production or real value (just look at the bubbles like the speculative credit crunch)"

Perhaps, but those that do so are also punished by the market. The world is simply an uncertain place. All forms of business and investment entails risk and thus speculation. It is a question of who should be doing the speculations. Shouldn't it be the owner of the property? The very person who worked for that property? After all, if they lose they take the fall not anyone else. A bureaucrat certainly won't be as careful or concerned.

On Oskar Lange. I will never be half the technical economist Lange is. But he was simply wrong. You cannot simulate the profit motive. A bureaucrat does not face the same pressures an entrepreneur faces and it is impossible to simulate the risk in investing in a potentially disruptive technology. Perhaps Lange's theories could work if a country faced a steady state. But with knowledge and technology constantly advancing, economic equilibrium is constantly shifting. But the proof is in the pudding. Lange was made an economic minister in the USSR. He was given enough influence to put his ideas into practice. What happened? When the wall fell, they found out the USSR was using data from the capitalist's countries' stock exchanges to compute the prices of their commodities. Asked what they planned to do if the capitalist countries fell they said they'd cross the bridge when they get there.

"I do believe that rent-seeking is an inevitably under a capitalist system. To use financial terms as analogy, power is a fungible resource. Financial power almost always translates to political power. Economic capital almost always translate to political clout, and political clout is a prime determinant of laws."

First rent seeking is defined as: "Cutting yourself a bigger slice of the cake rather than making the cake bigger. Trying to make more money without producing more for customers." by The Economist.
Second, a free market capitalist exchange cannot take place unless it makes all participants better off. What kind of rent seeking are you referring to? It may be true that "economic power" can become political power, but that's only a danger if you give politicians the power to affect our lives unreasonably. Economic power (let's call it being rich) in a capitalist system can only be had and maintained by providing a valuable good or service to others. That is, making people better off. For as long as politicians do not have the power to meddle unnecessarily with our lives, then being rich don't mean squat. There would be no point in bribing politicians. There is much more to talk about but this message is already quite long so I'll just await your rebuttal.
3:24 PM

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mark said...
Hello James,

Since you don't have time to reply yet, I'd like to plug some of the loopholes in my arguments. I wish I could do this as we go on but anyway...

On imposing your own values

To clarify I'm not an anarchist. There are certain values that everyone ought to accept unequivocally (e.g. thou shalt not murder). However, my position is that we should adopt values that maximize the freedom of the individual. Mill's idea that the state should only intervene in personal affairs when one is about to harm another seems to fit that idea. What are the values you want to impose on the market?

On the Lange model

I'd like to add that I find it inconceivable that Cuba and North Korea do not adopt Lange's idea when it will provide them with a standard of living equal to any capitalistic society and not have to abandon the ideology that legitimizes their leaders' rule.

On Rent Seeking in the capitalistic system

There is a hole here but I'd like you to find it. But I will say this, government monopoly has been far more harmful to society than private monopoly. (e.g. Meralco during and after Marcos).
12:24 PM

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James Miraflor said...
I’m so sorry for the terribly late reply. Life’s pressures had been quite harsh on my time. The crisis of the free market system, including but not limited to the oil, food, energy crisis, not to mention the staggering rate of inflation, is keeping us very very busy nowadays, hehe.

Thanks for waiting for my reply, by the way. I promise to make my arguments harder to challenge so we (and other reading our thread) would have more fun in this debate. =)

On Corruption. Since you clarified you are not an anarchist (and I am about to say that, hehe), then I will mostly skip this part. Your characterization of corruption though, will naturally lead some people to believe, on the first reading, that you are a post-modernist. After a more in-depth reading, however, you appear to subject the universe of social norms to not to the laws of absolute relativism, as post-modernists will, but to the laws of a free market. You take societal values to have some kind of an abstract meta-value, the characteristic which determines its persistence. Similar to the price signaling function, this meta-value is measured by the value’s “demand” on the social discourse, as determined by its hegemony. Cool characterization, I must admit.

However, just as any market, this market of concepts is particularly vulnerable to speculation and artificial ascribing of “meta-value” where there is none. This is similar to mythological constructs gaining hegemony despite having little to show for empirical foundations. Anyway, let’s go back to your more important points. =)

Oh, your question on the market first. What values do I want to impose on it? Well, you don’t impose a value on a construct which operates in its own logic based on a particular set of values, like the market, which operates on the logic and value of accumulation. Instead, I propose we impose values (e.g. humane and decent life for all, equal opportunity, solidarity) instead on the factors that can restrain the market, factors such as government and the civil society.

On NGOs and their efficacy.

You are clearly correct when you established two main ingredients which make NGOs very effective – their effective financing structure and the fact that they operate on volunteerism. When an NGO exists (not the fly-by-night or the “front” NGOs), you’re almost always sure that there is a need for it. Else, who the hell would provide money for it? Also, who the hell wants to work for an NGO that has no use (except possibly for large compensation, which will be absent on the lack of funding)?

Well and good. But the first question is, will money and volunteerism – both of them are necessary – be present for all worthy causes? Also, how consistent and committed to a particular vision can NGO’s and their funding agencies be? And here’s where the devils lie. In the depend-on-NGOs paradigm, a cause is only worthy insofar as the interest and financing are available. But that is not true. Take the funding for the issue of MDGs for example. When Climate Change became a hip, funding for MDGs suddenly dropped in favor of the newer, more popular issue, even if they are as important as each other. Now, NGOs would suddenly have to reduce their programs in support of an earlier advocacy to a new one, in order to access financing.

Second question, how strategic and visionary can NGOs be in resolving problems? NGOs, at most, are only capable of 1) palliative and mitigating actions, and 2) advocacy. Only institutions with a semblance of permanence and power, like governments, have the capacity to strategically resolve structural inequities like poverty, hunger, crime, and conflict.

The third question, is how can we be sure that there is no “overspending” on a particular advocacy, meaning that we achieve allocative efficiency on the resources mobilized on advocacies? Unless there is some kind of regulation, we cannot be sure. Of course, funding agencies can talk amongst themselves as a group. Then again, what is the added value of that over some kind of a government regulation?

On “interventionist” governments and how public vigilance is not being effective on them.

First of all, let us say that the concept of an “interventionist government” is something that is relative, and this I would have to consider given your arguments having strong radical libertarian streak. Even for neoclassicals, a government that has strong regulatory powers, owning a few SOEs centered on public utilities (which are natural monopolies) and essential services, and has agencies for pump-priming, is merely adequate. Only market fundamentalists would characterize such a government as interventionist. Of course, there are governments that are welfarists and collectivists, but that is another matter.

Thus, what we have here is a case of misplaced arguments. I believe, your arguments against “interventionist governments” are really against undemocratic bureaucratic governments. And on this, we are pretty much on the same side. Of course, we hate bureaucrats who sit on their hands while an important issue is already burning to the point of spreading the flames of discontent. But just as a reminder, a regulatory government is not necessarily an undemocratic one, and only in an undemocratic government will public vigilance will necessarily be costly.

And consider this. In fact, a regulatory government is necessary for the functioning well of democracy, and this includes the protection and promotion of “positive” freedoms (I need not elaborate on this). But not only that, a democratic government which has set up a structure for regulating the private sector also inevitably applies the same structure with which the private sector can regulate it. Not assuming so would assume that the government in this case is undemocratic, and of course we’re all against that kind of a government.

If you will analyze your arguments, it will rather become very clear that this applies to big corporations, not governments. If anything, big corporations are the ones most impervious to the criticism on their social impact, because they’re concern is how to gain as much as possible to please their shareholders. And shareholders’ interests, in so far as corporations are concerned, are only to make good profits out of their investments, as reflected by their dividends. And there is where externalization occurs. Environmental damage, labor abuse, legal violations are tolerated, even employed by corporations, as long as they maintain good financial standing. It’s no longer a question of what’s right, but whether what’s profitable given what cost. Legal charges are costly, but if the corporation can reap much much profit from violating the law, enough to cover their legal expenses, then why not do it?

You may say of course, that in the case of externalizing costs for environmental damages, other corporations which will make profit from reversing such costs will inevitably rise. Not always, and this reeks of Pollyannaish trust on the human potential. For one, the ability of reversing damage on the environment is always dependent on the level of technology available, vis-à-vis the level of reversal necessary before severe repercussions take effect. This is the problem behind global warming, as scientists come close to the conclusion that we are nearing a point-of-no return. So, the issue of global warming, if anything, stems from the fault of governments to regulate their industries. And thus, the solution is not to continue such lack of regulation, but to stringently apply it.

On Soviet-type communist/socialist states more accountable than “Free World” industrialized states.

I admit that Soviet-type communist/socialist states of the Cold War contributed much to the denigrating the environment, but I think its rather preposterous to say that they are more accountable than, say, what you call as “economically open” societies, which in the first place really aren’t as “economically open” on their period of early industrialization. In fact, I am inclined to think that these industrialized countries such as the US, UK, and Germany spent longer time industrializing, due to the relatively slower phase technology is being developed. So, at least, they are as accountable, at most, they are far more accountable than say, Russia or China. On the fact that the recognition for ecologically sustainable development first came from then such societies, they just had been technologically ahead than most other countries (with the fact that they industrialized way way earlier), and it is an inevitable stage in technological development to develop “cleaner” technologies, since they are less costly to use.

On putting a price to everything as a way to forward sustainability.

It seems a very good argument. After all, in theory, the only way you can discourage wanton consumption of a commodity or a resource is that consumption should be made at a cost. While this is true, in the real world, however, it is not so much the cost which is to be fundamentally considered, but the ability to bear the cost. This is mostly the reason why vast majority of peoples of the world can’t gain access on commodities which seems to be in abundance, and why resources which are apparently scarce can still be consumed excessively by large corporations which can afford to. This principle of price-driven sustainability can only be just if we are all starting on the same ground.

And this is the reason why traded value disconnects from the real value, as those with more capital to can pay more, regardless of the real value of the product being transacted, because what matters is how much it can re-traded (processed or not) at a profit to those who can pay more. Speculation as a way to hedge risk, again, can only work properly if there are no players which artificially jack up speculation and thus traded value only because they can.

There. I would like to tackle the issue of Command Economies, Lange Model, state-market relations, and the political-economy of rent-seeking later. =)
5:25 PM

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James Miraflor said...
On Command Economies

First, on Singapore. Superficially, they seem to be the epitome of free market, giving substance to their APEC rhetoric on free trade. Singaporeans, however, have to be more creative, especially for a country which has outlined an export-substituting industrialization strategy. What they did was, they used a state-owned investment funds Temasek Holdings (local currency) and the Government Investment Corporation (foreign reserves). The Singapore government aggressively took stakes at local companies and directed capital flow to sectors such as export-oriented manufacturing, port development, and shipping (to emphasize its trade industry).

While this is not direct government intervention per se, this is far from laissez faire. Using Temasek as investment arm, they carefully employed what in theory is called massive “infant industry” support. As the backbone industries become mature, Temasek diversified to services, investing into hotel and banking companies. As of recently, Temasek-controlled corporations’ income account for more than half of Singapore’s GDP.

On China, it is much more obvious. Controlled by the totalitarian Chinese Communist Party, the country underwent a period of intense collectivism before the capitalist restoration of the 1980s, when economic reforms were fostered through the establishment of export-oriented "Special Economic Zones" to serve as magnets for foreign investment, and the municipally-managed Township and Village Enterprises (TVE).

So, is this already free market? Let us take a look at more detail. The Eco-zone system is actually biased for the managers of state-owned factories, which gets their capital mainly from a state-controlled banking system. In the first few years of the TVE, the environment largely favored “public enterprises” as private businesses faced severe restriction and discrimination. This has largely relaxed, but the system remains to favor the publicly-owned corporations.

So how does the state control these “public enterprises”? The fiscal decentralization of the early 1980s gave greater decision-making power to local governments and linked fiscal revenue to the career potential of local officials, creating strong incentives for them to promote these enterprises.

So where was the locus of power transferred to by the central government? Not the private sector, but local governments. It is mostly and essentially a devolution – not a decontrol – project. To prove this, we need not look far. The signatories of the controversial Philippine-China Agreements are corporations wholly-owned by the Governments of Provinces/Autonomous Regions of China.

So in substance, China and Singapore remains to be largely command economies, with the government as a strong market actor itself.

I'll finish my arguments the next time. =)
5:32 PM

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James Miraflor said...
Before I go on, just a bit of point on Temasek. Unwittingly, these Singaporeans actually employed an improved version of the Lange-Breit model (also known as the 1934 model). The Lange-Breit model initially conceptualized a centralized Public Bank owning stakes in industries using Public Trusts, but industries are allowed a degree of autonomy in setting prices and hiring employees. In Singapore, the Minister of Finance controlled stakes in industries using Temasek, but industries are allowed to function under market rules.

On Rent Seeking

The capitalist system, you must admit, doesn’t operate on the notion of social equity. Simply having more capital necessary grants unfair advantages to large market actors, such as the ability to conduct predatory pricing to discourage competition, monopolizing well, “natural monopolies” due to huge capital requirements, etc.

And the tendency of the market, is well, to favor bigger capital. The tendency of capital is to accumulate and capture markets, and consequently, the tendency of industries is to monopolize/oligopolize. In this case, eventually, in an unregulated market, we will always end up granting price setting powers to big businesses. The movement of an unregulated market will always be from less imperfect towards more imperfect competition (I have an argument against this, employing the precept of competitive exclusion, but I would like you to argue it yourself =)).

And of course, the nations of the world knows this, and that’s the reason why they had their governments set up regulatory measures such as antitrust laws, laws that discourage and punish cartels, monopolies, oligopolies, and others. And here comes the catch. In a democracy, the government is controlled by elected politicians (of course, the rational technocracy and the inert bureaucracy can also wield enormous influence, but they mostly of an exception rather than the rule), and politicians are vulnerable to capitalists’ economic power, given the money-intensive electoral design of capitalist democracies. It is not surprising to note that the corporations are a strong lobby, because these corporations fund general campaigns of politicians in the end.

With the government acting as a restraint to capital accumulation, and there will always be a necessity to restrain capital accumulation (as I demonstrated), there will always be a point for capitalists to bribe politicians, whether legally (as in the case of lobby, or dangling campaign money in exchange for policy advocacy) or illegally.

In this kind of an environment, rent-seeking always occur, and, as government restraint on capital accumulation occurs on many levels, it will occur on multiple levels as well – on the individual/family/clan level (e.g. Cojuangco and the National People’s Coalition party), firm-level (e.g. Pfizer and the United States Senate), or for Marxists, on the class level (e.g. via conservative political parties).

On Private Monopoly vs. Government Monopoly

There will always be natural monopolies, since there will always be aspects of the economy where one firm can produce a desired output at a lower social cost than two or more firms. Notice here that the economies of scale also matters in terms of “social costs”, which also incorporates positive externalities and other social values.

Private monopolies, however, on the absence of government regulation, will always have price-setting powers, that is why there is a consensus in the mainstream economics that private monopolies must be de-monopolized as much as possible. Regulating a private monopoly, however, may result into inefficiencies, because the factors of production and thus pricing can only be computed most accurately at the level of the firm. Regulatory bodies don’t posses that much information.

So what to do with natural monopolies, if we can’t put them into private hands? It is always in the interest of the people to make natural monopolies into public utilities. Unlike private companies which have profit-maximization as their primary objective, public utilities (which are SOEs) will have social welfare-maximization as its primary objective. Of course, a level of profit will necessarily be set, but not at the cost of social welfare.

Just look at the state energy complex during the Marcos era. PNOC, Petron, and Napocor had almost always been in blue, yet they managed to service well the energy needs of the people. Look at what happened after Cory dismantled the complex, we had an emasculated Napocor which is vulnerable to indebtedness and unable to marshal capital expenditures (without having severe concessions, such as the “take-or-pay” provisions with the IPPs during the Ramos regime) to service energy needs (resulting to the blackouts of the 1990s).

On the Lange Model

First, I just want to say that I will be arguing on the socialist calculation problem on the basis of principle. Whatever Lange did in the Soviet Union (including his ominous “praise” of Stalin), is entirely separate from the merits of his ideas as they had been published, and that is where I am starting from. Also, the fact that Cuba and North Korea did not take cue from Lange, is not really that interesting. There is no point of comparison with the Lange’s model as they are two vastly different economies. Cuba survived the US trade embargo well, is in the top of the world when it comes to public healthcare, and is leading on biochemical research, and N.K. is, well, asking for food aids. I am actually aghast when people put them together, as Cuba is a far more advanced society.

Second, you arguing that the profit motive cannot be simulated is tantamount to you arguing against the foundation of neoclassical and mainstream macroeconomics. The whole macroeconomics and the Walrasian general equilibrium theory is based on the assumption that microeconomic behavior and rational agentic logic can be inferred. Rejecting that concept puts you more or less within the Austrian school. But well, that is pretty obvious.

Third, there had been advances since Lange proposed his models. In fact, economists already developed the dynamic stochastic general equilibrium (DSGE) modeling in order to take into account the “radical uncertainty” of the Austrian school, especially changes to what Marxists would call as the improvements in the “instruments of production” or technological advances. If incorporated in existing Computable General Equilibrium (CGE) models, then this will be greatest advance of neoclassical economics since the the conceptualization of the marginal theory of value (which I admit, came from the Austrian school).

Of course, no model can be exact. But if we are to choose as a system between a simulated model which closely approximates the efficiency of market operations but takes into account social values, soften adjustment impacts, and regulates excessive capital accumulation, and a real market which disregards social justice and only self-regulates at a cost of severe crises and inequities, of course, we would pick the former. I think that’s the reason why Lange, and other models, are viable alternatives to what we have now.
4:01 PM

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mark said...
Hello James,

I'm unfamiliar with many of the words you've used. Anyway it isn't important I think. I'm a libertarian for minimal government, I follow the ideas of F. Hayek, Milton Friedman, and their predecessors.

On the values and the market...

Alright, Let me re-state the definition of a free market: "People are free to buy/sell whatever they want to whomever they want without coercion or fraud at a mutually agreed price." Now government and civil society has a place in imposing these values in society. They can try to make good/bad information about certain products more broadly available so consumers can be better aware of what they are buying. They can persecute people who commit fraud to allow a truly free exchange to take place. They can also keep people from forcing others to buy their products and services.

Concerning your values...

You mentioned humane, decent life, solidarity, and equal opportunity. I have no problem with the last but can you be clearer on the first 3? Under who's definition of humane or a decent life shall we aspire to? One person may consider aborting a malformed fetus humane compared to the suffering it will go through living. I find myself against that. The average lifespan during the dark ages was 30 years old. That was decent then and isn't now. Who's to decide? The idea of solidarity is appealing, but can or should it supersede individual liberty when the two conflict? If so, who decides if and when the spirit of solidarity is truly being followed?
The values you want to achieve are all very good and commendable. But you've not considered who will pay for the cost and its implications. Are you going to say some form of to each according to his needs and from each according to his ability. I don't think I have to go into how that adage was a dismal failure in every communist country and resulted in a far greater concentration and abuse of power to a few. Or do I?

On NGOs...

My argument isn't that NGOs are perfect. It's that government is worse. It may be true that the government has the resources to make a great difference, but more often than not all those resources attracts and is hi-jacked by special interest groups. Especially, but not limited to, when the original do-gooders leave for another cause or simply die. Certainly, you've heard of the many criticisms of UN poverty programs as being expensive, inefficient, and corrupt. It has already been said that free trade would've been more effective in alleviating poverty and hunger in the developing world. The precise problem of government is that when it makes a mistake, it continues to do so. For every successful government program, there are probably 10 wastefully draining resources.

Also, who decides if there is overspending in a particular advocacy? And how is government better at avoiding that? This is akin Bill Gates being criticized for donating so much money in Malaria research that other institutions are complaining they're losing people and ergo funding for their pet projects. If experts are to decide who we should help or spend our money on, where do you draw the line?

On interventionist and laissez faire governments...

It is true there was and is no pure form of either. Even the USSR had free markets in the form of the black market and some farms where farmers can take a part of their produce. It was these elements that helped keep the USSR from falling earlier. It is a testament to the free market that "privately" run farms were found to be at least 10 times more productive than collectivist ones. Chairman Mao of China was had more faith in communism and it resulted in one of the greatest man-made famines in history. The black market was usually turned to becuase the bureaucratic red tape meant you could almost never get your roof fixed by the government. Nor has any truly laissez faire government existed because there was always some form of regulation or taxation no matter how minimal. But, and this is a big but, what makes one form of regulation free market friendly over another is that it is non-arbitrary, transparent, and does not favor one group over another. The last is very important. Regulation must be set without knowing specifically who or whom it will benefit or harm. What is your requirement for the nature of regulation?

Now you make the assimption that a government can be made to be accountable and non-bureaucratic like a private firm. That is highly unlikely. This is primarily because government does not face the same pressures as a private firm and government has monopoly over the use of force. The latter being important to enforce law and order (say a mob wanting to raid a shop but stopped by gun toting policemen). If we allowed the mob and shopkeeper to vote on whether they ought to raid the shop would be democratic but unfair. This alone makes your assumption very shaky.

Another factor is private firms are NOT inherently non-bureaucratic or efficient. Private firms run the same risk just like any government. The difference is that private firms face market pressure that is ever ready to punish them for inefficiency. Governments do not. Thus the successful private firms we do see are the survivors and the leanest of the bunch. Firms can only grow so big before they become inefficient (e.g. IBM sells PC business to Lenovo). It is no coincidence that the most successful firms are some of the most focused and least diverse in their industry. Can you tell me how you can replicate this for government? Especially when government is empowered to dispose of the wealth of society to a particular group it deems worthy?

In light of this I think you should re-think your comment on corporations. I'll tackle environmental damage on sustainability.

On socialist states being more accountable than economically open societies...

I said no such thing. In fact I said the reverse. China before opening up was less accountable than it is now (when it adopted capitalism). If you still believe China is communist, then answer me this: "If private property is allowed in communism, what's the difference between communism and capitalism?"

On putting a price to everything as a way to forward sustainability...

The short rebuttal is: the tragedy of commons. For the elaborate explanation: let me cite an example: Iceland and the EU. Iceland currently does not want to join the EU because it would have to give up the fishing rights over its waters. Iceland's waters are the richest source of fish in Europe. The rest of Europe had already been overfished. This was because Iceland auctioned limited fishing licenses that could in turn be sold to others. This limited the catch and ensured those who had the biggest stake in the fishing industry took care of it. The EU has only belatedly adopted this scheme and is under pressure from fishermen to raise quotas becuase there's too many fishermen and too few fish. Who is better off? The Icelandic fishermen as well as the rest of the European consumers who can now have more fish.

Resources are only seemingly abundant. but when people are not allowed to pay the price for those resources, they inevitably become unnecessarily scarce.

You talk of real and artificial value, what do you mean by these? Who defines these?

On Singapore and China as command economies...

I had asked what you meant by command economies. It is when the state controls all major sectors of the economy and formulates all decisions about their use and about the distribution of income. Already Singapore (then and now) and present Chins is far from this.

It is true that Temasek owns much of Singapore and played a big role in its development. But it never supplanted the free market. Temasek only went to businesses that continued to make money and pulled out on those that didn't. It decided where to put the money initially but let the market decide if it would keep it there. It had zero tariffs and invited foreigners to invest in Singapore. It did not shield its investments from competition as much as say the Philippines with its high tariffs and pervasive controls on foreign capital. They never even had a minimum wage and allowed firms to hire and fire anyone at will. That is, they gave people the freedom to decide whether someone's goods or services were worth buying. In other words, the government did not force consumers to buy someone's product.

Now to China, it is true that state owned industries were not phased out immediately. But slowly they are. This was to prevent massive unemployment and the unrest this would cause. As someone who has family in China and witnessed firsthand how business is done from the 1980s to the present, let me ask where you got your assertions from? Local officials attracted investments and encouraged economic growth by appallingly turned a blind eye to many labor and environmental violations. They gave tax cuts and allowed some companies to underpay or not pay workers. Land was confiscated and sold illegally to developers and factory owners to encourage growth. In short private companies were given freer reign to run their businesses as they see fit. This is hardly a devolution of control to more local levels and more like the de-control you talked about. Make no mistake, I do not think some of these measures were necessary but it is far from what you described.

In short, China and Singapore ARE NOT command economies. In substance and while not the best models of free markets, are a lot freer than the Philippines.
2:39 PM

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mark said...
Sorry this reply came late. I did not see your latest post in my email (as it was buried in tons of email). Sorry I'll repeat myself as I've partially dealt with some of thess issue in my previous post. I also apologize for the typos, mistakes, and un-readability of my previous post. I did not have much time to edit it.

"In Singapore, the Minister of Finance controlled stakes in industries using Temasek, but industries are allowed to function under market rules."

This was the reason why I wanted specific definitions from you. It was precisely the elements of the free market that allowed it to be so successful, rather than the other way around. My point is that Singapore would've been just as successful without the government intervening so much. That Singapore succeeded in spite of government intervention rather than because of it. You only need to look at Hong Kong if you doubt the viability of a non-interventionist government (look at now cause China is slowly making the government more and more interventionist).

"The capitalist system, you must admit, doesn’t operate on the notion of social equity."

And what is the definition of social equity? Who decides when giving landless farmers land is more equitable than letting the land become an industrial complex to serve the needs of consumers (even the landless farmers? You've read Ludwig von Mises, I don't have to describe how the price system is able to do this efficiently and objectively. Also, in a capitalist system, doesn't a firm have to make someone better off in order to make a profit? Otherwise why would you give them your money if you don't value their products as much as or more than the price you'd pay?

On Natural Monopolies

I do not get how from the idea of natural monopolies you suddenly got the idea that all businesses are becoming natural monopolies. You are correct in that natural monopolies occur because the marginal revenue require a huge volume of sales before it overtakes average cost. However, not all businesses are like that and the trend goes the other way. When the spinning Jenny was invented it gave its inventor a monopoly on cheap good quality textiles. Can you say the same now? You can go to China or any industrialize nation and buy one to produce your own. Firms can become experts overnight for certain goods by just hiring the right people and buying the right equipment. Unless you are arguing for that every single person in the world be able to do the same, you're wrong. Historically, more and more people are better able to challenge established firms thanks to advances in technology. Not every single person can do it but that's not the point is it? Who knows, in the future todays high-tech capital intensive goods will go they way of commoditized goods like cars, TV, radio, etc.

You may ask: then why are so many sectors dominated by a few big firms? Simple, they trade in goodwill. As a consumer you would want to buy a product that is familiar. You do not want to risk your money on new soap or shampoo on something that may prove worse. But these firms know that that goodwill needs to be taken care of. And they are afraid of losing it because of the threat of a competitor coming in. I ask you, look at the profit margins of many of these "dominant" firms and you'll see how small they really are. When Rockefeller's Standard Oil company was broken up, it DID NOT lead to large decreases in prices. The government only later found how lean and competitive it was.

I'm inclined to agree that we will always have natural monopolies. But that is only because I do not see how technology can allow us to produce our own electricity and water as efficiently as utilities can. Although recent advances in alternative energy may make a fool of both of us yet.

The Problem with Government (authoritarian)

Temasek was successful only because Lee Kuan Yew wanted it to be successful and was intelligent enough to not supplant the free market. The same could be said of NPC and Petron with Marcos. He insulated them from political considerations. But the problem is this was done in a most undemocratic fashion. It couldn't have been done without Martial Law and all the killings that came with it. Temasek is also criticized for being very opaque in its dealings. And should it be so? Isn't that the people's money? Why should someone else risk my money on something. If they lose they lose nothing but my money. They win I get a share but they get a bigger share. I don't think I have to go into the moral hazards, rent seeking, and inefficiencies that can come about when other people are spending other people's money (e.g. the money wasteful vanity projects Marcos built to stroke his ego). Eventually, people's destiny become more determined by people in authority and are less empowered themselves. This would explain how the country went to hell when Marcos became weak. It isn't a very stable and permanent set-up.

The Problem with Government (democracy)

You talked of demcracy supportively and as an end in itself. But consider this: A democracy can lead to a totalitarian society and an authoritarian society can lead to a free society (though unlikely). Lee Kuan Yew's Singapore more or less proves the second point. The founding and establishment of the US constitution ran more or less on authoritarian lines. Adolf Hitler's election proved how democracy can go haywire. It is a shame history classes don't explicitly point out how he was popularly and democratically elected by the majority of Germans. And how his policies of oppressing and confiscating the property of the minority Jews was democratically and popularly supported by the majority of Germans. And that is the problem of democracy or majority rule. The majority cannot be made to care about individual rights and freedoms. When the mob wants to ransack a city they aren't thinking about rights and freedoms, they're thinking about food.

The problem with Cory was that she made the governments corporations accountable to congress. Its budget, salaries, capital expenditures, etc. all had to be approved by congress. Congressmen who's constituents aren't thinking about the national good and how these corporations affect them but RICE! I don't think i need to elaborate.

Now all these can be prevented according to you if government can be regulated like any private corporation and given the same market pressures. My question is how? How can government continue to regulate private firms if they don't have a monopoly in coercive powers (e.g. to coerce people not to coerce others)? And how can we regulate government if they have a monopoly on coercive powers? Have a benevolent dictator and all the risks that entails? For every Lee Kuan Yew there are dozens of Hitlers, Mussolinis, Stalins and Pol Pots.

On Cujuangco and others like him...

And this is precisely why I want the government out of the business of business and limit its powers. My argument for limiting government powers is to remove the incentive to bribe politicians. Show me any monopoly in the Philippines and 80-90% of the time it is a result of government intervention. Show me a monopoly in the Philippines that has lasted at least 20 years and I can gaurantee that it is a result of government intervention (e.g. Ports).

On Private and Government Monopolies...

I believe I've dealt with this by discussing the nature of profits, the need to put a price in everything (Iceland fishing license is a good example of this), and the utter vagueness of social equity. Which by the way is prone to abuse by politicians.

On the Lange Model...

First, I like a lot of things in principle. I would like everyone to only have to pay for what they use. e.g. I don't use the roads in Mindanao why should I pay for them? Or that I shouldn't pay for Meralco's system losses. But the real world imposes costs and constraints on us. monitoring the use of roads would be terribly expensive and operational losses are a normal part of business. So if you argue for the Lange on principle, then ok. Its objectives are good and noble. But in trying to apply it as it stands now (as have many others tried) you will fail and bring about conditions worse than they are now. Concerning North Korea and Cuba, you miscontrue my argument. I did not hold these up as exemplars of Lange's theories. I cited them as societies who have every reason and nothing to lose to apply Lange's theories. Yet they didn't (or did). Why? It would not diminish the ruling party's power over their people. If anything it would make them indispensible. Or are they too stupid? Unlikely. Sidenote, I'd like to comment on your praise of Cuba as a more advanced society with some of the best healthcare in the world. Somehow I'm not impressed becuase of the thousands of Cubans who risk their lives every year to get to the captialist hell of the United States. As well as the very few Cubans (if at all) that choose to go back to Cuba after arriving in the USA. Maybe you value their healthcare and leading biochemical research as does Castro, but shouldn't the Cubans themselves decide what is good or better for them given their circumstances? Shouldn't they decide what to work for? The fact they are willing to risk their lives, political persecution, and being put into labor camps speaks volumes of what they want.

Second, yes you can infer price elasticities, equilibrium points, and whatever given a set of economic data. The problem is the equilibrium points are also constantly changing due to differing circumstances. Do you know how old the statistics given to central banks is? The US FED recieves their's 2-3 months after the fact. It bases its decisions on data that may not be what is already the present state. And their resources and techniques for gathering statistical data is the best in the world! Maybe some extreme elements of Austrian Economics totally abandon econometrics as a futile attempt, but I'm not one of them (nor do I consider myself an Austrian Economist). But make no mistake, I'm familiar with its limitations.

Third, advances in the theories of Lange may make it workable (though I doubt it). But it should be applied only then and not before the fact. Perhaps Cuba and N.K. would be interested in your CGE thing. In addition, it creates a situation where people in authrotiy have enormous powers to determine the lives of others. And quite frankly no human being is capable of being trusted with such power. The checks that you propose are largely illusory.

I'd like to share an observation. I'm confused by your apparent enthusiasm for democracy/freedom and your willingness to adopt and even praise policies that curtail rather than expand it.
10:14 AM

---

mark said...
Sorry this reply came late. I did not see your latest post in my email (as it was buried in tons of email). Sorry I'll repeat myself as I've partially dealt with some of thess issue in my previous post. I also apologize for the typos, mistakes, and un-readability of my previous post. I did not have much time to edit it.

"In Singapore, the Minister of Finance controlled stakes in industries using Temasek, but industries are allowed to function under market rules."

This was the reason why I wanted specific definitions from you. It was precisely the elements of the free market that allowed it to be so successful, rather than the other way around. My point is that Singapore would've been just as successful without the government intervening so much. That Singapore succeeded in spite of government intervention rather than because of it. You only need to look at Hong Kong if you doubt the viability of a non-interventionist government (look at now cause China is slowly making the government more and more interventionist).

"The capitalist system, you must admit, doesn’t operate on the notion of social equity."

And what is the definition of social equity? Who decides when giving landless farmers land is more equitable than letting the land become an industrial complex to serve the needs of consumers (even the landless farmers? You've read Ludwig von Mises, I don't have to describe how the price system is able to do this efficiently and objectively. Also, in a capitalist system, doesn't a firm have to make someone better off in order to make a profit? Otherwise why would you give them your money if you don't value their products as much as or more than the price you'd pay?

On Natural Monopolies

I do not get how from the idea of natural monopolies you suddenly got the idea that all businesses are becoming natural monopolies. You are correct in that natural monopolies occur because the marginal revenue require a huge volume of sales before it overtakes average cost. However, not all businesses are like that and the trend goes the other way. When the spinning Jenny was invented it gave its inventor a monopoly on cheap good quality textiles. Can you say the same now? You can go to China or any industrialize nation and buy one to produce your own. Firms can become experts overnight for certain goods by just hiring the right people and buying the right equipment. Unless you are arguing for that every single person in the world be able to do the same, you're wrong. Historically, more and more people are better able to challenge established firms thanks to advances in technology. Not every single person can do it but that's not the point is it? Who knows, in the future todays high-tech capital intensive goods will go they way of commoditized goods like cars, TV, radio, etc.

You may ask: then why are so many sectors dominated by a few big firms? Simple, they trade in goodwill. As a consumer you would want to buy a product that is familiar. You do not want to risk your money on new soap or shampoo on something that may prove worse. But these firms know that that goodwill needs to be taken care of. And they are afraid of losing it because of the threat of a competitor coming in. I ask you, look at the profit margins of many of these "dominant" firms and you'll see how small they really are. When Rockefeller's Standard Oil company was broken up, it DID NOT lead to large decreases in prices. The government only later found how lean and competitive it was.

I'm inclined to agree that we will always have natural monopolies. But that is only because I do not see how technology can allow us to produce our own electricity and water as efficiently as utilities can. Although recent advances in alternative energy may make a fool of both of us yet.

The Problem with Government (authoritarian)

Temasek was successful only because Lee Kuan Yew wanted it to be successful and was intelligent enough to not supplant the free market. The same could be said of NPC and Petron with Marcos. He insulated them from political considerations. But the problem is this was done in a most undemocratic fashion. It couldn't have been done without Martial Law and all the killings that came with it. Temasek is also criticized for being very opaque in its dealings. And should it be so? Isn't that the people's money? Why should someone else risk my money on something. If they lose they lose nothing but my money. They win I get a share but they get a bigger share. I don't think I have to go into the moral hazards, rent seeking, and inefficiencies that can come about when other people are spending other people's money (e.g. the money wasteful vanity projects Marcos built to stroke his ego). Eventually, people's destiny become more determined by people in authority and are less empowered themselves. This would explain how the country went to hell when Marcos became weak. It isn't a very stable and permanent set-up.

The Problem with Government (democracy)

You talked of demcracy supportively and as an end in itself. But consider this: A democracy can lead to a totalitarian society and an authoritarian society can lead to a free society (though unlikely). Lee Kuan Yew's Singapore more or less proves the second point. The founding and establishment of the US constitution ran more or less on authoritarian lines. Adolf Hitler's election proved how democracy can go haywire. It is a shame history classes don't explicitly point out how he was popularly and democratically elected by the majority of Germans. And how his policies of oppressing and confiscating the property of the minority Jews was democratically and popularly supported by the majority of Germans. And that is the problem of democracy or majority rule. The majority cannot be made to care about individual rights and freedoms. When the mob wants to ransack a city they aren't thinking about rights and freedoms, they're thinking about food.

The problem with Cory was that she made the governments corporations accountable to congress. Its budget, salaries, capital expenditures, etc. all had to be approved by congress. Congressmen who's constituents aren't thinking about the national good and how these corporations affect them but RICE! I don't think i need to elaborate.

Now all these can be prevented according to you if government can be regulated like any private corporation and given the same market pressures. My question is how? How can government continue to regulate private firms if they don't have a monopoly in coercive powers (e.g. to coerce people not to coerce others)? And how can we regulate government if they have a monopoly on coercive powers? Have a benevolent dictator and all the risks that entails? For every Lee Kuan Yew there are dozens of Hitlers, Mussolinis, Stalins and Pol Pots.

On Cujuangco and others like him...

And this is precisely why I want the government out of the business of business and limit its powers. My argument for limiting government powers is to remove the incentive to bribe politicians. Show me any monopoly in the Philippines and 80-90% of the time it is a result of government intervention. Show me a monopoly in the Philippines that has lasted at least 20 years and I can gaurantee that it is a result of government intervention (e.g. Ports).

On Private and Government Monopolies...

I believe I've dealt with this by discussing the nature of profits, the need to put a price in everything (Iceland fishing license is a good example of this), and the utter vagueness of social equity. Which by the way is prone to abuse by politicians.

On the Lange Model...

First, I like a lot of things in principle. I would like everyone to only have to pay for what they use. e.g. I don't use the roads in Mindanao why should I pay for them? Or that I shouldn't pay for Meralco's system losses. But the real world imposes costs and constraints on us. monitoring the use of roads would be terribly expensive and operational losses are a normal part of business. So if you argue for the Lange on principle, then ok. Its objectives are good and noble. But in trying to apply it as it stands now (as have many others tried) you will fail and bring about conditions worse than they are now. Concerning North Korea and Cuba, you miscontrue my argument. I did not hold these up as exemplars of Lange's theories. I cited them as societies who have every reason and nothing to lose to apply Lange's theories. Yet they didn't (or did). Why? It would not diminish the ruling party's power over their people. If anything it would make them indispensible. Or are they too stupid? Unlikely. Sidenote, I'd like to comment on your praise of Cuba as a more advanced society with some of the best healthcare in the world. Somehow I'm not impressed becuase of the thousands of Cubans who risk their lives every year to get to the captialist hell of the United States. As well as the very few Cubans (if at all) that choose to go back to Cuba after arriving in the USA. Maybe you value their healthcare and leading biochemical research as does Castro, but shouldn't the Cubans themselves decide what is good or better for them given their circumstances? Shouldn't they decide what to work for? The fact they are willing to risk their lives, political persecution, and being put into labor camps speaks volumes of what they want.

Second, yes you can infer price elasticities, equilibrium points, and whatever given a set of economic data. The problem is the equilibrium points are also constantly changing due to differing circumstances. Do you know how old the statistics given to central banks is? The US FED recieves their's 2-3 months after the fact. It bases its decisions on data that may not be what is already the present state. And their resources and techniques for gathering statistical data is the best in the world! Maybe some extreme elements of Austrian Economics totally abandon econometrics as a futile attempt, but I'm not one of them (nor do I consider myself an Austrian Economist). But make no mistake, I'm familiar with its limitations.

Third, advances in the theories of Lange may make it workable (though I doubt it). But it should be applied only then and not before the fact. Perhaps Cuba and N.K. would be interested in your CGE thing. In addition, it creates a situation where people in authrotiy have enormous powers to determine the lives of others. And quite frankly no human being is capable of being trusted with such power. The checks that you propose are largely illusory.

I'd like to share an observation. I'm confused by your apparent enthusiasm for democracy/freedom and your willingness to adopt and even praise policies that curtail rather than expand it.
10:14 AM

---

mark said...
Sorry this reply came late. I did not see your latest post in my email (as it was buried in tons of email). Sorry I'll repeat myself as I've partially dealt with some of thess issue in my previous post. I also apologize for the typos, mistakes, and un-readability of my previous post. I did not have much time to edit it.

"In Singapore, the Minister of Finance controlled stakes in industries using Temasek, but industries are allowed to function under market rules."

This was the reason why I wanted specific definitions from you. It was precisely the elements of the free market that allowed it to be so successful, rather than the other way around. My point is that Singapore would've been just as successful without the government intervening so much. That Singapore succeeded in spite of government intervention rather than because of it. You only need to look at Hong Kong if you doubt the viability of a non-interventionist government (look at now cause China is slowly making the government more and more interventionist).

"The capitalist system, you must admit, doesn’t operate on the notion of social equity."

And what is the definition of social equity? Who decides when giving landless farmers land is more equitable than letting the land become an industrial complex to serve the needs of consumers (even the landless farmers? You've read Ludwig von Mises, I don't have to describe how the price system is able to do this efficiently and objectively. Also, in a capitalist system, doesn't a firm have to make someone better off in order to make a profit? Otherwise why would you give them your money if you don't value their products as much as or more than the price you'd pay?

On Natural Monopolies

I do not get how from the idea of natural monopolies you suddenly got the idea that all businesses are becoming natural monopolies. You are correct in that natural monopolies occur because the marginal revenue require a huge volume of sales before it overtakes average cost. However, not all businesses are like that and the trend goes the other way. When the spinning Jenny was invented it gave its inventor a monopoly on cheap good quality textiles. Can you say the same now? You can go to China or any industrialize nation and buy one to produce your own. Firms can become experts overnight for certain goods by just hiring the right people and buying the right equipment. Unless you are arguing for that every single person in the world be able to do the same, you're wrong. Historically, more and more people are better able to challenge established firms thanks to advances in technology. Not every single person can do it but that's not the point is it? Who knows, in the future todays high-tech capital intensive goods will go they way of commoditized goods like cars, TV, radio, etc.

You may ask: then why are so many sectors dominated by a few big firms? Simple, they trade in goodwill. As a consumer you would want to buy a product that is familiar. You do not want to risk your money on new soap or shampoo on something that may prove worse. But these firms know that that goodwill needs to be taken care of. And they are afraid of losing it because of the threat of a competitor coming in. I ask you, look at the profit margins of many of these "dominant" firms and you'll see how small they really are. When Rockefeller's Standard Oil company was broken up, it DID NOT lead to large decreases in prices. The government only later found how lean and competitive it was.

I'm inclined to agree that we will always have natural monopolies. But that is only because I do not see how technology can allow us to produce our own electricity and water as efficiently as utilities can. Although recent advances in alternative energy may make a fool of both of us yet.

The Problem with Government (authoritarian)

Temasek was successful only because Lee Kuan Yew wanted it to be successful and was intelligent enough to not supplant the free market. The same could be said of NPC and Petron with Marcos. He insulated them from political considerations. But the problem is this was done in a most undemocratic fashion. It couldn't have been done without Martial Law and all the killings that came with it. Temasek is also criticized for being very opaque in its dealings. And should it be so? Isn't that the people's money? Why should someone else risk my money on something. If they lose they lose nothing but my money. They win I get a share but they get a bigger share. I don't think I have to go into the moral hazards, rent seeking, and inefficiencies that can come about when other people are spending other people's money (e.g. the money wasteful vanity projects Marcos built to stroke his ego). Eventually, people's destiny become more determined by people in authority and are less empowered themselves. This would explain how the country went to hell when Marcos became weak. It isn't a very stable and permanent set-up.

The Problem with Government (democracy)

You talked of demcracy supportively and as an end in itself. But consider this: A democracy can lead to a totalitarian society and an authoritarian society can lead to a free society (though unlikely). Lee Kuan Yew's Singapore more or less proves the second point. The founding and establishment of the US constitution ran more or less on authoritarian lines. Adolf Hitler's election proved how democracy can go haywire. It is a shame history classes don't explicitly point out how he was popularly and democratically elected by the majority of Germans. And how his policies of oppressing and confiscating the property of the minority Jews was democratically and popularly supported by the majority of Germans. And that is the problem of democracy or majority rule. The majority cannot be made to care about individual rights and freedoms. When the mob wants to ransack a city they aren't thinking about rights and freedoms, they're thinking about food.

The problem with Cory was that she made the governments corporations accountable to congress. Its budget, salaries, capital expenditures, etc. all had to be approved by congress. Congressmen who's constituents aren't thinking about the national good and how these corporations affect them but RICE! I don't think i need to elaborate.

Now all these can be prevented according to you if government can be regulated like any private corporation and given the same market pressures. My question is how? How can government continue to regulate private firms if they don't have a monopoly in coercive powers (e.g. to coerce people not to coerce others)? And how can we regulate government if they have a monopoly on coercive powers? Have a benevolent dictator and all the risks that entails? For every Lee Kuan Yew there are dozens of Hitlers, Mussolinis, Stalins and Pol Pots.

On Cujuangco and others like him...

And this is precisely why I want the government out of the business of business and limit its powers. My argument for limiting government powers is to remove the incentive to bribe politicians. Show me any monopoly in the Philippines and 80-90% of the time it is a result of government intervention. Show me a monopoly in the Philippines that has lasted at least 20 years and I can gaurantee that it is a result of government intervention (e.g. Ports).

On Private and Government Monopolies...

I believe I've dealt with this by discussing the nature of profits, the need to put a price in everything (Iceland fishing license is a good example of this), and the utter vagueness of social equity. Which by the way is prone to abuse by politicians.

On the Lange Model...

First, I like a lot of things in principle. I would like everyone to only have to pay for what they use. e.g. I don't use the roads in Mindanao why should I pay for them? Or that I shouldn't pay for Meralco's system losses. But the real world imposes costs and constraints on us. monitoring the use of roads would be terribly expensive and operational losses are a normal part of business. So if you argue for the Lange on principle, then ok. Its objectives are good and noble. But in trying to apply it as it stands now (as have many others tried) you will fail and bring about conditions worse than they are now. Concerning North Korea and Cuba, you miscontrue my argument. I did not hold these up as exemplars of Lange's theories. I cited them as societies who have every reason and nothing to lose to apply Lange's theories. Yet they didn't (or did). Why? It would not diminish the ruling party's power over their people. If anything it would make them indispensible. Or are they too stupid? Unlikely. Sidenote, I'd like to comment on your praise of Cuba as a more advanced society with some of the best healthcare in the world. Somehow I'm not impressed becuase of the thousands of Cubans who risk their lives every year to get to the captialist hell of the United States. As well as the very few Cubans (if at all) that choose to go back to Cuba after arriving in the USA. Maybe you value their healthcare and leading biochemical research as does Castro, but shouldn't the Cubans themselves decide what is good or better for them given their circumstances? Shouldn't they decide what to work for? The fact they are willing to risk their lives, political persecution, and being put into labor camps speaks volumes of what they want.

Second, yes you can infer price elasticities, equilibrium points, and whatever given a set of economic data. The problem is the equilibrium points are also constantly changing due to differing circumstances. Do you know how old the statistics given to central banks is? The US FED recieves their's 2-3 months after the fact. It bases its decisions on data that may not be what is already the present state. And their resources and techniques for gathering statistical data is the best in the world! Maybe some extreme elements of Austrian Economics totally abandon econometrics as a futile attempt, but I'm not one of them (nor do I consider myself an Austrian Economist). But make no mistake, I'm familiar with its limitations.

Third, advances in the theories of Lange may make it workable (though I doubt it). But it should be applied only then and not before the fact. Perhaps Cuba and N.K. would be interested in your CGE thing. In addition, it creates a situation where people in authrotiy have enormous powers to determine the lives of others. And quite frankly no human being is capable of being trusted with such power. The checks that you propose are largely illusory.

I'd like to share an observation. I'm confused by your apparent enthusiasm for democracy/freedom and your willingness to adopt and even praise policies that curtail rather than expand it.
10:14 AM

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Due to increasingly hectic schedule, I failed to find the time to rebut this. But this would have been a good debate. This Mark surely is a good debater.

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