Saturday, May 24, 2014

Want capitalism? It thrives in the world formerly known as “Third”.

India's Modi
When I was a young man, the West was strong, the East its rival, and the poverty-stricken Third World the battlefield. I’ve lived to see today’s remarkable transformation beyond the Asian tigers, beyond the China miracle, to the rise now of India’s 1.26 billion people, 17.5% of the world, so big it has the population of two continents--Europe and North America--combined (1.27 billion).

India’s new leader, Narendra Modi, according to Shikha Dalmia in TIME, just utterly defeated the ruling Congress Party in part by deflating Congress’s “vote-bank politics”: welfare subsidies to special constituencies to win votes, which Modi said was “ruining the country without improving living standards.”

Modi moves India forward by denouncing the very vote buying that America’s ruling party employs as a substitute for jobs and economic growth--the real goal both the Indian and American people seek. Our national elite, as described by William Tucker in the conservative American Spectator, suffers
the kind of stagnation Thorstein Veblen warned against in The Theory of the Leisure Class. When you couple an aristocratic upper crust that has lost interest in economic progress with a lumpenproletariat that doesn’t understand growth and only wants handouts from the government, you have a prescription for long economic decline.
New York Times columnist David Brooks writes that Nigeria, Africa’s largest nation, is like Modi’s India surging forward by moving away from government. Says Brooks:
80% of Africa’s workers labor in the informal sector. That’s because the formal governmental and regulatory structures are biased toward the connected and the rich, not based on impersonal rule of law. . . Individual and social creativity is zooming ahead. Governing institutions are failing to perform the basic, elementary tasks.
Capitalism works better--in India, in Nigeria, in the U.S.--when government stays out of the way. Yet America’s ruling elite demands more government. It’s done in the name of economic redistribution (see previous post). But ironically, we find America’s most pronounced inequality in regions where Democrats are in charge.  

Bloomberg’s Megan McArdle, after noting Democrats represent 70 of the 100 wealthiest congressional districts, explains:
The rich of America’s affluent urban areas tend to be the beneficiaries, one way or another, of a global tournament economy in which markets are often close to “winner take all,” and vast sums can flow to people who are just a little bit better than their competitors. The wealthy in Republican districts, on the other hand, are more likely to be competing in [lesser] local or national markets. . . where sales are ground out one at a time. Because the sums involved are smaller, the wealth gap is also smaller -- and business owners are less likely to be sympathetic to the idea that their success has a huge luck component.
In urban areas at the nexus of those global industries, where the rich are bidding up the prices of real estate (and, by extension, of everything else that is bought or sold on that real estate), inequality qua inequality is an issue with huge political salience. But in the rest of the country, structural changes in those local and national industries are much more likely to worry people. When a big local employer closes down because of competition from China or Inc., the gap between rich and poor may collapse dramatically.
McArdle helps us understand--in terms used in this piece--that the Third World is gone, or, rather, that the Third World (China) is now a part of our everyday lives. We live in a single world where wealth and power are concentrated at the top, where the upper class, having arrived, is focused on protecting its position and so uses government to prevent revolution partly by buying off the poor. It’s the Rome of bread and circuses. It’s the Congress Party in India, socialist governments in Africa, social democrats in Europe, and it’s progressive Democrats in Manhattan, San Francisco, West L.A., Boston, and Washington.

Big winners and big losers in the global economy share the sharp income gap of a large city. And they congregate in the world cities, including America’s but also London, Paris (and its Swiss suburb), Dubai, Hong Kong, Tokyo where they have more in common with each other than with their poor at home. The global product cycle favors first the bright inventors, entrepreneurs, financiers, the lucky, big winners who launch ventures and live in world cities. But product development then moves down the food chain to mass manufacturing in the Third World by former peasants, uplifting these billions in a raw “survival of the fittest” competition that can and does slam Middle America and other former First and Second World working classes.

In the U.S., it means Democrats at the top and bottom on one hand, and on the other, Republicans in the middle struggling together between the two extremes, sharing common difficulties. For those in the U.S. middle, as for the raw Third World masses, the private sector promises more than government power and largesse.

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