Capitalism – Page 20 – artdiamondblog.com

“Market Wu” Annoys Maoists and Corrupt Bureaucrats

“Wu Jinglian helped to create China’s market economy, and now he is defending it against conservative hardliners in the Communist Party.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) AT 79, Wu Jinglian is considered China’s most famous economist.

In the 1980s and ’90s, he was an adviser to China’s leaders, including Deng Xiaoping. He helped push through some of this country’s earliest market reforms, paving the way for China’s spectacular rise and earning him the nickname “Market Wu.”
Last year, China’s state-controlled media slapped him with a new moniker: spy.
Mr. Wu has not been interrogated, charged or imprisoned. But the fact that a state newspaper, The People’s Daily, among others, was allowed to publish Internet rumors alleging that he had been detained on suspicions of being a spy for the United States hints that he is annoying some very important people in the government.
He denied the allegations, and soon after they were published, China’s cabinet denied that an investigation was under way.
But in a country that often jails critics, Mr. Wu seems to be testing the limits of what Beijing deems permissible. While many economists argue that China’s growth model is flawed, rarely does a prominent Chinese figure, in the government or out, speak with such candor about flaws he sees in China’s leadership.
Mr. Wu — who still holds a research post at an institute affiliated with the State Council, China’s cabinet — has white hair and an amiable face, and he appears frail. But his assessments are often harsh. In books, speeches, interviews and television appearances, he warns that conservative hardliners in the Communist Party have gained influence in the government and are trying to dismantle the market reforms he helped formulate.
He complains that business tycoons and corrupt officials have hijacked the economy and manipulated it for their own ends, a system he calls crony capitalism. He has even called on Beijing to establish a British-style democracy, arguing that political reform is inevitable.
Provocative statements have made him a kind of dissident economist here, and revealed the sharp debates behind the scenes, at the highest levels of the Communist Party, about the direction of China’s half-market, half-socialist economy.
In many ways, it is a continuation of the debate that has been raging for three decades: What role should the government play in China’s hybrid economy?
Mr. Wu says the spy rumors were “dirty tricks” employed by his critics to discredit him.
“I have two enemies,” he said in a recent interview. “The crony capitalists and the Maoists. They will use any means to attack me.”
. . .
(p. 7) In interviews, Mr. Wu says he feels compelled to speak out because conservatives and “old-style Maoists” have been gaining influence in the government since 2004. These groups, he said, are pressing for a return to central planning and placing blame for corruption and social inequality on the very market reforms he championed.
At the same time, Mr. Wu says, corrupt bureaucrats are pushing for the state to take a larger economic role so they can cash in on their positions through payoffs and bribes, as well as by steering business to allies.
“I’m not optimistic about the future,” Mr. Wu said. “The Maoists want to go back to central planning and the cronies want to get richer.”

For the full story, see:
DAVID BARBOZA. “China’s Mr. Wu Keeps Talking.” The New York Times, SundayBusiness Section (Sun., September 26, 2009): 1 & 7.
(Note: ellipsis added.)

Source of timeline graphic: online version of the NYT article quoted and cited above.

Nationalizing Health Care: Communists Seized Pharmacy Owned By Ayn Rand’s Father

Source of book images: online version of the NYT review quoted and cited below.

(p. C6) Ayn Rand poses theatrically in her signature cape and gold dollar-sign pin on the cover of a groundbreaking new biography. Rand also poses theatrically in this same Halloween-ready costume (Rand impersonators have been known to wear it) on the cover of another groundbreaking new biography. The two books are being published a week apart. And both have gray covers that make them look even more interchangeable. Yet Rand, whose Objectivist philosophy is enjoying one of its periodic resurgences, loathed the very idea of grayness. She preferred dichotomies that were strictly black and white.
. . .
Ms. Heller’s book is worth its $35 price, which is not the kind of detail that Rand herself would have been shy about trumpeting. When Russian Bolshevik soldiers commandeered and closed the St. Petersburg pharmacy run by Zinovy Rosenbaum, they made a lifelong capitalist of his 12-year-old daughter, Alissa, who would wind up fusing the subversive power of the Russian political novel with glittering Hollywood-fueled visions of the American dream.
. . .
Crucially, both authors understand the reasons that Rand’s popularity has endured, not only among college students dazzled (and thronged into packs) by her triumphant individualism but also by entrepreneurs. From the young Ted Turner, who rented billboards to promote the “Who is John Galt?” slogan from “Atlas Shrugged,” to the founders of Craigslist and Wikipedia, who have found self-contradictory new ways to mix populism with individual enterprise, it is clear that (in Ms. Burns’s words) “reports of Ayn Rand’s death are greatly exaggerated.”

For the full review, see:
JANET MASLIN. “Books of The Times; Twin Biographies of a Singular Woman, Ayn Rand.” The New York Times (Thurs., October 21, 2009): C6.
(Note: ellipses added.)

Legitimacy of Capitalism Rests on Rich Earning their Wealth

Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance at the University of Chicago. Source of photo and information in caption: http://faculty.chicagobooth.edu/luigi.zingales/research/date.html.

(p. A21) Luigi Zingales points out that the legitimacy of American capitalism has rested on the fact that many people, like Warren Buffett and Bill Gates, got rich on the basis of what they did, not on the basis of government connections. But over the years, business and government have become more intertwined. The results have been bad for both capitalism and government. The banks’ growing political clout led to the rule changes that helped create the financial crisis.

For the full commentary, see:
DAVID BROOKS. “The Bloody Crossroads.” The New York Times (Tues., September 8, 2009): A21.
(Note: the online version of the commentary is dated Sept. 7.)

The reference for the Zingales article is:
Zingales, Luigi. “Capitalism after the Crisis.” National Affairs, no. 1 (Fall 2009): 22-35.

John Mackey: “I Believe in the Dynamic Creativity of Capitalism”

Whole Foods CEO John Mackey. Source of the caricature: online version of the WSJ interview quoted and cited below.

(p. A11) “I honestly don’t know why the article became such a lightning rod,” says John Mackey, CEO and founder of Whole Foods Market Inc., as he tries to explain the firestorm caused by his August op-ed on these pages opposing government-run health care.
. . .
. . . his now famous op-ed incited a boycott of Whole Foods by some of his left-wing customers. His piece advised that “the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us closer to a complete government takeover of our health-care system.” Free-market groups retaliated with a “buy-cott,” encouraging people to purchase more groceries at Whole Foods.
. . .
What Mr. Mackey is proposing is more or less what he has already implemented at his company–a plan that would allow more health savings accounts (HSAs), more low-premium, high-deductible plans, more incentives for wellness, and medical malpractice reform. None of these initiatives are in any of the Democratic bills winding their way through Congress. In fact, the Democrats want to kill HSAs and high-deductible plans and mandate coverage options that would inflate health insurance costs.
. . .
Mr. Mackey’s latest crusade involves traveling to college campuses across the country, trying to persuade young people that business, profits and capitalism aren’t forces of evil. He calls his concept “conscious capitalism.”
What is that? “It means that business has the potential to have a deeper purpose. I mean, Whole Foods has a deeper purpose,” he says, now sounding very much like a philosopher. “Most of the companies I most admire in the world I think have a deeper purpose.” He continues, “I’ve met a lot of successful entrepreneurs. They all started their businesses not to maximize shareholder value or money but because they were pursuing a dream.”
Mr. Mackey tells me he is trying to save capitalism: “I think that business has a noble purpose. It’s not that there’s anything wrong with making money. It’s one of the important things that business contributes to society. But it’s not the sole reason that businesses exist.”
What does he mean by a “noble purpose”? “It means that just like every other profession, business serves society. They produce goods and services that make people’s lives better. Doctors heal the sick. Teachers educate people. Architects design buildings. Lawyers promote justice. Whole Foods puts food on people’s tables and we improve people’s health.”
Then he adds: “And we provide jobs. And we provide capital through profits that spur improvements in the world.
. . .
“I don’t think anybody’s too big to fail,” he says. “If a business fails, what happens is, there are still assets, and those assets get reorganized. Either new management comes in or it’s sold off to another business or it’s bid on and the good assets are retained and the bad assets are eliminated. I believe in the dynamic creativity of capitalism, and it’s self-correcting, if you just allow it to self-correct.”
That’s something Washington won’t let happen these days, which helps explain why Mr. Mackey felt compelled to write that the Whole Foods health-insurance program is smarter and cheaper than the latest government proposals.

For the full interview, see:
STEPHEN MOORE. “The Conscience of a Capitalist; The Whole Foods founder talks about his Journal health-care op-ed that spawned a boycott, how he deals with unions, and why he thinks CEOs are overpaid.” The Wall Street Journal (Sat., OCTOBER 3, 2009): A11.
(Note: ellipses added.)

Samuel Johnson Saw Benefits of Free Markets

(p. A19) In “A Journey to the Western Islands of Scotland,” an account of his travels with James Boswell through the Hebrides in 1773, Johnson vividly described the desolation of a feudal land, untouched by commercial exuberance. He was struck by the utter hopelessness in a country where money was largely unknown, and the lack of basic material improvements–the windows, he noticed, did not operate on hinges, but had to be held up by hand, making the houses unbearably stuffy.

He was even more struck by the contrast between places where markets thrived and those where they didn’t. In Old Aberdeen, where “commerce was yet unstudied,” Johnson found nothing but decay, whereas New Aberdeen, which “has all the bustle of prosperous trade,” was beautiful, opulent, and promised to be “very lasting.”
Johnson also understood that what Smith would later call the division of labor was instrumental for human happiness and progress. “The Adventurer 67,” which he wrote in 1753 at the height of a commercial boom (and 23 years before Smith published “The Wealth of Nations”), delights in the sheer number of occupations available in a commercial capital like London.

For the full commentary, see:
ELIZA GRAY. “Samuel Johnson and the Virtue of Capitalism; The great 18th century writer on commerce and human happiness.” The Wall Street Journal (Fri., Sept. 11, 2009): A19.

America’s “Wealth Culture” is Democratic, Diverse, and Resilient

Source of book image: online version of the WSJ review quoted and cited below.

(p. W6) . . . “Rich” contains an interesting argument, if only one can find it. Mr. Samuel contends that the 20th century has seen the creation of a distinctly American “wealth culture” that is more democratic and more diverse than anything the world has seen before, and consequently more resilient.
. . .
The Reagan revolution, thanks to its lowered taxes and deregulated economy, produced a flood of new millionaires; it also removed some of the guilt that had come to cling to wealth. (President Reagan said that he wanted America to remain a country in which people could dare to be rich.) More than the Reaganauts, though, it was the computer geeks of Silicon Valley who both stimulated and legitimized wealth- creation. They not only pioneered a productivity miracle, they also embodied the “American” values of meritocracy and democracy, earning big rewards for big innovations and scattering stock options among their employees. America Online, Mr. Samuel observes, created 2,000 millionaires during the 1990s.
The road from the top-hatted John D. Rockefeller to the be-chinoed Bill Gates is undoubtedly a long one, and yet, remarkably, much of the landscape of American wealth remains the same. The U.S. has a genius for producing entrepreneurs who can turn the latest technology into piles of gold. Less than 10% of today’s rich inherited their wealth, for example, and many are ”instapreneurs,” transformed in an instant from penury to prosperity.

For the full review, see:

ADRIAN WOOLDRIDGE. “Review; The Evolution of Wealth; Discerning a distinctly American style of affluence.” The Wall Street Journal (Fri., July 31, 2009): W6.
(Note: ellipses added.)

Reference to the reviewed book:
Samuel, Larry. Rich: The Rise and Fall of American Wealth Culture. New York: AMACOM, 2009.

“Don’t Kill the Goose”

(p. A11) I think there are two major but not fully formed or fully articulated fears among thinking Americans right now, and the deliberate obscurity of official language only intensifies those fears.

The first is that Mr. Obama’s government, in all its flurry of activism, may kill the goose that laid the golden egg. This is as dreadful and obvious a cliché as they come, but too bad, it’s what people fear. They see the spending plans and tax plans, the regulation and reform hunger, the energy proposals and health-care ambitions, and they–we–wonder if the men and women doing all this, working in their separate and discrete areas, are being overseen by anyone saying, “By the way, don’t kill the goose.”
The goose of course is the big, messy, spirited, inspiring, and sometimes in some respects damaging but on the whole brilliant and productive wealth-generator known as the free-market capitalist system. People do want things cleaned up and needed regulations instituted, and they don’t mind at all if the very wealthy are more heavily taxed, but they greatly fear a goose killing. Economic freedom in all its chaos and disorder has kept us rich for 200 years, and allowed us as a nation to be generous and strong at home and in the world. But the goose can be killed–by carelessness, hostility, incrementalism, paralysis, and by no one saying, “Don’t kill the goose.”

For the full commentary, see:
PEGGY NOONAN. “What’s Elevated, Health-Care Provider? Economy of language would be good for the economy.” Wall Street Journal (Sat., MAY 15, 2009): A11.

Environmentalists Lay Guilt on Rafael for His New Set of Legos

“David Batker with his son Rafael de la Torre Batker, 9, who worried it might hurt the environment if he bought a new set of Legos.” Source of photo and caption: online version of the NYT article quoted and cited below.

(p. A1) The thick-lined drawings of the Earth, a factory and a house, meant to convey the cycle of human consumption, are straightforward and child-friendly. So are the pictures of dark puffs of factory smoke and an outlined skull and crossbones, representing polluting chemicals floating in the air.

Which is one reason “The Story of Stuff,” a 20-minute video about the effects of human consumption, has become a sleeper hit in classrooms across the nation.
. . .
. . . many children who watch it take it to heart: riding in the car one day with his parents in Tacoma, Wash., Rafael de la Torre Batker, 9, was worried about whether it would be bad for the planet if he got a new set of Legos.
“When driving by a big-box store, you could see he was struggling with it,” his father, David Batker, said. But then Rafael said, “It’s O.K. if I have Legos because I’m going to keep them for a very long time,” Mr. Batker recalled.
. . .
(p. A12) “There was not one positive thing about capitalism in the whole thing,” Mr. Zuber said.
Corporations, for example, are portrayed as a bloated person sporting a top hat and with a dollar sign etched on its front.

For the full story, see:
LESLIE KAUFMAN. ” In Schools, a Cautionary Video About America and Its ‘Stuff’.” The New York Times (Mon., May 11, 2009): A1 & A12.
(Note: ellipses added; the online version of the title is: “A Cautionary Video About America’s ‘Stuff’.”)

“A section of the video on toxic chemicals and production.” Source of image and caption: online version of the NYT article quoted and cited above.

Entrepreneur’s Dresses “Would Save Mothers Endless Work”

Schumpeter would have loved the passage quoted below—it is a wonderful example for his argument that capitalism mainly benefits ordinary people of modest means.

(p. 147) Listen to how Borgenicht describes his decision to expand beyond aprons:

From my study of the market I knew that only three men were making children’s dresses in 1890. One was an East Side tailor near me, who made only to order, while the other two turned out an expensive product with which I had no desire at all to compete. I wanted to make “popular price” stuff–wash dresses, silks, and woolens. It was
my goal to produce dresses that the great mass of the people could afford, dresses that would–from the business angle–sell equally well to both large and small, city and country stores. With Regina’s help–she always had excellent taste, and judgment–I made up a line of samples. Displaying them to all my “old” customers and friends, I hammered home every point–my dresses would save mothers endless work, the materials and sewing were as good and probably better than anything that could be done at home, the price was right for quick disposal.

Source:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.

Government’s Terrible Track Record Running Businesses

John Steele Gordon, the author of the sagacious commentary below, has also written a wonderful book called A Thread Across the Atlantic, which tells the story of how entrepreneur Cyrus Field persevered in his attempts to lay telegraphic cable across the Atlantic Ocean.

(p. A17) The Obama administration is bent on becoming a major player in — if not taking over entirely — America’s health-care, automobile and banking industries. Before that happens, it might be a good idea to look at the government’s track record in running economic enterprises. It is terrible.

In 1913, for instance, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant. It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70% of what the steel companies charged.
When the plant was finally finished, however — three years after World War I had ended — it was millions over budget and able to produce armor plate only at twice what the steel companies charged. It produced one batch and then shut down, never to reopen.
Or take Medicare. Other than the source of its premiums, Medicare is no different, economically, than a regular health-insurance company. But unlike, say, UnitedHealthcare, it is a bureaucracy-beclotted nightmare, riven with waste and fraud. Last year the Government Accountability Office estimated that no less than one-third of all Medicare disbursements for durable medical equipment, such as wheelchairs and hospital beds, were improper or fraudulent. Medicare was so lax in its oversight that it was approving orthopedic shoes for amputees.
. . .
It is government’s job to make and enforce the rules that allow a civilized society to flourish. But it has a dismal record of regulating itself. Imagine, for instance, if a corporation, seeking to make its bottom line look better, transferred employee contributions from the company pension fund to its own accounts, replaced the money with general obligation corporate bonds, and called the money it expropriated income. We all know what would happen: The company accountants would refuse to certify the books and management would likely — and rightly — end up in jail.
But that is exactly what the federal government (which, unlike corporations, decides how to keep its own books) does with Social Security. In the late 1990s, the government was running what it — and a largely unquestioning Washington press corps — called budget “surpluses.” But the national debt still increased in every single one of those years because the government was borrowing money to create the “surpluses.”
Capitalism isn’t perfect. Indeed, to paraphrase Winston Churchill’s famous description of democracy, it’s the worst economic system except for all the others. But the inescapable fact is that only the profit motive and competition keep enterprises lean, efficient, innovative and customer-oriented.

For the full commentary, see:
JOHN STEELE GORDON. “Why Government Can’t Run a Business; Politicians need headlines. Executives need profits.” Wall Street Journal (Weds., MAY 21, 2009): A17.
(Note: ellipsis added.)

The wonderful book, I mentioned, is:
Gordon, John Steele. A Thread across the Ocean: The Heroic Story of the Transatlantic Cable. New York: Walker & Co., 2002.

Philanthro-Capitalism Is Inefficient, and Betrays Shareholders

Source of book image: online version of the WSJ review quoted and cited below.

(p. A13) One of the more interesting ideas found in this somewhat rambling book contends that “philanthropic” business activity is in fact at odds with what is best about capitalism itself and thus counterproductive.

Lawrence Summers, the former Harvard president and former Treasury secretary, states the difficulty succinctly: “It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.” He offers as an example Fannie Mae and Freddie Mac, government-created corporations that were supposed to achieve a social goal — affordable housing — while operating as businesses. They did neither well, eventually leaving their catastrophic debts for taxpayers to pay.

U.S. Circuit Court Judge Richard Posner, along with other contributors, notes that companies often suffer losses when they set out to address a social problem. If they could really make a profit by doing good works, the argument goes, they would no doubt already be hard at it. But if they do good works at the expense of profit, they will become less efficient, making themselves more vulnerable to competitors. Economist Steven Landsburg suggests that companies sacrificing profit to accomplish philanthropic goals end up betraying their shareholders, who rightly expect the best return on investment. Sometimes acting philanthropically will result in an indirect business benefit, such as improving worker skills. In that case, philanthro-capitalism might be in a company’s interest — but Judge Posner and others of like mind suspect that such instances are rare.

Their skepticism echoes Milton Friedman’s objections to “corporate social responsibility,” expressed in a 1970 article that is usefully reprinted in the book’s appendix.

For the full review, see:

LESLIE LENKOWSKY. “Bookshelf; The Do-Good Marketplace; Reducing poverty, improving lives – maybe ‘philanthro-capitalism’ is just another name for capitalism.” Wall Street Journal (Fri., JANUARY 2, 2009): A13.

The book under review is:
Kinsley, Michael, and Conor Clarke, eds. Creative Capitalism. New York: Simon & Schuster, 2008.