6 ms·

A policy of mass destruction

39 points by yread 15y ago

PaulHoule 15y ago
Yep, another article about the perils of financialism. Unfortunately the ability to raise money (or make it by trading) isn't well correlated with the ability to use money to make wealth. Donald Trump, for instance, was recently voted "most respected businessman" by the readers of a major Men's magazine. Perhaps people are impressed by the lifestyle he leads and the fact that he's put his name on buildings all over Manhattan, but he's not really a businessman... he's somebody who plays a businessman on TV. Back in the 90's, Trump lost money running casinos, back when the industry was booming and, for everybody else, running a casino was like having a license to print money. So, if you're the kind of person who cares about profit and loss and who also thinks business can solve problems, delight customers and provide meaningful and renumerative work it's very frustrating to see somebody like that have a reality distorsion field that lets them live a lie and involve a lot of people in it. Now the U.S. economy is maybe 5% or 10% B.S. and you can find many valid criticisms but it's basically on the level. That's why we're the world financial center. You look at places like Russia where the physical and human resources are so great but it's a 80% B.S. economy and the government is 100% corrupt and that's very sad.
guard-of-terra 15y ago
A new analysis showing how the radical policies advocated by western economists helped to bankrupt Russia" Funny thing is, it is instantly obvious to anyone living in the country. Those "policies" looked like they're aimed at destroying any research or production capacity short of mining of natural resources. Of course, incompetence played leading role in the process, not just malice.
Roboprog 15y ago
Dismantling the state run businesses should have been done more slowly, to allow the Soviet people time to adapt. I'm not saying the communist oligopoly should have been left in place. But, dismantling it so quickly simply allowed a different oligopoly to be put in place, with little net improvement for most people. Some would argue that not letting the people adapt to the change was exactly the intended result, though.
- alephnil 15y ago
  > Dismantling the state run businesses should have been done more slowly, to allow the Soviet people time to adapt. Poland, Hungary and the Baltic countries mostly did this, and they had far less problem after communism than Russia and most other former Soviet republics.
  - _delirium 15y ago
    The Baltic countries also started with smaller and medium-sized companies first, privatizing a lot of stuff in the early 1990s that didn't have deep systemic involvement in the economy. The large, more difficult cases, like banks, electric companies, etc., were kept state-owned during the transition period. Once the transition was on better footing, they privatized the larger companies mostly in the 1997-2002 timeframe. That also let them float those companies in more traditional ways, such as IPOs on a stock market, rather than the experimental voucher system that was used in Russia.
  - mkup 15y ago
    The difference between Baltic countries + Poland vs. Ukraine, Moldova and Russia is a lack of independent juridical branch of government, ephemeral property ownership rights, no rule of law, and, in general, more paternalistically minded people (towards government regulation of / interference in business). All of this makes medium sized business almost impossible to survive; rapid privatization in 1990s (as per subject article) seems totally irrelevant factor to me as a person living here: I see a reprivatization wave of roughly half large enterprises after each election cycle here. Corporate raidership is run by judges, governed by executive branch of govt by phone, and local analog of FBI is just a tool to bereave tasty property, they have no connection to justice at all. So how capital can accumulate in such an environment? There's no way.
    - guard-of-terra 15y ago
      Who knows whether it is the reason behind the economic problems of 90-s, or it is a fallout of those. Perhaps if the whole country has not been rapidly blasted into a decade of absolute poverty, we'd have less corrupt justice and more rule of law.
didgeoridoo 15y ago
Whoa. I never knew this "couponing" was how the post-Soviet economies went about privatization. It seems like perhaps the exact worst way to go about de-centralizing an economy, especially when little-to-no financial and corporate management expertise existed in the population steeped in generations of collectivism. I don't think this is an anti-capitalism lesson -- it's a lesson on the dangers of the widespread implementation of good-sounding academic ideas with little basis in reality. A good-sounding idea of my own: I wonder what would have been the result if all privatized operations had been sold to the highest foreign bidders, with the cash disbursed to the citizens who had been the putative "owners" of these enterprises. Instead of the post-Soviet kleptocracies, perhaps a real industrial base would have developed, with intimate global ties.
- guard-of-terra 15y ago
  What if the highest foreign bid would be below reasonable price? (Not uncommon if we're talking hundreds of risky operations arriving on finance market at once) What if the foreign owner then proceeds with dismantling and closing the purchased operation to decrease competition? Siemens did just that as far as I know. They bought a new phone plant in Riga (Latvia) and they shut it down. Have their own phone manufacturing business, why risk it?
- pgeorgi 15y ago
  Your good-sounding idea failed gloriously in a large scale in East Germany (just that the money was used to pay back part of the debt). The problem is that most sales processes can be rigged (ours definitely was), if only by making up such a complex procedure that only those in the know are able to fill out the forms in the short time allocated by the same people. I guess that every "simple" idea on how to approach decollectivization was tried in one of the former socialist or communist countries (there were a whole bunch to try theories on, after all). That the author probably chose the one they could most easily pick apart.
Torn 15y ago
Naomi Klein's 2009 film "The Shock Doctrine" (imdb: http://www.imdb.com/title/tt1355640/ http://www.imdb.com/title/tt1355640/), available on netflix, looks at similar subject matter. In short, the 'chicago school' economics lead by Milton Friedman posit that as-free-as-possible markets, de-regulation and privatisation are economically beneficial. In practice (see: Argentina, Chile, etc) they only seem to further the gap between rich and poor, and the 'shock doctrine' way of destabilising the existing economy and government to achieve this is pretty disgusting.
- Symmetry 15y ago
  Wait, how on Earth could you call Argentina an as-free-as-possible market? And I'd far rather live in Chile even in the bottom quintile than any other country in South America.
- maratd 15y ago
  > In short, the 'chicago school' economics lead by Milton Friedman posit that as-free-as-possible markets, de-regulation and privatisation are economically beneficial. They are. You want a comparison? Let's compare Chile to North Korea, and the wealth gap in those nations. Free-as-possible markets aren't perfect. They may not even be good. But they're better than the alternative.
  - EvilTerran 15y ago
    "Free-as-possible markets ... are better than the alternative[, North Korea]." That's a nice false dichotomy you've got there.
    - maratd 15y ago
      Wow. In the future, if you're going to put quotes around something someone said, make sure they actually said it. Re-arranging words that I used into new sentences doesn't count.
      - EvilTerran 15y ago
crewtide 15y ago
"Some economists argue that mass privatisation would have worked if it had been implemented even more rapidly and extensively." This is always the argument about any failed policy. These researchers should do a wider study that includes privatization efforts before 1990. We could conduct some pretty sweet experiments in virtual worlds. Would libertarianism really work if it were the law? A real welfare state? Privatization of a communist country? Start a virtual world with those laws and see what happens. Some obvious drawbacks include: - self-selection of participants (you could get around this by controlling who is allowed to participate) - lower motivation (being unable to pay your actual rent has a pretty different effect from having a low virtual bank account balance) - natural anonymity of avatars (there are plenty of things people do online they'd never do in real life) But a well-done research study could probably account for a lot of those things. Maybe the IMF should conduct some virtual world experiments before shoving their current pet policy down the throats of millions of people whose government just collapsed. This isn't the first complaint I've heard that goes, "The policy forced on X country by the IMF turns out to have ruined everything. Oops."
- praxeologist 15y ago
  This is impossible. In fact, the whole pursuit of mathematical economics and economic modelling is flawed. Se here for a fuller explanation: http://mises.org/daily/3638 http://mises.org/daily/3638
  - deleted 15y ago
    [deleted]
JumpCrisscross 15y ago
An analogy for privatisation and increasing an economy's capital dynamism is turning up the heat in a reactor. The added energy makes the entire system more powerful if properly directed. But the steam doesn't want to drive a generator; if it's easier to breach a weakness in the containment structure then so be it. The higher the temperature the stronger the containment need be. Russia was privatised shockingly fast without building up a competent judiciary, informed public, nor the rule of law necessary to direct that activity. So it settled for the path of least resistance to profit and turned inward and venal. We are still learning about engineering economies on an international scale like this; it doesn't always turn out as "mass destruction". In today's FT Jim Yong Kim, US nominee for the World Bank, comments on being "born in South Korea when it was still recovering from war, with unpaved roads and low levels of literacy. I have seen how integration with the global economy can transform a poor country into one of the most dynamic and prosperous economies in the world. I have seen how investment in infrastructure, schools and health clinics can change lives. And I recognise that economic growth is vital to generate resources for investment in health, education and public goods" [1]. The "policy of mass destruction" headline is needlessly hyperbolic. [1] http://www.ft.com/cms/s/0/e2adc88c-7733-11e1-baf3-00144feab49a.html#ixzz1qWMUbwoJ http://www.ft.com/cms/s/0/e2adc88c-7733-11e1-baf3-00144feab4...
scythe 15y ago
A quote from none other than libertarian idol Ludwig van Mises comes to mind: "If a man has been hurt by being run over by an automobile, it is no remedy to let the car go back over him in the opposition direction." But the real motivation for the rapid privatisation was not economic growth or stability. Indeed, the article states this: "Its aim was to guarantee a swift transition to capitalism, before Soviet sympathisers could seize back the reins of power." In other words, the goal of rapid privatization was to prevent, at any cost, the return of Communism. Was that a good idea, from an economic point of view? Probably not. But an ideology that, several times, nearly plunged the world into a nuclear war, and was responsible for the deaths of over a hundred million people, between the gulags, famines, and the Great Leap Forward, might have generated a bit of fear among the Western countries, who wanted to get rid of Communism as quickly as possible. Similarly, emancipating the slaves destroyed the economy of the South for two decades -- but it was worth it.
- guard-of-terra 15y ago
  "But an ideology that, several times, nearly plunged the world into a nuclear war" Citation needed. Any nuclear conflict had two sides. One of those tended to be USA. Also, USA is the only country to ever drop a nuclear bomb on a city.
  - maratd 15y ago
    > Also, USA is the only country to ever drop a nuclear bomb on a city. The peace we're enjoying now is a direct consequence of that. After the realization of the devastation, everyone suddenly lost the appetite for using those weapons again. Which is why there haven't been any nuclear bombs dropped on any living person in the last 70 years.
    - guard-of-terra 15y ago
      Maybe so, still I don't see why one can accuse one party in "nearly plunging the world into a nuclear war" while turning the blind eye on another side.
    - 15y ago
forgottenpaswrd 15y ago
When you replace a "central planned" public economy by a "central planned" private economy you have not done anything at all. The problem is being "central planned" in the first place. Companies should not grow to a level in witch they get profits from monopolies and privileges, but for giving a service for the people. We are learning this the hard way, in the west we have institutions that are "too big to fail". The politicians solutions? Make them even bigger so they can trick the people for a while until it makes a bigger boom in someone else election year. The Federal Reserve and the ECB are central planning our economy and it is not working for the general population.
ilaksh 15y ago
I believe that the IMF, World Bank and friends are primarily economic pillagers. I think that destroying economies and taking over countries is their main purpose. They normally go after second and third world countries. Recently they have begun attacking the first world. I think that the financial crisis could have been resolved in a number of ways. However, they decided to deliberately exacerbate it and perhaps deliberately induced it to begin with. I believe that the goal is to redraw international borders by forming new supernational poltical entities, and they think that they cannot do that with healthy economies during peacetime. They believe they need a new world war. The theory looks to be something along the lines of "you've got to crack a few eggs to make an omelette". I think that the fact that these people are taking these destructive actions behind everyone's backs means they are untrustworthy. I know, I'm just a crazy conspiracy theorist who is too stupid to comprehend the intricacies of the hard science of economics.
johngalt 15y ago
Tl;dr A bunch of politicans with geopolitical goals made central policy on how to direct a bankrupt nation in turmoil. A nation which has existed in perpetual corruption under collectivism. Yet this is described as a failure of privatization? I can't wait for the day Russia isn't under corrupt leadership. The natural and human resources there are vast and untapped. To think what the world would be like if they had followed Adam Smith instead of Marx.
- guard-of-terra 15y ago
  Corruption wasn't a killing problem for USSR. Inefficiency was. There wasn't much to be stolen. There wasn't much to be earned either; hence the inefficiency and the lack of determination.

39 points by yread 15y ago

Yep, another article about the perils of financialism. Unfortunately the ability to raise money (or make it by trading) isn't well correlated with the ability to use money to make wealth. Donald Trump, for instance, was recently voted "most respected businessman" by the readers of a major Men's magazine. Perhaps people are impressed by the lifestyle he leads and the fact that he's put his name on buildings all over Manhattan, but he's not really a businessman... he's somebody who plays a businessman on TV. Back in the 90's, Trump lost money running casinos, back when the industry was booming and, for everybody else, running a casino was like having a license to print money. So, if you're the kind of person who cares about profit and loss and who also thinks business can solve problems, delight customers and provide meaningful and renumerative work it's very frustrating to see somebody like that have a reality distorsion field that lets them live a lie and involve a lot of people in it. Now the U.S. economy is maybe 5% or 10% B.S. and you can find many valid criticisms but it's basically on the level. That's why we're the world financial center. You look at places like Russia where the physical and human resources are so great but it's a 80% B.S. economy and the government is 100% corrupt and that's very sad.

guard-of-terra 15y ago

A new analysis showing how the radical policies advocated by western economists helped to bankrupt Russia" Funny thing is, it is instantly obvious to anyone living in the country. Those "policies" looked like they're aimed at destroying any research or production capacity short of mining of natural resources. Of course, incompetence played leading role in the process, not just malice.

Roboprog 15y ago

Dismantling the state run businesses should have been done more slowly, to allow the Soviet people time to adapt. I'm not saying the communist oligopoly should have been left in place. But, dismantling it so quickly simply allowed a different oligopoly to be put in place, with little net improvement for most people. Some would argue that not letting the people adapt to the change was exactly the intended result, though.

alephnil 15y ago
> Dismantling the state run businesses should have been done more slowly, to allow the Soviet people time to adapt. Poland, Hungary and the Baltic countries mostly did this, and they had far less problem after communism than Russia and most other former Soviet republics.
- _delirium 15y ago
  The Baltic countries also started with smaller and medium-sized companies first, privatizing a lot of stuff in the early 1990s that didn't have deep systemic involvement in the economy. The large, more difficult cases, like banks, electric companies, etc., were kept state-owned during the transition period. Once the transition was on better footing, they privatized the larger companies mostly in the 1997-2002 timeframe. That also let them float those companies in more traditional ways, such as IPOs on a stock market, rather than the experimental voucher system that was used in Russia.
- mkup 15y ago
  The difference between Baltic countries + Poland vs. Ukraine, Moldova and Russia is a lack of independent juridical branch of government, ephemeral property ownership rights, no rule of law, and, in general, more paternalistically minded people (towards government regulation of / interference in business). All of this makes medium sized business almost impossible to survive; rapid privatization in 1990s (as per subject article) seems totally irrelevant factor to me as a person living here: I see a reprivatization wave of roughly half large enterprises after each election cycle here. Corporate raidership is run by judges, governed by executive branch of govt by phone, and local analog of FBI is just a tool to bereave tasty property, they have no connection to justice at all. So how capital can accumulate in such an environment? There's no way.
  - guard-of-terra 15y ago
    Who knows whether it is the reason behind the economic problems of 90-s, or it is a fallout of those. Perhaps if the whole country has not been rapidly blasted into a decade of absolute poverty, we'd have less corrupt justice and more rule of law.

didgeoridoo 15y ago

Whoa. I never knew this "couponing" was how the post-Soviet economies went about privatization. It seems like perhaps the exact worst way to go about de-centralizing an economy, especially when little-to-no financial and corporate management expertise existed in the population steeped in generations of collectivism. I don't think this is an anti-capitalism lesson -- it's a lesson on the dangers of the widespread implementation of good-sounding academic ideas with little basis in reality. A good-sounding idea of my own: I wonder what would have been the result if all privatized operations had been sold to the highest foreign bidders, with the cash disbursed to the citizens who had been the putative "owners" of these enterprises. Instead of the post-Soviet kleptocracies, perhaps a real industrial base would have developed, with intimate global ties.

guard-of-terra 15y ago
What if the highest foreign bid would be below reasonable price? (Not uncommon if we're talking hundreds of risky operations arriving on finance market at once) What if the foreign owner then proceeds with dismantling and closing the purchased operation to decrease competition? Siemens did just that as far as I know. They bought a new phone plant in Riga (Latvia) and they shut it down. Have their own phone manufacturing business, why risk it?
pgeorgi 15y ago
Your good-sounding idea failed gloriously in a large scale in East Germany (just that the money was used to pay back part of the debt). The problem is that most sales processes can be rigged (ours definitely was), if only by making up such a complex procedure that only those in the know are able to fill out the forms in the short time allocated by the same people. I guess that every "simple" idea on how to approach decollectivization was tried in one of the former socialist or communist countries (there were a whole bunch to try theories on, after all). That the author probably chose the one they could most easily pick apart.

Torn 15y ago

Naomi Klein's 2009 film "The Shock Doctrine" (imdb: http://www.imdb.com/title/tt1355640/ http://www.imdb.com/title/tt1355640/), available on netflix, looks at similar subject matter. In short, the 'chicago school' economics lead by Milton Friedman posit that as-free-as-possible markets, de-regulation and privatisation are economically beneficial. In practice (see: Argentina, Chile, etc) they only seem to further the gap between rich and poor, and the 'shock doctrine' way of destabilising the existing economy and government to achieve this is pretty disgusting.

Symmetry 15y ago
Wait, how on Earth could you call Argentina an as-free-as-possible market? And I'd far rather live in Chile even in the bottom quintile than any other country in South America.
maratd 15y ago
> In short, the 'chicago school' economics lead by Milton Friedman posit that as-free-as-possible markets, de-regulation and privatisation are economically beneficial. They are. You want a comparison? Let's compare Chile to North Korea, and the wealth gap in those nations. Free-as-possible markets aren't perfect. They may not even be good. But they're better than the alternative.
- EvilTerran 15y ago
  "Free-as-possible markets ... are better than the alternative[, North Korea]." That's a nice false dichotomy you've got there.
  - maratd 15y ago
    Wow. In the future, if you're going to put quotes around something someone said, make sure they actually said it. Re-arranging words that I used into new sentences doesn't count.
    - EvilTerran 15y ago

crewtide 15y ago

"Some economists argue that mass privatisation would have worked if it had been implemented even more rapidly and extensively." This is always the argument about any failed policy. These researchers should do a wider study that includes privatization efforts before 1990. We could conduct some pretty sweet experiments in virtual worlds. Would libertarianism really work if it were the law? A real welfare state? Privatization of a communist country? Start a virtual world with those laws and see what happens. Some obvious drawbacks include: - self-selection of participants (you could get around this by controlling who is allowed to participate) - lower motivation (being unable to pay your actual rent has a pretty different effect from having a low virtual bank account balance) - natural anonymity of avatars (there are plenty of things people do online they'd never do in real life) But a well-done research study could probably account for a lot of those things. Maybe the IMF should conduct some virtual world experiments before shoving their current pet policy down the throats of millions of people whose government just collapsed. This isn't the first complaint I've heard that goes, "The policy forced on X country by the IMF turns out to have ruined everything. Oops."

praxeologist 15y ago
This is impossible. In fact, the whole pursuit of mathematical economics and economic modelling is flawed. Se here for a fuller explanation: http://mises.org/daily/3638 http://mises.org/daily/3638
- deleted 15y ago
  [deleted]

JumpCrisscross 15y ago

An analogy for privatisation and increasing an economy's capital dynamism is turning up the heat in a reactor. The added energy makes the entire system more powerful if properly directed. But the steam doesn't want to drive a generator; if it's easier to breach a weakness in the containment structure then so be it. The higher the temperature the stronger the containment need be. Russia was privatised shockingly fast without building up a competent judiciary, informed public, nor the rule of law necessary to direct that activity. So it settled for the path of least resistance to profit and turned inward and venal. We are still learning about engineering economies on an international scale like this; it doesn't always turn out as "mass destruction". In today's FT Jim Yong Kim, US nominee for the World Bank, comments on being "born in South Korea when it was still recovering from war, with unpaved roads and low levels of literacy. I have seen how integration with the global economy can transform a poor country into one of the most dynamic and prosperous economies in the world. I have seen how investment in infrastructure, schools and health clinics can change lives. And I recognise that economic growth is vital to generate resources for investment in health, education and public goods" [1]. The "policy of mass destruction" headline is needlessly hyperbolic. [1] http://www.ft.com/cms/s/0/e2adc88c-7733-11e1-baf3-00144feab49a.html#ixzz1qWMUbwoJ http://www.ft.com/cms/s/0/e2adc88c-7733-11e1-baf3-00144feab4...

scythe 15y ago

A quote from none other than libertarian idol Ludwig van Mises comes to mind: "If a man has been hurt by being run over by an automobile, it is no remedy to let the car go back over him in the opposition direction." But the real motivation for the rapid privatisation was not economic growth or stability. Indeed, the article states this: "Its aim was to guarantee a swift transition to capitalism, before Soviet sympathisers could seize back the reins of power." In other words, the goal of rapid privatization was to prevent, at any cost, the return of Communism. Was that a good idea, from an economic point of view? Probably not. But an ideology that, several times, nearly plunged the world into a nuclear war, and was responsible for the deaths of over a hundred million people, between the gulags, famines, and the Great Leap Forward, might have generated a bit of fear among the Western countries, who wanted to get rid of Communism as quickly as possible. Similarly, emancipating the slaves destroyed the economy of the South for two decades -- but it was worth it.

guard-of-terra 15y ago
"But an ideology that, several times, nearly plunged the world into a nuclear war" Citation needed. Any nuclear conflict had two sides. One of those tended to be USA. Also, USA is the only country to ever drop a nuclear bomb on a city.
- maratd 15y ago
  > Also, USA is the only country to ever drop a nuclear bomb on a city. The peace we're enjoying now is a direct consequence of that. After the realization of the devastation, everyone suddenly lost the appetite for using those weapons again. Which is why there haven't been any nuclear bombs dropped on any living person in the last 70 years.
  - guard-of-terra 15y ago
    Maybe so, still I don't see why one can accuse one party in "nearly plunging the world into a nuclear war" while turning the blind eye on another side.
  - 15y ago

forgottenpaswrd 15y ago

When you replace a "central planned" public economy by a "central planned" private economy you have not done anything at all. The problem is being "central planned" in the first place. Companies should not grow to a level in witch they get profits from monopolies and privileges, but for giving a service for the people. We are learning this the hard way, in the west we have institutions that are "too big to fail". The politicians solutions? Make them even bigger so they can trick the people for a while until it makes a bigger boom in someone else election year. The Federal Reserve and the ECB are central planning our economy and it is not working for the general population.

ilaksh 15y ago

I believe that the IMF, World Bank and friends are primarily economic pillagers. I think that destroying economies and taking over countries is their main purpose. They normally go after second and third world countries. Recently they have begun attacking the first world. I think that the financial crisis could have been resolved in a number of ways. However, they decided to deliberately exacerbate it and perhaps deliberately induced it to begin with. I believe that the goal is to redraw international borders by forming new supernational poltical entities, and they think that they cannot do that with healthy economies during peacetime. They believe they need a new world war. The theory looks to be something along the lines of "you've got to crack a few eggs to make an omelette". I think that the fact that these people are taking these destructive actions behind everyone's backs means they are untrustworthy. I know, I'm just a crazy conspiracy theorist who is too stupid to comprehend the intricacies of the hard science of economics.

johngalt 15y ago

Tl;dr A bunch of politicans with geopolitical goals made central policy on how to direct a bankrupt nation in turmoil. A nation which has existed in perpetual corruption under collectivism. Yet this is described as a failure of privatization? I can't wait for the day Russia isn't under corrupt leadership. The natural and human resources there are vast and untapped. To think what the world would be like if they had followed Adam Smith instead of Marx.

guard-of-terra 15y ago
Corruption wasn't a killing problem for USSR. Inefficiency was. There wasn't much to be stolen. There wasn't much to be earned either; hence the inefficiency and the lack of determination.