4 ms·

The Rich Country Trap

36 points by balsam 13y ago

thrush 13y ago
"There is no sector in the modern United States or Britain that is willing to stand up to big banks in the political arena. And top financial-sector executives continue to enjoy such high prestige that they are still called upon to run public finances. Politicians continue to defer to the supposed wisdom of these individuals." ... looking at you, kid (tech sector)
- jrkelly 13y ago
  Churches are the first thing that leapt to my mind. The new pope seems to be headed this way: http://www.businessinsider.com/the-pope-on-the-financial-system-inequality-money-2013-11 http://www.businessinsider.com/the-pope-on-the-financial-sys... And religions have done this historically: http://en.wikipedia.org/wiki/Jubilee_(biblical) http://en.wikipedia.org/wiki/Jubilee_(biblical)
  - saraid216 13y ago
    It's worth noting that "churches" isn't the monolithic system that they sound like. There are a significant number of clergy and churches who are in it for the money and may as well count as part of the financial sector for the intents and purposes of this discussion. Pope Francis is making statements, but I don't know what he can do beyond talking, and assuming he has useful actions to take, if he will take them.
    - einhverfr 13y ago
      While not a Catholic, I think Francis's accomplishments in this area are both overrated and underrated. They are overrated because he isn't saying anything that the last four popes did not say in terms of the actual issues. But they are also underrated because what Francis has done is to put the pieces together differently. He's essentially pointed out that the Church's teachings on economics (again going back more than a century) are central because the modern capitalist structure leads to everything the Church deplores in the modern world. It leads to independent retirement (throwing old people away, in Francis's words), and that to abortion. In essence, what he's done is to step back from the fights of the 1960's and return to the fights of the 1930's, and for this the Progressives seem to love him..... What the Catholic Church can accomplish is the further development of Distributist thought, as an alternative to Capitalism. But Distributism is no longer just a Catholic thing. I was introduced to the concept by a Russian Orthodox priest, and I find many of the most Distributist folks I know are Neopagans (particularly Asatru).
      - toyg 13y ago
        The difference between Francis and his predecessors is that he actually started a shakeup of internal structures, rather than keeping the debate on a purely theological level. This is what "progressives" like. His two predecessors could talk a good game, but when chips were down they would invariably nominate dodgy ultra-conservatives to take care of finances and would use Vatican Council II as a fig leaf over a de-facto structural alliance with US-sponsored capitalism, because Cold War. This Argentinian fellow has made some remarkable statements (on priest weddings, among other things), and if he follows through on them, the Church could change radically. He's also dismissed part of the old guard, promoting more "liberal" figures; among other things, he's finally admitted that the shady IOR (the Vatican bank) will have to clean up its act, and nominated new managers to do just that. In terms of economic doctrine, I personally don't see much of a difference in what he's saying, compared to his European predecessors, but I admit I haven't studied this closely. What is clearly changed is the willingness to harshly criticise the North-American model. In a way, this guy is the first post-Cold-War pope; US donations are faltering (because of pedo scandals) so their political weight is diminishing inside the Church, and Bergoglio himself represents a South-American view of the world which is much more critical of traditional US policy in all sectors, including economic ones.
        einhverfr 13y ago
        I don't know about shaking up internal structures. Certainly in terms of who has been excommunicated, there has been no change. What he has done is moved the economic teachings from a branch of Catholic social teaching into a more central role. I think that's easy to understate. But that's not the same as taking a new position on the issues. And I think the liberals have vastly overstated the way in which Francis seems to be one of them (he has excommunicated a bishop for calling for the ordination of women for example). > "What is clearly changed is the willingness to harshly criticise the North-American model." I don't know. Rerum Novarium, Centicimus Annus, etc. all included similarly harsh language. That's not something I see as different. It's just that Popes were ignored when they said this. In fact John Paul II complained heavily that such criticism of Capitalism were ignored by so many Catholics.... > "Bergoglio himself represents a South-American view of the world which is much more critical of traditional US policy in all sectors, including economic ones." I think that's an important point actually, and I think it puts his attacks on independent retirement as poisonous fruits of capitalism (i.e. a society that "throws away old people") in a certain context. But the corrolary here is that he has legitimated Dorothy Day's withering attack on Social Security and thus attacking causes even more dear to the American left than abortion.
- zt 13y ago
  Really? Financial regulators and Secretaries of the Treasury often come from big banks or the lawyers that serve them. We can debate whether that's good or bad, but the tech sector's luminaries (whoever you want to argue they are) aren't asked to run large parts of the public sector. I think we'd be better off if they were but that sort of revolving door doesn't exist currently.
- einhverfr 13y ago
  You can't stand up to the financial sector if you are an investment-funded venture. That way is suicide. The problem is that once you get to a certain size, a significant part of your shares are owned by investment banks.
  - thrush 13y ago
    It seems that what you're pointing out is basically no company can stand up to the financial sector because they are too dependent on them. But at some point if your right hand is causing you too much pain, you'll have to cut it off. I wonder how close we are to that point. I'd like to see the financial and insurance sectors run primarily by tech workers and leadership. I think this could help neutralize the problem. I think this alludes to zt's comment as well.
    - einhverfr 13y ago
      Right. However, it won't be the established players or even the VC-funded startups that can do this. It will be a shift from investment-funded firms to lifestyle businesses, and it won't be sector specific.
toyg 13y ago
"Somebody" observed a long time ago that mature capitalism would produce an unmanageable financial sector whose interests are completely misaligned with the general one. He might have been wrong on a few other issues, but on this one he was absolutely right: the problem is structural and should be considered as such. If we let financial markets grow more and more, crashes will get worse.
- wyager 13y ago
  I don't see how that's the case at all. What I do see is that when banks and government are so convolved as to be indistinguishable, there is necessarily harmful monopolization of markets and finance.
- einhverfr 13y ago
  Actually lots of people observed this. I am not sure who you are referring to. Keynes? Marx? Minsky? Of these, I think the most damning condemnation actually came from Minsky (who was an American economist).
einhverfr 13y ago
Being an American currently living in Indonesia I think there are some structural things missing in the analysis here. The big one is why banks in rich countries are too big to fail. In Indonesia if there was a banking crisis, there is no way that a bank like BCA could be bailed out. There would be no alternative to failure and while there are concerns about overly predatory practices regarding consumer debt, it is different than it is in the US. Instead the economy is built on a very different basis. 60-70% of Indonesians are self-employed. There are a number of corporations which have institutional investment (including some very large companies) but on the whole the vast majority of the actual economy runs on the basis of small business and the self-employed without investment capital beyond friends and family. What this means is that the amount of control that banks have over the economy is lower. In the event of a banking crisis, people would find ways of continuing to trade and work, and you can't have the massive and debilitating layoffs that occur in the rich countries. In essence the banking system may be less protected, but at the same time, it is less influential and so while the effects of a collapse can be temporarily severe, it doesn't have the same reach that it does in the US. A big part of the rich country trap is a economy that runs on investment capital, where the banks are a major source of that capital. A small-business-centric economy is far more robust against this sort of crisis.
- ashray 13y ago
  Well, I live in India and it's quite similar to Indonesia (have traveled to Indonesia before..) in the ways that you mention. Many people in India operate under the same principles, small privately owned and financed businesses. However, the big banks do indeed deal with the major corporations. At this point of time, the reserve bank of India has published a report stating that the failure of ONE major corporation will prove catastrophic for our economy. [1] Sounds absolutely crazy but it seems to be true. This is because banks have over extended credit (once more ?) and maintain very low liquidity. If one of their debtors defaults, the bank will be finished, thereby unleashing a domino effect on their creditors and debtors.. crash and burn. Add to this, the fact that the country runs on a major current account deficit (export/import imbalance) means that the government will not be able to do any massive bailouts. The foreign exchange reserves in the country are still small. Which means, we can't print more currency to hack our way out of the problem either because we'll see hyperinflation in a very bad way. Of course, the regular joe here will be able to find a way to continue running his business because he may not have a big relationship with a big bank. But macroscopic factors like big banks failing and the economy collapsing will hit him and everyone else hard as well. There will be massive layoffs for folks who work in big corporations and while in absolute percentages of population this may not look like much, it'll still impact a few hundred million people easily in a country like India. TLDR; Banks in India need to be reigned in, otherwise things are going to get very ugly sometime soon. [1] - http://www.moneycontrol.com/news/economy/rbis-financial-stability-report-is-devilthe-details_1016722.html http://www.moneycontrol.com/news/economy/rbis-financial-stab...
gaius 13y ago
You could have written this about car manufacturers in the 70s or miners in the 80s or dotcoms in the 90s or property in the 00s.

36 points by balsam 13y ago

"There is no sector in the modern United States or Britain that is willing to stand up to big banks in the political arena. And top financial-sector executives continue to enjoy such high prestige that they are still called upon to run public finances. Politicians continue to defer to the supposed wisdom of these individuals." ... looking at you, kid (tech sector)

jrkelly 13y ago
Churches are the first thing that leapt to my mind. The new pope seems to be headed this way: http://www.businessinsider.com/the-pope-on-the-financial-system-inequality-money-2013-11 http://www.businessinsider.com/the-pope-on-the-financial-sys... And religions have done this historically: http://en.wikipedia.org/wiki/Jubilee_(biblical) http://en.wikipedia.org/wiki/Jubilee_(biblical)
- saraid216 13y ago
  It's worth noting that "churches" isn't the monolithic system that they sound like. There are a significant number of clergy and churches who are in it for the money and may as well count as part of the financial sector for the intents and purposes of this discussion. Pope Francis is making statements, but I don't know what he can do beyond talking, and assuming he has useful actions to take, if he will take them.
  - einhverfr 13y ago
    While not a Catholic, I think Francis's accomplishments in this area are both overrated and underrated. They are overrated because he isn't saying anything that the last four popes did not say in terms of the actual issues. But they are also underrated because what Francis has done is to put the pieces together differently. He's essentially pointed out that the Church's teachings on economics (again going back more than a century) are central because the modern capitalist structure leads to everything the Church deplores in the modern world. It leads to independent retirement (throwing old people away, in Francis's words), and that to abortion. In essence, what he's done is to step back from the fights of the 1960's and return to the fights of the 1930's, and for this the Progressives seem to love him..... What the Catholic Church can accomplish is the further development of Distributist thought, as an alternative to Capitalism. But Distributism is no longer just a Catholic thing. I was introduced to the concept by a Russian Orthodox priest, and I find many of the most Distributist folks I know are Neopagans (particularly Asatru).
    - toyg 13y ago
      The difference between Francis and his predecessors is that he actually started a shakeup of internal structures, rather than keeping the debate on a purely theological level. This is what "progressives" like. His two predecessors could talk a good game, but when chips were down they would invariably nominate dodgy ultra-conservatives to take care of finances and would use Vatican Council II as a fig leaf over a de-facto structural alliance with US-sponsored capitalism, because Cold War. This Argentinian fellow has made some remarkable statements (on priest weddings, among other things), and if he follows through on them, the Church could change radically. He's also dismissed part of the old guard, promoting more "liberal" figures; among other things, he's finally admitted that the shady IOR (the Vatican bank) will have to clean up its act, and nominated new managers to do just that. In terms of economic doctrine, I personally don't see much of a difference in what he's saying, compared to his European predecessors, but I admit I haven't studied this closely. What is clearly changed is the willingness to harshly criticise the North-American model. In a way, this guy is the first post-Cold-War pope; US donations are faltering (because of pedo scandals) so their political weight is diminishing inside the Church, and Bergoglio himself represents a South-American view of the world which is much more critical of traditional US policy in all sectors, including economic ones.
      - einhverfr 13y ago
        I don't know about shaking up internal structures. Certainly in terms of who has been excommunicated, there has been no change. What he has done is moved the economic teachings from a branch of Catholic social teaching into a more central role. I think that's easy to understate. But that's not the same as taking a new position on the issues. And I think the liberals have vastly overstated the way in which Francis seems to be one of them (he has excommunicated a bishop for calling for the ordination of women for example). > "What is clearly changed is the willingness to harshly criticise the North-American model." I don't know. Rerum Novarium, Centicimus Annus, etc. all included similarly harsh language. That's not something I see as different. It's just that Popes were ignored when they said this. In fact John Paul II complained heavily that such criticism of Capitalism were ignored by so many Catholics.... > "Bergoglio himself represents a South-American view of the world which is much more critical of traditional US policy in all sectors, including economic ones." I think that's an important point actually, and I think it puts his attacks on independent retirement as poisonous fruits of capitalism (i.e. a society that "throws away old people") in a certain context. But the corrolary here is that he has legitimated Dorothy Day's withering attack on Social Security and thus attacking causes even more dear to the American left than abortion.
zt 13y ago
Really? Financial regulators and Secretaries of the Treasury often come from big banks or the lawyers that serve them. We can debate whether that's good or bad, but the tech sector's luminaries (whoever you want to argue they are) aren't asked to run large parts of the public sector. I think we'd be better off if they were but that sort of revolving door doesn't exist currently.
einhverfr 13y ago
You can't stand up to the financial sector if you are an investment-funded venture. That way is suicide. The problem is that once you get to a certain size, a significant part of your shares are owned by investment banks.
- thrush 13y ago
  It seems that what you're pointing out is basically no company can stand up to the financial sector because they are too dependent on them. But at some point if your right hand is causing you too much pain, you'll have to cut it off. I wonder how close we are to that point. I'd like to see the financial and insurance sectors run primarily by tech workers and leadership. I think this could help neutralize the problem. I think this alludes to zt's comment as well.
  - einhverfr 13y ago
    Right. However, it won't be the established players or even the VC-funded startups that can do this. It will be a shift from investment-funded firms to lifestyle businesses, and it won't be sector specific.

toyg 13y ago

"Somebody" observed a long time ago that mature capitalism would produce an unmanageable financial sector whose interests are completely misaligned with the general one. He might have been wrong on a few other issues, but on this one he was absolutely right: the problem is structural and should be considered as such. If we let financial markets grow more and more, crashes will get worse.

wyager 13y ago
I don't see how that's the case at all. What I do see is that when banks and government are so convolved as to be indistinguishable, there is necessarily harmful monopolization of markets and finance.
einhverfr 13y ago
Actually lots of people observed this. I am not sure who you are referring to. Keynes? Marx? Minsky? Of these, I think the most damning condemnation actually came from Minsky (who was an American economist).

einhverfr 13y ago

Being an American currently living in Indonesia I think there are some structural things missing in the analysis here. The big one is why banks in rich countries are too big to fail. In Indonesia if there was a banking crisis, there is no way that a bank like BCA could be bailed out. There would be no alternative to failure and while there are concerns about overly predatory practices regarding consumer debt, it is different than it is in the US. Instead the economy is built on a very different basis. 60-70% of Indonesians are self-employed. There are a number of corporations which have institutional investment (including some very large companies) but on the whole the vast majority of the actual economy runs on the basis of small business and the self-employed without investment capital beyond friends and family. What this means is that the amount of control that banks have over the economy is lower. In the event of a banking crisis, people would find ways of continuing to trade and work, and you can't have the massive and debilitating layoffs that occur in the rich countries. In essence the banking system may be less protected, but at the same time, it is less influential and so while the effects of a collapse can be temporarily severe, it doesn't have the same reach that it does in the US. A big part of the rich country trap is a economy that runs on investment capital, where the banks are a major source of that capital. A small-business-centric economy is far more robust against this sort of crisis.

ashray 13y ago
Well, I live in India and it's quite similar to Indonesia (have traveled to Indonesia before..) in the ways that you mention. Many people in India operate under the same principles, small privately owned and financed businesses. However, the big banks do indeed deal with the major corporations. At this point of time, the reserve bank of India has published a report stating that the failure of ONE major corporation will prove catastrophic for our economy. [1] Sounds absolutely crazy but it seems to be true. This is because banks have over extended credit (once more ?) and maintain very low liquidity. If one of their debtors defaults, the bank will be finished, thereby unleashing a domino effect on their creditors and debtors.. crash and burn. Add to this, the fact that the country runs on a major current account deficit (export/import imbalance) means that the government will not be able to do any massive bailouts. The foreign exchange reserves in the country are still small. Which means, we can't print more currency to hack our way out of the problem either because we'll see hyperinflation in a very bad way. Of course, the regular joe here will be able to find a way to continue running his business because he may not have a big relationship with a big bank. But macroscopic factors like big banks failing and the economy collapsing will hit him and everyone else hard as well. There will be massive layoffs for folks who work in big corporations and while in absolute percentages of population this may not look like much, it'll still impact a few hundred million people easily in a country like India. TLDR; Banks in India need to be reigned in, otherwise things are going to get very ugly sometime soon. [1] - http://www.moneycontrol.com/news/economy/rbis-financial-stability-report-is-devilthe-details_1016722.html http://www.moneycontrol.com/news/economy/rbis-financial-stab...

gaius 13y ago

You could have written this about car manufacturers in the 70s or miners in the 80s or dotcoms in the 90s or property in the 00s.