Sunday, November 29, 2015

The intricate economics of terrorism

The world has suddenly changed. Our fragile societies realize that ordinary people  have to cope with the fear of terrorist attacks. In Paris, Brussels and other parts of the planet, we are at the mercy of an invisible enemy. But to combat this new global phenomenon, we have to look at the complex economics  behind terrorist networks. 

A few years ago, an Italian economist, Loretta Napoleoni developed the idea of 'rogue economics'  where she tries to explain the connexions between crime and unregulated finance. This new reality of capitalism has been expanding over years on a global scale ranging from drugs and weapons, sex slavery and other forms of human trafficking.

Terrorism is just one aspect of it : it does not just imply an efficient organization but needs substantial financing. For instance, Daesh finances its activity thanks the traffic of oil it controls in a vast territory bigger than Great Britain. 

The big change came with the excesses of globalization and big finance ; deregulation has also facilitated these uncontrolled flows in the form of money laundering. According to Napoleoni, the scale of the rogue economics is about 1,5 trillion dollars, so much bigger than (again) United Kingdom's output. The economic significance is that this money is detracted from productive investment to support growth and jobs. This happens because the States have lost control of their economies. 

The crisis will not end  if unregulated finance and growing criminal markets are not brought under control of the States or any supranational power.

Tuesday, November 3, 2015

Saving Capitalism- notes on Reich's book

The title of Robert Reich's new book is somewhat odd: how can we save a system which is crapped and caused pain to so many people? However, the subtitle is perhaps more important 'for the many not the few'. The book contains a number of  economic and moral arguments as it assumes that the capitalist system is not working as it used to, meaning that it was regulated in a way that it was in equilibrium where it could provide jobs to most of the active population which in turn could buy the goods and services available on the market. Reich makes a valuable point when he argues that the debate is not choosing between market and government as market without government or rules does not exist as a state of nature. This point was developed in the groundbreaking book of K. Polanyi 'The Great Transformation'. 

The whole argument is how to make the system work for the middle class, that is pursuing the right policies to give it more purchasing power, for instance increasing th minimum wage to an acceptable level to avoid 'working poor' class and extending the rights of people for health care and education. If we compare the US in terms of social progress, it lags behind many advanced countries with a more progressive welfare system and wider redistribution among social groups. In this regard, it has been quite anomalous relative to 'the 'social market economy' which has prevailed for at least five decades in Europe. 

The other point which is worth noting is the rising influence of the ruling class in politics. Is this a distortion of the political system?  The issue is how to prevent that oligarchs change the rules to their advantage. These trends are also present in some European countries. This wave of populism has endangered the basic foundations of democracy based on the 'one person, one vote' rule using scapegoats such as the invasion of immigrants taking the jobs of  national workers or the rise of supranational powers such as a European federation. 

Reich's optimism for the future derives from historical experiences such as the Great society in the sixties which actually led to a compression of income disparities and the emergence of a vast middle class. This is quite an unambitious and perhaps view of how the American society should become. The driving forces of globalization and technology (combined with demographic change) have changed the nature of capitalism into a 'Stateless' or an unregulated system where big corporations have an unprecedented power of influencing legislation and tax systems.  The very idea to restore a 'normal' state of capitalism is utopia - can we really change its inherent logic which is to maximize profit by any means? 

Keynes raised  in his concluding notes to the 'General Theory' a number of questions : 

"Is the fulfilment of these ideas a visionary hope? Have they insufficient roots in the motives which govern the evolution of political society? Are the interests which they will thwart stronger and more obvious than those which they will serve?

He never responded to these questions, showing how difficult it was to put in place an alternative to the 'laissez faire system'. His ideas went through  and inspired  policy makers at least for some decades. We also hope that Reich's ideas will be applied despite the current state of affairs, and lead to a better economic system to th mutual advantage of all.