I stumbled across an interesting paper recently entitled The Network Of Global Corporate Control. It is concerned with the various links of ownership in transnationals. Here's the abstract:
Abstract:
"The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers."
The paper is a bit heavy but worth the read. I intend to print it off tomorrow to give it a proper read as I hate reading off computers. What aroused my interest in this was its implications for crises. If firms are so interconnected we can expect the economy to be less stable due to wealth concentration and we also have to contend with the influence of oligoply neverminding the bargaining power this gives companies when trashing out deals with states. It also brought to mind a previous study I read comparing the spread of economic crises to the spread of diseases: Worldwide Spreading Of Economic Crises.
Abstract:
"We model the spreading of a crisis by constructing a global economic network and
applying the Susceptible-Infected-Recovered (SIR) epidemic model with a variable
probability of infection. The probability of infection depends on the strength of eco-
nomic relations between the pair of countries, and the strength of the target country.
It is expected that a crisis which originates in a large country, such as the USA,
has the potential to spread globally, like the recent crisis. Surprisingly we show that
also countries with much lower GDP, such as Belgium, are able to initiate a global
crisis. Using the k-shell decomposition method to quantify the spreading power (of
a node), we obtain a measure of \centrality" as a spreader of each country in the
economic network. We thus rank the di erent countries according to the shell they
belong to, and nd the 12 most central countries. These countries are the most likely
to spread a crisis globally. Of these 12 only six are large economies, while the other
six are medium/small ones, a result that could not have been otherwise anticipated.
Furthermore, we use our model to predict the crisis spreading potential of countries
belonging to di fferent shells according to the crisis magnitude."
Both papers have implications for the study of economic crises and are worth the read. We see that TNC's and links between various companies can have massive implications. I'm a bit pushed for time and so can't post more but I will have a post about tax shares relative to income shares soon.
Monday 29 August 2011
Monday 15 August 2011
Authoritarianism and Neoliberalism
One of the great ironies of Neoliberalism is the fact that in order to provide freedom and economic progress it has to use increased authoritarianism in order to put down those who don't share in the economic progress (i.e. much of the population).
This has been a constant theme throughout the Neoliberalist world and it is by no means a coincidence that the first Neoliberal experiment required the dictator Pinochet in Chile. Across Latin America, Neoliberal regimes were lead by dictators who ruthlessly crushed opposition to their plans. In countries like Mexico and Columbia, the war on drugs is the front under which opposition is fought, a great irony considered the explosion in the drug trade was a result of Neoliberalism The same was occuring across the world in Indonesia under General Suharto and South-East Asia in general. Even in Iraq, the invasion has lead to the crushing of trade unions and a Neoliberal constitution.
The Developed World fares no differently in this repect. In the U.S., the poor were criminalised, again under the pretext of a war on Drugs. This gave both an ideological and practical way of dismissing the concerns of the poor. Throw them in prison, they're just drug addicts. This lead to the explosion of prison populations in the U.S., a country that accounts for 5% of the world's population accounts for 25% of the world's prison population. We have seen the same trend in the U.K.
Now, why is this relevant? Well, today Cameron is aboutfacing on his cuts to the police. Was this predictable? Well personally, I was surprised when I heard that he was cutting the police in the first place. That said, when nothing happened I thought I was perhaps mistaken. In the wake of the riots however it seems that Neoliberalism does indeed lead to increased authoritarianism in order to crush any opposition or discontent.
We should probably look back to the Queen of Neoliberalism, a Miss Margaret Thatcher who set the ball rolling in the U.K.. What did Thatcher do in terms of police spending? Well, she increased police numbers in England and Wales from 89,226 in 1979 to over 93,000 in 1981, spending on the police increased rapidly, going from £1,035 million in 1978 to more than double that amount by 1982-3 and up again to £3,825 million by 1988-9. [Source: R Reiner and M Cross (eds), Beyond Law and Order: Criminal Justice Policy and Politics into the 1990s (Macmillan, 1991).].Cameron should have learned from this as it allowed Thatcher to enjoy the support of the police in the crushing of the Miner's strike and other protests against her rule. Today he is seeing the mistake of his overconfidence in his abilities and will attempt to regain the confidence that the police have lost in him.
What will Cameron do now? It seems he may have to call on the old reserves of Neoliberalism, patriotism and fear. In yet another irony, Neoliberalism which is supposed to end the idea of nation-states and terror often requires nationalistic fervour and fear to maintain support. Whether it was the Soviets for Reagan, the Falklands and the IRA for Thatcher, The War on Terror for Bush and Blair it is a constant trend in Neoliberalism, fear and patriotism. It remains to be seen whether or not Cameron will be able to whip up nationalist fervour in the wake of the riots, if not he may have to declar a war, perhaps on some new aspect of terrorism (maybe an IRA resurgence) or some small-time dictator. These remain unlikely however as declaring war on dictators is becoming more and more unpopular and the IRA don't seem to be giving him anything.
Cameron could attempt to build up fear regarding a collapse of moral society but this runs the risk of causing it to become true and may cause a strengthening of class differences. All in all, Cameron's best target is the EU. He can paint the EU as the external enemy, the problem, and he can use the recent riots to help. He will probably propose tough measures and then when these contradict EU laws he will use that as a platform to launch a general attack on British involvement in the EU. Other than that, only an attack on British soil will help Cameron create a mood of nationalism and fear.
This has been a constant theme throughout the Neoliberalist world and it is by no means a coincidence that the first Neoliberal experiment required the dictator Pinochet in Chile. Across Latin America, Neoliberal regimes were lead by dictators who ruthlessly crushed opposition to their plans. In countries like Mexico and Columbia, the war on drugs is the front under which opposition is fought, a great irony considered the explosion in the drug trade was a result of Neoliberalism The same was occuring across the world in Indonesia under General Suharto and South-East Asia in general. Even in Iraq, the invasion has lead to the crushing of trade unions and a Neoliberal constitution.
We should probably look back to the Queen of Neoliberalism, a Miss Margaret Thatcher who set the ball rolling in the U.K.. What did Thatcher do in terms of police spending? Well, she increased police numbers in England and Wales from 89,226 in 1979 to over 93,000 in 1981, spending on the police increased rapidly, going from £1,035 million in 1978 to more than double that amount by 1982-3 and up again to £3,825 million by 1988-9. [Source: R Reiner and M Cross (eds), Beyond Law and Order: Criminal Justice Policy and Politics into the 1990s (Macmillan, 1991).].Cameron should have learned from this as it allowed Thatcher to enjoy the support of the police in the crushing of the Miner's strike and other protests against her rule. Today he is seeing the mistake of his overconfidence in his abilities and will attempt to regain the confidence that the police have lost in him.
What will Cameron do now? It seems he may have to call on the old reserves of Neoliberalism, patriotism and fear. In yet another irony, Neoliberalism which is supposed to end the idea of nation-states and terror often requires nationalistic fervour and fear to maintain support. Whether it was the Soviets for Reagan, the Falklands and the IRA for Thatcher, The War on Terror for Bush and Blair it is a constant trend in Neoliberalism, fear and patriotism. It remains to be seen whether or not Cameron will be able to whip up nationalist fervour in the wake of the riots, if not he may have to declar a war, perhaps on some new aspect of terrorism (maybe an IRA resurgence) or some small-time dictator. These remain unlikely however as declaring war on dictators is becoming more and more unpopular and the IRA don't seem to be giving him anything.
Cameron could attempt to build up fear regarding a collapse of moral society but this runs the risk of causing it to become true and may cause a strengthening of class differences. All in all, Cameron's best target is the EU. He can paint the EU as the external enemy, the problem, and he can use the recent riots to help. He will probably propose tough measures and then when these contradict EU laws he will use that as a platform to launch a general attack on British involvement in the EU. Other than that, only an attack on British soil will help Cameron create a mood of nationalism and fear.
Thursday 11 August 2011
A Predictable Mess
Anyone who is in anyway familiar with my posts will know I tend to concentrate a lot on income inequalities in the First World and how they affect society.
In particular I have often highlighted the fact that homicide rates (a proxy for measuring total crime) are most affected by income inequality:
People would also know that the U.K. has some of the worst income inequality and social mobility levels in the developed world. I have often pointed out that social mobility in the U.K. has collapsed. In the wake of the riots I can't help but feel vindicated.
Now, a disclaimer. I am not making any comment on whether or not the rioters should or should not have rioted. I am not questioning whether or not this was the 'right' response to income inequalities or anything else. It remains criminal behaviour.
What I am saying however is that certain economic conditions result in predictable effects. In this case, income inequality and low social mobility result in an underclass which is waiting to explode. The spark in this instance was the shooting of Mark Duggan but that was by no means the gunpowder that has steadily accumulated over the past few decades.
In this case there are two solutions to the problem. The first is increasing authoritarianism and the second is economic and social reform. Given that neoliberal policies that have dominated since the 80s and given the watchword 'austerity' it seems we will find ourselves moving towards authoritarian policies rather than reform. We have seen the same in the U.S. where incarceration rates have increased dramatically since Reagan.
More police and tougher sentences is the easy and comfortable response, it appeases the masses and it fits nicely with Conservative thought. Already the recent cuts to the police are being reconsidered.
In direct contrast, the cuts to the social services in these areas are being flatly ignored. There has been no talk of acutally solving these issues (Cameron's 'big society' apart). It seems the vested interests and prevailing dogma won't allow for this problem to actually be solved. Sigh.....
In particular I have often highlighted the fact that homicide rates (a proxy for measuring total crime) are most affected by income inequality:
Now, a disclaimer. I am not making any comment on whether or not the rioters should or should not have rioted. I am not questioning whether or not this was the 'right' response to income inequalities or anything else. It remains criminal behaviour.
What I am saying however is that certain economic conditions result in predictable effects. In this case, income inequality and low social mobility result in an underclass which is waiting to explode. The spark in this instance was the shooting of Mark Duggan but that was by no means the gunpowder that has steadily accumulated over the past few decades.
In this case there are two solutions to the problem. The first is increasing authoritarianism and the second is economic and social reform. Given that neoliberal policies that have dominated since the 80s and given the watchword 'austerity' it seems we will find ourselves moving towards authoritarian policies rather than reform. We have seen the same in the U.S. where incarceration rates have increased dramatically since Reagan.In direct contrast, the cuts to the social services in these areas are being flatly ignored. There has been no talk of acutally solving these issues (Cameron's 'big society' apart). It seems the vested interests and prevailing dogma won't allow for this problem to actually be solved. Sigh.....
Number of Wars Increasing
Recently I stumbled across this article which surprised me as I had thought that the prevailing opinion (a reduction in wars) was correct.
http://www.world-science.net/othernews/110630_war.htm
"Military conflicts between states have been increasing in frequency from 1870 to 2001—even without counting the best-known conflagrations such as the world wars and American interventions, a study has found.
The survey of conflict counted everything from all-out shooting wars and uses of military force to displays of force such as sending warships and closing borders. This doesn’t measure the intensity of violence, researchers said, but does capture governments’ readiness to settle disputes by force. Only conflicts between states, not civil wars, were counted.
Identifiable factors behind the increase—two percent more wars each year, on average—are that there are more borders and weapons are cheaper, according to the investigators. By their count, the total number of nations rose from 47 in 1870 to 187 on the eve of the World Trade Center attacks."
I think the primary cause was the dismantling of Empires and the establishment of Africa states which now fight due to the poor idea of arbitrarily dividing up states. This is an interesting question. In Marxist thought it is believed that the number of wars would increase due to competition between nation states on behalf of their respective captialist elements. Neoliberalism and other such theories argue that peace is more likely as countries benefit from trade. The second theory lead to the McDonald's Theory of War which is the statement that no two countries with McDonald's have ever gone to war with each other. This was violated in 2008 when Russia waltzed into Georgia or the 2006 war Israel waged on Lebanon.
Either way it seems to easy to tell given the explosion in the number of countries. Also, many would argue that there will be peace during times of plenty and growth but that as soon as things begin to turn sour (as in the present day) then warmongers once again find a voice.
http://www.world-science.net/othernews/110630_war.htm
"Military conflicts between states have been increasing in frequency from 1870 to 2001—even without counting the best-known conflagrations such as the world wars and American interventions, a study has found.
The survey of conflict counted everything from all-out shooting wars and uses of military force to displays of force such as sending warships and closing borders. This doesn’t measure the intensity of violence, researchers said, but does capture governments’ readiness to settle disputes by force. Only conflicts between states, not civil wars, were counted.
Identifiable factors behind the increase—two percent more wars each year, on average—are that there are more borders and weapons are cheaper, according to the investigators. By their count, the total number of nations rose from 47 in 1870 to 187 on the eve of the World Trade Center attacks."
I think the primary cause was the dismantling of Empires and the establishment of Africa states which now fight due to the poor idea of arbitrarily dividing up states. This is an interesting question. In Marxist thought it is believed that the number of wars would increase due to competition between nation states on behalf of their respective captialist elements. Neoliberalism and other such theories argue that peace is more likely as countries benefit from trade. The second theory lead to the McDonald's Theory of War which is the statement that no two countries with McDonald's have ever gone to war with each other. This was violated in 2008 when Russia waltzed into Georgia or the 2006 war Israel waged on Lebanon.
Either way it seems to easy to tell given the explosion in the number of countries. Also, many would argue that there will be peace during times of plenty and growth but that as soon as things begin to turn sour (as in the present day) then warmongers once again find a voice.
I can vouch for this!
Narcissists Need No Reality Check:
"Narcissists make spectacles of their supposedly awesome selves, but they don’t see the world entirely through rose-colored glasses.
These sultans of self-regard accurately appraise their own personalities and reputations, say psychologist Erika Carlson of Washington University in St. Louis and her colleagues. Carlson’s team unexpectedly finds that narcissists acknowledge their own narcissism and assume that their arrogant strut gets frowned on by others."
Leaving aside this paper (that was about me). I want to bring up the question of free-will. I have always contended that we are far more affected by subconscious impulses than we tend to recognise (and so I tend to oppose extensive advertising). This article New Questions About Free Will seems to run in favour of that view.
"The scientists cited work by researchers such as John Bargh at Yale University and Peter Gollwitzer at New York University starting in 2001. Bargh and colleagues showed how motivation toward a goal could arise without conscious awareness, Custer and Aarts wrote. “Students were seated at a table to work on two seemingly unrelated language puzzles. For some students, the first puzzle included words related to achievement (such as win or achieve), and for others it did not. Students who were exposed to achievement words were found to outperform the others on the second puzzle.”"
"Earlier research has shown that action goals, such as moving a finger, that were initially consciously set are unconsciously prepared before they are acted on,” they wrote. “The literature reviewed here suggests that the unconscious nature of the will has an even more pervasive impact on our life. Goals far more complex than finger movements, can guide behavior without being consciously set first, when they themselves are activated outside conscious awareness."
I find this question regarding free will (and by extension questions regarding the influence of subconscious factors on both our decisions and our values) to be one of the most pertinent. If it is the case that factors such as advertising and large levels of income inequality do massively alter subconscious values (and hence decisions) and if this is particularly true of children then we will have to reconsider the role of these conditions.
"Narcissists make spectacles of their supposedly awesome selves, but they don’t see the world entirely through rose-colored glasses.
These sultans of self-regard accurately appraise their own personalities and reputations, say psychologist Erika Carlson of Washington University in St. Louis and her colleagues. Carlson’s team unexpectedly finds that narcissists acknowledge their own narcissism and assume that their arrogant strut gets frowned on by others."
Leaving aside this paper (that was about me). I want to bring up the question of free-will. I have always contended that we are far more affected by subconscious impulses than we tend to recognise (and so I tend to oppose extensive advertising). This article New Questions About Free Will seems to run in favour of that view.
"The scientists cited work by researchers such as John Bargh at Yale University and Peter Gollwitzer at New York University starting in 2001. Bargh and colleagues showed how motivation toward a goal could arise without conscious awareness, Custer and Aarts wrote. “Students were seated at a table to work on two seemingly unrelated language puzzles. For some students, the first puzzle included words related to achievement (such as win or achieve), and for others it did not. Students who were exposed to achievement words were found to outperform the others on the second puzzle.”"
"Earlier research has shown that action goals, such as moving a finger, that were initially consciously set are unconsciously prepared before they are acted on,” they wrote. “The literature reviewed here suggests that the unconscious nature of the will has an even more pervasive impact on our life. Goals far more complex than finger movements, can guide behavior without being consciously set first, when they themselves are activated outside conscious awareness."
I find this question regarding free will (and by extension questions regarding the influence of subconscious factors on both our decisions and our values) to be one of the most pertinent. If it is the case that factors such as advertising and large levels of income inequality do massively alter subconscious values (and hence decisions) and if this is particularly true of children then we will have to reconsider the role of these conditions.
Tuesday 9 August 2011
How Wealth Accumulation Can Promote Cooperation
So I can't be accused of being completely biased in all my posts, I offer this paper for consumption:
How Wealth Cooperation Can Promote Cooperation
Abstract:
"Explaining the emergence and stability of cooperation has been a central challenge in biology, economics and sociology. Unfortunately, the mechanisms known to promote it either require elaborate strategies or hold only under restrictive conditions. Here, we report the emergence, survival, and frequent domination of cooperation in a world characterized by selfishness and a strong temptation to defect, when individuals can accumulate wealth. In particular, we study games with local adaptation such as the prisoner's dilemma, to which we add heterogeneity in payoffs. In our model, agents accumulate wealth and invest some of it in their interactions. The larger the investment, the more can potentially be gained or lost, so that present gains affect future payoffs. We find that cooperation survives for a far wider range of parameters than without wealth accumulation and, even more strikingly, that it often dominates defection. This is in stark contrast to the traditional evolutionary prisoner's dilemma in particular, in which cooperation rarely survives and almost never thrives. With the inequality we introduce, on the contrary, cooperators do better than defectors, even without any strategic behavior or exogenously imposed strategies. These results have important consequences for our understanding of the type of social and economic arrangements that are optimal and efficient."
There are however some caveats I would add (in addition to those examined by the authors). The main one is the desire for relative wealth over absolute wealth. In the stock market (in particular) it is how much money one has relative to one's peers that is often the guiding force, this may increase temporary defections. It also fails to examine more complex strategies (such as Tit-For-Tat as they mention) and particularly strategies that would arise if an 'eliminating' element was added. If it were the case that competitors can be eliminated if they face a large loss. Obviously the elimination of competitors is an element in the economy and even cooperative oligopolistic arrangements don't stray away from this.
There may also be problems relating to kabals, where cooperating groups operate at the expense of other elements of society (again oligopolies). One should also note that the gini coefficient tends to rise drastically in this set up (approaching 1) and this leads to ill-effects as examined in previous threads, including the undermining of trust that is essential to cooperative strategies.
Thoughts Blogosphere?
How Wealth Cooperation Can Promote Cooperation
Abstract:
"Explaining the emergence and stability of cooperation has been a central challenge in biology, economics and sociology. Unfortunately, the mechanisms known to promote it either require elaborate strategies or hold only under restrictive conditions. Here, we report the emergence, survival, and frequent domination of cooperation in a world characterized by selfishness and a strong temptation to defect, when individuals can accumulate wealth. In particular, we study games with local adaptation such as the prisoner's dilemma, to which we add heterogeneity in payoffs. In our model, agents accumulate wealth and invest some of it in their interactions. The larger the investment, the more can potentially be gained or lost, so that present gains affect future payoffs. We find that cooperation survives for a far wider range of parameters than without wealth accumulation and, even more strikingly, that it often dominates defection. This is in stark contrast to the traditional evolutionary prisoner's dilemma in particular, in which cooperation rarely survives and almost never thrives. With the inequality we introduce, on the contrary, cooperators do better than defectors, even without any strategic behavior or exogenously imposed strategies. These results have important consequences for our understanding of the type of social and economic arrangements that are optimal and efficient."
There are however some caveats I would add (in addition to those examined by the authors). The main one is the desire for relative wealth over absolute wealth. In the stock market (in particular) it is how much money one has relative to one's peers that is often the guiding force, this may increase temporary defections. It also fails to examine more complex strategies (such as Tit-For-Tat as they mention) and particularly strategies that would arise if an 'eliminating' element was added. If it were the case that competitors can be eliminated if they face a large loss. Obviously the elimination of competitors is an element in the economy and even cooperative oligopolistic arrangements don't stray away from this.
There may also be problems relating to kabals, where cooperating groups operate at the expense of other elements of society (again oligopolies). One should also note that the gini coefficient tends to rise drastically in this set up (approaching 1) and this leads to ill-effects as examined in previous threads, including the undermining of trust that is essential to cooperative strategies.
Thoughts Blogosphere?
"We must give them reform or they will give us revolution."
These words were uttered by Conservative MP Quintin Hogg in 1943 and essentially summarised prevailing wisdom at the time. The idea of a stable society wherein the worst excesses of capitalism would be tempered by social programs was embraced in the democracies of the day. The state had a role in regulating capitalism and preventing recessions or at least mitigating the worst effects. This state of affairs would last until the late 70's.
Roll on to the present day. We face the biggest downturn since the the Great Depression which sparked the whole idea of a regulatory state. Income inequality is as high as it was prior to 1929 and social mobility has collapsed. Did this happen overnight? No, since the 1980's neoliberalism and the neoliberalist policies that have been the mainstay of all major political parties (whether it be the Conservatives and New Labour in the U.K. or the Democrats and the Republicans in the U.S.). These policies have lead to a slow stagnation in growth coupled by sporadic financial crises. Many preferred to see these financial crises in terms of the death throes of social democracy and so on the back of this more 'shock therapy' and more restructuring was demanded by bodies such as the World Bank and the IMF. Schumpter used the term creative destruction to refer to a similar aspect of the economy wherein the rise and fall of individual companies leads to creativity and progress. Nowadays, neoliberals use the term to refer to the regeneration that occurs after times of collapse.
While it has not been expressly articulated (to my knowledge) this idea of creative destruction (collapse followed by rebirth) is an admission of the failure of a stable capitalism using neoliberal (rather than Keynesian) methods. Recessions and financial crashes are now not ust inevitable but necassary for growth. Despite this growth rates have fallen since the hey-day of the 50's and 60's and the decline in social mobility and the restoration of class power (well documented in David Harvey's A Brief History of Neoliberalism) have created new class tensions.
It is these tensions that we see boiling over in the U.S. and most recently in the riots in the U.K. over the past few days.While these individual riots were sparked by the killing of Mark Duggan, this spark was by no means the gunpowder that has been steadily building over the past few decades in the poorest sections of society. These tensions can be tackled in two ways. One is by actually addressing the issues of unemployment, underemployment, massive income inequality and stagnating social mobility that is to give them reform before they give us revolution. This will not come to be anytime soon, too many vested interests and powers-that-be have too much to lose and prevailing dogma tends towards that dreaded word 'austerity'.
Given this it seems inevitable that we will see the authoritarian side of neoliberalism. Instead of addressing problems this will be tackled as a criminal problem with no social roots. We will see increased police presence and increasingly authoritarian practices, not only in the riots today but also into the near future. It is the great irony of neoliberalism that in order to create freedom and wealth it must use authoritarianism to subdue the poor.
Roll on to the present day. We face the biggest downturn since the the Great Depression which sparked the whole idea of a regulatory state. Income inequality is as high as it was prior to 1929 and social mobility has collapsed. Did this happen overnight? No, since the 1980's neoliberalism and the neoliberalist policies that have been the mainstay of all major political parties (whether it be the Conservatives and New Labour in the U.K. or the Democrats and the Republicans in the U.S.). These policies have lead to a slow stagnation in growth coupled by sporadic financial crises. Many preferred to see these financial crises in terms of the death throes of social democracy and so on the back of this more 'shock therapy' and more restructuring was demanded by bodies such as the World Bank and the IMF. Schumpter used the term creative destruction to refer to a similar aspect of the economy wherein the rise and fall of individual companies leads to creativity and progress. Nowadays, neoliberals use the term to refer to the regeneration that occurs after times of collapse.
While it has not been expressly articulated (to my knowledge) this idea of creative destruction (collapse followed by rebirth) is an admission of the failure of a stable capitalism using neoliberal (rather than Keynesian) methods. Recessions and financial crashes are now not ust inevitable but necassary for growth. Despite this growth rates have fallen since the hey-day of the 50's and 60's and the decline in social mobility and the restoration of class power (well documented in David Harvey's A Brief History of Neoliberalism) have created new class tensions.
It is these tensions that we see boiling over in the U.S. and most recently in the riots in the U.K. over the past few days.While these individual riots were sparked by the killing of Mark Duggan, this spark was by no means the gunpowder that has been steadily building over the past few decades in the poorest sections of society. These tensions can be tackled in two ways. One is by actually addressing the issues of unemployment, underemployment, massive income inequality and stagnating social mobility that is to give them reform before they give us revolution. This will not come to be anytime soon, too many vested interests and powers-that-be have too much to lose and prevailing dogma tends towards that dreaded word 'austerity'.
Given this it seems inevitable that we will see the authoritarian side of neoliberalism. Instead of addressing problems this will be tackled as a criminal problem with no social roots. We will see increased police presence and increasingly authoritarian practices, not only in the riots today but also into the near future. It is the great irony of neoliberalism that in order to create freedom and wealth it must use authoritarianism to subdue the poor.
Monday 1 August 2011
Entrepreneurs, Chance, and the Deterministic Concentration of Wealth
While there are many factors that coalesce to determine an individual's wealth it is more often than not assumed that chance is irrelevant. Any good luck should be cancelled by bad luck, or is unimportant on the aggregate of all individuals. Here is a study which models an economy of complete chance Entrepreneurs, Chance, and the Deterministic Concentration of Wealth.
Abstract:
"In many economies, wealth is strikingly concentrated. Entrepreneurs–individuals with ownership in for-profit enterprises–comprise a large portion of the wealthiest individuals, and their behavior may help explain patterns in the national distribution of wealth. Entrepreneurs are less diversified and more heavily invested in their own companies than is commonly assumed in economic models. We present an intentionally simplified individual-based model of wealth generation among entrepreneurs to assess the role of chance and determinism in the distribution of wealth. We demonstrate that chance alone, combined with the deterministic effects of compounding returns, can lead to unlimited concentration of wealth, such that the percentage of all wealth owned by a few entrepreneurs eventually approaches 100%. Specifically, concentration of wealth results when the rate of return on investment varies by entrepreneur and by time. This result is robust to inclusion of realities such as differing skill among entrepreneurs. The most likely overall growth rate of the economy decreases as businesses become less diverse, suggesting that high concentrations of wealth may adversely affect a country's economic growth. We show that a tax on large inherited fortunes, applied to a small portion of the most fortunate in the population, can efficiently arrest the concentration of wealth at intermediate levels."
While there are obviously more factors to the economy than chance (I would particularly include the effects of income inequalities, poverty and low social mobility on motivation etc.) this study demonstrates the compounding effect of wealth even in the absence of real skill. So while nowhere near a real model of an economy it does serve a useless purpose. I am interested in your thoughts blogosphere!
Abstract:
"In many economies, wealth is strikingly concentrated. Entrepreneurs–individuals with ownership in for-profit enterprises–comprise a large portion of the wealthiest individuals, and their behavior may help explain patterns in the national distribution of wealth. Entrepreneurs are less diversified and more heavily invested in their own companies than is commonly assumed in economic models. We present an intentionally simplified individual-based model of wealth generation among entrepreneurs to assess the role of chance and determinism in the distribution of wealth. We demonstrate that chance alone, combined with the deterministic effects of compounding returns, can lead to unlimited concentration of wealth, such that the percentage of all wealth owned by a few entrepreneurs eventually approaches 100%. Specifically, concentration of wealth results when the rate of return on investment varies by entrepreneur and by time. This result is robust to inclusion of realities such as differing skill among entrepreneurs. The most likely overall growth rate of the economy decreases as businesses become less diverse, suggesting that high concentrations of wealth may adversely affect a country's economic growth. We show that a tax on large inherited fortunes, applied to a small portion of the most fortunate in the population, can efficiently arrest the concentration of wealth at intermediate levels."
While there are obviously more factors to the economy than chance (I would particularly include the effects of income inequalities, poverty and low social mobility on motivation etc.) this study demonstrates the compounding effect of wealth even in the absence of real skill. So while nowhere near a real model of an economy it does serve a useless purpose. I am interested in your thoughts blogosphere!
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