Tan Kin Lian's Blog: Underlying problems of capitalism

Saturday, October 31, 2009

Underlying problems of capitalism

The economic growth achieved during the past six months of 2009 is unsustainable. The underlying problems of capitalism needs to be solved before the world can see a revival of growth and prosperity. These problems are:

a) wide gap in income
b) insufficient employment opportunities
c) cheating

The wide inequality in come means that a few people are super rich while the majority are poor and struggling to get by. The poor families cannot consume goods or services, which are necessary for economic growth. The super wealthy can flout their wealth, but their actual consumption is limited.

Insufficient job opportunities leads to uncertainty and insecurity. They force more families to increase their savings and have fewer children, in case they lose their jobs. Many people work harder to keep their jobs, leading to fewer jobs for the unemployed.

There is rampant cheating, especially in the financial products. Bad products that rip off consumers are being sold under the regime of "caveat emptor". Many are unregulated investment products, which are actually scams created to cheat people of their money using deception and false promises. Even regulated products are sold using deceptive means, and are used to hide exorbitant charges to enrich the issuer and the marketeers.

If the underlying ills of the capitalist system are not addressed, the global economy cannot have a sustained recovery. As individual countries struggle to take care of their people, they will increase the suffering inflicted on other countries. This could lead to economic and military conflicts.

The measures to address these economic ills include:

a) Fairer distribution of income through minimum wage and high taxation of the super rich
b) Fairer distribution of work by imposing a cap on the working hours, so that more jobs can be created for the unemployed and school leavers
c) Stronger regulation to prevent cheating of consumers and to encourage honest business practices.
d) Return to some measure of protectionism, to reduce the harmful effects of globalization and international competition.

We have to say goodbye to the bad capitalism of the past two decades, and to the excessive greed and dishonesty that thrived during this period, before we can see a better economic and social world. We also have to return to religion.

Tan Kin Lian

8 comments:

Anonymous said...: I used to work in electronic industry. In my line of work, each person in the company has productivity exceed 1.2 million US dollars.

I just wonder how many people going to be out of work because of that company.; October 31, 2009 12:20 PM
Anonymous said...: BEFORE 1949
Q1. Was China Republican corruption after Qing Dynasty and why?
Q1. Yes, because of greedy capitalist.

AFTER 1949
Q2. Was capitalism an evil?
A2."Yes", said Marxist & Chairman Mao. Chairman Mao killed his deputy who advocate for capitalism !

AFTER 1978
Q3. Was capitalism better for PRC?
A3. "Yes", said Deng Xiao Ping, second generation of China Communist , "someone become rich and the rich will help the poor".

Year 2000s
Q4. Is capitalism a valid econ policy in PRC?
A4.1 Foreign Reserve=US$2 trillion
A4.2 Corruption is a phenomena but not a national threat yet!
A4.3 I am in power. I am OK. You are not in power, you are not OK, migrate to SG and become a Taxi driver !; October 31, 2009 12:49 PM
Anonymous said...: Worker Union : " ..inflation..increase wage.."

Management : "...less profit..how to share with u?"

Union : "..why management is paid x times of worker' pay?"

Management: "I am boss, I am first class...I import chip as well as cheap labour..if not,I move out my factory to vietnam!"

Union: " OK, you expect me to drink water only. I don't married here , I don't make baby boy, no more NS! I migrate... "; October 31, 2009 1:38 PM
Anonymous said...: USA
An American economist advocated the minority superrich who need most protection of his wealth should share higherst social cost.

THAILAND
Elite middle class asked: "Farmers are stupid and poor, why subsidise them?". Thaksin government (before 2007) who help poverty farmers collapsed !!

What is wrong with this world?
Capitalist or capitalism !; October 31, 2009 2:07 PM
wjsim said...: It's the same fallacy used by people when machines threatened their jobs. http://en.wikipedia.org/wiki/Machine-breaking

Destroy productivity to increase employment. The next step is to destroy all cars and public transport so we can have more rickshaws. Ban washing machines to bring back the dhobies. If you think this is stupid, please think deeper.

If employing more workers for shorter working hours increases productivity, capitalist would have done it already. Hence, such measures only decreases productivity, increasing the production costs per unit goods and ultimately more people will be affected by the increased prices of goods. Another problem created, hence the regulator will fix prices, pushing lower profit margin companies off the edge, further exacerbating the product shortage and increasing prices further. and the problem goes on creating more problems.

Minimum wage doesn't solve anything but simply causes unemployment in people whose productivity are below the minimum wage. Simply put, if the minimum wage is $10/hr and you can't produce that amount of output, you're fired. Either machines or more productive people replaces your place. If both are unavailable, goods will increase price and more people suffer. Worst case, company folds. Everyone suffers, along with product shortages and increased prices.

The increased prices will perhaps then create a new equilibrium prices for goods as production is encouraged and supply increases to profit from the higher price. Ultimately, nothing is achieved, back to square one with higher prices.

Not all regulations are bad. But most regulations are self-defeating. The immediate problems are fixed, causing problems elsewhere. Another set of regulations come up to fix those. You end up with enormous bureaucracy and nothing done.

Increase taxes? Hedge funds leave London and Singapore wins. Way to go UK! Imagine all the employment created elsewhere!; October 31, 2009 10:14 PM
Tan Kin Lian said...: Globalisation and international competition is good for the super billionaires, but is bad for the ordinary people.

It has led to wide disparity of income, the growing of the bubble and eventually to the collapse of the global financial system.

America has seen the problem and are now acting to reverse it. The world will not have a sustained recovery until the shortfalls of the current system is addressed.; November 01, 2009 8:19 AM
wjsim said...: America's problem is caused by the American government due to interventions after the NASDAQ bubble in 2001 and generally low interest rates throughout this period. Coupled with Home Ownership program you have low income people with bad credit ratings buying homes and pushing up home prices. The American dream used to be you have a job, you can have a home. Now it's if you have a home, you DON'T need a job. Because you can get a "profit" a few years later by selling the house and mortgage. That's how distorted the housing market was due to subsidies and regulations on the free market by the US government. So much for "Faith-based programs".

Capitalism solves the problem by bringing back prices to its real levels. Look at the NASDAQ chart. If you cover the 1999-2001 period, the NASDAQ still appreciates as though nothing happened. The US government fueled the NASDAQ bubble in 2001 and Housing bubble in 2006 and not capitalism. To blame the collapse of the bubbles on capitalism is to blame a plane crash on gravity. You blame the alcohol the pilot drank, and that alcohol is cheap money.

The super billionaires create employment for everyone else. Their companies hire workers and their extravagant personal consumptions feed jobs. Probably 80% of the economy is driven by the actions of 20%. Imagine the number of foreign brands in Singapore and the number of Singaporeans employed under them.

To purge the system US has to do what Harding did in 1920s. Have link.

Quote
In his 1920 speech accepting the Republican presidential nomination, Harding declared:

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn’t been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.
Unquote

But Americans haven't learnt anything. Recent programs like Cash for Clunkers only encourage more spending and people getting into debt.

What capitalism is that? China is more capitalist than America now.; November 01, 2009 9:46 AM
Speakout said...: Like it or not, the only way to solve this problem is to cut down the pay packets of bankers and investment firm owners. Either by pegging it to REAL profits earned (not book profits) or by pegging it to the average pay of normal executives in the average manufacturing plant.

Progressive Taxation is a way, but it only scares away the ultra-rich. Who are the potential investors to help in gloomy economies.

Problem is, when you cut the pay of the bankers, you indirectly cut the pay of the ministers who peg THEIR salaries to the top bankers! Secondly, you cannot dictate what the free market wants to pay its people unless you can force them to acknowledge that they don't really earn as much as they always claim (on paper).

That's why we often see banks stuttering/faltering and then other 'investors' come in and buy over. In essence the monies get siphoned out and the banks become a shell and the top bankers move on to the next bloated bank.; February 23, 2010 1:36 PM