}

Sunday, August 26, 2007

Broken China and paradigms

Recent events have shown a major weakness of capitalism’s current business paradigm. The scandals about tainted products from China and the panic of gamblers in share markets, especially New York, have demonstrated the need for reform.

To hear some people talk about it, the recent scandals involving Chinese products with dangerous and banned components or tainted with chemicals is all about the Chinese, as if they’re uniquely corrupt. I have a different view: It’s the logical extension of unfettered capitalism and the current business paradigm.

I’ve written before about how the old business paradigm of a fair return on a fair investment has changed drastically into one in which… the only thing that matters is maximising profit and the return to shareholders. Screw everything and everyone that gets in the way of that goal.

I’ve also written as recently as March about share market investors who caused a global financial panic with their greed. The same thing has been happening lately.

The manufacturing scandals caused by rampant greed and the financial panics caused by greedy gamblers are not the fault of capitalism itself, but of the gutless wonders in governments around the world who have allowed themselves to become the enablers of whatever greedy pursuit big business wants.

No government is immune from giving big business a pass, but some are worse than others. We ordinary people rely on our governments to protect us from the excesses of big business and if they don’t we have nothing. The thing is, legitimate businesses—those that don’t buy into the current business paradigm of greed first, second and third—also rely on governments to keep everyone honest.

The current model, the current business paradigm, is doomed to failure. It’s time for change.

First, to deal with greed encouraging dangerous products and manufacturing practices, strong regulation will be required with international cooperation. The cost of taking greedy shortcuts must become too high for greedy businesses to even think about. This ain’t gonna happen.

Second, there needs to be an entirely new model for raising capital that avoids sharemarkets altogether, or, failing that, some way must be found to exclude gamblers. Sharemarkets were intended as a way for companies to raise needed capital by sharing the risk and reward, but they’re now little more than high-stakes poker games. Companies, ordinary small shareholders, workers, consumers and society at large all lose out under the current structure. This reform could happen, but probably won’t.

One final thing that’s needed is for speculative trading in currencies to be banned. These currency gamblers produce nothing, create nothing and do nothing apart from spread misery and destruction in their wake. They are the very epitome of the “evil capitalist” that the far left rails against. Banning gambling on currencies actually might happen.

People’s lives and livelihoods are at stake and we simply cannot allow greedy robber barons to get away with their crimes anymore. Reward the true capitalists—those who create value and opportunity, especially through entrepreneurship—and punish the ones who destroy value and opportunity through their unfettered greed.

Creating reform or a new paradigm will be very difficult to achieve, but the alternative would be far, far worse.

3 comments:

d said...

Speaking of China, I saw this post on Scott Adams'(creator of Dilbert comic strip) blog:

Slap the Monk

lost in france said...

And as a French commentator said, in the area of toys the Chinese can't be avoid as they produce 75% of the world's toys alone.

Arthur Schenck said...

I definitely think that China has a lot to work on, but I also think it's more complicated than just China.