Neither capitalism nor communism seems to have got it right, economically speaking. It's time for a new tack
Teh Hooi Ling, Business Times 11 Aug 09;
ADAM Smith (1723-1790) saw the market economy as a near-ideal system. Karl Marx (1818-1883), on the other hand, saw capitalism as a way for the rich to oppress the poor, and hence denounced it as an unpleasant interval on the inevitable path to socialism.
In the last 30 years or so, capitalism has been winning converts, and has been almost universally accepted as the best system available for a country to achieve economic progress. But the recent global financial crisis has exposed the failings of the capitalist system as we know it.
As noted by Tony Tan, deputy chairman and executive director of the Government of Singapore Investment Corporation (GIC), in his speech at the Economic Society of Singapore's annual dinner this week, the major challenge ahead is the uncertainty raised by the apparent failure of Western or American models, and the 'serious unanswered questions on the role of markets and the state, including the appropriate level of regulation and state intervention'.
Many of the world's leading thinkers are now cracking their heads trying to come up with improvements for the current systems. Some answers may well be found in the book The Real Wealth of Nations - Creating a Caring Economics by Riane Eisler. She points out the fundamental flaws in our current system, which range from how the economy is being measured, the way we accord value to different types of activities, and the policies put in place by governments the world over to pursue so-called economic growth. She proposes a way forward - through 'caring economics'.
The flaws
First, let's start with what's wrong with current economic rules and practices. For one, they do not adequately value the most essential human work: the work of caring for ourselves, others and Mother Earth.
The work of housewives is not captured in the measurement of economic prosperity, be it national gross product or national income. But the fact is, housewives perform one of the most important economic functions. Household is the production unit of the most valuable economic resource today: human capital.
And because of how economic prosperity is measured and compared, economic policies are geared towards improving these numbers. As a result, it is more rewarding money-wise to pursue careers in the outside world. The caring and nurturing of the young, sadly in many newly developed countries, is being delegated to foreign domestic helpers.
Here's another insanity, noted Ms Eisler: Economic indicators like GDP and GNP (gross national product) put many of the costs of uncaring business practices on the plus side, rather than on the minus side, of productivity calculations. For example, rather than listing the clean-up costs from negligent oil spills as an economic liability, GNP and GDP include them as part of national productivity. So the billion-dollar cost of the 1989 Exxon-Valdez spill was included in the US GNP. But the reality is, the oil spill killed millions of wild creatures and ruined the livelihood of local people for years and damaged their health. The effects are still being felt today.
Exxon, instead of coming forward to pay for the damage, spent millions of dollars on lawyers - expenses that were included in US GNP. Also included were court costs, cost of the expert witnesses and the 14 million documents they filed.
The enormous economic cost of wars is another example of how the real costs of uncaring economic policies and practices are hidden by current measurements. Again, these costs are put on the plus side. For example, the billions of tax dollars the US government paid to contractors, soldiers and others involved in the Iraq War have been included in GNP, along with the medical costs of all the soldiers maimed in the war and the funeral costs of the thousands killed in it. On top of that, the reconstruction costs of Iraq after the invasion - including fees to large US corporations - are also on the plus side of US GNP.
World War II was credited as the event which pulled the US out of the Great Depression. A few months back, when the recent financial crisis was in its darkest hours, some economists ventured that perhaps only a war could pull the world out of the impending depression!
A large part of how the economic indicators were developed stems from our deep- rooted cultural beliefs and value systems on what is valuable and what is not. These beliefs, Ms Eisler says, can be traced back to earlier times when anything associated with the female half of humanity - such as caring and caregiving - was devalued.
This 'systemic devaluation of the activities that contribute the most to human welfare and development' lies behind some of the economic insanities mentioned above. The bulk of the caring work is not included in GNP and GDP calculations. Caregiving is given little economic policy support. And in the market economy, work that entails caregiving is paid sub-standard wages.
Nurses, kindergarten teachers, child and elderly care service providers don't make big bucks. In the US, plumbers are paid US$50-60 an hour. But childcare workers, people whom we entrust our children to, are paid an average US$10 an hour, according to the US Department of Labor.
In addition, the current US-style capitalist system - to a large extent - is based on domination, as opposed to partnership. In the domination system, one is either the dominator or the dominated. Managements of large corporations are dominators. They control those below them. Economic policies and practices in this system (influenced by powerful lobbies and political campaign contributions) are designed to benefit those on top, at the expense of those at the bottom. Among the assumptions of a domination system are:
# the main motivation for work are fear of pain and scarcity;
# caring and caregiving are impediments to productivity, or at best irrelevant to economics;
# selfishness will lead to the greater good.
The remedy
A much more sensible and realistic economic system, argues Ms Eisler, is one which accords greater value to things and activities that support and advance human survival and human development.
Hence, a caring orientation - concern for the welfare and development of ourselves, others and our natural environment - should be highly valued. Such caring orientation should be fostered in homes, businesses, communities and governments. While not all caring and care- giving activities can be paid for in money, there is a large body of evidence to show that caring policies, be they in a corporation or in a country, do yield significant returns on investment.
For example, Chase Manhattan's investment in back-up childcare services for employees yielded a 115 per cent return on investment (ROI), saving the company 6,900 workdays in just one year. First Tennessee National Corporation found that by transforming its corporate culture into a truly caring one - really putting the interests of employees first - it became the most profitable in its class, by a factor of two. It is consistently the most profitable bank. The bank retains 97 per cent of customers, who are better served by long-term employees who feel valued.
The return on public investment in good childcare is also substantial. A study in 1998 showed that the cost for all Canadian children to participate in high-quality childcare and pre-school programmes would be about C$5.3 billion (S$7.1 billion) per year. But the economic value of additional benefits to children and parents would be C$10.6 billion - a 200 per cent ROI. The authors of the study urged the Canadian government to make high quality childcare and pre-school education a top priority. The collective benefits to society and the workforce of the future would be immense, they said. Elsewhere, the Nordic nations, which orient more closely to the partnership system premised on mutually respectful and caring relations, enjoy a higher quality of life.
Ms Eisler suggests six foundations required for a caring economic system. Among them are a full-spectrum economic map including the household economy, unpaid community economy, market economy, illegal economy, government economy, and natural economy. Two, beliefs and institutions should orient to the partnership system rather than the domination system. There should be more equitable and participatory structures supporting relations rather than the concentration of economic assets and power at the top. Three, government and business rules, policies and practices should encourage and reward caring and caregiving. The rules, policies and practices should meet human needs for materials and for development. Effects of policies and technological breakthroughs on future generations should be considered.
Conclusion
The fact is neither capitalist nor communist systems have been able to solve chronic problems such as environmental degradation, poverty, the violence of war and terrorism that divert and destroy economic resources and blight so many lives. In fact, many of these problems have been the result of both capitalist and communist economic policies, argues Ms Eisler.
As Einstein remarked, we cannot solve problems with the same thinking that created them. Hence a whole new way of looking at economic systems should be considered. There is no better time to start the ball rolling on the movement towards caring economics than now. Perhaps one country which is in a good place to attempt that move is China, given that it is still an economy in transition. Someone noted:
1949 - Only socialism can save China
1979 - Only capitalism can save China
1989 - Only China can save socialism
2009 - Only China can save capitalism.
But is capitalism as we know it worth saving? Perhaps China can evolve its own brand of economics - one that is caring.
# The writer is a CFA charterholder
