tag:theconversation.com,2011:/uk/topics/market-economy-1699/articlesMarket economy – The Conversation2022-03-10T18:54:54Ztag:theconversation.com,2011:article/1787772022-03-10T18:54:54Z2022-03-10T18:54:54ZVital Signs: what the neoliberalism-hating left should love about markets<figure><img src="https://images.theconversation.com/files/451148/original/file-20220309-743-z4t5r1.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4281%2C2163&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>It is fashionable these days to dunk on markets. Show me something bad in the world and I’ll show you someone blaming it on “neoliberalism”.</p>
<p>Our collective failure to tackle climate change – that’s the fault of “neoliberalism”. Poverty, low wages, income inequality, housing affordability, imperfect health care and education systems – the <a href="https://amp.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot">culprit is</a> “neoliberalism”. </p>
<p>Not so long ago – in the 1980s, 1990s and early 2000s, the eras of Hawke and Keating in Australia, Clinton in the US and Blair in Britain – markets were seen by those on the centre-left as the best way to create broad prosperity and what is sometimes called “inclusive growth”.</p>
<p>Then a funny thing happened on the way to the 2010s. </p>
<p>A semi-apocalyptic global financial crisis in 2008 turned “market” into a dirty word. A bunch of greedy but clever Wall Street types transformed mortgage-backed securities – a way to bundle up mortgages into bonds leading to lower borrowing costs and greater home ownership – into what famous investor Warren Buffett <a href="https://www.berkshirehathaway.com/2002ar/2002ar.pdf">once called</a> “weapons of financial mass destruction”.</p>
<p>In the wash-up of the financial crisis the good and bad aspects of markets were fused into one derogatory word: neoliberalism. </p>
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<img alt="An Occupy Wall Street protest in New York, outside the home of the chief executive of JP Morgan Chase, on October 11 2011." src="https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=298&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=298&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=298&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=374&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=374&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=374&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">An Occupy Wall Street protest in New York, outside the home of the chief executive of JP Morgan Chase, on October 11 2011.</span>
<span class="attribution"><span class="source">Andrew Burton/AP</span></span>
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<p>Belief in the power of markets to lift people out of poverty, empower households, and provide the resources to create a meaningful social safety net has become <a href="https://go.gale.com/ps/i.do?id=GALE%7CA287386101&sid=googleScholar&v=2.1&it=r&linkaccess=abs&issn=13626620&p=AONE&sw=w&userGroupName=loyoland_main">conflated</a> with the free-market fanaticism associated with Ronald Reagan and Margaret Thatcher. </p>
<p>This is a big mistake. Those on the left of politics should embrace markets. Not the fanatical laissez-faire views that oppose government and market regulation. But a view of liberalism – in the classical sense, emphasising individual liberty – that harnesses the power of markets for social and economic good.</p>
<h2>Towards democratic liberalism</h2>
<p>Two of my former colleagues at the University of Chicago, Raghuram Rajan and Luigi Zingales, capture a version of this in their brilliant 2003 book <a href="https://press.princeton.edu/books/paperback/9780691121284/saving-capitalism-from-the-capitalists">Saving Capitalism from the Capitalists</a>. So too does Joe Stiglitz with <a href="https://www.amazon.com/People-Power-Profits-Progressive-Capitalism/dp/039335833X/ref=asc_df_039335833X/?tag=hyprod-20&linkCode=df0&hvadid=459680637280&hvpos=&hvnetw=g&hvrand=6870205712395064671&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9057160&hvtargid=pla-901281214742&psc=1">his vision</a> of “progressive capitalism”.</p>
<p>My take is articulated in my new book with Rosalind Dixon, <a href="https://global.oup.com/academic/product/from-free-to-fair-markets-9780197625989?lang=en&cc=us">From Free to Fair Markets: Liberalism after COVID-19</a>, to be published by Oxford University Press next month, where we argue for “democratic liberalism”.</p>
<p>For us, democratic liberalism takes more seriously commitments to individual dignity and equality, as well as freedom, within the liberal tradition; placing the democratic citizen at the centre of a liberal approach. </p>
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<a href="https://theconversation.com/vital-signs-the-marketplace-for-ideas-can-fail-140429">Vital Signs: the 'marketplace for ideas' can fail</a>
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<p>It draws heavily on the “capabilities approach” to human welfare of Amartya Sen and Martha Nussbaum, which acknowledges it’s not enough just to have a “level playing field”. It insists on universal access to dignity, a “generous social minimum” for all. And it insists unregulated markets do not serve those ends.</p>
<h2>‘Capitalism is irredeemable’</h2>
<p>In particular, so-called “neoclassical” economists have long maintained that monopoly power (in business or politics) and externalities, such as carbon pollution, distort and damage markets. </p>
<p>We need to do more to make markets work better – not abandon markets altogether. </p>
<p>As Buffett <a href="https://markets.businessinsider.com/news/stocks/warren-buffett-agree-bernie-sanders-capitalism-regulation-socialism-election-vote-2020-2-1028932198">said</a>:</p>
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<p>We ought to do better by the people that get left behind by our capitalist system. I don’t think we should kill the capitalist system in the process.</p>
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<p>Contrast this with the US left’s icon <em>du jour</em>, New York congresswoman Alexandria Ocasio-Cortez, who in 2019 said <a href="https://www.businessinsider.com.au/alexandria-ocasio-cortez-says-capitalism-is-irredeemable-sxsw-socialist-2019-2019-3?r=US&IR=T">capitalism was irredeemable</a>. </p>
<p>Asked what she meant by this <a href="https://www.realclearpolitics.com/video/2022/02/06/alexandria_ocasio-cortez_capitalism_is_not_a_redeemable_system_for_us.html">last month</a>, she described capitalism as:</p>
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<p>the ability for a very small group of actual capitalists – and that is people who have so much money that their money makes money and they don’t have to work – to control industry. They can control our energy sources. They can control our labour. They can control massive markets that they dictate and can capture governments. And they can essentially have power over the many.</p>
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<p>To be fair, that doesn’t sound so great to me either. </p>
<p>And I get that Ocasio-Cortez is not a fusty scholar but a (very successful) politician and activist. Nuance doesn’t play well in those worlds. But nuance is required when thinking about how society should be arranged.</p>
<h2>We’ve been here before</h2>
<p>This isn’t society’s first rodeo on these matters. </p>
<p>One of the more consequential debates about liberalism versus socialism – which became known as the <a href="https://www.jstor.org/stable/23722610?seq=1#metadata_info_tab_contents">socialist calculation debate</a> – began in the 1920s between neoclassical economists Ludwig von Mises and Friedrich Hayek and socialist economists Fred Taylor, Oskar Lange and Abraham “Abba” Lerner.</p>
<p>At issue was whether Soviet-style socialism and its central planning could replicate the virtues of free markets without the downsides of inequality.</p>
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<a href="https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Alexandria Ocasio-Cortez on-message at New York City's high-society event the Met Gala in September 2021." src="https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Alexandria Ocasio-Cortez on-message at New York City’s high-society event the Met Gala in September 2021.</span>
<span class="attribution"><span class="source">NDZ/STAR MAX/IPx/AP</span></span>
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<p>The clinching argument in this debate came from Hayek, who pointed out the market’s price mechanism is invaluable for <a href="https://www.jstor.org/stable/1809376?seq=1#metadata_info_tab_contents">aggregating and communicating information</a>. </p>
<p>No central planner can ever replicate the price mechanism’s ability to give producers and consumers information they need to make the best decisions.</p>
<h2>Lower prices, higher incomes</h2>
<p>The character <a href="https://westwing.fandom.com/wiki/Toby_Ziegler">Toby Ziegler</a> in The West Wing succinctly expressed the virtues of free trade and free markets more generally when he said (courtesy of Aaron Sorkin and his fellow writers) “it lowers prices, it raises incomes”.</p>
<p>In 1990 more than a third of the world’s 5.3 billion people lived in abject poverty, on less than US$1.90 a day. </p>
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<p>Now about <a href="https://www.worldvision.org/sponsorship-news-stories/global-poverty-facts">9%</a> of the globe’s 7.9 billion people live in such poverty. That’s about 1.2 billion fewer people, an extraordinary testament to the power of markets. </p>
<p>Since 2008 – and during the coronavirus pandemic – the limitations of free markets have come into sharp relief. More – much more – needs to be done to make markets fairer. That means a commitment to the dignity and freedom of all. </p>
<p>But it also means a commitment to the hard work of building a more prosperous society, not just shrieking from the sidelines, complaining about the things that are wrong, and misidentifying the solution.</p>
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<p><em>Section editor’s note: I am sad to report that after six years and hundreds of contributions, this is Richard Holden’s final column for The Conversation. He is leaving us to write weekly and exclusively for <a href="https://www.afr.com/">The Australian Financial Review</a>. We are extraordinary grateful for all he has done. We will miss him. And we will keep reading him. – Peter Martin</em></p><img src="https://counter.theconversation.com/content/178777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President of the Academy of the Social Sciences in Australia.</span></em></p>It’s time for a new brand of democratic liberalism that understands and harnesses the power of markets for social and economic good.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1114442019-02-28T13:57:19Z2019-02-28T13:57:19ZHow Britain’s economy has wronged young people for decades<figure><img src="https://images.theconversation.com/files/261437/original/file-20190228-106362-1ge2057.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Sergei Bachlakov / Shutterstock.com</span></span></figcaption></figure><p>Conditions for young people in the UK are bleak. Young people are more likely to be unemployed than all-age workers, <a href="https://www.researchgate.net/publication/320660732_Reproducing_low-wage_labour_capital_accumulation_labour_markets_and_young_workers_Reproducing_low_wage_labour">and are more likely to be in low-paid jobs when employed</a>. National minimum wage laws allow lawful discrimination against young people as they mean a young worker can be <a href="https://www.gov.uk/national-minimum-wage-rates">paid less</a> than those over the age of 24 for doing the same job.</p>
<p>Young people have <a href="https://theconversation.com/britains-great-pension-robbery-why-the-defined-benefits-gold-standard-is-a-luxury-of-the-past-100844">worse pension opportunities</a> than previous generations and suffer from a housing market characterised by high rents and purchase costs. They are also paying record levels of tuition fees for university, as well as spending more on accessing training and skills <a href="https://global.oup.com/academic/product/skills-in-the-age-of-over-qualification-9780199672356?cc=us&lang=en&#">in a system of provision</a> that is increasingly driven by profit. </p>
<p>Media portrayals of young people compound the problem and are rife with discriminatory language. Young people are labelled lazy, idle “<a href="https://www.theguardian.com/science/2016/nov/28/snowflake-insult-disdain-young-people">snowflakes</a>” and are blamed for their own problems. These circumstances lead to <a href="http://speri.dept.shef.ac.uk/wp-content/uploads/2018/11/Baby-Boomers-versus-Milennials-Kate-Alexander-Shaw.pdf">intergenerational resentment between so-called “millennials” and “baby boomers”</a>. </p>
<p>This approach is limited for two reasons. First, it ignores social class inequalities, <a href="https://theconversation.com/generation-rent-is-a-myth-housing-prospects-for-millennials-are-determined-by-class-108996">which are much worse</a>. Second, it distracts from the underlying causes of the problems facing young people which are the result of economic and political changes since the 1970s.</p>
<h2>Longer term issues</h2>
<p>The 2007 economic crisis, recession and imposition of austerity <a href="https://www.ohchr.org/documents/issues/poverty/eom_gb_16nov2018.pdf">made things harder</a> for young people – youth unemployment went up, decent jobs became scarcer, and public spending was hugely reduced in a way which <a href="https://www.theguardian.com/commentisfree/2018/mar/14/austerity-poor-disability-george-osborne-tories">hit those already on the margins of labour markets</a>. But what’s less known is that conditions for young people <a href="http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.476.4036&rep=rep1&type=pdf#page=66">had actually been worsening prior to 2007</a>. </p>
<p>The financial crisis intensified things, but I’ve found <a href="https://www.researchgate.net/publication/323619661_The_strategic_economic_governance_of_Greater_Manchester's_local_labour_market_by_the_local_state_Implications_for_young_workers">in my research that</a> issues faced by young people now are more the result of longer term changes in the UK political economy which began in the 1970s and were accelerated in the 1980s. In this period, there were fundamental changes to what the UK economy produced, which led to changes in labour markets and altered government policy.</p>
<p>Manufacturing began to decline as a major part of the UK economy from the 1960s. This decline was exacerbated by the global economic crisis in the early 1970s, leading to the government abandoning Keynesian economic policies which had been committed to full (male) employment. In the 1980s, the government <a href="https://files.warwick.ac.uk/simonclarke/files/pubs/kmcs.pdf">favoured controlling inflation at the expense of jobs</a>, leading to millions becoming unemployed.</p>
<p>This point is key because the manufacturing sector was a source of good jobs (usually for men) in large engineering firms. In these sectors there were specific, <a href="https://www.palgrave.com/gp/book/9780333451700">“sheltered”</a> entry points for young people meaning they could get a job – often with few qualifications – acquire skills and training, and progress into more senior roles. </p>
<p>Government policy in the 1980s heavily reduced the number of jobs in the public sector in areas such as local government and utilities like water, gas, electricity, communications and railways. All of these utilities were privatised and suffered heavy job losses as their new owners cut staff to turn a profit. Young people suffered as training schemes were axed and opportunities for internal progression disappeared. </p>
<p>Government policies since the 1980s have generally worsened things for young people. Labour markets have been deregulated in an attempt to make the UK compete on the basis of low wages rather than high quality work. A crucial change has been the weakening of trade unions, which act as a <a href="http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.476.4036&rep=rep1&type=pdf#page=283">mechanism to increase wages and reduce inequality</a>. </p>
<p>The election of New Labour in 1997 did little to undo the changes of previous decades and in some instances <a href="http://eprints.leedsbeckett.ac.uk/455/3/The%20Political%20Economy%20of%20Competitiveness%20and%20Social%20Mobility.pdf">further locked them in</a>. The result is young workers in 2019 experience labour market conditions that are far worse than in previous decades. </p>
<p>Employment is now primarily in the service sector where there are fewer opportunities than in manufacturing to increase productivity by using technology, and therefore productivity increases are more likely to come from intensifying working conditions. The jobs available are increasingly polarised between a section of extremely well-paid, high-level jobs and a steadily increasing amount of low-paid, low-skilled jobs. Too many young people find themselves in these jobs, <a href="https://www.jrf.org.uk/sites/default/files/jrf/migrated/files/unemployment-pay-poverty-full.pdf">often for long periods after they have ceased to be young</a>.</p>
<h2>Three solutions</h2>
<p>First, don’t dismiss the problems of young people as being the result of their age. Young people do not experience poor conditions because they are young or because they are lazy. Young people work, and they experience poor working conditions because there has been a worsening of work and employment conditions in the UK since the 1970s. Young people therefore need to be thought of as workers first and foremost.</p>
<p>Second, if conditions of work are to improve, then workers need to organise. Young people need to join trade unions, <a href="https://theconversation.com/unions-rally-to-support-young-people-in-precarious-jobs-46657">and trade unions need to actively engage with young members</a>. Unions need to redouble their efforts to organise in small, privately owned firms where young people often work. They also need to challenge the lawful discrimination of young people which occurs via the pay and pensions system.</p>
<p>Finally, the UK urgently needs to change the nature of its economy. To this end, institutional pressure from trade unions needs to be linked to larger efforts to shift the UK economy away from a reliance on esoteric finance and low-paid service sector work. To achieve this, a <a href="http://speri.dept.shef.ac.uk/2017/11/01/the-uk-needs-an-ambitious-industrial-strategy-the-final-report-of-the-industrial-strategy-commission-published-today/">detailed industrial strategy</a> and substantive programme of investment that undoes the violence of austerity would be a solid starting point.</p><img src="https://counter.theconversation.com/content/111444/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Edward Yates does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Young people in the UK experience some of the worst working conditions. To understand why we need to look at longer-term changes in the political economy.Edward Yates, Lecturer in Employment Relations, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/717202017-01-23T07:49:34Z2017-01-23T07:49:34ZIn Cuba, the post-Fidel era began ten years ago<p><em><strong>This article, originally published on January 23 2017, has been updated to reflect ongoing developments in US-Cuba relations.</strong></em></p>
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<p>Last Friday, speaking in Miami’s Little Havana neighbourhood, <a href="https://www.nytimes.com/2017/06/16/us/politics/cuba-trump-engagement-restrictions.html">president Donald Trump</a> announced a change of American policy toward Cuba, which under the administration of Barack Obama had seen significant rapprochement with the US. </p>
<p>“Effective immediately, I am cancelling the last administration’s completely one-sided deal with Cuba,” he said.</p>
<p>Rhetoric aside, the policy Trump outlined doesn’t fundamentally alter many of his predecessor’s steps toward normalisation, including renewed diplomatic relations, unlimited visits for Cuban Americans visiting family back home and the end of the US immigration policy that had favoured Cubans. </p>
<p>And though the speech has the <a href="http://www.bbc.com/news/world-us-canada-40311287">government</a> and <a href="https://www.nytimes.com/2017/06/16/world/americas/trump-cuba.html?rref=collection%2Fsectioncollection%2Famericas&action=click&contentCollection=americas&region=stream&module=stream_unit&version=latest&contentPlacement=1&pgtype=sectionfront">small businesses</a> in Cuba on edge, no single Trump decree is likely stop the changes that have already swept the island over the past decade. </p>
<h2>The post-Fidel area began ten years ago</h2>
<p>Ever since Fidel Castro <a href="https://theconversation.com/questions-i-never-got-to-ask-fidel-castro-69463">died in November 2016</a>, foreign observers – journalists, political tourists, and the like – have been flocking to the streets of Havana. <em>Let’s go and see communist Cuba before it is too late!</em> they reason. </p>
<p>What this reaction misses is that Cuba has already changed: the post-Fidel era is already over a decade old.</p>
<p>My research, published in January 2017 in the <a href="https://revistas.juridicas.unam.mx/index.php/mexican-law-review/article/view/10777/12906">Mexican Law Review</a>, shows major shifts in the governing style and ideology of the country. The charismatic leadership that epitomised Fidel’s time in power is gone, replaced by a collective arrangement. And Cuba’s centrally planned economy has integrated market socialist features. </p>
<p>These changes will likely be accelerated by Barack Obama’s <a href="http://www.nytimes.com/aponline/2017/01/13/world/americas/ap-obama-cuba.html?ref=americas&_r=0">repeal</a> of the US policy that gave Cuban migrants favoured immigration status – both by eliminating an escape route for dissatisfied citizens and by reducing potential future remittances. Trump does not plan to undo this change.</p>
<h2>The end of charismatic leadership</h2>
<p>When Fidel <a href="http://www.foxnews.com/world/2010/08/30/cubas-fidel-castro-gives-new-details-illness-forced-power.html">fell gravely ill</a> in July 2006, he provisionally delegated his dual posts – president of the Council of State and first secretary of the Communist Party of Cuba – to his younger brother Raúl, long-time head of the Revolutionary Armed Forces and second secretary of the Communist Party. As Fidel’s health further deteriorated, the National Assembly made Raúl <a href="http://www.nytimes.com/2008/02/20/world/americas/20castro.html">president</a> in February 2008.</p>
<p>This move kept succession within the family, but Raúl has rejected any Kim dynasty-style future for the country. If ten years ago Cuba looked more like North Korea than China, today the opposite is true. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/153331/original/image-20170118-26585-b7ipyy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/153331/original/image-20170118-26585-b7ipyy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=564&fit=crop&dpr=1 600w, https://images.theconversation.com/files/153331/original/image-20170118-26585-b7ipyy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=564&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/153331/original/image-20170118-26585-b7ipyy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=564&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/153331/original/image-20170118-26585-b7ipyy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=709&fit=crop&dpr=1 754w, https://images.theconversation.com/files/153331/original/image-20170118-26585-b7ipyy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=709&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/153331/original/image-20170118-26585-b7ipyy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=709&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Leadership and ideology in surviving communist systems in 2016. Created by author.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Breaking with Fidel’s decades-old practice, Raúl <a href="http://www.cuba.cu/gobierno/rauldiscursos/2011/ing/r160411i.html">recommended to the delegates</a> of the sixth Party Congress in April 2011 that they limit public officials to a maximum of two five-year terms; this soon became the official Party line.</p>
<p>In the short term, term limits meant that Raúl Castro’s presidency would end in February 2018, <a href="http://www.reuters.com/article/us-cuba-castro-idUSBRE91N0HB20130225">which he has confirmed</a>. In the long term, that raised questions on the post-Castro era. To be sure, in 2013 Miguel Díaz-Canel, a Communist Party insider, was promoted to first vice president of the Council of State – the first time ever that a revolutionary veteran did not hold that position. Technically, <a href="http://www.cubanet.org/htdocs/ref/dis/const_92_e.htm">according to the Cuban constitution</a>, if the president dies, the first vice-president takes over.</p>
<p>The seventh Party Congress, held in April 2016, nonetheless appointed Raúl Castro to be first secretary. While this does keep a revolutionary veteran in control of a key post after 2018, for the first time the head of the Cuba’s Communist Party will not be the same person as Cuba’s president.</p>
<h2>The rise of market socialism</h2>
<p>Market socialism <a href="http://www.oxfordreference.com/view/10.1093/acref/9780195123715.001.0001/acref-9780195123715-e-1030?rskey=kCJE8E&result=2">can be defined as</a> “an attempt to reconcile the advantages of the market as a system of exchange with social ownership of the means of production.” </p>
<p>As if following this definition from the Oxford Dictionary of Social Sciences, <a href="http://cubasocialistrenewal.blogspot.mx/2011/05/translation-guidelines-debate-official.html">the sixth Party Congress approved that</a> from now on “planning will take the market into account, influencing upon it and considering its characteristics.” </p>
<p>This is a clumsy engagement with the market, treating it as an alien from outer space. And it epitomises the current ideological hardships of the Cuban regime.</p>
<p>Still, Raúl Castro has overseen the largest expansion of non-state socioeconomic activity in socialist Cuba’s 50-year history. </p>
<p>Cuba’s National Office of Statistics reports that in 2015 <a href="http://www.one.cu/aec2015/07%20Empleo%20y%20Salarios.pdf">71% of Cuban workers</a> were state employees, down from <a href="http://www.one.cu/aec2010/esp/07_tabla_cuadro.htm">80% in 2007</a>, and the number of (mostly urban) self-employed workers has grown from 141,600 in 2008 to half a million in 2015. In a country with a total workforce of five million, this is not a trivial change.</p>
<p>From 2008 to 2014, more than 1.58 million hectares of idle land <a href="http://www.granma.cu/cuba/2014-01-17/entrega-de-tierras-en-usufructo-al-compas-de-la-actualizacion">has been transferred</a> into private hands. That’s nearly a quarter of Cuba’s <a href="http://www.one.cu/aec2015/09%20Agricultura%20Ganaderia%20Silvicultura%20Pesca.pdf">6.2 million hectares of agricultural land</a>, roughly on par with state-owned land (30%). </p>
<p>In sum, the market is no longer the enemy, it’s a junior partner in Cuban central planning. The last Party Congress, Cuba’s seventh, approved the continuity of controlled liberalisation efforts by turning market socialism into <a href="http://www.pcc.cu/pdf/congresos_asambleas/vii_congreso/conceptualizacion.pdf">Communist Party doctrine</a>, stating that “the State recognises and integrates the market into the functioning of the system of planned direction of the economy.”</p>
<h2>The new Cuban polity</h2>
<p>The rise of market-socialist ideology emerged, to a substantial extent, from the decline of charismatic authority. </p>
<p>Cuba’s next generation of leaders –- expected to take over in 2018 -– will not enjoy the same unquestionable legitimacy as its founding fathers, much less that of Fidel Castro. So the inevitable passing of the revolutionaries still in power today, most of whom are in their 80s, makes the already difficult process of revamping the regime even tougher.</p>
<p>Raúl Castro’s challenge over the past decade has thus been not only to make his presidency stand on solid ground, but also to make sure that such a ground endures after he leaves. The question of economic performance was clearly central to that task. </p>
<p>Raúl saw market socialism as a way to strengthen Cuba’s economy without abandoning its Castro-era ideals. The revolutionary veterans’ interest in seeing the system they built survive is unsurprising, and it explains their rejection of any capitalist encroachments. </p>
<p>But it remains to be seen how long – and if – this ideological limit will survive them. </p>
<p>Let’s return to the earlier chart presenting a comparison of surviving Communist countries at present. It shows Cuba today, after ten years of Raúl, located somewhere in between North Korea (where an orthodox Soviet-style economy is still firmly entrenched) and countries such as China and Vietnam that have seen capitalism restored, and somewhat closer to the latter. </p>
<p>But the difference between “medium” market acceptance and “high” market acceptance is a substantial one. The latter presupposes a comeback of the <a href="https://www.marxists.org/glossary/terms/b/o.htm">bourgeoisie</a> – the social class of owners of the means of production, expropriated by Castro’s revolution – and thus far this key ideological limit remains strong in Cuba.</p>
<p>Since the Soviet Union’s collapse in 1991, many have assumed that the fall of communist Cuba is a matter of <em>when</em> not <em>if</em>. Only by abandoning the focus on “the fall” and understanding how communist rule has survived in Cuba we can grasp how mightily Cuba has already changed.</p><img src="https://counter.theconversation.com/content/71720/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ramón I. Centeno received funding for his doctoral studies –that produced this research– from Mexico's National Council of Science and Technology (Conacyt, for its acronym in Spanish). He also received financial support for two field trips to Cuba from the Department of Politics of the University of Sheffield, and the Society of Latin American Studies (SLAS). He has an editorial role in the Mexican political magazine 30-30.com.mx.</span></em></p>With its uncharismatic president and liberalising economy, Cuba already looks less like North Korea and more like China or Vietnam.Ramón I. Centeno, Postdoctoral fellow, Universidad Nacional Autónoma de México (UNAM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/395942015-04-07T05:25:03Z2015-04-07T05:25:03ZThe return of the hand car wash and the UK’s productivity puzzle<figure><img src="https://images.theconversation.com/files/76578/original/image-20150331-1231-1ttwii6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">You might not ever get rich ... But let me tell you it's better than digging a ditch. </span> <span class="attribution"><span class="source">Nejron Photo via www.shutterstock.com</span></span></figcaption></figure><p>Economists call it the productivity puzzle: why has <a href="https://theconversation.com/the-gaping-productivity-hole-in-osbornes-election-budget-39028">productivity in the UK</a> slumped more in the recent recession than previous ones and why has its recovery been slower? </p>
<p>Productivity matters. It refers to the country’s output or GDP per hour worked and it is productivity that drives a sustained increase in the standard of living. It is almost unheard of for a major capitalist economy to have flat productivity – save in the very short term – but since 2008 the British economy has stagnated on this front, with GDP currently around <a href="http://cep.lse.ac.uk/pubs/download/ea021.pdf">17% lower than the G7 average</a>.</p>
<p>To understand some of the perverse forces making this possible you don’t have to look much further than the nearest hand car wash. Car washing is big business. Datamonitor has estimated that UK car owners spend <a href="http://about.datamonitor.com/media/archives/4568">more than half a billion pounds a year</a> on commercial car washing. Perversely, instead of using the high-tech cleaners at garages we choose to pay others to wash our cars using the most inefficient of methods – a hose, bucket, water, soap and sweat. The hand car wash has grabbed around half of the commercial car wash market in the UK.</p>
<h2>Unproductive entrepreneurship</h2>
<p>Joseph Schumpeter praised capitalism for its <a href="http://www.investopedia.com/terms/c/creativedestruction.asp">creative destruction</a>. Weak companies are destroyed by entrepreneurs who build productivity enhancing new companies and sectors. But most entrepreneurship does not take this form. Entrepreneurship expert, Scott Shane, has stressed how it tends to be concentrated in economic sectors <a href="http://yalepress.yale.edu/book.asp?isbn=9780300113310">that are going nowhere</a>. Much of the <a href="https://theconversation.com/a-look-behind-uks-impressive-unemployment-figures-shows-theyre-not-so-dazzling-33053">rise in self-employment in the UK</a> is of this type. </p>
<p>The late economist William Baumol distinguished between <a href="http://web.econ.unito.it/gma/massimo/sdt/sdt/baumol90.pdf">productive, unproductive and destructive entrepreneurship</a>. Entrepreneurs are an important element of fostering economic growth in society. But, as Baumol theorised, entrepreneurship can take many forms and has a dark side. It can lead to well-paid jobs, but entrepreneurs can also lead a “parasitical existence that is actually damaging to the economy” for example in the form of criminal activity or just businesses that do not add to the economy. This can be seen in the recent growth of the hand car wash sector. </p>
<h2>Technology adopted and discarded</h2>
<p>A hand car wash is labour intensive and forgoes technology that has been developed to replace it. Normally technology is used to increase the efficiency of output and make an economy more productive – economists call this capital deepening and it’s traditionally a marker of good economic growth. </p>
<p>As the economies of wealthier nations evolved, the machine car wash was one of many technical changes that accompanied capital deepening. Major garages and petrol stations are equipped with expensive machines that now stand idle, while people queue for the hand car wash. This, despite the machines being good at what they do. They are unlikely to scratch your car. They wash it cleaner, use less water and the detergents are more safely taken away. Some countries even ban hand car washing because of the waste and pollution involved.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/76627/original/image-20150331-1245-1494i47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/76627/original/image-20150331-1245-1494i47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/76627/original/image-20150331-1245-1494i47.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/76627/original/image-20150331-1245-1494i47.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/76627/original/image-20150331-1245-1494i47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/76627/original/image-20150331-1245-1494i47.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/76627/original/image-20150331-1245-1494i47.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The cleaner, more efficient option.</span>
<span class="attribution"><span class="source">PhotographyByMK via www.shutterstock.com</span></span>
</figcaption>
</figure>
<p>The return to an inefficient, labour-intensive model – as with the hand car wash – is therefore an odd regression. It is only possible in a rich economy like the UK’s because labour is relatively cheap – and those working in hand car washes tend to be paid at the minimum wage or below it. They experience long periods of under-employment as they wait for customers and few have proper contracts or conditions. People working these kinds of jobs, in part, explains the UK’s productivity problem.</p>
<h2>A backwards economy</h2>
<p>The hand car wash also shows something else – the shift towards a grey, <a href="http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSOCIALPROTECTION/EXTLM/0,,contentMDK:20224904%7EmenuPK:584866%7EpagePK:148956%7EpiPK:216618%7EtheSitePK:390615,00.html">informal economy</a> – again something more associated with developing countries. Car washes should be subject to local authority licensing and planning. But councils struggle to bring them into line, as people take the opportunity to set them up on any piece of land, or in disused petrol stations by a main road. </p>
<p>Then there is the small matter of taxes. Many hand car washes are part of the cash-in-hand economy, where there is no record of the VAT, national insurance and tax that is being paid and passed on. And, inevitably in a country concerned with migration, there are suggestions that some of those working in your hand car wash are illegal or even trafficked workers.</p>
<p>Hand car washes are taking the economy backwards. They are part of the low-wage, low-productivity trap. Their proliferation in the UK shouldn’t be seen as merely a quirk of people’s preference for them over the machine wash. And they shed interesting light on Britain’s productivity puzzle.</p><img src="https://counter.theconversation.com/content/39594/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mike Haynes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The rise of hand car washing businesses in the UK helps explain the country’s productivity puzzle.Mike Haynes, Professor of International Political Economy, University of WolverhamptonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/346302014-12-15T06:22:36Z2014-12-15T06:22:36ZPriceless: the inefficient, but merry economics of Christmas<figure><img src="https://images.theconversation.com/files/66737/original/image-20141209-32146-5yo4s6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Welcome to the party: a time for giving.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/f_tasche/11621119103/in/photolist-iGVgQt-7eT8fv-7dZ7iP-7ii4WK-aQ4J8z-4g2e2E-7m4JNS-8u1aR-5LWAdo-8WYYhT-4cwbJS-5Go1xz-ixkooH-4fsVEA-7dZ7nX-izoqcz-hYnPE7-9jsyyp-itMonk-L1cXw-4cscur-b6B4Va-5LW2wB-4y2ADp-ii3ZVn-wiQXJ-iygP2b-6ficVz-5H6vGo-9oiRND-uQqFw-v5jz6-uh8vG-q2CKo1-5y4Y3Q-94ziwQ-4b9QEu-dF6zd8-4dY8Tm-8XtAi4-oPva6o-fM1TCn-qb6HyK-7vyPFN-92C5vR-4cjkzY-itDEpX-its39H-5oxe6v-q4NrY6">Frank Tasche</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Fingers crossed, we are soon to be inundated with Christmas joy disguised as presents from our family and friends. I received my first card more than a week ago and a present – now sitting under the tree – from our eldest, wee Jimmy (now not so wee and living away from home in his own flat). I found this particularly gratifying as I had told Jim, that he didn’t <em>have</em> to buy a present. I had hoped he would <em>want</em> to send a present. The fact that the gift was not required, but offered freely, makes it the more valuable.</p>
<h2>The value of affection</h2>
<p>Casual observation indicates many of us appreciate gifts more than those items we require or buy for ourselves: consider the giving of birthday presents, flowers, and such like. This is despite the fact that, according to strict neo-classical economic theory, such giving is inefficient. Waldfogel makes this clear in <a href="https://www.amherst.edu/media/view/104699/original/christmas.pdf">Deadweight loss of Christmas</a>. </p>
<p>According to Waldfogel, the inefficiency arises because when we give, we might not perfectly match the recipient’s preferences. He estimates that giving “destroys” between 10% and 30% of the value of a gift. However, it strikes me Waldfogel has not figured in how much value is added, even to a simple pair of socks, because of the affection with which it is given.</p>
<p>The extra value imbued in a gift is something with which many economists have difficulty. Adam Smith doesn’t mention it in the <a href="http://www.econlib.org/library/Smith/smWNCover.html"><em>Wealth of Nations</em></a>:</p>
<blockquote>
<p>It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest. </p>
</blockquote>
<p>The appeal to self-interest as a sufficient incentivising factor is often taken to mean that no other motivating factor is required. Commonly self-interest is incentivised with monetary payment. It has been suggested, for example, if we want nurses to show more compassion, <a href="http://www.theguardian.com/society/2013/feb/06/david-cameron-nhs-nurses">pay them more if they hit that target</a>; if we want to boost student grades, <a href="http://www.telegraph.co.uk/education/secondaryeducation/9237293/Teachers-face-payment-by-results.html">pay teachers more if that target is hit</a>.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/66738/original/image-20141209-32149-1ys9uk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/66738/original/image-20141209-32149-1ys9uk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/66738/original/image-20141209-32149-1ys9uk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/66738/original/image-20141209-32149-1ys9uk2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/66738/original/image-20141209-32149-1ys9uk2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/66738/original/image-20141209-32149-1ys9uk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/66738/original/image-20141209-32149-1ys9uk2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/66738/original/image-20141209-32149-1ys9uk2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Maslow’s Hierachy. Updated version.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/trendscout/14959370119/in/photolist-8bRY1J-7zgcGJ-oMUFyt-aCRN5d-6v3Lbf-c42DEo-5hhjLn">Matthias Mueller</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Yet, according to <a href="http://www.bbc.co.uk/news/magazine-23902918">Maslow’s eponymous Hierarchy</a>, human beings are not motivated solely by mercenary self-interest, but have higher goals – for example, self-actualisation. Our Christmas giving might have an ulterior motive attached to it, but the motive is to reflect ideas about anothers’ worth and value, not to make sure we profit on the deal. </p>
<h2>The social and the asocial</h2>
<p>There are several difficulties which arise when we consider self-interest to be people’s sole motivation: </p>
<p>Firstly, we limit the potential of human interaction. If we consider all interactions are market transactions, it follows all friends are fair-weather friends and every gift under the tree an investment of sorts. Such an outlook has been shown to have a <a href="http://www.tandfonline.com/doi/abs/10.1080/08913819408443359">detrimental impact on our mental health</a>.</p>
<p>Secondly, there is the potential error of equating price with value. A baby’s smile is priceless, but far from valueless: similarly, Christmas morning in a warm and gaily decorated front room with one’s family is priceless. To argue I could have bought everything much more cheaply in the boxing-day sale is to miss the point.</p>
<p>Thirdly, and rather more broadly, we limit the scope of the policy debate. Many human interactions take place in a social, not a market, context. If we consider only monetary self-interest as a motivating force it suggests government should limit itself to market-based solutions, rather than considering social solutions to social concerns. </p>
<p>Therefore, we risk undermining our economy. Economists have shown policies which favour the individual pursuit of self-interest <a href="http://www.sciencemag.org/content/320/5883/1605.short">undermine morality</a> and the <a href="http://webwijs.uvt.nl/publications/505572.pdf">development of trust and co-operation</a>. As well as limiting human capacities and engagement, this limits the potential for <a href="http://oep.oxfordjournals.org/content/56/1/118.full">economic growth, which depends, in part, on trust</a>.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/66740/original/image-20141209-32159-1p7ghzm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/66740/original/image-20141209-32159-1p7ghzm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/66740/original/image-20141209-32159-1p7ghzm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/66740/original/image-20141209-32159-1p7ghzm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/66740/original/image-20141209-32159-1p7ghzm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/66740/original/image-20141209-32159-1p7ghzm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/66740/original/image-20141209-32159-1p7ghzm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/66740/original/image-20141209-32159-1p7ghzm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Greed is bad, if lucrative.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/tonyjcase/3268826914/in/photolist-5YRAmJ-7baHmM-6hAVQL-2iRqpP-9RGjAz-6wT5Ft-bd3GHR-hJCQc-jWrbms-9zqnWk-hbwEJu-brVd5X-62bLBS-uQrYv-hZQZJW-94nMc2-aye7dY-5kGUvP-g3hWza-asF3X1-Nu3Rd-cqyAAo-8dDJ7P-GxcgH-4mA9yr-Nhumt-V8HyQ-dW7xJe-kRfUK-2mndMe-LqehY-8p41HU-aJfL5k-2ibRH-ax1GYK-4873s1-2imfqL-n9vADj-9y842h-4zqNhL-4zmxRx-7iVfAV-9J6PWW-9EnApA-kZx3DL-873BnY-7KPPQb-a5Sx1-5Ee6F5-pPCyJh">Great Beyond</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Ultimately, we limit human expectations. Behavioural economists have shown that tolerating, even encouraging, greed is <a href="http://press.princeton.edu/titles/9272.html">likely to lead to an increase in amoral behaviour</a> while reminders of moral codes are <a href="http://www.nytimes.com/2012/06/29/books/the-honest-truth-about-dishonesty-by-dan-ariely.html">likely to discourage cheating</a>. There is also evidence that <a href="http://www.nature.com/scientificamericanmind/journal/v25/n2/full/scientificamericanmind0314-24.html">greed and bad behaviour are contagious</a>, while it is <a href="http://www.scientificamerican.com/article/generosity-is-its-own-reward/">generous people who are more likely to be happy</a>.</p>
<p>No one, of course, would deny the existence of financial self-interest, particularly in the field of business – though it is by no means clear we should encourage it even there. However, if we promote a solely mercenary focus in human interactions we risk crowding out higher and more satisfying motivations. </p>
<h2>There is an alternative</h2>
<p>If we limit our consideration of human interactions to those described by self-interest in a market context, then we run the risk of <a href="http://www.theglobeandmail.com/life/life-of-solitude-a-loneliness-crisis-is-looming/article15573187/?page=all">alienating ourselves from each other</a> and from our own individual, social and economic potential. Yet Adam Smith never supposed that, just because he had to pay for his dinner, that was the sum total of his feasible human interactions. As he wrote in <a href="http://www.econlib.org/library/Smith/smMS.html"><em>The Theory of Moral Sentiments</em></a>:</p>
<blockquote>
<p>To feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety.</p>
</blockquote>
<p>Many of the best things in life are not necessarily “free”, but neither can they be bought and sold: they arise from our relationships. In short, a very Merry Christmas one and all – and thanks for the present wee Jimmy. See you soon!</p><img src="https://counter.theconversation.com/content/34630/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Albertson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Fingers crossed, we are soon to be inundated with Christmas joy disguised as presents from our family and friends. I received my first card more than a week ago and a present – now sitting under the tree…Kevin Albertson, Reader in Economics, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/176112013-08-29T05:37:21Z2013-08-29T05:37:21ZHistory suggests intervention in Syria will be bad for business<figure><img src="https://images.theconversation.com/files/30140/original/mcczyqv2-1377707124.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A missile submarine conducts tests</span> <span class="attribution"><span class="source">Official US Navy Imagery</span></span></figcaption></figure><p>Since last week’s gas attack on a Damascus suburb, the political class has been gripped by the idea that “something must be done.” Meanwhile Wall Street, <a href="http://www.reuters.com/article/2013/08/27/us-markets-stocks-idUSBRE9770GZ20130827">already declining through early August, fell further</a> as this week began. At the same time <a href="http://www.ft.com/cms/s/0/9f2570d2-0fc7-11e3-99e0-00144feabdc0.html#axzz2dFSN6Tif">oil prices</a> have ticked up sharply, not because Syria is a significant oil producer, but in response to fears for Middle Eastern supplies generally.</p>
<p>A military attack on Syria would clearly affect stock values. War diverts trade: some businesses lose while others gain. Is war good for business in the aggregate? Not likely. When an economy is depressed, and the fighting is at a comfortable distance, additional military spending might give a short-run stimulus to business for everyone. In the long run, however, war is a wealth-destroying activity. Because stock values reflect long-run profit expectations, the chances of a positive aggregate effect from hostilities are vanishingly improbable.</p>
<p>It is a somewhat different question whether the launching of an attack will move stock values on the day. <a href="http://www.bloomberg.com/news/2013-08-27/tomahawk-cruise-missiles-likely-in-u-s-strikes-on-syria.html">Cruise missiles</a> rarely come from a blue sky. Those for whom war has clear implications will usually have looked into the future and hedged their bets. </p>
<p>On the day the fighting starts, it is true, war changes from a probability to a certainty. But if the probability was already seen as close to 100%, the impact on asset values will inevitably be small. Only a true surprise would move them by much.</p>
<p>Economic historians first became interested in this topic in connection with World War I, the outbreak of which was a surprise to many. Niall Ferguson (in the Economic History Review 59:1 (2006)) and others (Lawrence, Dean, and Robert in the Economic History Review 45:3 (1992) have documented that as the war began European bond prices fell and unemployment rose in London, Paris, and Berlin. The panic on Wall Street was so great that <a href="http://vernonhills.suntimes.com/news/nyse-HIN-07312013:article">the New York Stock Exchange was closed</a> for the rest of the year.</p>
<p>To update the record across the last 100 years, the chart below shows closing values of the <a href="http://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average</a> in New York for the ten working days before and after eight war onsets (the value on the day itself is omitted).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/30556/original/7p9t6nxz-1378127853.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/30556/original/7p9t6nxz-1378127853.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/30556/original/7p9t6nxz-1378127853.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=331&fit=crop&dpr=1 600w, https://images.theconversation.com/files/30556/original/7p9t6nxz-1378127853.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=331&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/30556/original/7p9t6nxz-1378127853.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=331&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/30556/original/7p9t6nxz-1378127853.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=416&fit=crop&dpr=1 754w, https://images.theconversation.com/files/30556/original/7p9t6nxz-1378127853.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=416&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/30556/original/7p9t6nxz-1378127853.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=416&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Daily closing values of the Dow Jones Industrial Average.</span>
<span class="attribution"><span class="source">Mark Harrison, ‘Capitalism at War,’ forthcoming in The Cambridge History of Capitalism</span></span>
</figcaption>
</figure>
<p>The days shown are:</p>
<ul>
<li>September 11, 2001: Al-Qaeda attacks American cities</li>
<li>August 2, 1990: Iraq invades Kuwait </li>
<li>August 7, 1964: Gulf of Tonkin Resolution</li>
<li>June 25, 1950: North Korea invades South Korea </li>
<li>December 7, 1941: Japan attacks Pearl Harbor </li>
<li>September 1, 1939: Germany invades Poland</li>
<li>March 1, 1917: The Zimmermann telegram published </li>
<li>July 28, 1914: Russia mobilises against Germany </li>
</ul>
<p>Only two of these events saw stock prices climb, and then only slightly. In five cases they fell, and in two the stock market was closed (for more than four months after the outbreak of World War I in Europe, and for four days after 9/11). </p>
<p>Notably, although stock prices rose a little after Hitler’s attack on Poland in 1939, they fell thereafter. When Pearl Harbor arrived, they remained below the level recorded two years earlier. The median change in stock prices over the eight crises was a 5.2% decline.</p>
<p>Contrary to commonly held opinion, war has also been bad news generally for the very rich. <a href="http://www.nber.org/papers/w15408.pdf?new_window=1">Tony Atkinson, Thomas Piketty, and Emmanuel Saez have collected</a> historical data on top incomes in many countries across the twentieth century. These show sharp wartime declines in the personal income shares of the very rich in every belligerent country for which wartime data are available.</p>
<p>This does not rule out the idea that a few corporations gain business, and a few people become richer as a result of conflict. It just tells us that the average effect goes the other way. Besides, war is always first and foremost a political act. If Western bombs fall on Damascus in the next few days, it will be because someone decided it made good politics, not good business.</p><img src="https://counter.theconversation.com/content/17611/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Harrison does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Since last week’s gas attack on a Damascus suburb, the political class has been gripped by the idea that “something must be done.” Meanwhile Wall Street, already declining through early August, fell further…Mark Harrison, Professor of Economics, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/39302011-10-20T04:56:39Z2011-10-20T04:56:39ZDoing business with China is a necessity, not a choice<figure><img src="https://images.theconversation.com/files/4654/original/chinaeconomy2.jpg?ixlib=rb-1.1.0&rect=176%2C74%2C3844%2C2597&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">By 2050, China's economy is projected to be as large as the US and India combined.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Opposition leader Tony Abbott has sparked some controversy with his suggestion that <a href="http://www.smh.com.au/national/abbott-cold-on-china-deal-warms-to-japan-20111019-1m86z.html">Australia’s trade emphasis should be on Japan, rather than China</a>.</p>
<p>Abbott’s suggestion that it would be easier to negotiate a free trade agreement with Japan as
“a fellow market economy and a fellow liberal democracy” was <a href="http://www.theaustralian.com.au/national-affairs/labor-says-tony-abbott-as-pm-would-trash-australias-relations-with-china/story-fn59niix-1226171597703">blasted by Trade Minister Craig Emerson</a>, who said Abbott would “trash” trade relations between the two countries. </p>
<p>Given that China is Australia’s largest trading partner for both its imports and exports, it is critical for Australia to come to grips with China’s unique mix of a planned and market economy.</p>
<h2>Destination Asia</h2>
<p>Somewhere between 50-56% of Australian businesses do business in Asia, depending on which survey you accept.</p>
<p>According to the <a href="http://www.dfat.gov.au/publications/stats-pubs/cot-cy-2010.pdf">Department of Foreign Affairs and Trade (DFAT)</a>, Australia’s top five export destinations for 2010-2011 are - in order - China, Japan, the Republic of Korea, India and Taiwan.
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/4655/original/chinaeconomy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4655/original/chinaeconomy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=409&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4655/original/chinaeconomy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=409&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4655/original/chinaeconomy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=409&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4655/original/chinaeconomy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=514&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4655/original/chinaeconomy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=514&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4655/original/chinaeconomy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=514&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure></p>
<p>Our top five import destinations (again in order) are China, United States, Japan, Singapore and Germany. </p>
<p>In recent times an interesting change in these activities has been the increasing amount of investment flowing from China into Australia. </p>
<h2>Investment shift</h2>
<p>In 2007 Australian investment into China was on par with Chinese investment in Australia.</p>
<p>But each year since then this has changed so that now, for every dollar Australia seeks to invest in China, China seeks to invest $21 back.</p>
<p>The question of doing business with the Chinese is still highly relevant - the only shift has been the location. </p>
<p>Unfortunately, doing business with China has not been easy for Western organisation. Fundamentally the reason we fail is because we refuse to accept China is different and will remain so. </p>
<p>Now, with China projected to overtake the US as the world’s largest economy by 2027, the assumption of economic dominance is shifting to the East for the first time in 100 years. </p>
<p>By 2050 China’s economy will not only be the largest, but will be the size of America and India put together. </p>
<p>Its population is roughly equal to that of the US and India added together - substantially greater than the <a href="http://quickfacts.census.gov/qfd/states/00000.html">US population</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/4657/original/jiabao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/4657/original/jiabao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4657/original/jiabao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4657/original/jiabao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4657/original/jiabao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4657/original/jiabao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4657/original/jiabao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Premier Wen Jiabao addresses the World Economic Forum in September.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>This situation makes China a superpower, both economically and politically. It is the latter that concerns many nations. </p>
<p>Yet doing business with China is not a question of choice but one of necessity. I have been preaching to companies for the last five years “You should have had a China strategy yesterday”. </p>
<h2>Cultural change</h2>
<p>To further understand China and its differences, I want to emphasise culture. Unique in the world, China’s model of a centrally planned economy and market economy with socialist characteristics is not easy to understand. </p>
<p>The Western cry for “transparency” reflects the frustration of failing to understand this system.</p>
<p>Equally China’s attempt to make its systems “transparent” does not really help. Dressing up a model that is completely different as something familiar merely papers over the differences. </p>
<p>The centrally planned economy has five year plans and 15 year plans. In these plans the government allocates resources to certain industries and sectors.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/4656/original/chinaeconomy3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4656/original/chinaeconomy3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4656/original/chinaeconomy3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4656/original/chinaeconomy3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4656/original/chinaeconomy3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4656/original/chinaeconomy3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4656/original/chinaeconomy3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">China is Australia’s top import and export partner.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>This type of central planning is foreign to a democratic country such as Australia. </p>
<p>Yet it is naive to think that a centrally planned system does not impact on business operations in Australia, as increasing merger and acquisition activities by Chinese companies in Australia demonstrates.</p>
<h2>Understanding the culture</h2>
<p>The Chinese business culture is a relationship-based networking credit system. The credibility of a contact is of greater importance than an established global brand name. (Although the two together would work better.) </p>
<p>The barriers to closer ties with China are largely due to the lack of understanding of cultural differences. </p>
<p>For instance: when the immigration policy changed and Chinese students were required to take up a different type of visa to Indian students, the perception was that Australia was treating Chinese students less favourably than the Indian students. As a result the student numbers dropped in 2009 and 2010. </p>
<p>Similarly, the latest changes in investment policies were seen as being directed at Chinese investment in particular. </p>
<p>There are many areas of cultural difference we are not mastering, although we have been trying to do business with China since the beginning of the “open door” policy in 1979.</p>
<h2>How to succeed in China</h2>
<p>In my latest book <a href="http://www.bookdepository.co.uk/Doing-Business-Successfully-China-Mona-Chung/9780857091550">“Doing Business Successfully in China”</a> I included a chapter titled “Eat, drink and may your business prosper”.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/4660/original/chinaeats.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4660/original/chinaeats.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4660/original/chinaeats.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4660/original/chinaeats.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4660/original/chinaeats.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=487&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4660/original/chinaeats.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=487&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4660/original/chinaeats.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=487&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Eat, drink and prosper is a Chines business mantra.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>This chapter specifically discusses the role eating and drinking plays in business in China. This topic has not been previously covered. </p>
<p>Every business person who has been to China or will go to China has faced, or will face, this issue. </p>
<p>However the challenge is how to manage business dining and use it as an effective tool, instead of it being seen by some Western business people as a form of “bribery”. This is unique to the Chinese culture.</p>
<p>Eating and drinking is far more complex in business in China. Mastering the concept, as well as proper behaviour, will have a direct impact on business deals. </p>
<p>The above is only a glimpse of the many differences which impact on business transactions with China. </p>
<p>Australia has moved a very long way from the 1950s when over 50% of its exports went to the UK to today’s position of trading mostly with our Asian neighbours. </p>
<p>Do we see ourselves as a part of Asia? Or do we see ourselves as “superior” Asians? We must first answer these questions before we will be able to position ourselves.</p><img src="https://counter.theconversation.com/content/3930/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mona Chung does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Opposition leader Tony Abbott has sparked some controversy with his suggestion that Australia’s trade emphasis should be on Japan, rather than China. Abbott’s suggestion that it would be easier to negotiate…Mona Chung, Lecturer in International Business, Management, School of Management and Marketing, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.