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Opinions of Thursday, 13 August 2015

Columnist: Kwarteng, Francis

What Ghanaians Can Learn From Pope Francis 2

ADDITIONAL QUESTIONS TO PONDER

We have no doubt that the world needs to pay close attention to Pope Francis’s Bolivian speech. And there are good reasons for this. Former California Governor Arnold Schwarzenegger’s proposed amendment (Steinhauer) to cut down on state budget earmarked for prison construction and maintenance and re-channeling resources into higher education, echoes the political and moral subtext of Pope Francis’s Bolivian speech uncompromisingly criticizing capitalism. It is no news that the “prison-industrial complex” is big business in the United States, particularly for those in the private sector.

In other words, profitability of the “prison-industrial complex” is irresistible and may therefore account for why attempts to decouple it from the unfriendly grip of the free market greed of American capitalism are almost impossible undertakings.

As is probably well known, the “prison-industrial complex” disproportionately benefits a dominant racial demography in the American political economy in terms of employment, community enrichment, and profit margins, largely to the detriment of racial minorities.

The idea here is properly channeling resources such that they benefit all members of societies according to the practical aims of strategic prioritization. At this point there is no need belaboring how much racism, ethnocentrism, discrimination, and intolerance cost society in monetary and psychology terms. As we said before the gradual erosion of respect for human dignity and entrenchment of structural inequality, social injustice, mass poverty, capitalist exploitation, disenfranchisement, and Pope Francis’s “mentality of profit” partly inform why radically reforming or overthrowing the unjust global economic order is such a noble idea. Structural inequality no doubt breeds criminality and humanophobia and undermines a sense of community and patriotism among others. Also increased crime rates across the world, protracted conflicts (political, racial, religious, ethnic, economic), intolerance, environmental destruction, and so on threaten global peace and stability.

Racism, ethnocentrism (“tribalism”), and intra-racial/ethnic “self-inflicted” crimes and hatred add to the complex mix of major forces threatening race and human relations. For instance, in America whites reportedly commit the vast majority of crimes (including violent ones) (Williams; Cooper & Smith (Bureau of Justice Statistics); Federal Bureau of Investigation (FBI)/Department of Justice (DOJ); U.S. Census Bureau (see “Arrests by Race” (2009): Table 325” and “Arrests by Sex and Age (2009): Table 324.” Note: These data are based on Uniform Crime Reporting (UCR)). Yet it is African-Americans who are disproportionately sent to prison, though all the major statistics, at least those provided here in our afore-cited references, weigh heavily against White America (Note: We acknowledge how the justice system unfairly treats the poor and disenfranchised in Ghana and across the world).

Indeed, these statistics are deeply troubling if not shameful. Certainly, one cannot deny that economics and historical factors inform the social-political actualization of these diabolical statistics. And certainly, we could also add that political theory cannot deny the statistical reality that crime and criminality frame in a political economy, as well as community and international violence. It is in this context that President Obama’s recent speech calling for the overhaul of the criminal justice system makes sense. Among other indictments of the current US criminal justice system, he declared that the system “remains particularly skewed by race and by wealth” (Liptak). This speaks to the harrowing reality of America’s crime statistics and to the racialization of crime especially for partisan and for the benefit of ideological advantage.

Equally important is Ex-President Clinton’s concession that the so-called “three strikes,” part of an omnibus crime bill he signed into law in 1994, is partially responsible for America’s mass incarceration underscores the political and moral importance of President Obama’s call for overhauling the criminal justice system. It is however deeply regrettable as the private sector capitalizes on people’s misery and weaknesses in the criminal justice system to make profit. One can juxtapose the prison statistics of the Washington Consensus with those of the Beijing Consensus and the Nordic Model (Walmsley). President Obama could therefore not have been more right in his political calculations as far as his indictment of the criminal justice system goes. Having said all that, it is worrying that America represents approximately 5% of the world’s population, with that number accounting for nearly 25% of the world’s prison population (Walmsley). Thus America’s designation as the prison capital of the world.

On the other hand while the Ghanaian system may not necessarily consign people to prisons on the basis of ethnicity, poverty, namely class bias, seems to play an important role in juridical deliberations and verdicts. Occasionally intertwined with some of these juridical verdicts is the outspokenness of political undertones. Recent public declarations by Ghana’s criminal justice system and government to reform remand prisions and the prison system in general is welcome news.

ADAM SMITH ON STATE INTERVENTION OR REGULATION OF THE MARKET

“The Wealth of Nations” remains the most powerful standard Bible of the right, namely, free market fundamentalists, and continues to provide inspiration, though ideologically twisted, to these fundamentalists. Those on the left, on the other hand, have gone to the heart of “The Wealth of Nations” and excavated facts from therein showing that Adam Smith was neither a doctrinaire nor dogmatic advocate of laissez-faire capitalism. Yet these myths about Smith and free-market capitalism continue to persist, thus contributing to the crises facing humanity. Perhaps one of such proverbial myths is Smith’s usage of the phrase “invisible hand.” It has been variously argued that he used this phrase in connection with free-market capitalism. This is not true (Buchan).

Fortunately Smith, in fact, favored state intervention in terms of regulation and investment in specific instances (see the Fifth Book, or Book V, of “The Wealth of Nations”). In other words Book V clearly spells out some of the roles or interventions government should undertake in a nation-state’s political economy (Chapter 1, Book V), elaborating on specific situations where government intervention and investments were geared toward a nation’s political economy. Smith, for instance, framed his progressive view of how government taxed the poor and the rich for house-rents and public goods (Chapter 2, Book V). He wrote: “A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable.

It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in that proportion.”

Billionaire Warren Buffet favors this progressive Smithian tax policy. It is arguably both fair and equitable. Smith’s arguments and reasons for this arrangement are profound in their moral, economic, and philosophical dimensions, though certain aspects of his arguments may be anachronistic today. Yet this Smithian tax philosophy is exactly what the Democratic Party, a political party whose political philosophy primarily derives from social democracy, has been pursuing. The Republican Party on the other hand dogmatically overstretches the free market mantra beyond Smithian injunction even as it largely, if conveniently, keeps silent on the progressive tax prescriptions of “The Wealth of Nations.” Thus Smith gave government a role in formulating tax policies, procurement, and enforcement. Therefore, Smith, more an established moral philosopher than an economist, hardly advocated laissez-faire capitalism in a dogmatic manner as those on the right ascribe to him.

Perhaps this self-serving, over-glorified attribution of laissez-faire capitalism to Smith may be primarily neoconservative fabrication.

It is clear why some economists view laissez-faire capitalism as “utopian economics” (Cassidy). What is also equally true is that “The Wealth of Nations” is not an economic text in the way we see economic texts today. Rather it is a critique of the mercantile system. Smith’s views on capitalism seem to fit the small and competitive companies of his day, rather than the relatively less competitive conglomerates of today. Smith also opposed monopoly and “The Wealth of Nations” provides excellent examples of his objections. Perhaps, he would have endorsed the break-up of John D. Rockefeller’s monopolistic Standard Oil Co. Inc. by the government if he were here today. Yet many a proponent of laissez-faire capitalism are completely silent on Smith’s harsh criticism of merchants, producers, dealers, and manufacturers in what we might call the private sector in modern parlance, a group, that, according him, ganged up to manipulate or control prices, to discourage competition through guilds, tariffs, and apprenticeship, leading to eventual monopolies.

Accordingly, Smith cautiously weighed in on the political and moral imperative of state intervention in such monopolistic instances, arguing that the conspiracy of manufacturers, dealers, merchants, and producers put them in a position to leverage abnormal profits in their favor. The concept of “conspiracy” refers to the collective interests of dealers, manufacturers, merchants, landowners, and producers to manipulate the market in their favor without regard for consumers. Thus regarding the question of breaking the conspiracy of producers, merchants, dealers, and manufacturers in order to allow the market to take its “natural” course, Smith framed the regulatory role of the state or government thusly (Chapter V111, Book IV): “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.” The question is: Who should attend to the interest of the producer?

Smith is here trying to strike a balance between demand and supply with the state or government acting as intermediary. State or government intervention in this context may derive from the administration of law or execution of statutory instruments, for instance decisions and verdicts rendered by magistrates, in Smith’s day. Smith went further to provide instances of this. However, contrary to what advocates of laissez-faire capitalism might want to advance about “The Wealth of Nations,” Smith primarily saw state or government intervention in these particular instances as a necessary means of allowing the market to operate free from external pressures. In other words he saw limited government interference as a necessary step toward making market mechanism become a phenomenon of relative operational “naturalness.” Again Chapter 1, of Book V, specifically outlines government role required to make market mechanism function in its “naturalness.” Here is one of those Smith’s views on government intervention as far as banking regulations goes (Chapter 2, Book 11):

“To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed…”

Smith wrote elsewhere: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state…” He then offered the following reason to justify why he thought government’s regulatory role in the banking sector was necessary:

“It obliges all of them to be more circumspect in their conduct, and, by not extending their currency beyond its due proportion to their cash, to guard themselves against those malicious runs which the rivalship of so many competitors is always ready to bring upon them.”

The foregoing shows Smith’s belief in state or government intervention to make the market more efficient, even if those examples of state or government intervention are limited in operational scope. Even in some of those particular instances where he was skeptical or sharply critical of state of government intervention he did so under the pretext that the rich, generally a collection of landowners, manufacturers, merchants, producers, and dealers, hid behind government and capitalized on that privilege and influence to abuse the market, laborers, and other players in a market economy thereby undermining the “natural” dynamics of the market. In this regard Smith primarily saw law, justice, and government as some of the major forces that could make market mechanism work better in the specific instances he painstaking described in “The Wealth of Nations.”

This is the part that is, regrettably, missing, or generally suppressed by proponents of free-market fundamentalism, in the ongoing controversy surrounding the interpretation of “The Wealth of Nations.” One wonders why this should even be controversial in the first place since Smith made his views unambiguously clear on regulation, state or government intervention. In this case also the peddled canard by free-market fundamentalists that Smith was among other things, a dogmatic or doctrinaire apologist of laissez-faire capitalism probably constitutes one of the major “crimes” in the intellectual history on economic thought.

Free market fundamentalists are wont to conveniently circumscribe externalities which the market produces, to avoid acknowledging or discussing the innovative inventions and researches governments have undertaken to enhance the market and the private sector, facts free-market ideologues and neoliberals cannot deny.

Smith may not have weighed in on negative externalities such as resource depletion and pollution in his conceptualization of market mechanism. Neither did Smith explore globalization, white supremacy and white privilege, ethnocentrism, etc., as part of his general conceptualization of market mechanism. Yet the lies and myths about him and “The Wealth of Nations” persist nonetheless. This cannot go on forever even as research continues to add scientific value and technical weight to that exegetical outcome of state or government intervention in market mechanism, a view Joseph Stiglitz, the 2001 recipient of the Nobel Memorial Prize in Economic Sciences, keeps hammering home in his interviews and books. There is no doubt in our minds that state intervention and other regulatory mechanisms have since vindicated the theories of John Maynard Keynes, as scientific studies upon scientific studies have indicated in the special case of the East Asian Tigers, primarily Taiwan and South Korea (World Bank), with one researcher writing (Movahed; Chibber):

“In theorizing the essential role of the state in instigating development, keen attention has been placed on the trajectory of the East Asian Tigers, distinguished by pervasive state intervention which has boosted their position in the world economic hierarchy…The studies claimed that the success in the South Korean and Taiwanese economies has not been due to their fidelity to ‘non-state intervention,’ but rather a reliance on heavily interventionist industrial planning…”

The writer concludes: “State intervention in the East Asian Tigers not only ignited rapid industrial growth, but also provided incentives for the domestic firms to make use of given technology and cheap labor to produce and accumulate capital. The quality of intervention as well as the capacity of the state to discipline the local industries has been phenomenal in the East Asian Tigers as modern experiments of successful economic development…”

After reviewing the literature on the subject, the writer asks (Mohaved): “The East Asian Miracle: Where did Adam Smith Go Wrong? Smith did not technically go wrong anywhere, because he gave limited government intervention a place in market mechanism. What usually passes off as moments of doctrinaire or dogmatic defense of laissez-faire market mechanism allegedly by Smith, according to free-market fundamentalists, are merely selective citations of “The Wealth of Nations” with calculating glosses of ideological twisting. The totality of Smith’s prescriptions, particularly including where he variously advocated government intervention in the context of law, justice, market regulation, administration of public goods and services, education, and so on, which Book V painstakingly covers, are given short thrift or completely ignored by free-market fundamentalists even though they dogmatically worship “The Wealth of Nations” as the Bible of free-market economics. This is where we depart from Mohaved’s interpretation of “Invisible hand,” for, from our perspective, it is theoretically difficult reconciling his [Mohaved’s] unitary conceptual grasp of “invisible hand” and the interventionist prescriptions of Book V.

Our fundamental conceptual differences aside, Mohaved’s paper on the practical benefits of interventionism and the latter’s interactions with market mechanism and its contributions to the East Asian Miracle is evidently powerful. The Keynesian foundations of his analysis, references, and arguments clearly stand out. Almost every political economy on the planet is Keynesian of one degree or another. Any country that endorses a substantial degree of state involvement in economic planning is technically referred to as “developmental state.” In fact nearly every political economy is loosely a “developmental state” depending on the degree of state involvement in economic planning. The late Chalmers Johnson, an expert on Japan (see also Amsdem), minted the phrase and contributed to its scientific and theoretical development. These scholars have shown that state intervention in economic planning, coupled with government-monitored performance in connection with the private sector in exchange for government support in both the domestic and international markets, with the support of business communities, primarily underwrote the success story of the emerging economies of Asia, a position others also view as antithetical to laissez-faire theories on market mechanism.

International economist Dambisa Moyo cites the Beijing Consensus as a practical alternative to the Washington Consensus, the latter of which Stiglitz has summarily written off arguing that it has failed wherever it has been implemented. The likes of Milton Friedman and the Chicago School dogmatically promoted the Washington Consensus as though it was a panacea to human problems. We now know the Washington Consensus was, and still is, if we may add, snake oil. To sum it up, Smith used the phrase “invisible hand” no more than three times in his corpus of writings (Buchan; Rothschild): “The Wealth of Nations,” “The Theory of Moral Sentiments,” and “The History of Astronomy,” not as a theory but as a metaphor (Rothschild). The interventionist prescriptions of Book V, particularly Chapter 1, somewhat contradict the self-regulatory connotations of “invisible hand” which some historians of economic thought and neoconservatives assign to it. It appears the concept itself enjoys an appreciable mark of familiar usage in Anglo-Saxon literature, “with which Smith was almost certainly familiar” (Rothschild), as well as in Shakespeare’s “Macbeth.”

Contemporaries of Smith also appear to have used the phrase in their major written works. One leading economist closely studied the phrase’s usage in Anglo-Saxon literature and history and concluded that Smith’s usage of the phrase in “The Wealth of Nations” has ironic connotations (Rothschild). These backgrounds may provide additional insights into what Smith may have actually meant by the phrasal concept given the three instances of its usage in his major writings. What is certain is that what Smith may have meant by “invisible hand” has taken on varied philosophical, moral, and theoretical complexions across the centuries depending on a number of factors and political situations, some of which we have briefly cited above, yet at the same time the standard interpretation from the right is rigidly skewed toward a tendentious scheme of political ideology, without so much as demonstrating simple expressions of respect for the tenets of the intellectual history of economic thought, literary criticism, intra-textual integrity, as well as for the spread of “invisible hand” across the corpora of Anglo-Saxon literature and what they might possibly mean in all these contexts.

What did Smith mean by “invisible hand” in “The History of Astronomy” and “The Theory of Moral Sentiments” as opposed to “The Wealth of Nations”? This question is important because Smith and “The Wealth of Nations” cannot be studied in relative isolation, say outside the intellectual influence of French physiocrats and of Anglo-Saxon and Scottish literature and culture on his intellectual conditioning, given that the sweeping range of examples he used in “The Wealth of Nations” also drew upon works and anecdotes from Asia, Africa, Rome, America, Greece, and so forth. It is in this context that a reviewer of “Economic Sentiments: Adam Smith, Condorcet and the Enlightenment,” written by Emma Rothschild, a professor of the economics departments of both Harvard and Cambridge, for the New York Times writes (Krueger):

“The real Adam Smith was a complex thinker, capable of holding and exploring ideas even when they were in conflict. To understand Smith, Ms. Rothschild says his contributions must be viewed in light of 18th-century institutions.

“Smith worried about the encroachment of government on economic activity, but his concerns were directed at least as much toward parish councils, church wardens, big corporations, guilds and religious institutions as to the national government; these institutions were part and parcel of 18th-century government…”

“Ms. Rothschild stresses that Smith was sometimes tolerant of government intervention, ‘especially when the object is to reduce poverty.’ Smith passionately argued, ‘When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.’ He saw a tacit conspiracy on the part of employers ''always and everywhere'' to keep wages as low as possible…

“Ms. Rothschild's most controversial point is that Smith was skeptical of the notion that an ‘invisible hand’ would lead individuals to unintentionally promote the public interest by pursuing their own self-interest. She even suggests that Smith used the famous metaphor as an ironic joke. This conclusion is speculative and sure to enrage critics. But there can be little doubt that Smith's faith in the invisible hand has been exaggerated by modern commentators. Smith used the metaphor only once in ‘The Wealth of Nations,’ applied it narrowly and presented the idea with more than his usual number of caveats…”

Perhaps part of the answers to the paradox as to what Smith might actually have meant by “invisible hand” lie deep in the variables we have mentioned above. The debate on what the phrase actually means goes on. The fact still remains that selective citation of Smith’s work has, perhaps, been the cause of much of the intellectual disagreement over the meanings of “invisible hand.” More so the phrase lacks uniform meaning from the standpoints of his three books. Regardless, Book V is Keynesian in several notable respects. This conclusion needs no further belaboring. Rather, what is important for us at this stage is the acknowledgement that it will always be easier to pursue Pope Francis’s prescriptions once the lies and myths about laissez-faire market mechanism have been exposed and disposed of. Here is how Smith used “invisible hand” in “The Wealth of Nations” (with emphasis; Book 1V, Chapter 11):

“He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an INVISIBLE HAND to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.”

This is the only place where the phrase “invisible hand” appears in the entire book of “The Wealth of Nations.” What Smith may have meant by “invisible hand,” the fact remains that he was not a doctrinaire or dogmatic advocate of laissez-faire capitalism. He acknowledged the limitations of market mechanism and accordingly prescribed a number of interventions (state or government) meant to make market mechanism better. Since then John Maynard Keynes (Keynesian economics), Kwame Nkrumah (Nkrumahism), the Asian Tigers, the Nordic Model, and the Beijing Consensus have all followed suit. Even then Tim Worstall, a Senior fellow of the Adam Smith Institute (ASI), has written an article “Adam Smith’s Invisible Hand Really Isn’t What You Think It is” (Forbes, March 11, 2015): “Most of Wealth of Nations is discussions of when government might productively intervene in markets (say, the Navigations Acts, subsidy to basic schooling) and, perhaps more importantly, where it might not (creating monopolies, trying to hang on to the American colonies say…”

Worstall could not have been more right. While we mentioned only Book V as outlining the proper role of government in a political economy, Book 1V and Book 111 continue and supplement the latter [Book V]. Thus “The Wealth of Nations” is made up of five books. Having said that, ASI is a public policy think tank with streaks of advocacy to its credit. This includes promotion of free market ideas. As a matter of fact, Tony Blair (leader of a socialist-oriented party, the Labor Party) and Margaret Thatcher (leader of a free-market capitalist-oriented party, the Conservative Party) both benefited from the ASI and its researches. How can a free-market and neoliberal research institution serve two diametrically opposed political parties? It constitutes an ironic twist that such an organization has to have some allegiance or attachment, if limited, to the concept of “mixed economy” to serve both parties, even if its mission statement does not explicitly say so!

In that case we ask: Does laissez-faire capitalism or neoliberal market economics really exist in the natural world?

We shall return…


REFERENCES

1) Labib, Subhi Y. “Capitalism in Medieval Islam.” The Journal of Economic History. Vol. 29, Issue 1, p. 79-96. March 1969.

2) Longley, Clifford. “Just Money: How Catholic Social Teaching Can Redeem Capitalism.” (Theos 92014).

3) Olusoga, David. “Dear Pope Francis, Namibia was the 20th Century’s First Genocide.” The Guardian. April 18, 2015.

4) Piketty, Thomas. “Capital in the Twenty-First Century.”

5) “Pope Francis: Speech at World Meeting of Popular Movements.” Vatican Radio. July, 7. 2015.

6) Posner, Gerald. “God’s Bankers: A History of Money and Power at the Vatican.”

7) Prof. Lungu. “Solar Power for the Poor in USA: Not for Prof. Allotey’s Ghana!” Ghanaweb. July 12, 2015.

8) Prof. Lungu. “There Was No ‘Dum-Sor’ Under Kwame Nkrumah!” Ghanaweb. July 6, 2015.

9) Pullella, Philip. “Pope Attacks Mega-Salaries and Wealth Gap in Peace Message.” Reuters. Dec. 12, 2013.

10) Richard, Sheldon L. “The Sad Legacy of Ronald Reagan.” Mises Institute. Oct. 1, 1988.

11) Rockman, S., and Beckert Sven. “How Slavery Led to Modern Capitalism.” Huffington Post. Feb. 24, 2014.

12) Rothbard, Murray N. “The Myth of Reaganomics.” Mises Institute. June 9, 2004.

13) Rothschild, Emma. “Adam Smith and the Invisible Hand.” The American Economic Review. Vol. 84, No. 2, p. 319-322. May 1994.

14) Rothschild, Emma. “Economic Sentiments: Adam Smith, Condorcet and the Enlightenment.”

15) Samples, John. “Limiting Government, 1980-2010.” Cato Institute. March-April 2010.

16) Schermerhorn, Calvin. “The Business of Slavery and the Rise of American Capitalism, 1815-1860.”

17) Singer, Alan J. “New York and Slavery: Time to Teach the Truth.”

We shall return…