Finance looks grim – but capital is there, growth can be, only foresight and will is not there

Posted on October 25, 2008. Filed under: economy, financial crisis, microcredit, Politics |

Who is hit the worst in a liquidity crisis? Not those who never had really any access to capital – the vast majority in any system who are deemed to be too “risky” by the dispensers of capital, the banks and the financial institutions. Not the big corporates, who hold sufficient capital stock or have sufficient power over policy-makers to “bail” them out with more “funds” filched from the public through the compulsory extraction process of taxation. It is the small producer, manufacturer, and the employees of such small production processes, who suffer the most, together with those employees at the bottom income segment of larger concerns who have little or no negotiating powers with their “fett Katz” bosses.

If it is the Government which needs to use public money, then where should this money go? This money should go the people who never really had access to capital. This should go to the small manufacturers and producers, either to established businesses or to promote new entrepreneurs. This money should go to form new community development and self-sufficient urbanization programs with built in agrarian, small-scale industries, and power generation components.

We can use this great opportunity to build a new way of living. At the moment we live in a world of super specialization, not only in industrial production or professions, but also in our lifestyles. Conditions of business, commerce and economic production processes ensure that professions define completely and entirely what the lifestyle, source of income, and culture of a person or his/her immediate network would be. Contrary to popular academic sociological representations of a “networked” society, all our societies, are deeply divided – with closed “networks”, giving rise to class and deeply resented social fractures. Such closing off of “subnetworks” also means inefficiency in terms of the economy and productive forces or development, since opportunities and stimulating exposures to alternatives are not available to increasingly large portions of the society, and the society overall loses out on “brains” and “innovations”.

On the other hand, socio-economic groups can monopolize items or entities of broad demand in the society. Thus in many economies, agrarian producers are completely “disjoint” from industrial producers, and financial services are disjoint from both, all these interact only through the “market” or pure process of exchange, and each can try to exploit the others. This is a different kind of “monopoly” – a social kind, where these self-closed networks ensure that the corresponding economic basis of their negotiating power remains within the network, and that “outsiders” do not have access to it. This means “departure” from “free market” conditions in the social situation, and is bound to be “inefficient” in the social sense.

What I visualize may appear to be a fantasy for many, but it is possible to go along this way. I visualize a world where human settlements are both agrarian and industrial with living conditions driven by “urban” concepts – the agrarian-industrial city.  Each such settlement recycles its waste, produces most if not all of its energy, contains the entire spectrum of habitats from managed forests, water bodies, farms and industries. Crucially the residences should never be far from farms, as well as industries, and that both “farmers” and “industrial workers” share the same living locations. This increases energy efficiency, by cutting down on transport and storage requirements, and increases financial efficiency as system loss due to the intermediaries who live off on the pure process of circulation or movement of commodities. There are obvious health benefits too. Ideally, people from both sectors should have some direct participation in the other sector, for example it would be crucial for industrial workers to have access to farming jobs on a part time basis, or small plots of land on their own to cultivate. Similarly “farmers” should have access to small scale industrial jobs, or access to trade-sheds to carry out small-scale industrial or processing works. Hands on experience on economic processes of vital importance but not of personal specialization, provides two important buffers – (1) increased negotiating power with these “other” sectors in the larger economy (2) a fall back option to produce the bare essentials if the larger economy fails to provide it.

All these can be done within well-experimented frameworks of small-credit, or “micro-credit”, and cooperatives. Financially it makes sense, as the capital is spread around in “many baskets” rather than one small “basket” which has shown time and again to lead us into “crises” like the present one. Especially in conditions when huge capital accumulation has taken place, and therefore comes under the effects of the “law of diminishing returns”, spreading this capital around in micro-credit raises the overall capital appreciation rate (rates in micro-credit are astronomically higher than in conventional “lend only to those who already have” practises of banks).  This will also produce a much broader base for economic growth and distribution of “prosperity”.

I am limited here in how far of “academic exposition” of my vision in economic terms I can give. Formal models will involve meso-economic processes, and interactions both at the macro as well as the micro.  However, the broad sense of what I am implying and its consequences can be worked out by readers on their own, based on their own personal understandings and experiences, without going through mathematical models. Political will to carry out and implement such a program is lacking, as even in “full fledged democracies”, the political “power” elite form semi-closed “subnetworks”, from which the general electorate are forced to choose what appear to them to be the best instantaneous “choice”. These subnetworks of necessity develop economic “contacts” and mutually enforceable ties with the corporate world – sometimes out of the sheer necessity of dealing with the corporates as the dominant force of the national economy. The corporate sector will desperately and ruthlessly try to hog the share of public funds, and it is the task of the “electorate” to see to it that they do not get it without at least some compromise to allow a portion to be released into programs of the sort I have described above. In the end even the corporates will benefit from the overall deepening and broadening of the “market” arising out of such redistribution of capital.

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One Response to “Finance looks grim – but capital is there, growth can be, only foresight and will is not there”

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Well said Great information, keep up the great work!


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