On Capitalism

Monday night, I watched an interesting documentary on PBS called Power of Choice: The Life and Ideas of Milton Friedman. The late Dr. Friedman was one greatest proponent of laissez-faire capitalism in the 20th century, and—thankfully—had the clout to be heard in Washington and around the world. I am convinced that much of economic boom of the past century is directly attributable to him.

Then, on Tuesday, I read a short article entitled “The Hard Rain That’s Falling on Capitalism” written by Ben Stein in the New York Times. I found this story through Reddit.com—a website which also lets you comment on the featured stories. I had been meaning to formulate my thoughts on capitalism for some time, and in responding to the mostly left-leaning critics, I finally got a start. However, newer stories are constantly making their way to the top on Reddit, and by the time I wrote these comments, most of the debate here had already subsided; therefore I will expand on my theories and observations here.

The criticism usually leveled at capitalism—and the US in particular—by the left and anti-globalists, is generally that this system only makes the rich richer (and by extension the poor get poorer.) Their proof tends to be pointing out specific cases of corporate corruption and other malfeasance, and instances of excessive compensation for top management. What they seem to suggest by this is that there was an idyllic time in the past characterized by more compassion and transparency in commerce.

With the exception of a few true, ideological communists, I think we all agree that the problem is not with capitalism as such, but corruption and the lack of transparency. This is especially egregious when big businesses use their influence extract subsidies from government or to induce the government to create barriers to new entrants (foreign or domestic) in their particular industry. Then there is the internal corruption, where management—usually through creative bookkeeping—steals from the corporation and, by extension, the shareholders and other stakeholders of the company. I admit this is a real problem, but I don’t believe it is an endemic or growing problem. I assume that this has always been going on; it was just not spoken about as much. I dare say the farther you look back in our history, the more corruption and back-room dealing you would discover—meaning the economic climate was less fair and transparent at any time in the past.

This is why, whenever a corporate scandal is uncovered, I gain—not lose—confidence in the business world. I believe the reason we hear more and more about these scandals is not because they are occurring with more frequency, but because the press is becoming more vigilant—uncovering and reporting more cases of malfeasance than ever before. The logical result would be fewer and fewer occurrences of malfeasance over time, since management knows they are being more closely watched. Pessimistically, it also means that future malfeasance will be more esoteric and harder to detect, but like with spam and viruses, it is a cat and mouse game between the good guys and the bad—alternately one-upping each other. If nothing else, this vigilance means the repertoire of deceptive practices available to unethical managers is constantly shrinking.

Let’s take the Enron debacle for example—could this happen again? Well, certainly not in the exact same way. More importantly though, the complicity of auditing firms in such scandals has been forever broken. Arthur Anderson is now defunct. Don’t you think that this has put the “fear of god” in the remaining big-3 accounting firms? This was a beautiful example of the free market at work—no government intervention was necessary; these firms now clearly understand their only really important asset is trust—specifically their reputation. If shareholders don’t trust an auditor, they will not approve them, and they will quickly lose all their clients—ending up bankrupt like Arthur Anderson. Certifying that the books of a client are accurate is no longer just a formality; it’s putting your reputation—and therefore your existence—on the line for these firms.

This trend toward greater transparency is self-perpetuating. It improves investor confidence, and investment naturally gravitates to its most efficient and profitable use.
The financial markets in London are a perfect example; previously characterized by widespread back-room dealing, they have recently been cleaned up, and are seeing a boom that is making them the premier international financial marketplace.

Therefore, my main assertion is that we are now seeing an emergence of truer, more open, equitable, and much more transparent capitalism—not just in the US, but also around the world (even China and left-leaning South American governments see the benefit of a free market.) Furthermore, this embrace of true (and global) capitalism is what is responsible for the exponential growth that we have seen in the world economy in the last 10-20 years. This boom is being felt not only in the industrialized world, but also throughout much of the developing world—particularly Asia. The result is that infrastructure is being built and the economies of the countries are growing faster than under any other economic regime/philosophy. Even the supposedly “exploited” workers of the developing world are earning more and are accumulating more valuable possessions than their forefathers could have imagined. I challenge you to find a more prosperous time in history.

In regards to the growing income gap between the rich and the poor, I can’t believe this is a result of poor getting poorer; the rich are simply getting richer at a faster rate—deservedly or not. And this group of super-rich is larger and more diverse than ever. Back in the day, there was only a handful of super-rich in the US; these families are household names today: Rockefellers, Vanderbilt, Carnegie, Morgan, Getty, et al. Today you have all kinds of innovators and entrepreneurs from unknown families (even from groups that were previously discriminated against) becoming fabulously wealthy.

For comparison, let’s go back to the idyllic “good old days” of yesteryear. A middle class working family lived in a tiny (by today’s standard) 2-bedroom saltbox house, had one car, never traveled by air, had no credit cards, no cable TV, no cell phones, no computers, no Internet access, etc.—all these things we now consider necessities and whose monthly payments now suck dry the wallets of the middle class. The working class is not poorer today; they are just stricken with affluenza.

The ultimate argument for capitalism is its results; find me an economic system that not only created the greatest amount of raw, economic power this world has ever seen, but also given nearly all strata of society more purchasing power and therefore a more comfortable life. This last part is very important to remember when we begin discussing real wages of the working class, which have supposedly been flat or even declining in the US since the 1970’s. The homes, cars, appliances, and especially electronics we buy today are many times better (in terms of quality, efficiency, durability, etc.) than anything you could buy in the 70’s, and certainly not as manifoldly expensive. Technological advances can explain only part of this effect; I am convinced that we have—and continue to—see an incredible increase in the value of goods we purchase over the years due to efficiencies realized thanks in large part to more open and transparent global capitalism. This “Wal-Mart effect” in fact makes us richer, and it is not sufficiently reflected in the usual empirical statistics.

Any argument against capitalism, would by definition propose an alternate (or at least modified) economic system. And again by definition, any system besides a pure, laissez-faire capitalism would require some type of government or at least collective controls that would introduce distortions into the marketplace—either placing more or less value on a resource than it would naturally be entitled to. I am not advocating pure capitalism, I only want to make you think: what aspect of the economy is so important that we need to tinker with it (and be more likely to screw up rather than improve), and who (politicians, bureaucrats) can we trust with these decisions? We have seen that concentrated central planning—namely communism—has failed miserably; where would you set the limits? Many people hold up European (and especially Scandinavian) socialism as the perfect balance between capitalism and communism, and in a lot of ways it is hard to argue with: they have the lowest poverty rates, highest wages, and—amazingly enough—export more value per capita than low cost, export-oriented Asian countries. (This is because they produce higher-end products and operate more efficiently largely due to their excellent educational and vocational training systems.) However, I am convinced that this supposedly most advanced economic system is not the answer for the developing world. Just as with your personal finances, you can’t spend your way into long-term prosperity.

Here is my 6-step program to economic prosperity for developing countries:

1. Tackle corruption.
2. Throw open the floodgates of laissez-faire capitalism to build wealth.
3. Institute a low, flat tax rate.
4. Invest tax revenues into infrastructure and education.
5. Add regulations slowly.
6. Add social programs as tax revenues allow.

I see doing this in any other order as “putting the horse before the cart.”

Well, that was longer than I expected it to be! Sorry for rambling on; I guess I should organize this a bit better, back it up with research, and write a more coherent article, but that’s not going to happen realistically!

MBAEC reunion in SC

MBA Enterprise Corps alumni and current South Carolina residents Joel (Bulgaria 2005), Ryan (Bulgaria 2005), and Pete (Kazakhstan 2002) painting the town in Columbia on Friday night.

Flyin’

Friday was moving day for my brother, Simon, and his wife. Thankfully they didn’t have too much junk (at least by American standards,) and many hands indeed made the work light—in fact we were done in a few hours. So, Micah—my other brother—asked me if I want a ride in his new airplane—a Lancair Legacy. Of course I jumped at the chance; he has been building this high-performance airplane for a couple of years now, so obviously I wanted to experience what it is like to ride in this “sports car in the sky.” As you can see from the battleship gray color, there are still a few cosmetic tasks that need to be completed, but nothing that would affect its air-worthiness (despite the ominous “passenger warning” on the instrument panel.) In fact, he had just modified the oil door on the cowling, which allows us to appreciate the throaty six-cylinder engine (it did sound like a sports cars when he fired it up) in the picture at the top—it certainly doesn’t need any help from a hypothetical MTV “Pimp my plane!”

We taxied to the runway, checked the engine, and then Micah released the brakes. I was immediately impressed; the plane pushed me back in the seat in a way that I’ve only ever experienced in a jet.

Micah’s friend, Eric, was also ready to fly, so he got into his little plane and joined us in the skies within a few minutes. He also built his own plane—a Cassutt, which is a type of aircraft that they race around pylons in Reno, Nevada; needless to say it is fast. Never the less, Micah was able to blow his doors off, as we say in the American vernacular for racing past another vehicle. We flew to the Pelion airport for fuel, and I learned just how expensive this hobby is—avgas is over $3 a gallon!

On the way back, we came across Micah’s neighbor, Tim, who is an aerial photographer. Of course, we had to get some more pictures (I had been taking many from our perspective, but needed some of us.) So, we flew to Lake Murray to snap some air-to-air photos: in the picture above, Eric is on the left in his Cassutt, and Micah’s Legacy is on the right (if you blow it up, you will see Micah in the left seat—looking toward the camera, and I looking forward—starting to get a little queasy from all the steep turns.) Photo credit: Tim French. I took the final picture here: silhouettes of Tim’s plane on the left and Eric on the right captured over the lake at sunset.

On Blogging

I’ve been blogging nearly continuously for 3 years now. So, naturally, I’ve given some thought to why I do this. I started my first blog when I went to business school in Vienna in 2004. It was intended as a way for my friends and family to keep up with what I am doing without sending out individual emails (or pestering anyone with bulk emails.) As such, it was successful; my audience grew by word of mouth to include all kinds of friend, family, acquaintances, former colleagues, and classmates. Granted, it was not a steady audience (except my mother, who would ask my father every morning if I had written anything new,) but this is the beauty of a blog: friends who had “not visited [my] blog in a while” could easily catch up, since a month’s worth of post can be easily read in one sitting. However, one unexpected person I found out that I am writing for is myself—specifically my “future self.” It turns out my blog is also my diary; I actually enjoy reliving the heady days of grad school, for example, by reading something I wrote a year or two ago. Of course, I would not actually write a diary (that is something only teenage girls do,) so blogging for an audience is an incentive for writing my personal history. However, this dual usage leads to some conflict, namely self-censorship. Due to the broad audience that could potentially read my blog, I often have to choose my words carefully. It’s not that I lead a particularly scandalous life, I just don’t want to bore my audience most of the time (sometimes, though, I do nerd out for the sake of my brothers.) Never the less, many times I redact large portions of what I write in Microsoft Word before I even post it (which, by the way, is good advice for you students out there: don’t write up to a minimum word count; write past it, then cut out the weak portions, leaving only the good stuff.) The other issue is that some characters that make up this ongoing story of my life like to maintain a lower profile. I have little compunction about sharing my life on the Internet, but I’ve found that some people don’t like the idea of me writing about or posting pictures of them on my site. Therefore, I have become more guarded—practically, I have adopted a first-name only policy. One particular young lady has made it clear that she did not want to appear here, but recently has relented, and even ask “why am I not on your blog?” So—without further ado—here is my girlfriend, Mirena.

Ski Borovets

Despite dire warnings that there is insufficient snow in Bulgaria for skiing, we went to Borovets on Sunday with two American diplomats. But first, we had to go shopping. After spending most of the day in countless shops, we went back to a little shop and bought a cute snow bunny outfit that Mirena had initially found. (We also bought a business suit the same day.) Mirena insisted I buy something for myself, so I got a cool new ski jacket; the total for everything was a mere 320 leva ($212.)

The actual skiing was decent; the slopes at the top of the mountain were fine for the most part, although there was over a meter of snow missing compared to last season. I skied nearly nonstop all afternoon, getting my money's worth for the half-day ticket (25 leva.) Meanwhile, Mirena and one of the diplomats were getting beginner ski lessons on the bunny slope. I know this can be frustrating, but she had a reasonably good time.

The past two days have been spent running around town getting "loose ends tied up." For example, this afternoon—just before my flight—we were in the notary's office getting some documents officiated for my business (investment.) Then it was off the the airport, but the new terminal, which is finally in operation. After a tearful goodbye, I was taken by bus to my plane in front of the old terminal—the jetways were standing unused. The Sofia-Brussels flight was remarkable only for the beautiful view of the sunset crisscrossed by contrails of other flights over the skies of Europe. At one point, I looked down I noticed a large river, which I thought probably was the Danube; indeed, just a few seconds later I noticed the unmistakable junction of the Sava and Danube at Belgrade!

Right now I am writing this in a fairly nice hostel in the center of Brussels, having spent my last Euros for the key deposit, I can't even buy a fine Belgium beer! Tomorrow I will get that 10 Euro back, and stretch it between lunch, souvenirs, and train ticket back to the airport. UPDATE: I ended up frittering away the morning, and had to rush to the airport with only minutes to spare—so don't expect any souvenirs! :-(

Velingrad

First, here are some time exposures (all 25 seconds) from New Year’s Eve. The first one—made at 22:00—is a calm view toward Mt. Vitosha (which was only barely visible by the naked eye.) After midnight, fireworks broke out all over the city; people were shooting them rooftops, balconies, and the street—it was like the fourth of July! ;-) In the third picture, you can see the burst of light coming from the official New Years/EU Accession party downtown—which we just watched on TV.

Spa

For the New Year’s holiday (of January 1st and 2nd) we went to spa resort town of Velingrad. We originally made reservations at an old restored hotel (check out the iron work over the door in the picture below!) but we decided on a nicer, newer, and cheaper hotel after tearing all over the city looking for the best value. As in many places in Bulgaria, these spas are fed by naturally hot, slightly minerally water.


The pool was a balmy 31C (88F.) We also hit the Roman (steam) bath, sauna, and had massages. Mirena asked where people go relax in the US; I honestly couldn’t think of an equivalent. I am sure we do have spa resorts somewhere, but I think most people “just go the beach.”

TP

On the way back to Sofia, we came through Belovo, home of Belana Paper Mill—Bulgaria's largest producer of TP and paper towels. Along the road opposite the factory, the street was dotted with vendors selling all the various brands produced there. We stopped and Mirena bought a restaurant-sized roll of paper towels for 3 leva, but she said their prices were actually not that competitive; I suppose they lure Sofians into thinking they can get a good deal on their way home.

Below is one last time exposure I took at twilight as we were heading back to the expressway (notice the streaks of light from cars on the extreme right.)

Oh, and BTW, it is snowing right now! ;-)

Happy New Year!

“Christmas” shopping

As a formerly communist country, New Years is still a bigger holiday in Bulgaria than Christmas day—nearly everyone is guaranteed a 4-day holiday: December 30, 31, January 1, and 2. Since presents are exchanged on this holiday, the shops and malls were packed Friday and Saturday, so I got to experience two last-minute Christmas shopping rushes this month!

Movies

Yesterday, I watched two movies. With the exception of a few French and Russian flicks, cinemas in Bulgaria show the same Hollywood blockbuster as nearly everywhere in the world, and—many times—premiering on the same weekend as in the US, since all they have to do is add subtitles. The cinemas in Sofia are all fairly new, with stadium seating like we have back home, but the ticket prices are significantly cheaper: 4 to 6 leva ($2.70-$4.04.)

First, I watch the new (re-make) James Bond film, Casino Royal. I found it to be a clumsy effort, and—as expected with any new actor playing Bond—I didn’t like Daniel Craig in this role; he seems too rough-edged for this role—Bond is supposed to be effortlessly suave. The parkour stunts were cool, but many of the traditional elements were missing, most notably the array of cool gadgets and the nude, female silhouettes in the opening title sequence. Like I’ve always said, the Bond franchise is just not the same since the end of the cold war, a sentiment seconded by Judy Dench’s “M” character in this film–which of course was poignant for me, watching this behind to old iron curtain.

Later that evening, Mirena and I went to see Robert Altman’s final film, A Prairie Home Companion. The star-studded cast (Meryl Streep, Lindsay Lohan, Kevin Kline, Woody Harrelson, and Tommy Lee Jones) brought in at least a half a dozen Bulgarians who were so bored/disappointed, they left before the end—even Mirena fell asleep. This is to be expected, since it was a sentimental film made for PHC fans (like me.) I wonder who thought it would be a good idea to subtitle and distribute it here.