Understanding China: What it Can Teach Us.

polluted river in chinaEnvironmental, worker and consumer protections have been considered by many conservatives and capitalists to be a form of socialist policy.  Commentators on FOX News and GOP henchmen alike have all tried equating regulation by government to be a form of socialism. Laws that protect the environment, workers and consumers may limit free-market practices. Because these regulations are seen as anti-capitalistic they automatically assume that these laws must be the opposite of capitalism, which is socialism. So, is having government impose regulations on businesses a form of socialism? To answer this we need to look no further than China.

First, what is China? People refer to China as communist, neo-capitalist and socialist. So which is it?  China is all these things! Its complicated but we must first recognize the difference between a system of government and the economic system practiced by that government. China’s government is made up of a single party, authoritarian government that retains power with oppression and suppression.  From 1949 up until 1979, China practiced strict communism under the heavy-handed rule of the Chinese Communist Party. Shortly after the death of Mao Tse-tung the ruling Communist Party began initiating drastic economic reforms by embracing capitalism to a point. Currently 40-50% of China’s GDP is still run by state-controlled industry. Economists have widely begun to define China’s economic system as that of “state-capitalism”, meaning that while private citizens are able produce and earn freely, there are still many industries under the complete control of the state. In China most power generation, oil, telecommunications, aviation and shipping enterprises are still under the control of its authoritarian government. Almost all other industries operate under free-market capitalism, as we know it. Under this system of state-capitalism, China’s average growth on average has been about 10% per year, peaking at 14% just before the great recession. (Double that of the U.S. economy.) Also, over the past 20 years, millions of Chinese have been lifted out of poverty. (Millions more still remain impoverished.)

Here in America and around the world, people are amazed at China’s huge growth in such a short period of time. Economist and politicians like to argue which parts of China’s “state-capitalism” are responsible for this growth. Some will say it is solely due to their embracing of free-market practices. Others will point towards the huge government initiatives, which involve enormous government spending on infrastructure. Especially with the recent “Great Recession”, people in the West are beginning to wonder if our own economic woes are the result of our Western style  laissez-faire capitalism.  People may praise China for achieving unprecedented economic growth, but there is a huge negative side to it that no one can ignore, especially those who live in China; POLLUTION.

While the U.S. is still the largest polluter in terms of emissions per capita, China’s total emissions and waste have surpassed that of the U.S. The result in China is nothing short of catastrophic. 400,000 people die each year prematurely from lung disease alone. Cancer is now China’s number one cause of death. 16 of the world’s top 20 polluted cities China air quality chartare in China.  But the problem isn’t only in the cities. The air quality is horrible throughout the country. The main cause of air pollution has been increased coal burning to keep up with China’s continually rising demand for electricity. Most coal burning plants in China are half as efficient as those in the U.S. and twice as dirty. Other contributors to air pollution are industrial emissions and the millions of cars added, many of which operate on low-grade gasoline.  The air quality in most of China’s cities is 3 times above what most would consider safe levels. I’ve been to China a number of times and I can tell you how horrible it is. The haze on some days is so dense it can literally block the view of an entire building just across the street.  After one week in the country, I was coughing horribly. I couldn’t wait to get out of there and felt pity for the millions who can’t leave.

China also has a huge pollution problem with their water supply. About 500 million people don’t have access to clean drinking water. 80% of China lacks sewage treatment facilities. 90% of China drinks water that either contains some arsenic, fluorine or sulfites.  The World Bank estimates that 750,000 people die prematurely each year in China from either lung, cardiovascular, or stomach and bladder cancers caused by drinking polluted water. Fertilizers, industrial waste and human sewage are the main causes of water pollution in China.  Thousands of instances have been reported where industry is seen dumpling toxic waste into China’s waterways and there are continued reports of mass death and sickness in villages along these polluted waterways.

Another problem in China is their lack of worker protections. We have all heard stories about China’s cheap labor force, where people work long hours in horrible conditions. Just this past week there were massive riots at the now famous Foxconn factory, which makes Apple products.  This is only one instance reported on Western news. The Chinese government has suppressed many other instances of worker protests.

So who’s to blame for all of this?  China’s embracing of capitalism has certainly increased their economic growth and hence their emissions and waste. It is also China’s cheap labor force and lack of safety regulations that has attracted many foreign businesses. But China still operates half of its economy according to socialist practices. Shouldn’t the socialist facet of their economic strategy impose stricter guidelines to curb this massive pollution and protect workers? Well, not really. China’s lack of regulation isn’t the result of their adherence to free-market capitalism. Nor is it a result of their continued use of socialism. In China there is a lack of regulation because there is an authoritarian government!  The people of China, while dying and complaining about their country’s pollution and working conditions have no voice to force the government into protecting the people.  The Chinese people do not get a chance to vote and therefore aren’t able to hold their government officials accountable when government doesn’t act in the best interests of the people. Because China’s ruling Communist Party has absolute control, they have little interest in protecting the public.  Regulations are only the result of democracy, a democracy that the people of China don’t have.

In an effort to sustain China’s quick economic growth and superpower status, they are slow to implement regulations that could impede this growth.  However, the people of China are getting fed up. If the ruling communist party wishes to retain power and prolong their inevitable overthrow, they will need to appease the people with some form of pollution control and labor standards. Whether it’s in the national interests, the interests of the people or just their own interests to retain power, the leaders of China have recently stepped up efforts to curb pollution.  China today is actually the largest developer and user of renewable energy.  But it may still be too little too late for millions of Chinese people.

What can we learn from all of this here in the U.S?  Whether they are stricter pollution standards or increased worker safety laws, regulations can slow down economic growth by cutting into business’s profits. Because of this, people think of these regulations as being anti-capitalistic.  But just because regulations may slow growth by cutting into profits does not make them socialist actions either.  Socialism is the state-control of production and markets. China has a mix of capitalism, socialism and little to no regulatory system.  Their lack of a regulatory system is because their authoritarian government lacks the motive to protect the people and is not a result of their market practices. We in the U.S. have regulations, but it’s not due to capitalism or socialism. We have regulations because we are a democracy. People in the U.S. have a voice where the government works for the people. The people of the United States demanded protections and then our elected officials were obliged to act on our demands.

Americans use of the word “socialism” comes with serious negative connotations. Why? Because we are used to equating socialism with authoritarian style governments such as those of China, the former Soviet Union and North Korea. But the two ideas of socialism and unelected governments have nothing to do with one another.

It just happens that the authoritarian governments of China, and the former Soviet Republic practiced communism, which is in essence an extreme form of socialism.  But just because these regimes practiced socialism, doesn’t make socialism authoritarian. Nor does capitalism and free-markets automatically turn governments into democracies. There is a difference between socialism practiced in China and the former U.S.S.R. verses how socialism is practiced in the U.S. and Europe. One is run by authoritarian governments and the other is practiced by democratic governments, elected by the people. Democracies can and do implement parts of socialism. The exact form of socialism and its purpose depends on the will of the people.  In the converse there are also many dictatorships or authoritarian governments that practice capitalism.  When opposing socialist policies, conservatives in the U.S. love to cite the atrocities of socialist regimes like Hitler, Stalin, and Mao. But this argument ignores the fact that these were oppressive, authoritarian governments that imposed strict socialism on its people. These situations cannot be used to compare our democratically elected government using aspects of socialism to counteract any negative results of laissez-faire capitalism.

We don’t have government regulations that protect the environment and worker protection laws because of an oppressive government run by a dictator or authoritarian party. We have regulations because our democratically elected government functions for the people and has an interest in protecting the people. This is the key.  Americans have to get out of their head the idea that socialist practices automatically equals authoritative rule.  We must also understand that our regulations are not a form of socialism, they are a result of our democracy.

Wealth Redistribution: It’s a two way street.

During this campaign season, members of the GOP are trying to frame the Democratic Party’s platform of raising taxes on the wealthy and spending on entitlements as a form of “wealth redistribution”, and they are right. It is wealth redistribution!

How do you redistribute wealth? You tax one class of people and use the funds to assist people of other classes. The funds may be used as direct payouts to programs such as welfare or unemployment. We issue low cost loans for home purchases or school loans on a need basis. We have also implemented many tax credits that pay out to certain tax filers. There are tax credits for those who have children and there was also the recent Making Work Pay credit, which gave $500 to all tax filers who worked. (This tax credit recently expired under the Recovery and Investment Act).

Government Spending on Entitlements

In 2011 we spent 230 billion on Medicaid, 106 billion dollars on unemployment insurance, 64 billion on HUD and 103 billion on Food & Nutrition, which includes the food stamp program. These four programs together cost us 503 billion dollars in 2011. There are some other entitlement programs, but these ones I’ve listed have the largest budgets. (I do not include Social Security and Medicare in this chart because those programs are paid for with the separate system of payroll taxes, which every worker pays for.) While it is hard to come up with an accurate total number of people benefiting from these programs, the chart above lists a known number of direct beneficiaries.  Most of the beneficiaries to these programs are low-income Americans. While unemployment, welfare and food stamps cover mostly those Americans without jobs, Medicaid covers about 50 million poor and elderly.

The GOP disagrees with spending money on these “entitlements”.  They’ve called it a form of wealth redistribution when we use tax dollars to pay for these programs. But these “entitlement” programs aren’t the only forms of wealth redistribution in our country. We have a long history of using other forms of wealth redistribution. Here are a few recent examples.

The T.A.R.P. program under George W. Bush gave $475 Billion dollars to financial corporations. Here’s a list of the top beneficiaries

TARP Beneficiaries

An additional $100 Billion has been spent on private contracts in Iraq to companies such as Halliburton and Bechtel who’ve each received multi-billion dollar contracts.  Halliburton is another company whose yearly profits range in the billions of dollars. Bechtel is not a publicly traded company and doesn’t make their profit margins public, but it’s probably in line with those of Halliburton.

You may say that helping these companies increase their profits benefits all shareholders. But who are the shareholders? It’s mostly people from the upper income bracket.  80% of tax filers who make over $250K per year, earn income from dividends. Only 20% of tax filers who make under $250K, have dividend earnings. A total of only 30 million tax filers have income from dividends and a fewer number earned income from those companies that received government contracts or bailouts.  (30 million tax filers reported dividend income in 2011. More may have benefited from stocks tied to retirement accounts, but this doesn’t benefit anyone in the short term.)

The combined cost of Medicare, Unemployment, Food Stamps and Housing per year, which benefits over 60 million low-income Americans, is less than what was spent on TARP and Iraqi contracts combined. Then consider that our tax dollars spent on TARP and Iraq contracts benefited less than half the number of people than the above listed “entitlements” do. This form of “corporate welfare” benefits a larger percentage of people from the upper income brackets.

With taxation the government collects wealth. Then depending on economic conditions and our national interests, the government distributes these resources depending on what is best for the public good.  Spending on things such as Medicaid, Housing, Food and unemployment is not simply wasted on those who need it. First, it fulfills the moral objective to help those in need. Secondly, it is money that goes straight back into our economy.

The TARP program, while highly controversial, was also an economic necessity. It helped to keep large financial houses afloat. If these banks went under, it could have caused catastrophic ripples through our economy. But the biggest beneficiaries to the TARP program were shareholders, people who disproportionally come from the higher income bracket. The same is true for the shareholders of companies such as Halliburton. Companies that have received large government contracts and report billions in profit only benefit a small number of Americans who are disproportionately represented by the upper classes.

The programs I’ve mentioned here aren’t the only ones. There are numerous other forms of welfare for low-income Americans and other programs that benefit corporations and the upper income earners. Wealth Redistribution isn’t just a practice reserved for the poor. Wealth has always been redistributed upwards as well.

If you are opposed to wealth redistribution in the form of “entitlements” to help people in their time of need, you should be as vehemently opposed to wealth redistribution for private industry.

So what are our choices? Either the government doesn’t tax and spend at all, where we blindly hope all will sort itself out or we can put some faith in the government and our elected officials to distribute funds in a manner that looks to benefit our entire country as a whole. One day our priorities may be to help more individuals because there is high unemployment and another day we may need to subsidize industry to keep the markets healthy. Either way, these are all forms of wealth redistribution that America has participated in.

article by: Lawrence F. Mignogna

Mitt’s Dependency Blunder. It’s not what you’d think!

News headlines in recent days have included a video released that shows Mitt Romney talking to a group of supporters at some private function.  His words which have become controversal are the statements he made accusing

47% of Americans as being dependent on government and therefore automatically going to vote for Obama. (Read the NY Times article here) Many other things were said that you may or may not agree with. Here I would like to focus on this 47% number for a moment. While Mitt and others may believe 47% are dependent on government, I would argue the number is a much higher. How high? How many people are dependent on government? How about 100%? That’s right, 100% of Americans are dependent on government.

100% of us depend on the security government provides

100% of us drive on roads maintained by the government

100% of us may need to call 911 at anytime

100% of us, regardless of how hard we work, may fall ill or lose a job where we may require assistance to help pick us back up.

100% of us depend on or profit from technological innovations that was developed in full or in part by the government.

100% of us depend on society’s infrastructure

100% of us have either been educated in public schools or depend on others (such as employees) who have be educated in public schools.

100% of us may get stuck in a flood, fire, or earthquake. Is this the best time to search through the Yellow Pages looking for the best company to come help you? “Will you be using Visa or Mastercard to purchase this rescue?”

Now I know Mitt was thinking of and referring to programs such as food stamps, welfare and unemployment insurance. But his 47% figure includes those who receive Social Security and Medicare which all workers have paid for, regardless if they pay federal income tax or not. (More on this argument in my book Social Capitalism). However, these aren’t the only things we spend money on. In 2010 we spent about 720 billion dollars on the military which we all depend on.  Another 400 billion was spent in 2010 on other government functions, infrastructure and R&D, not including entitlements.

I have never been on food stamps, collected welfare or unemployment. I’m lucky enough that I’ve never needed to. But I am still glad that these systems are in place if I were to ever have a spur of bad luck. So, while I’m not part of Mitt’s 47% who he believes is dependent on government, I am part of Social Capitalism’s 100% that is dependent on government for a long list of other services.

Can you recognize yourself as part of the 100% that is dependent on government?

 

Income Disparity; what it should mean.

income disparity graphLet me explain or shall I say ask. I certainly do not hold all the answers, but have many questions to be answered, as do we all. My writing this is to just help progress our understanding and debate.

This graph that I made titled “Income Disparity vs. Wealth Disparity” is the result of my skepticism. Many of us have seen graphic representations depicting income and wealth disparity. Most of the time when I see these kinds of pictures I’m skeptical at the data used and the accuracy of these graphs. So, I decided to try it myself. I researched data directly from the IRS data tables. Then when making the graph, I took great concern to preserve the accuracy of size increases relative to the data. When I say, “the average top 1% earns 29.3% more than the average bottom 99%”, the red circle in the graph is exactly 29.3 times bigger than the blue circle.

So now that I have a graph which I can trust, we can look at it and see what it says to us. Obviously we see that some people earn a great deal more than others. To be more specific, the data I used compiled by the IRS took into account 141 million tax filings from 2007. The top 1% is made up of 1.4 million tax filers, and the bottom 99% has 139.6 million tax filers. The average income of the top 1% was $1,429,000 while the average bottom 99% earned $48,710.

The first thing I say to myself is, “So what if some people earn more than others”. People are allowed to earn more, especially if they worked harder.  Being the centrist that I am, I certainly don’t have a problem with some people making more money than others. The people who do really well probably did work harder, went to school longer, are just smarter or had some great ideas that they turned into a profitable business. I for one see no problem with some people earning more.

But the biggest question in my mind that I can’t ignore is this…

If the top 1% earns 29 times more than the average, did they work 29 times longer or harder?

There are a few things to consider here. First lets look at the value of time. If the average person works 40 hours a week, then someone who earned 29 times as much should have worked 1,172 hours per week. Of course this is physically impossible. There are only 168 hours in a week.

Next let us figure in the factors of efficiency. Certainly people can earn more and be more productive by being more efficient with their time. Some people can work harder and smarter making the value of their time worth more. So let’s say someone in the top 1% can increase the value of their time by a factor of 3.  They can accomplish 3 times as much as the average person by being smarter with their time and by working faster and harder.  This would bring their 1,172-hour workweek down to 391 hours. This is still physically impossible.

Let’s stop for a moment to consider what IS physically possible. There are 168 hours in a week. Certainly all this time can’t be spent working. We still need to sleep, eat and go to the bathroom. Let’s assume someone only takes 6 hours out of the day to sleep, eat, poop, and works the other 18 hours each day towards earning money. That leaves only 126 hours possible to work each week.

After we’ve figured in the value of time and the greater efficiency that someone may work with, we came up with 391 hours needed to work in order to earn 29 times as much. If it’s only possible to work 126 hours a week, we subtract this from 391 hours and we are left with 265 hours to account for.

So, we have someone in the top 1%, who works 18 hours a day, 7 days a week and works 3 times more efficient than the average person. But they still earn 265 hours more per week than the average 99%. How do we account for this?  The other factors we have not yet considered are innovation, ingenuity and talent. These are much harder to account for. How do you place a value on innovation or ingenuity?  How much should someone be rewarded for coming up with the next best invention? According to our figures here, assuming someone in the top 1% works 126 physical hours at 3 times the efficiency, they are then rewarded in addition to their time, another 6.6 times more than the average worker. Is this right? Maybe, maybe not? (The above is just an example to consider. We could change the numbers to say that someone in the top 1% still only works 40 hours per week at twice the efficiency, which would be a value of 80 hours per week. This would mean that their innovations or ingenuity earned them an additional 1,092 hours per week or 27 times more than the average person.)

While we don’t want to punish hard work and innovation, we need to be mindful of what can happen to our economy and society when a few people earn exponentially more than the average worker.  This situation can and has had drastic effects on inflation, the cost of living, job creation and can also affect new start-up companies. All of these topics and problems we address further in my book Social Capitalism.

The above are just questions that look to find the right balance between rewards and the work or innovations that people put into the system.  Then there are questions concerning  how taxes and tax fairness play into all of this.  While I believe people should be rewarded more for working harder or smarter, there are many problems that arise in an economy where there is a largely disproportionate system of rewards and concentrations of wealth in the hands of the few.

Does this mean that the wealthy are earning too much or is the average worker earning too little?  In order for the average worker to earn a bit more it has to come from somewhere, typically out of the high profits and earnings of the top 1%. While many would call higher taxes on the wealthy a form of wealth redistribution (which it is), we need to also ask, “Is higher taxes on the wealthy punishing the rich or is it a necessity to ensure a balanced, healthy system and society?”

What do you think?