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Share the pie more evenly or make it bigger?

January 6th, 2011 Posted in Uncategorized by

It’s a perrenial debate, and every time we discuss poverty, and the question of whether the solution is to share the wealth more equally or to increase the overall amount of wealth, a pie metaphor emerges.

So hat-tip to Chapman University student Joy Buchanan at Economnomnomics for this humorous and informative cartoon.

economicpie2

Of course, this graph may be more to the taste of the traditionalist.

gdpspikesm

But personally, when it comes to taste, I prefer a big bit of pie.

12 Responses to “Share the pie more evenly or make it bigger?”

  1. Tristan Says:

    This debate is set in such artificial terms.
    The assumption is that its an either/or situation. The third alternative, a bigger pie and more equitable division should be considered.

    Perhaps if people were freed of the inequality of authority which plagues us (in its myriad of forms) and the primitive accumulation which still affects out lives today can be dealt with then we could have an even more vibrant economy which also has greater equality.

    Can we have the best of both worlds? I think we could – greater wealth need not mean greater inequality, its only our (state) capitalist system which causes this.

    Sadly left- and right-conflationism abound – the left assuming that the current inequalities and problems are caused by free markets and the right assuming that free markets are driving growth, both false in the assumption of free markets today (egged on by the newspeak of politics).


  2. Lotus 51 Says:

    Tristan,
    I agree with you that “(state) capitalism” causes inequality. However I can’t agree with you that markets are not the chief driver of growth though.

    We’ve known since Ricardo’s law of comparative advantage why, in theory, markets and trade do indeed grow the pie more quickly and the theory has been borne out by centuries of observable economic evidence – no country has got rich by closing its borders to trade.

    I think it is markets and not necessarily capitalism that drives growth; markets being merely a means of exchange and capitalism a system of ownership. It’s the market bit rather than the capitalism bit that I believe has contributed most to the economic growth of the west.

    “State-capitalist” countries with protected markets have exhibited slower growth than countries with a more market-based free trade approach. As an example I can think of Portugal and Spain, who under Salazar and Franco respectively endorsed “state capitalism” but closed their borders to trade (even between each other) and controlled their own markets* thereby imposing upon its people decades of slow growth compared to Northern Europe.

    Capitalism is no guarantor of economic growth, but when it is coupled to a market economy there is no other system to beat it….. if growth is your aim.

    That’s not say that we can’t have economic growth without capitalism though. In a free economy, mutualism and communal ownership can co-exist with capitalism. In the UK we have several examples of this – John Lewis, the Co-op, building societies, mutual insurance, etc.

    Also I’m not sure how you can have an equitable distribution of the pie at all, much less at the same time as strong economic growth. Even the Soviets failed at sharing the pie out equally. I think the best a society can achieve is if some of the pie is used to ensure all have a dignified life with health-care, education and opportunity.

    Maybe I’m misreading you, but I can’t see how you can possibly divide the pie equally AND create the circumstances for economic growth. It’s never been achieved in any society that I have heard of.

    I would go along with that classical liberal Milton Friedman “A society that strives to put equality above freedom, achives neither. However a society that puts freedom above equality achieves a good measure of both”

    *Even in their own economies they did not allow a market or any competition bewteen companies. For example in Portugal the breweries were privately owned and granetd a licence by the state to run a monopoly in a certain region. That is state-capitalism for you!

    Aplogies for the long post; just happenend upon this excellent website and got carried away.


  3. Tom Papworth Says:

    Lotus 51: “That’s not say that we can’t have economic growth without capitalism though. In a free economy, mutualism and communal ownership can co-exist with capitalism.”

    I’m not sure I see a distinction between mutualism and capitalism. The point is that the means of production are privately owned. Whether that is by a consortium of investors or a consortium of workers is immeterial.

    Having said that, the John Lewis model is an interesting one because, of course, John Lewis provided the capital and hsi son gave the shop away. So it began as a very traditional form of investor-owned business. In theory, BP could become a mutual in the same way if its shareholders so voted. The question, therefore, is whether one can name any genuine from-conception mutuals that have been so successful.

    Another interesting point about mutuals is that workers, if they really wanted ownership of the means of production, could always ask for their wages to be paid in shares instead of cash. Or they could use their wages to buy shares. There is a very good reason why they don’t. Generally, wage-earners (labour) are fairly risk averse, whereas investors (capital) are far more willing to risk losing their stake.


  4. Lotus 51 Says:

    Tom,
    I take your point about mutualism being a form of private ownership. I guess one should also make a distinction between the mutuals (building societies, insurance houses) which are owned by their customers and likes of John Lewis which are owned by the workers. And you’re right I can’t think of any major successful business that was genuinely mutual from inception. My point was that a free economy and society doesn’t preclude communalism. If a group of socialist leaning people want to live within a commune they are free to do so in a free society and can set up their own enclaves and distribute their income and share ownership (like a kibbutz) but in a totalitarian one (whether communist or fascist) you do not conversely have the freedoms of market economy.

    I still think that that capitalism without markets and trade is a very poor economic model. I’m sure most would agree.

    BTW. This website has completely taken me by surprise. I had always thought the LDs were social democrats by another name and the “Liberal” bit was a relic of the past. If nothing else this coalition government has got me to take a deeper look at the LDs and examine my prejudices. As a social and economic liberal I’ve never really found a political “home” and have always voted Conservative. I still don’t know how the LDs can reconcile liberalism with the corporatism and democratic unaccountability of the EU.


  5. Steve Travis Says:

    “I still don’t know how the LDs can reconcile liberalism with the corporatism and democratic unaccountability of the EU.”

    Many of us don’t.

    But the simple answer is to do with the correct level of devolution of powers. If you devolve power down (and up) to the right level, then the demos for that level should ensure correct accountability.

    At present both Westmisnter and Brussels hold powers that rightly should be devolved down. And occasionally its the other way too.


  6. Steve Travis Says:

    “I had always thought the LDs were social democrats by another name and the “Liberal” bit was a relic of the past.”

    An interesting comment.

    I’ve always thought too many small-l liberals have voted Conservative (wrongly) by default. Some also voted Labour for similar reasons. There is the space for a genuinely liberal centrist party and hopefully we’re on the way to creating it.

    However, many in the party will tell you that the SDP influx was often more liberal than the old Liberals (Vince Cable and Simon Hughes passim)


  7. Lotus 51 Says:

    “There is the space for a genuinely liberal centrist party”. I can’t see liberalism being electorally succesful as a “centrist” party under the old left-right political spectrum. There simply isn’t room for 3 parties under FPTP.

    Surely the way for electoral success of liberalism is to define and shape the political debate on an authoritatrian-liberal axis, not as centrists in a right-left axis. This would pave the way for a socially and economically liberal party on the one side and Labour on the other side.

    We all suspect that this is Cameron’s strategy. I’m in favour of this with the exception of the LD-Cameroon stance on Europe and the inchorence of their energy policy. I fear Europe may be the stumbling block for a successfull merger of liberal LDs and libertarian Conservatives.


  8. Tom Papworth Says:

    Lotus 51:

    “I had always thought the LDs were social democrats by another name and the “Liberal” bit was a relic of the past.”

    Welcome to Liberal Vision! The short-hand version of our mission statement would be “to address that misconception”. The truth is that the LDs (and indeed all) parties have drifted towards a sort of social democracy (or, in the case of the Tories, Bismarkian Conservativism) over the years. However, those of us who cling to the liberal (and whig) tradition continue to advocate the value of economic and social freedom.

    Steve correctly identifies the fact that over the years liberals gravitated towards one of the other parties (generally labour – the Tories’ capture of economic liberalism was belated and always half-hearted) but I feel that our natural home is still in the Lib Dems – as did Arthur Seldon, the first editorial director or the IEA.

    “I can’t see liberalism being electorally successful as a “centrist” party under the old left-right political spectrum. There simply isn’t room for 3 parties under FPTP.”

    FPTP is not the entire problem: in theory, a two-party contest between all liberals and all social democrat/conservatives would be possible. But so far we have failed to find an effective voice. As for “centrist”, I simply reject the left-right analysis, which I think misrepresents the political arena for the specific benefit of politicians and journalists.

    “I still don’t know how the LDs can reconcile liberalism with the corporatism and democratic unaccountability of the EU.”

    I agree with Steve and would go further. Most Lib Dems reject the “corporatism and democratic unaccountability of the EU”. However, most still see virtue in the EU overall. As an example, I would want Lib Dem MEPs to work in Europe, alongside our Swedish (and probably German) colleagues, to scrap the CAP, which is illiberal and highly damaging. Sadly, too many of our MEPs get captured by the EU and become advocates of Europe in the UK instead of advocates of liberalism in Europe.

    Anyway, I’m glad LV is proving a (hopefully pleasant) surprise. Welcome!


  9. Lotus 51 Says:

    Tom,
    “I would want Lib Dem MEPs to work in Europe, alongside our Swedish (and probably German) colleagues, to scrap the CAP, which is illiberal and highly damaging”.

    I was born and brought up in Portugal on the border with Spain and spent my early career in Spain and speak both languages, I also have a Portuguese passport. My father is a farmer with a large arable farm (still in Portugal) and obviously my family has received many CAP subsidies and grants…….

    You will not find two more implacable Euroscpetics than myself and my father. The CAP is not just illiberal, it is utterly indefensible.

    The EU that liberals might endorse is not on offer and never will be. Liberalism is just not in the DNA of the European political tradition. I don’t share your optimism that the EU could ever be anything but brutally centralising, iliberal, beaurocratic, wasteful, corporatist and unaccountable. I believe this not because I am a xenophobe, but as a consequence of my direct experience of EU policies, and the waste and fraud it leads to.

    “However, most still see virtue in the EU overall.”
    The EU will never be a Jeffersonian-style federal democracy, we should recognised this reality. At some stage we will have to decide to stay on the ratchet of an ever-more authoritarian, corporatist EU or exit the EU completely and enjoy free trade and cooperation.

    Anyway, all power to LV, keep up the good work.
    Next thing on my to-do-list is to read the “Orange Book”.


  10. Tristan Says:

    I’m not sure I see a distinction between mutualism and capitalism. The point is that the means of production are privately owned. Whether that is by a consortium of investors or a consortium of workers is immeterial.

    In capitalism the means of production are owned by a minority (the capitalist) and that creates an imbalance of power which enables the capitalist to exploit the worker, claiming some of the product of the worker’s labour.

    A mutualist economy would differ in that the means of production would be widely spread and there would be no artificial barriers to self employment. That’s not to say that wage labour would not exist, but that which did exist would be on far more equitable terms as the worker could withdraw their labour far more easily (just as the capitalist today can withdraw their capital from the worker).

    John Lewis etc are really part of the current capitalist system. The shareholders just happen to work for the bosses, they exert no real control over the business and are subject to the same distortions that capitalism brings.

    (note I am using classical definitions – if you equate capitalism with a truly free market then the outcome may well be similar – although property rights may be a sticky issue – mutualism tends towards possession rather than property).


  11. Psi Says:

    So Tristan, you don’t believe we live in a capitalist system now then?


  12. Tom Papworth Says:

    Psi, I’m loath to answer for Tristan, but I imagine that he does not – at least, not if you discount State Capitalism as real capitalism.

    Tristan,

    “In capitalism the means of production are owned by a minority (the capitalist) and that creates an imbalance of power which enables the capitalist to exploit the worker, claiming some of the product of the worker’s labour” sounds like it has just been lifted from Marx!

    The capitalist does not “exploit” the worker; he offers the worker capital goods with which to work which improve the worker’s productivity and so benefits the worker. He does not “claim [any] of the product of the worker’s labour”; he shares the product of the combination of capital and labour with the person providing the labour. Specifically, he gives the labourer an agreed fee and tries to ensure that there is a surplus that he (the capitalist) can keep – while, of course, shouldering the risk that there will be a shortfall.

    The point I made above was that this arrangement appeals to the labourer, who is one of the vast majority of people with a low risk-threshold.

    I would also dispute the suggestion that under your alternative, “the worker could withdraw their labour far more easily (just as the capitalist today can withdraw their capital from the worker)” At present it is far harder for capital to withdraw than for labour: a capitalist has to pay off redundant workers; risks employment tribunals; and cannot “lock out” labourers during wage negotiations. Labour cannot even realistically be forced to work their notice but they are legally protected if they break their contract – for example, by not attending work so as to force the hand of the employer during negotiations.

    The overall problem with mutualism, as I see it, is that most workers would not want to risk all by staking their capital on a single investment (a single firm), let alone fail to diversify further by staking both capital and labour on the same firm.

    It is also natural that some individuals will accumulate wealth/capital over a lifetime, and that therefore some families will accumulate wealth/capital too. This capital will need to be invested, probably pooled with others in unequal amounts. This is especially true as they will want to diversify their investments, which means investing capital in firms where they do not labour. This is the reason why the Joint Stock Company was invented, and I suspect that it would naturally emerge in any free society.