How Capitalism Is Undermining the Indian Caste System

By Swaminathan S. Anklesaria Aiyar of Cato.

"Karl Marx was wrong about many things but right about one thing: the revolutionary way capitalism attacks and destroys feudalism. As I explain in a new study,  in India, the rise of capitalism since the economic reforms of 1991 has also attacked and eroded casteism, a social hierarchy that placed four castes on top with a fifth caste—dalits—like dirt beneath the feet of others. Dalits, once called untouchables, were traditionally denied any livelihood save virtual serfdom to landowners and the filthiest, most disease-ridden tasks, such as cleaning toilets and handling dead humans and animals. Remarkably, the opening up of the Indian economy has enabled dalits to break out of their traditional low occupations and start businesses. The Dalit Indian Chamber of Commerce and Industry (DICCI) now boasts over 3,000 millionaire members. This revolution is still in its early stages, but is now unstoppable. 

Milind Kamble, head of DICCI, says capitalism has been the key to breaking down the old caste system. During the socialist days of India’s command economy, the lucky few with industrial licenses ran virtual monopolies and placed orders for supplies and logistics entirely with members of their own caste. But after the 1991 reforms opened the floodgates of competition, businesses soon discovered that to survive, they had to find the most competitive inputs. What mattered was the price of your supplier, not his caste.

Many tasks earlier done in-house were contracted out for efficiency, and this opened new spaces that could be filled by new entrepreneurs, including dalits. DIOCCI members had a turnover of half a billion dollars in 2014 and aim to double it within five years. Kamble says dalits have ceased to be objects of pity and are becoming objects of envy. They are no longer just job-seekers, they are now job creators.

Even in rural areas, dalits have increasingly moved up the income and social ladders in the last two decades.  One survey in the state of Uttar Pradesh shows the proportion of dalits owning brick houses is up from 38 percent to 94 percent, the proportion running their own businesses is up from 6 percent to 36.7 percent, and the proportion owning cell phones is up from zero to one-third. Some former serfs have now become bosses. A rising proportion have become land-owners, and sometimes hire upper-caste workers. Even more revolutionary, say dalits, is the change in their social status. Once they were virtually bonded laborers, and could not eat or drink with the upper castes. Today the bonded labor system is almost gone, and dalits operate restaurants at which upper castes eat and drink. They remain relatively poor and discriminated against, but economic reform since 1991 has revolutionized their social and economic status."

Do managers throughout the country need to be coerced by government to run their firms more efficiently? (Donald J. Boudreaux on the new overtime rules)

Click here to read it.

"Here’s a letter to the Wall Street Journal:

In your report on Pres. Obama’s proposal to force more workers to accept as part of their employment contracts greater eligibility for overtime pay, you quote Sloan School of Management professor Thomas Kochan saying that such a government-imposed mandate “helps drive up productivity” by leading “management to look for more efficient ways of doing their business” (“Overtime Rules Send Bosses Scrambling,” July 21).

Wow.  One wonders what’s being taught at business schools such as Sloan.  If Prof. Kochan is correct that managers throughout the country must be coerced by government – which is manned chiefly by people with J.D.s and not MBAs – to run their firms more efficiently, the value of a business-school education must be quite low.  Do such schools teach their students even less about how to efficiently run businesses than is taught to students in law schools?  Apparently so.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"

Want to join the 1%? Nothing is stopping you

By Steven Horwitz. Excerpt:

"Studies show that between 2001 and 2007, about half of the households in the lower 20% of income moved up, while one-third of the households in the top 20% in 2001 were no longer there in 2007. We see similar movement among the Fortune 500 companies. This kind of mobility has been measured for decades, and the longer the period we look at, the more likely it is that poor households will get out of poverty.

These results should not surprise us, as we have seen the dynamics of the economy in action over the last few decades. Companies like Facebook FB, -2.24%  or eBay EBAY, -0.80%  or Amazon AMZN, -0.26%  , not to mention brick and mortar stores like Whole Foods WFM, -0.35%  , Chipotle CMG, +8.11%  , or Walmart WMT, +0.82%  , are all companies that we had never heard of or were much smaller 20 years ago.

On the other hand, there are at least as many firms that were household names that are now gone or are mere shadows of their former selves: Radio Shack RSHCQ, +9.81%  , Netscape, Borders books, Eastman Kodak KODK, +0.27%  , and Blockbuster Video BLIAQ, -30.67%  are a few examples.

This turnover is the dynamism of the market economy and it changes the fortunes of individual workers and owners every single day. It is what economist Joseph Schumpeter called the “creative destruction” of the market. That creativity does come with destruction, and many people who thought they had comfortable, assured incomes have seen those disappear over time as new people have entered the 1%.

All of this churning does make life less certain, but it also delivers better and cheaper goods, so that even if our incomes don’t rise a lot, falling prices due to competition make us richer.

Income mobility is a byproduct of a healthy economy in which firms and workers are constantly facing pressure to better serve consumers. People who come up with new and better ways to do so see their income rise and those who cannot keep up see their incomes fall.

One thing that prevents new people joining the 1% are interventions that attempt to prevent the losses from that churn. Political privileges like bailouts lock in inefficient firms disconnecting incomes from having pleased consumers, and undermining upward mobility and the American dream. Imagine if we had bailed out Radio Shack when their early computers didn’t sell, or Netscape when people stopped using that browser.

We would never have had Apple AAPL, -4.39%   or Google GOOG, +0.91%   and all the benefits they have brought.

The only problem with capitalism in America is that some people insist on getting in the way of the free market, thus limiting its power. If we leave capitalism alone and don’t tinker with it as California just did in the Uber case, it will do just fine.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University in Canton, N.Y., and an affiliated senior scholar of the Mercatus Center in Arlington, Va."

Arguments for socialism are based logical fallacies and historical ignorance

See Checkmate, Capitalists! at FEE by Jason Brennan, Assistant Professor of Strategy, Economics, Ethics, and Public Policy at Georgetown University.

"Look upon this meme, ye capitalists, and weep.

Socialists are people who either 1) are badly misinformed about social scientific matters, or 2) make a common philosophical mistake that I’ve dubbed the “Cohen Fallacy,” in honor of G.A. Cohen.

Regarding 1: Here is a ranking of all countries by how capitalist they are as of 2011. Where are the starving people generally located? Is it in the most capitalist countries?



By the way, here’s the trendline in absolute poverty around the world, thanks to globalization:

 

Regarding 2: I suspect what most socialists have in mind is an argument like this:

Sure, in realistic cases of socialism, such as the forms of socialism practiced in the 20th century, we had mass famine and forced starvation.

But in ideal socialism, the form of socialism I endorse, people would all love each other, share, and care! And so no one would starve. Ideal socialism is superior from a moral point of view to capitalism as we actually find it.

The problem with this argument, as I explained in Why Not Capitalism?, is that this is a bad argument:

1. Socialism with perfect, morally flawless people who always do the right thing is better than capitalism with real people, who are imperfect, morally flawed, and often act badly.
2. Therefore, socialism is better than capitalism.

The problem is that this argument leaves open whether capitalism with perfect, morally flawless people is better than, on par with, or worse than socialism with perfect, morally flawless people. It also leaves open whether capitalism with realistic people is better than socialism with realistic people.

As I argue in Why Not Capitalism?, ideal capitalism is morally superior (from a hard left-wing point of view) to ideal socialism. And I don’t see it even as debatable at this point that realistic capitalism, for all its flaws, is superior to realistic socialism.

Socialists might retort that capitalism makes us worse people while socialism encourages virtue and kindness. However, that’s a testable empirical claim. People like Herbert Gintis and Joseph Henrich, among others, have tested it, and it turns out to be the opposite of the truth."

Dealing with the California Drought (better property rights and allowing water to be sold)

By Peter Van Doren of Cato.

"California has had several years of record low rainfall, resulting in a severe water shortage. Gov. Jerry Brown (D) has responded by ordering a 25 percent reduction in urban water system use.

Are there any solutions to the state’s water shortage other than government mandates? Gary Libecap, professor of environmental management at the University of California, Santa Barbara, argues in a recent issue of Regulation that the restoration of clear water ownership rights and the cultural and political acceptance of water markets is an easier solution.

Conventional accounts of water problems in the West often blame farmers and their excessive use of water in places like the vegetable-farming Central Valley. But according to Libecap, “farmers are not the source of the problem. … Most would be pleased to sell or lease water that could earn more than is generated in agricultural production.”

But farmers haven’t traded away some of their water rights because of the “public trust doctrine,” as first described in a 1970 Michigan Law Review article by Joseph Sax. Libecap explains:

According to Sax, the judiciary could direct public policy for protecting diffuse public uses from narrow private ones. The article energized legal scholars and advocacy groups to expand the doctrine and to weaken private property rights. 

The most celebrated incorporation of the public trust doctrine came in 1983 when the California Supreme Court in National Audubon Society v. Superior Court ruled that the “core of the public trust doctrine is the state’s authority as sovereign to exercise a continuous supervision and control over” the waters of the state to protect ecological and recreational values. The ruling expanded the role of the state in reallocation of water as public values changed; asserted that existing rights were non-vested and therefore could be reallocated without compensation; and affirmed broad, open standing to citizens to raise a claim of harm under the public trust against private water users.

As a result of that court decision, the practice of restricting water trades in California is widespread. Some 22 counties have enacted ordinances that block groundwater transfers. When communities are granted a veto over proposed water transfers, “water rights are so diffused and uncertain that no party (except farmers) bears the opportunity costs of failed exchanges,” according to Libecap. “The solution is to define water rights more precisely” and allow exchanges.

Some fear that environmental concerns such as stream flows adequate to support fish habitats would be given short shrift without the public trust doctrine. But, writes Libecap,

private water rights are traded for augmenting stream flows routinely by Oregon’s Freshwater Trust… Environmentalists pay for the water desired for streams. Hence, state environmental mandates are not necessary to protect aquatic and riparian habitats.

In an ideal world, there would be no federal water projects that benefit California farmers. But that policy reform is a long way from happening. In the meantime, facilitating water trades from those farmers to urban consumers would allow water to be priced correctly to reflect its scarcity and eliminate the need for arbitrary regulatory restrictions on water use."

Breaking Down the Barriers: Three Ways State and Local Governments Can Improve the Lives of the Poor

By Steven Horwitz of Mercatus.

"Economists are familiar with the regressive effects of government policies such as occupational licensing, minimum wage, zoning laws, and taxes, but policymakers often ignore these issues when debating inequality and poverty. Policymakers who see redistribution as a path to upward mobility should be looking more at existing government regulation and taxation and how they make upward mobility more difficult by erecting barriers between the poor and economic success.

In a new study for the Mercatus Center at George Mason University, economist Steven Horwitz examines several government policies and concludes that regulations and taxes prevent upward mobility by burdening the poor more heavily than those who are better off. Many of these regulations and taxes are products of the private interests of current producers who stand to benefit from government encroachment into business.

To read the study in its entirety and learn more about its author, see “Breaking Down the Barriers: Three Ways State and Local Governments Can Improve the Lives of the Poor.”

KEY FINDINGS

One reason that people seeking upward mobility are prevented from advancing is the fact that starting a new business or entering a new occupation is often unnecessarily expensive and complicated by government regulations. These regulations may exist primarily to protect the people who are already in the market from new competition, rather than because of any real danger to consumers. There are a number of ways in which state and local regulation and taxation make it harder for lower-income households to achieve upward mobility.

Occupational Licensing

Occupational licensure laws disproportionately burden the poor by requiring them to spend significant resources just to enter a market. These laws require prospective professionals to pass tests and spend hundreds of dollars on classes and fees, and subject them to oversight from boards and regulators largely composed of those who already compete in the market.

Many of these regulations are also unnecessary because the jobs in question do not present any real risks to the public. Consumers can use services such as Yelp to research products or providers online before making a purchase. Instead of protecting consumers, these regulations often serve to protect those already in an industry by limiting competition. This, in turn, reduces upward mobility for the poor and raises prices for consumers.

Uber’s experience provides a case study of many of these issues. Uber is a ride-sharing service that provides new employment opportunities for those in need as well as cheaper transportation for those of modest means. Yet Uber also eats into the profits of taxi companies, at least part of which are a result of taxi companies’ politically privileged position in the market. Unsurprisingly, traditional taxi companies are protesting the service, claiming it is illegal and dangerous because it is not subject to the same regulations as taxis. 

Zoning and Other Small Business Regulations

Zoning laws are intended to limit situations where certain types of business activities interfere with residential living. However, similarly to occupational licensure laws, zoning laws are often used by those with access to political power to reduce competition from rivals who are able to provide services at a lower cost.

In Chicago, for example, all businesses must have a basic business license that costs $250 for two years, and violating this law can cost hundreds of dollars per day. Those attempting to renovate a building or operate a business out of their home must complete an application process controlled by the Department of Zoning. Even getting permission to change a sign may require dozens of forms.

These types of laws deny people the opportunity to provide for their families through their hard work and personal skills. Repealing regulations that restrict business opportunities would enrich poor people and give them control over their own lives, reducing dependency on government.

Regressive Taxation

Government policies can also raise the cost of living in ways that disproportionately affect lower-income households. Regulations that raise prices by imposing taxes on the sale of certain products are one type of policy that can have such regressive effects. If the goods and services being taxed are consumed disproportionately by low-income households, the resulting higher prices increase such households’ cost of living disproportionately and are thus considered regressive.

“Sin” taxes—taxes that are intended to change behavior of consumers—are one prominent category of taxes with a disproportionate effect on the poor.

• Sin taxes are often imposed on alcohol and tobacco, but recent proposals to tax sugary drinks or fatty foods would also fall under this category.
• While the intent of the taxes is to discourage people from consuming the taxed goods, economic evidence suggests that these taxes do not have much of an effect on behavior. Because the poor also tend to spend a larger share of their disposable income on these goods than do the rich, sin taxes have a disproportionate effect on the spending power of poor households.

CONCLUSION

Many discussions of poverty and inequality are bogged down in debates about tax rates and government spending, trapped under the assumption that the cause of some people’s poverty is other people’s wealth. One key factor preventing upward mobility is state and local regulations that make it more expensive and time-consuming for the poor to open new businesses or enter a new profession. By eliminating burdensome business regulations such as occupational licensing and zoning restrictions and by refraining from imposing sin taxes, policymakers can let the poor help themselves move up and out of poverty."

How much can deregulation and government spending cuts raise the growth rate of real economic well?

See The Merits of Cochrane's Case by David Henderson of EconLog. Excerpt:

"My article is "The Case for Small Government," and it's in Fortune, June 26, 1995.
An excerpt:

When macroeconomists look at U.S. data on real (inflation-adjusted) GDP, they notice something interesting: The economy's growth rate seems pretty stable. Many then conclude mistakenly that economic policy doesn't matter much. This tendency is bipartisan. Robert Lucas, a libertarian/conservative economist at the University of Chicago and someone who is likely to win the Nobel Prize for economics within the next ten years, once said, "I think this economy is going to grow at 3% a year, no matter what happens. Forever." Exhibit A for liberal economists is Paul Krugman of Stanford. In these pages (Fortune, May 1), in a piece mainly devoted to defending the welfare state, Krugman wrote: "[T]he underlying growth rate of the U.S. economy has been a very stable 2.5% right through the past five Administrations." 

Krugman asserted that any politician who claims he can raise the economy's growth rate "by as much as three-tenths of a percentage point is naive--or worse." Maybe, but that doesn't mean a politician can't add three-tenths of a percentage point to the growth rate of economic well-being.

I then went on to make some back-of-the-envelope calculations of the effects of cutting government spending:

Look at the numbers. Simply to have a benchmark that allows us to look at changes, assume that today's $7 trillion GDP, with its current makeup of government and private-sector production, is a measure of economic well-being. To raise the growth rate by one-tenth of a percentage point, you would have to increase economic well-being by $7 billion. Three-tenths of a percentage point, therefore, is $21 billion. Is a politician naive if he promises a $21 billion increase in economic well-being? Not at all. Privatizing the Postal Service alone could achieve that goal for one year. One more fat example along these lines: Say the Department of Defense spends $10 billion a year on a weapons system over a period of ten years. To get members of Congress to vote for that system, the Pentagon usually has to promise to have it produced in various key members' districts, even though that's hardly the most efficient use of taxpayers' money. Unconstrained by congressional pressures, let's say that the Pentagon might have been able to acquire the same quality of weapons system for $60 billion instead of $100 billion. Again, for the nation's GDP, it doesn't matter whether the government spends $100 billion inefficiently or spends just $60 billion and leaves $40 billion in taxpayers' hands. But for our economic well-being, it matters a lot. If the government procured weapons efficiently, Americans would be better off by $40 billion. 

Of course, eliminating one program or streamlining procurement policies at one department would not permanently increase the U.S. growth rate. You can't privatize the Postal Service twice. But these examples just scratch the surface. The simple fact is that government has gotten so huge that just by eliminating a few programs a year you could increase the growth rate of economic well-being by three-tenths of a percentage point for at least five years. 

Here's how. Assume conservatively that moving a function from the government to the private sector would lower its cost by one-third. Therefore, you would have to move only $63 billion a year in functions out of government to get to $21 billion in savings. That's only about 4% of the U.S. budget. If you did this every year for five years, you would cut the federal government's budget by about 20%.

On deregulating:

Moreover, privatizing government activities isn't the only way to cut back government and make everyone better off in the process. There's another way to achieve a higher growth rate in economic well-being: deregulate. At the height of the Interstate Commerce Commission's power, its budget was well below half a billion dollars a year. But Thomas G. Moore, a senior fellow at the Hoover Institution and a leading transportation economist, points out that the ICC's budget measures only a tiny fraction of the damage this one agency has done to the U.S. economy. By keeping rates high and restricting the items truckers could carry, the ICC caused a lot of trucks to go out half full and return empty. The ICC's so-called gateway restriction also meant that if a trucker had only two licenses, one to deliver from, say, Charlotte, North Carolina, to Indianapolis, and the second to deliver from Indianapolis to Memphis, the only way he could legally deliver from Charlotte to Memphis would be to drive to Indianapolis first, even if he had nothing to deliver there. This restriction wasted millions of gallons of fuel and thousands of man-years every year. The longer delivery times that the ICC spurred by restricting entry also induced businesses to hold much higher levels of inventory than would have been needed had transportation been cheaper. 

Moore estimates that deregulation under Presidents Carter and Reagan increased shippers' economic well-being by about $60 billion, most of which was in the form of lower prices. As recently as two years ago, Moore predicted that ridding the nation of federal and state trucking regulations would save shippers as much as $20 billion a year. That is happening now. Last August, Congress eliminated almost all remaining interstate and intrastate regulation of the trucking industry, and President Clinton, the House of Representatives, and the U.S. Senate have all agreed that the ICC should be abolished."