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An imperfect liberal democratic perspective

By Chris Lewis - posted Tuesday, 25 January 2011


This article is a response to comments made to in regards to my previous OLO effort about whether Western nations can remain affluent and fair, especially one that portrayed me as just another leftist statist with little understanding of economic theory (notably the Austrian school).

First, I admit that I have little interest in theory. Rather, I am driven by issues, making my conclusions after evaluating a wide range of evidence collected from all sides of the debate. Grand theories that supposedly explain or advise us about what to do in such a complex world have never really impressed me.

Nevertheless, I have become aware of the Austrian school in the last couple of years due to its followers blaming governments for the global financial crisis (GFC) and attacking recent government stimulus. In general terms, the Austrian School argues that the expansion of the money supply promotes lower (short-term) interest rates either through an inflow of gold, printing of money, or financial innovations, which tend to stimulate borrowing from the banking system and create an unsustainable boom.

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In response to the GFC, Peter Schiff called on the US to allow free markets to work by eliminating deficit spending, bailouts, stimulus packages, central bank control of interest rates, or mortgage safety. He also called for the reduction of corporate regulation to allow loss and failure, much lower federal income taxes to spur savings and real production, and a major reduction of borrowing from foreign countries.

While it is argued that the Austrian school provides an incomplete account of the business cycle by downplaying unemployment considerations, thus providing a “recipe for intellectual and policy disaster and theoretical stagnation”, I do accept the Austrian school concern at the extent of the recent stimulus response. My gut feeling is that shorter-term pain is preferable to longer term economic mediocrity that may result from Western governments going much further in debt.

But my perspective differs severely with the Austrian School in regards to its call for government to get out of the way. For instance, the Austrian School supporter Wolfgang Kasper argued at a recent New Zealand Business Roundtable that the German economic miracle “carried within itself the germs of its own destruction, because the free-market design was coupled with a commitment to political redistribution”, an aspect compounded by its mixed member proportional-style electoral system which fosters “political populism and opportunism”.

Kasper also refers to the prowess of the pragmatic East Asians who are “much less guilt-prone and futurophobic than the affluent Westerners or the adherents of conservative Islam”. In making his policy recommendations for New Zealand, he even refers to the modern example of China which has abandoned nineteenth-century Marxism in “favour of a widely shared Schumpeterian ‘can-do’ paradigm”.

For all of Kasper’s talk of enhancing any discussion of political economy by thinking more about “normative issues such as freedom versus security, efficiency versus justice, or growth versus the preservation of a liveable environment”, should we really be inspired by China’s can-do mentality?

Take some of the factors behind the ten employees of the Taiwanese-owned Foxconn (maker of iPhones and iPads for Apple and computers for Dell) who killed themselves in early 2010.

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Foxconn, the world’s biggest electronics outsourcing manufacturer, which then operated 20 plants and employed more than 800,000 Chinese workers in China, paid their workers a basic monthly wage of 950 yuan ($US140), at least in Shenzhen in line with its official minimum wage, but employees need to work many hours of overtime each day to make the necessary 2,000 yuan needed to meet basic needs.

Foxconn recruits also undergo a course of “military training” to prepare them for the company’s industrial discipline, typical of export factories in China, while its workers live in dormitories with up to 10 people a room where one cannot cook, have visitors or sexual relations. Further, the dorms have no air conditioning, although air conditioning operates on the factory floor.

On production lines, there are restrictions on how often workers may go to the toilet, and extensive security surveillance which ensures that workers barely communicate with each other.

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About the Author

Chris Lewis has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

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