My last post on Social Planning did not address the issue of externalities as well as I would have liked so I decided to write some more on it.

For the first part of the arguement, consider the example of a lighthouse from George Reisman’s book Capitalism: A Treatise on Economics (pdf version available here. Note: I have not read it fully). A lighthouse benefits all the ships that use its light whether their owners have paid for the construction and maintenance of the lighthouse or not. So there is no immediate incentive for any individual shipowner to pay. In such cases, it is claimed that lighthouses will be under produced. Reisman writes that ship owners could make their payments contingent on the payment of a sufficient number of other ship owners’ payments thus creating an incentive for everyone who wants a lighthouse to pay for it. These kinds of solutions do not figure in economic models based on the assumption that individuals act to maximize their utility, with no consideration for what effect their acts have in a wider context. This is simply not true. How would such a model explain the existence of this blog, activist groups, charities etc? Man is not homo-economicus. He is capable of a wider understanding of the world. Stripped of all the mathematics, the externalities arguement is essentially a claim that men are too short-sighted to act for their long term good. It is ironic that proponents of social planning use economic models based on short-sighted decision making to “prove” that the free market must fail and then use this “proof” to argue that people should elect a government which will magically not be hampered by short-sightedness. How do the votes of millions of short-sighted men result in an elite group that is not short-sighted? The fact is that governments voted into power by short-sighted men are far more short-sighted than any of the voters. Witness the incredible spending sprees that governments around the world are indulging in, with no thought of who, when and how will create the goods to support all the extra money being created and what will happen to the economy when the money is finally presented for consumption. Witness the fact that the liabilities of all social support programmes keep on increasing.

Secondly, as I mentioned briefly in my previous post, the solution suggested by the proponents of social planning – taxing/subsidizing – necessarily violates the property rights of individuals. Once the government has the power to violate property rights, a different kind of “externality” sets in. Henry Hazlitt describes the process

Special interests, as the history of tariffs reminds us, can think of the most ingenious reasons why they should be the objects of special solicitude. Their spokesmen present a plan in their favor; and it seems at first so absurd that disinterested writers do not trouble to expose it. But the special interests keep on insisting on the scheme. Its enactment would make so much difference to their own immediate welfare that they can afford to hire trained economists and public relations experts to propagate it in their behalf. The public hears the argument so often repeated, and accompanied by such a wealth of imposing statistics, charts, curves and pie-slices, that it is soon taken in. When at last disinterested writers recognize that the danger of the scheme’s enactment is real, they are usually too late. They cannot in a few weeks acquaint themselves with the subject as thoroughly as the hired brains who have been devoting their full time to it for years; they are accused of being uninformed, and they have the air of men who presume to dispute axioms.

Each time such a project gets through, it establishes a further precedent for the violation of rights. This leads to ever increasing government interference until government becomes nothing more than an unstable coalition of special interest groups. The proposed cure for economic “externalities” ends up creating a political “externality”.

In a response to a forwarded post, a friend made the following argument (I am putting only its essence and in my own words, since I have not taken permission to make it public)

Market forces can produce outcomes that are worse off for everyone in the system. A social planner can, (in some cases at least) improve on the efficiency of the market. Pigouvian tax is an example.

In his response, he acknowledges that it might be difficult in practice for the social planner to obtain all the information required, but says that it would be very surprising if the social planners actions could never lead to efficiency improvement.

Consider the crux of the argument (emphasized above). There are three aspects to it that should be considered.

1) What are market forces? They are an abstraction that refers to all the judgements made by individuals interacting with each other under some conditions. If one is talking of a free market, these conditions are the absence of any coercion. Note that for the concept of coercion to be clear, a system of property rights (at the very least) needs to be in place (More on this in 3). If one is to prove the statement above (in a mathematical sense, which is what my friend meant), these market forces need to be modeled. This leads to 2.

2) How are choices evaluated? In actuality, every individual evaluates and weighs choices in a unique manner depending on the context of his knowledge, his hierarchy of values etc. This evaluation is neither necessarily rational nor quantitative. Yet if a mathematical result is to be obtained, both the evaluations and the decisions based on these evaluations need to be quantified. The evaluation (sometimes called “utility”) is quantified by assigning a monetary value to every “variable”. The decision making process is quantified by assuming that each individual acts to maximize utility (the sum of the monetary values of the results of all his choices).

3) What is the system? In actuality, the system is the set of laws that determine the kind of interactions that occur among individuals. In the model, this translates to assumptions that certain factors will remain constant over time.

Once these three aspects are modeled, one ends up with a set of equations that can be solved to determine what utility each individual will be able to achieve. The solution represents an outcome. In certain cases, feasible outcomes may exist that are better for each individual. (This usually happens when there are “externalities” which can be considered mathematically as non-linear effects). The most obvious problem with this argument is that it involves a huge number of variables, so man variables that no human (or computer) can solve the set of equations in any meaningful time. That however, is not my argument. My friend already acknowledges this fact and claims (plausibly) that in certain cases, a social planner may find an approximate solution that is still better than the free market one. My arguement is that: The fact that a (mathematically) feasible better solution exists, does not mean that it is possible to achieve in actuality. The reason is that the sort of actions required to achieve the feasible solution change the system (point 3) that was analyzed. In actual terms, such actions necessarily involve violating the property rights of individuals, thus changing the interactions between people, the monetary values they attach to different choices and the strategies they adopt to maximize their values. In plain language, attempts to achieve the “optimum” solution are lost in a host of unintended consequences. The information that says a better solution is feasible exists not with any single individual but with a vast number of individuals. To put that information to use, even if a social planner is able to approximate it, he needs to communicate it to all the people who will need to act on it. But force (and social planning is all about force) is a very destructive way of communicating. Successful communication is done with persuation and persuation is what the free market is all about.

Now consider a much simpler moral argument. Every value that man achieves is a result of using his mind. And the essential requirement for the mind to work is freedom. When man is free to act as his mind instructs him to do and is responsible for the consequences of his actions, his mind works the best. When he is forced to act against the judgement of his mind, his mind becomes passive and he loses the motivation to use his mind (something that never figures in a mathematical model). In the most fundamental sense of the word good, force can never be good for man.

In his response, following my post on propaganda, my friend clarified that what he meant by propaganda was a one-sided presentation of an idea that does not consider all sides of an issue. The moral idea (in the paragraph above) when supplemented with the practical arguments and all the evidence of the past century becomes a fundamental political principle. And there is no other side to the issue left. As I wrote in this post, as long as one is unsure of something and has not integrated ideas into principles, it is good to be circumspect and consider all pros/cons of all sides of an issue. But on issues on which it is possible to have relevant principles, there is only one side. Fundamental principles do not allow any evaluation in shades of gray. Whether I should be free to act on my own judgement or whether I should allow a social planner to force his whims on me or whether I should become a social planner myself is not an issue where I will weigh the pros/cons of the alternatives.

Finally for the sake of completeness, consider the Pigouvian tax/subsidy to correct for externalities. The first point to be noted is that most externalities go away when property rights are properly defined and implemented. And in fact a tax on pollution is actually quite close to what a property-rights solution to the “problem” of pollution would be. As for the subsidy on education, one can just look at the state of subsidised public education in the U.S. to see how it works. Externalities cause problems in model-based economics because they are non linear effects and most models are linear (eg, price = marginal utility) (for the simple reason that non-linear models are untractable). Man’s mind is not a linear device however, and a linear model does it no justice. Just think of the salesman who negotiates a price (= marginal utility?) or the investor who depends on a virtuous cycle where increase in supply creates a non-existant demand to recover his investment.

I recently found the time to read Henry Hazlitt’s book “Economics in One Lesson” (available online here). The book conclusively demonstrates that any attempts to coerce the free market can only result in the short term gains of special interest groups at the expense of everyone else and that even these short term gains are more than canceled out in the long term. The value to me in taking the time to read it was not in learning anything particularly new but in knowing that a detailed and very well-written explanation of a number of statist ideas exists in one place. Hazlitt writes that all statist fallacies essentially consist of considering only the immediate and visible consequences of a particular policy while ignoring the secondary and not-easily-visible consequences – an idea that was expressed by Bastiat long ago in 1850.

More than the book itself, what is interesting to me is the fact that the fallacies in statist ideas have been exposed long ago (Hazlitt’s book was published in 1946 and Hazlitt himself takes no credit for being original) and yet these ideas continue to be widespread among the general public as well as among trained economists and policy-makers. In fact, the financial crisis we are seeing at the moment is the inevitable result of some of these same fallacies (more on that in future posts) and the alleged cure is more of the same. The inescapable question then is: Are statist ideas really fallacies or mere rationalizations? Are they really held out of genuine ignorance and/or confusion or is there some other explanation? Hazlitt seems to think that they are genuine fallacies caused by the fact that the immediate consequences of interventionist and coercive policies are all too obvious while the secondary and long term consequences are not so obvious. I think that is a far too charitable view. It is inconceivable to me that simple arguments cannot be grasped by trained economists or intelligent laymen. Hazlitt also mentions how the paid spokesmen of special interest groups are able to drive out “dis-interested” writers simply because of their dis-interest (a mechanism also discussed by Zakaria in his book The Future of Freedom). While this is certainly part of the reason why special interest groups can control the government, it does not explain the support for statist ideas among the dis-interested public.

As an example, a few days back, I had a long and futile argument with some colleagues about the ineffectiveness of statist policies. Now these colleagues are certainly intelligent enough to grasp the fallacies inherent in statist ideas. Moreover they have no reason to support such ideas for any special interest. Yet they continue to defend them. And inspite of any concessions they may have made during the argument, I am sure that the same points will come up in the next argument. As one of them put it, (paraphrasing) “I am not opposed to capitalism, but I am a socialist at heart.” To me, that is the source of the persistence of these fallacies. Altruism is totally incompatible with the working of the free market. But as long as it is accepted, no amount of rational argument (such as the ones in Hazlitt’s book) can genuinely convince a person that collectivist and socialist ideas always achieve the opposite of their stated purposes.

Hazlitt shows how raising prices of a particular product (whether by tarrifs or other methods) to create employment penalizes all the consumers of that product (the public interest?), how lowering prices of a particular product drives out all the marginal producers (the disempowered?) and also creates shortages so that only those with more purchasing power can afford the product, how minimum wages cause unemployment by preventing people whose services are worth less than the minimum wage from being employed at all (the most needy?), how rent controls raise the rents in new buildings enormously (housing for the poor?) while simultaneously removing all incentive for (or even ability to) improve/repair existing buildings, how inflation – necessitated by deficit spending to fund all the welfare programs – essentially acts as a tax whose impact is felt highest by the poor etc, etc, etc… not to mention that all these measures also reduce the total product of the economy (the public interest?)

But the point is that the cure suggested by all these fallacies – regardless of any evidence – the free market, where every individual is free to pursue his own interests and is not legally responsible for the “welfare” of others is morally unacceptable to the altruists, and no amount of merely economic arguments can change that.

Simply Capitalism (feed) is a new blog on business, economics and free enterprise.

Here is an excerpt from their first post

Today, we live in a mixed economy made up of both semi-free markets and government controls. We live in a culture that views business and businessmen as a necessary evil. While the ability of capitalism to bring general prosperity is begrudgingly acknowledged, big business and naked “greed” are routinely blamed for the country’s problems. Calls continue for more government controls and regulations to fix a “broken” system. We think this view is flawed.

When it becomes difficult to determine which effects are due to government interference and which are due to free market influences, our goal is clarity and proper identification. When we hear calls for pragmatism and “balance” in our approach, our goal is to find the principles that illuminate the proper course of action. When we see a system of political pull and coercive government replacing a system of merit, productivity and voluntary trade, our goal is to defend the individual rights that make the latter possible once again.

Among its contributors are two bloggers I have regularly followed for some time

Galileo Blogs, author of Property Rights and the Crisis of the Electric Grid

Kendall Justiniano who also blogs at The Crucible

I am looking forward to getting new insights and good discussion on this blog. Highly recommended for anyone who wants a better understanding of the economy.

In a comment on my previous post “History is not the case against collectivism”, Mark asked

I also just realized, that a system/ideal can be judged from a moral standpoint separately from a history: then is it possible for an ideology that is inferior from a moral standpoint to actually succeed in history?

The question is important enough to deserve a post of its own, so here goes.

A judgement based on history(and nothing else) is a consequentialist judgement. It is based on a consideration and evaluation of the consequences. It is of the form “X is good (or bad) because what followed X was good (or bad)”. The problem with such a judgement is that consequences do not necessarily indicate causality. To arrive at causality, one needs a theory that explains why X led to the consequences. Consider an example: Dictatorship is bad because the Soviet Union collapsed after several dictatorships. To which someone might say: Dictatorship is good because Singapore (or China) is doing well under one. An appropriate theory of market behavior and the difficulty of determining prices without markets can be invoked to explain the collapse of the Soviet Union. But what if a ‘wise’ dictator is able to replace (if only partially) the market with his commands? Would his dictatorship ’succeed’?

A political ideal is a moral ideal, not an economic one. A political system is an economic/organisational structure that attempts to realize political ideals. A political ideal of economic equality leads to a political system of communism (example: The Soviet Union). A political ideal of ‘equality of opportunity’ or ’social justice’ leads to a political system of socialism (example: India until the 90s). A political ideal of national superiority leads to a political system of fascism (example: China). A political ideal of liberty leads to a political system of capitalism (example: the early USA).

Only political ideals can be judged morally. The construction of a political system is a matter of science (political, legal etc…), not of morality. For example, whether to have a presidential system, or a parliamentary system; whether the tenure of elected representatives should be 4 years or 10 years; whether copyrights should be granted for 20 years or 50 years; whether the minimum voting age should be 18 years or 21 years; etc.. are not moral questions.

The success of a political system is the extent to which it achieves its ideals. Just as the construction of a political system is a scientific matter, the evaluation of its success is a scientific matter. It involves analyzing the relevant historical facts with an appropriate theory of causality. It is like measuring the efficiency of an equipment.

There is no such thing as the success or failure of a political ideal.Ideals do not succeed or fail. They are accepted or rejected. While the failure of a political system might cause some people to reject (or at least question) their ideals, the failure does not prove that the ideals are wrong. As long as one still holds the same ideals, the failure of a particular political system is simply useful empirical data for constructing a better political system.

Now coming  to the question “Is it possible for an ideology that is inferior from a moral standpoint to actually succeed in history?”

Consider some concrete cases:

The political ideal of economic equality is an impossible ideal. Men are not equal in their abilities or their experience and nothing can make them equal. No political system that holds economic equality as an ideal can ever succeed and none ever has.

The political ideal of equality of opportunity is also an impossible ideal for the same reason. No political system can ever achieve it. But since, equality of opportunity is a less extreme ideal than economic equality, systems which attempt to realize it merely cause economic stagnation and not collapse.

The political ideal of national superiority is a fuzzy ideal (like all collectivist ideals). Because of its collectivist nature, it can never be defined or understood precisely. Depending on how it is defined, political systems that attempt it may or may not succeed. If winning the maximum number of gold medals in an Olympics is a measure of national superiority, then China’s political system succeeded. If achieving a high economic growth rate is a measure of national superiority, then China’s system has succeeded.

So my answer to Mark’s question is:

As long as its political ideals are not impossible to attain, a political system can succeed even if it is not moral. Of course, that raises the question “How does one decide what ideals are moral and what are not?” My upcoming post on my case against collectivism should answer a part of that question.

What is poverty? What are its causes? Is it a personal problem or a social problem or a political problem? Whose responsibility is it? What actions are needed to eradicate it?

The Merriam-Webster dictionary defines poverty as

1 a: the state of one who lacks a usual or socially acceptable amount of money or material possessions b: renunciation as a member of a religious order of the right as an individual to own property

2: scarcity , dearth

3 a: debility due to malnutrition b: lack of fertility

Note the difference in definitions ‘1 a’ and ‘2′. The perspective of ‘1 a’ is social, egalitarian and materialistic. It emphasizes a comparison between the material possessions of people. It equates self respect with prestige and prestige with the possession of material values.  It seeks to identify people in terms of class. By this definition, a worker in an industrial society who owns a car and is able to provide for his daily needs is nevertheless in poverty, simply because there are a large number of people who have bigger, better or more material possessions than him. If this definition is accepted, then it is in the nature of society for some of its members to be in poverty. Any attempt to eradicate poverty would then be a (necessarily futile) revolt against the nature of society. The nature of society cannot be a problem in itself and no further analysis of this definition is necessary (The fact that ‘1a’ ranks above ‘2′ is quite interesting but it is not the topic of this post).

This post will therefore be concerned with definition ‘2′ – poverty is scarcity. But scarcity of what? Scarcity of the values and conditions necessary for a proper human life. What are these values and conditions? Food, shelter and clothing are often considered to be the basic values necessary for life. But man needs to earn these values (and all others) by conscious, wilful and sustained effort and by the application of knowledge. Neither the effort nor the knowledge is automatic. Both are affected (to some extent atleast) by social and cultural conditions. In the absence of proper conditions, the lack of the basic values for life becomes endemic. This sort of poverty is a social and political problem and it is this that is the concern of this post – poverty as the lack of the social and cultural conditions necessary for man to flourish.

What are these conditions? The primary condition for a flourishing society is a respect for the mind. Man’s mind is his only tool of knowledge, his only judge of truth, and his only means of survival. All the values he needs to live, from basic material values like food, to abstract intellectual values like art, are a product of his mind. A respect for the mind has three aspects – rationality in ideas, egoism in ethics, and liberalism in politics. Rationality is the recognition that the mind is capable of understanding and dealing with reality. Egoism is the recognition that the mind (or self, or ego) is one’s greatest value. Liberalism is the recognition that the mind cannot coexist with force.

The primary cause for endemic poverty is a lack of respect for the mind, most commonly in the form of supernatural and religious beliefs. Supernatural beliefs destroy all three aspects of respect for the mind. By claiming that the truth is beyond the reach of the mind, they destroy rationality. By claiming that man’s ultimate purpose is something greater than his life (whether an after-life in heaven or a cosmic consciousness), they destroy egoism. By claiming that the truth is revealed only to certain prophets, they create figures of authority and destroy liberalism. Societies flourish only when some of their members are able to shake off these beliefs. Shaking off supernatural beliefs is not enough however. The many experiments in all kinds of socialism in the last century are a good illustration of this. The advocates and leaders of these experiments claimed to be rational and scientific even as they rejected egoism and liberalism. They only succeeded in plunging their societies into poverty and economic collapse. Rationality, egoism and liberalism are merely different aspects of the same philosophical outlook and it is not possible to practise them selectively. The only solution to endemic poverty is a culture of reason and the social and political institutions that are necessary to maintain it.

The crucial thing that must be understood is that endemic poverty is not just a lack of wealth but the lack of the conditions that make the creation of wealth possible. Unless these conditions are established, no amount of wealth redistribution will have any positive effect. Unearned wealth is not a solution to poverty but a catalyst for corruption and violence. It allows the unscrupulous powers that invariably rule irrational cultures to maintain their stranglehold on people by preventing their collapse. Over the past few years, there have been vigorous calls for action to end poverty by a certain date, mostly focusing on Africa. The proposed action consists of writing off loans and granting new ones to the corrupt and tyrannical regimes that rule most of Africa, the loans to be funded by tax payers in the developed world who are not responsible in any way for the irrational and primitive cultures in Africa. These calls for action are extremely repugnant – morally, practically, politically and economically. Morally repugnant, because they are attempts to achieve a sense of altruistic greatness, to be paid for by the forced redistribution of unearned wealth by selling unearned guilt to the people who produce that wealth. Practically repugnant, because a century of such attempts has shown that forced redistribution of wealth results in economic collapse and a loss of all individual rights. Politically repugnant, because such action can only be carried out by the further enslavement of productive individuals in a global welfare state, and because the beneficiaries of such action are corrupt and tyrannical governments. Economically repugnant, because such action consists of punishing success and rewarding failure.

This post is a call for action – not the action of donating to charities that help to sustain corruption and violence – but the intellectual action to discover, understand and apply the moral, political and economic principles that govern man’s life. An examination of Ayn Rand’s philosophy of Objectivism is a good place to begin.

Note: This post was written for Blog Action Day 08. It is also available on desicritics.org with an independent comment section

Summary

Fareed Zakaria’s book “The Future of Freedom – Illiberal Democracy at Home & Abroad” is a critique of democracy. Zakaria notes that democracy is not the same thing as constitutional liberty. He notes that democracy is a process of selecting governments whereas constitutional liberalism is about selecting government’s goals and refers to the Western tradition of seeking to protect an individual’s autonomy and dignity against coercion. Drawing examples from history and from around the world, he argues that societies that had liberal institutions, the rule of law and protection of property rights were able to turn into liberal democracies, whereas in societies that did not have such institutions, democracy allowed tyrants, demagogues, dictators and autocrats to cement their power. He argues that the presence of the church as an independent authority from the state helped in preventing concentration of power and allowed liberal institutions to develop. Similarly he argues that the political strength of the landed aristocracy in England was good for liberty as it helped to institutionalize property rights and kept the monarchy weak, while the political strength of the state in France was bad for liberty as it kept society dependent on the state.

Zakaria picks several examples of countries around the world that tried to democratize too early – before developing the necessary social institutions, or before becoming sufficently wealthy – and failed. He also notes that the wealth necessary for a liberal democracy must be earned wealth and not the wealth obtained from taxing a canal or exporting oil.

Regarding the Middle East, Zakaria denies that there is anything specific about Islam that makes its followers more susceptible to authoritarian rule. He also rejects the idea that Islamic terrorism has anything to do with poverty in the Muslim world. He notes that until the 1940s and 1950s, Arab countries seemed to be doing better than several other newly democratizing ones. Instead he blames the total failure of politics in the Arab region for the rise of radical Islam. He writes that with no free press and no political parties, mosques became the place to discuss politics, and the language of opposition became the language of religion. He also notes that the Arab states have allowed free reign to the most extreme clerics to give themselves legitimacy.

Regarding the American political system, Zakaria writes that since the 1960s all of America’s political institutions have democratized. He cites several examples – the selection of candidates by primaries instead of party decisions, the campaign finance laws that made candidates dependent on fundraisers, the expanded number of sub-committees, the changing of rules to allow unlimited number of bills, the open committee meetings and recorded votes and the system of referendums and initiatives. He describes how all these changes have opened up politics to the influence of special interest groups and lobbyists and how democracy has defeated itself with all its institutions being controlled not by a majority but by a variety of highly motivated minorities and special interest groups.

Zakaria goes on to describe the deep changes that democratization has caused even outside politics. He describes how religious figures like Billy Graham and Jerry Falwell have toned down religion to make it appeal to the masses. Zakaria writes that in general, members of professions such as law, medicine and accounting were public spirited individuals who operated on high standards and these standards have deteriorated with time. He blames this on the changes made to make these industries more open and competitive such as the decision to allow lawyers to advertise and to allow accountants to charge contingency fees. He writes that the internet frenzy destroyed the separation between the bankers and the researchers in the banking and brokerage industries, opening up conflicts of interest and perverse incentives. He writes that the central shift underlying these changes is the role of the elites. He writes that while elites in the earlier days saw themselves as elites and recognized their responsibilities, today’s elites are a bunch of smart college graduates, who are not conscious of their elite status and thus enjoy power without exercising responsibility. He writes how a school such as Groton which once emphasized character over achievement in its students now focuses only on achievement. He describes how in the movie “Titanic”, the first class passengers are shown to scramble into the small number of lifeboats, whereas in the actual accounts of survivors, the “women and children first” convention was observed almost without exception among the upper classes. He writes “The movie-makers altered the story for good reason: no one would believe it today.”

In his concluding chapter Zakaria writes that the 20th century was marked by the regulation of capitalism and the deregulation of democracy and that both experiments overreached. He writes that whenever a problem arose, the solution was more democracy and more regulations. He writes that the way out of the problems is to delegate democracy to mostly autonomous entities, that are limited by democracy but shielded from political pressures. He writes that the institutions and attitudes that preserved liberal democratic capitalism, built up over centuries are being destroyed in decades and if these trends continue, democracy will face a crisis of legitimacy. He finishes with “Eighty years ago, Woodrow Wilson took America into the twentieth century with a challenge to make the world safe for democracy. As we enter the twenty-first century, our task is to make democracy safe for the world.”

Comments

Zakaria’s critique is very welcome today in an age where democracy is often seen as unquestionably good and historically inevitable. The numerous examples he draws clearly show that it is neither. His description of the state of American politics and the role of democracy in causing it is well presented with concrete examples. He makes a number of good points in this book. And yet, there is something missing in his analysis. There are atleast three distinct phenomena that he refers to as democratization – the way people select their government and the increased amount of power that elected representatives have, the way people make economic decisions and the increased importance these decisions have in shaping the economy, and the shift from “high culture” to “popular culture”. While these phenomena are certainly related, they should not be lumped together under a single concept, especially considering that the purpose of the book is to examine the problems with democracy. It is only the first phenomenon that can accurately be called democratization. Including the other two phenomena under the same concept makes the concept useless for analytical purposes – something that Zakaria himself warns about at the start of the book.

Consider these phenomena in more detail.

Political democracy:
All over the world, government powers and policies are increasingly being determined by popular opinion (or atleast what is seen as popular opinion). Politics is increasingly seen as a struggle for inclusion and representation and not as a means to achieve a proper social organization. The focus is increasingly on ‘who gets to make decisions‘ and not on ‘what decisions are made and whether they are legitimate‘. In the absence or weakening of any limits on political power, government necessarily become corrupt, illiberal and dysfuncional. Special interest groups take over such a system and dominate all policy making. This is a problem inherent in democracy and Zakaria does well to illustrate this.

Economic changes (“consumerism”): 
In the last few decades the bargaining power that “consumers” enjoy has risen steadily. We have come a long way from Henry Ford’s times (“You can have any color as long as it’s black”). This is a result of technological progress and has almost nothing to do with democracy. The only connection it has with (political) democracy is that it makes democracy more dangerous and its ill effects more catastrophic. It is impossible for people today to know about the workings of the global economy in any sort of detail. Which makes it impossible for the government (whether democratic or not) to control or regulate the economy effectively. Zakaria does not discuss these issues much and incorrectly labels this phenomenon as part of a process of democratization.

Rise of popular culture and the decline of values:
In the last few decades, high culture has declined and popular culture has risen. Zakaria uses a quote by Seabrook to describe this process “The old cultural arbiters, whose job was to decide what was ‘good’ in the sense of ‘valuable’ were being replaced by a new type of arbiter, whose skill was to define ‘good’ in terms of ‘popular’…” This decline of high culture goes hand in hand with a general decline in values – people no longer have rigid standards for judging behavior, the word ‘judgemental’ has become a perjorative and a good number of people would assert that there are no objective values. Zakaria does a good job of describing the symptoms of this trend. However he does not even attempt to examine its causes. But without an understanding of these causes, there is no way to reverse the ill-effects of democracy. Consider Zakaria’s proposed solution – the creation of autonomous regulatory bodies such as the US Federal Reserve (which he considers a success and seems to hold in high esteem). Today we see that the Federal Reserve has not been able to prevent a catastrophe and there is strong evidence to suggest that the catastrophe was in fact its own creation.

It is clear from the book that Zakaria is troubled by the general decline of values and that he respects the older value system, atleast in a general sense. He writes

It is easy to mock the Anglo-American elite, with its striking air of high-minded paternalism, born of a cultural sense of superiority. But it also embodied certain values – fair play, decency, liberty, and a Protestant sense of mission – that helped set standards for society…When powerful people acknowledge that there are certain standards for behavior, they limit their own power, however indirectly, and signal to society, “This is what we strive for.”

and a couple of pages earlier describing the decline of the elite status of the WASPs (White Anglo-Saxon Protestants)

As America became more diverse, open, and inclusive over the twentieth century, the WASP establishment faced a dilemna: it could maintain its power and refuse to allow new entrants into its sanctuaries, or it could open up to the new rising non-WASP members of society…But in the end the WASPs opened the doors to their club… Therein lay the seeds of the establishment’s own destruction… The WASPs made this move partly because they were pushed, but also because they knew it was the right thing to do. Confronted with a choice between their privilege and their values, they chose the latter.

If this description is correct, there is a paradox. The elite chose their values over privilege and yet this choice helped in the decline of their values. This paradox is at the heart of all of man’s problems. It has plagued people throughout the ages. The way out of this paradox is a code of ethics that is geared to man’s life, here on earth, by which the moral is also the practical and which when practised results in both material and spiritual reward – the code of rational egoism.

The complete expression of the constitutional liberal democracy that Zakaria wants to protect is a system of capitalism and it can only be protected with an explicit moral base. Although Zakaria presents a quite insightful analysis of the workings of democracy and its problems, he does not discuss the foundations of politics at all, and without it, his book is incomplete.

Note: This post can also be found on desicritics.org with an independent comments section.

In an essay titled “Why Nerds are Unpopular?”, Paul Graham writes that life in elementary school is warped and savage because it is isolated from reality and identifies specialization as the reason for the isolation.

“Teenage kids used to have a more active role in society. In pre-industrial times, they were all apprentices of one sort or another, whether in shops or on farms or even on warships. They weren’t left to create their own societies. They were junior members of adult societies.
…
Now adults have no immediate use for teenagers…
The cause of this problem is the same as the cause of so many present ills: specialization. As jobs become more specialized, we have to train longer for them…” (Emphasis added)

Specialization and trade are the primary mechanisms of human progress. Todays industrial societies and the incredibly complex global economy would be impossible without specialization – without men who spend most of their lives working in a narrow field. Specialization has given us the sophisticated gadgets we use in our daily lives, the means to communicate with people across the globe, the opportunity to excel in our chosen careers. Specialization has given artists the time needed to create works of art and others the opportunity of enjoying them. Specialization has given sportsmen the time needed to perfect their skills and others the opportunity of being inspired by human perfection. In short, specialization has given us most of the things that we value in life.

Specialization has also caused innumerable problems. Specialization has made it very difficult for young people to make an informed choice of career or to change a choice of career once made. Specialization has made it difficult for people to adjust to economic changes. Specialization has created complex chains of dependencies among people. Specialization has made it difficult for people to understand fields other than their own. Specialization has made it difficult for anyone to understand the broader picture – the workings of the world. Specialization is atleast partly responsible for the large number of fallacious beliefs held by mostly reasonable people – particularly in economics and politics. Specialization is partly responsible for today’s rampant pragmatism - the lack of respect for abstract ideas and philosophy.

Perhaps the single biggest problem caused by specialization is the problem of knowing what to believe outside of one’s chosen field. Men have evolved a number of mechanisms to solve this problem – peer reviewed journals and techincal associations in science, the concepts of degrees and certifications in education, the concept of branding in advertising, independent rating agencies in industry, efforts like wikipedia, government regulatory bodies for everything, etc. While some mechanisms work better than others, it is clear that there can be no complete solution. The body of human knowledge is so vast and varied that it is impossible for anyone to establish trusted authorities in every field. The mixed success achieved in solving this problem is an important reason for the general lack of respect for abstract ideas and general principles. It also raises (well founded) questions about whether the entire system can sustain itself without directed effort. But the questions cannot be answered without abstract ideas and general principles, i.e without philosophy. Contrary to popular belief these are not merely questions of economics. They cannot be answered without an understanding of the nature of man, the function of his reason, the nature and structure of his knowledge and the reasons for his motives.

Specialization is a natural phenomenon. As long as men deal with each other, they have to trade. And as long as they trade, they will choose to spend their time on that which they are best equipped to do. In the absence of a catastophic disruption, a society will continue to grow in complexity. A system that constantly increases in complexity cannot be sustained without directed effort. Without that effort or with wrong efforts a catastrophic disruption is inevitable. Anyone who believes that the economy will continue to prosper irrespective of the social and political system is deeply mistaken. As the level of specialization continues to accelerate, the need for the right philosophy becomes ever more crucial.