The blog provides a left-wing non-partisan perspective on socio-economic issues in Russia and throughout the world. The focus is on qualitative development of national economic systems and ensuring flexibility in economic policies to meet the challenges of the 21st century. Email: leftistobserver@gmail.com

BUSINESS: A SERVANT OR A TASKMASTER?

Young lawyer: Dad, I have just solved the case you have been working on for 20 years!
Retired lawyer: Idiot! You have just solved the case that has been feeding us for 20 years.


People outside of the economic profession see economics as a solid mass of knowledge confirmed by complicated mathematical calculations and enormous practical experience that the developed world has accumulated over the last couple of centuries. Those who went beyond a high-school economics course realize that things are much more complicated – there are several economic schools that continuously compete for public attention and the right to influence political decisions.

Those schools that enjoy political and financial support from influential people and institutions received a generic title “mainstream economics”. Their scope of knowledge is being spread throughout the world in various forms and shapes – including college textbooks and media coverage – as a fundamental scientific foundation for arranging economic processes. The analysis provided by mainstream economics is unquestionable for international organizations, governmental agencies, political associations, colleges and universities as well as businesses of various kinds.

Not a single school within the conventional economics has ever challenged the notion of business constituting the economy itself. To them, business means the economy and the economy means business – there is no other way to look at it. They may be arguing blue in the face about government interference, money supply, banking regulations, etc. But none of them will ever say a word against the existing transnational corporate system. Boastful corporate claims and risky investment practices prior to the crisis have now given way to panhandling for government bailouts, which makes taxpayers wonder about the way business as an economic activity affects the economy.

For the purpose of analysis, a capitalist economy can be divided into two spheres (for lack of a better word). The former is associated with production of economic goods, which has been the primary purpose of any economic activity from the very early days when mankind ever became capable of it. It was the desire to eliminate scarcity that caused people to communicate and cooperate with each other in order to combine efforts in opposing forces beyond their individual abilities. As a result, humanity came up with various types of economic systems developing them from primitive models to more advanced ones in order to meet the ever-changing circumstances that human beings would find themselves in. Although those systems are far from flawless, their objective and the only purpose of existence have been the provision of economic goods for a society at a particular stage of its social, technological, and thus economic development. This sphere of human activity is the true essence of the word “economy”.

Let us give this part of an economic system a name to separate it from other elements. With certain reservations, we can probably call it a production sphere recognizing that it has been part of any society under any political and ideological regimes since its very existence is due to our human nature and cannot be done away with without putting humanity in peril of utter destruction. Thus, only an economic system capable of maintaining the provision of economic needs of the entire society by reproducing public and private resources can be called efficient.

However, we can also see the existence of another sphere, which has to do with trading economic goods for certain exchange equivalents (or monetary values) and managing pools of those equivalents by distributing and re-distributing them among members of the society in accordance with formal and informal regulations. This other sphere seems to have existed as part of pre-capitalist economic systems in various primitive forms, but its significance in our day and age can hardly be underestimated as the control over the circulation of these equivalents, which we call “money”, has become essential for controlling the exchange of goods within the society.

This monetary or financial sphere of a capitalist economic system is capable of allocating funds on credit thus making monetary equivalents a unique commodity. Under capitalism, goods and their monetary equivalents flow in opposite directions within an economy thus blending the two spheres into an inseparable unity. Even prior to capitalism, money as a unique commodity in the form of precious metals became capable of circulating separately from the goods while preserving its exchangeability for them and making financial returns the ultimate objective of any business activity. Capitalism inherited this arrangement from preceding economic systems and has taken it to a higher level. When possible, businesses strive to break away from the obligation to produce anything and prefer profiting from financial operations alone. Even when businesses do get involved in the exchange of physical goods, the public benefit of a commodity or a particular type of business activity remains outside of their concern. They proclaim financial returns as the ultimate benefit, no matter what commodity gets into consumers’ hands and what impact it might have on their living standards, health, their children’s conduct, etc.

We can thus define business as a mere money-making activity. It may be associated with providing a society with a particular commodity or service, but the ultimate goal remains unchanged – financial returns at any cost to the rest of the society. Those readers who run their own business are probably furious now when reading this. They are convinced that thriving businesses are a must, that entrepreneurs, in fact, render a service to the society by taking the risk of organizing production and distribution of goods and are entitled to a compensation of their investments and efforts.

From this angle, the logic seems flawless. Now let me suggest an alternative viewpoint. This is where we are starting to see that approaches to economic development as suggested by mainstream economics and political economy are fundamentally different. Please do not rush to conclude that political economy is all about bashing private entrepreneurship. If we put things in proper perspective, the point is that the positive effect of business on the prosperity and well-being of a society is not absolute, as we are told, but is conditional upon factors, which derive from the very nature of capitalism as an economic system.

In my previous articles, I have already mentioned that political economy recognizes that capitalism has always been heavily addicted to economic growth and identifies intrinsic systemic reasons for that addiction. The expandability of solvent consumer demand (either by forceful expansion into foreign countries or simply by reducing the cost of domestic borrowing) is the most critical condition for any successful business activity. The countries of the developed world have seen several decades of favorable business conditions mainly because of an unceasing economic and political expansion into less developed territories. The most recent expansion has received the name of globalization. Obviously, developing economies typically featuring meager domestic solvent demand coupled with a limited ability to tap into foreign markets were never able to generate sufficient long-term investments to compete with the more affluent countries. Businesses in such conditions often ended up searching for other ways, often immoral and illegal, to ensure financial returns from their activities by lobbying for government contracts, physically eliminating competitors, externalizing costs by pushing them onto the public, etc. Needless to say, the only beneficiaries of such business activity have been members of bureaucratic and corporate elites. Since higher solvent demand in developed countries provide more profit-making opportunities, emerging economies, while in need of investment capital, often become capital donors themselves as local businessmen step up capital flight in hopes of higher returns from abroad while breeding financial anemia and corruption in their own countries. As numerous industries remain gruesomely under-funded for a significant time, the production sphere (as defined above) becomes chronically incapable of fulfilling its primary responsibility.

For political economy, this situation is a disaster with adverse long-term consequences for many generations. As opposed to conventional economics, political economy recognizes that creating a business-friendly environment is far from being sufficient for putting the economy to work for the public benefit rather than for a small group at the very top of the society. In fact, some do think that worrying about the society is not even necessary. The “invisible hand” is believed to be miraculously responsible for everybody’s well-being – as long as individual profits keep rising, no-one gives a damn about what goes on outside their window. But as developed economies’ middle class is rapidly losing its positions, the concept of economic miracles is getting very hard to sell.

Political economy is pretty specific that business activity is conditioned upon various factors that eventually determine its ultimate impact on an economic system. In certain conditions, that impact is going to be negative. Any capitalist economy, when left with no expansion opportunities, becomes incapable of preventing a downfall in corporate profits, which encourages capital owners to either seek alliance with the government or externalize costs at the expense of the local population. Unfortunately, conventional economics ignores developing countries’ immense evidence to this effect and continues to paint a rosy picture.

Whose interests does conventional economics protect? The answer is a no-brainer – business interests. Economics was designed to answer a different set of questions than those raised by political economy. Economists employed by corporate and political elites are often instructed to make means of enrichment out of existing economic problem rather then solve them for future generations.

This explains why corporate economists and politicians were blind to the impact that outsourcing to low-cost country has on the developed economies by limiting its consumers’ ability to spend thus boring into the very pillars, on which the entire global economy is now resting. This explains why IMF recommendations attached to their credit programs end up slowing down developing economies rather than speeding them up. This explains why, in spite of all the efforts, poverty and misery continue to spread.

From the scientific standpoint, economics cannot be considered a fundamental economic discipline because it provides nothing but a set of applied principles conditioned upon underlying shifts of economic reality. That is why the official Western economic theory underwent two fundamental revisions in the 20th century (from laissez faire to Keynesianism, and then on to neoliberal monetarism). When an economic system starts shifting its “tectonic plates”, corporate economists can only shrug their shoulders because, figuratively speaking, trimming the weeds over and over again is more profitable than uprooting them.

To those who studied economic history, this situation might look familiar. I have recently been reminded that Aristotle, a famous Greek philosopher, used to separate oikonomia (knowledge of managing resources of a household for long-term benefits of its members) from chrematistics (knowledge of manipulating property and wealth for maximizing short-term monetary benefits to an individual owner). The two are closely related so people, Aristotle warned, tend to confuse one with the other. According to him, the chrematistic desire for personal enrichment at any cost easily leads to exploitation of both people and nature.

And it is very unfortunate that colleges in many countries have moved their attention from the fundamental discipline of political economy and eagerly embraced economics, which I see to be superficial and situational. It justifies opportunism, oversimplifies reality and confuses cause and effect, and fails to keep pace with systemic changes. If you are an economics instructor, you may want to cover your ears now because I am going to say it out loud – MODERN ECONOMICS IS AN ANACHRONISM. Reality has grown more complex, but neoclassical economists still live in dreamy recollections of the past.

Please do not rush to conclude that political economy is about bashing private entrepreneurship. As long as capitalism lasts, business will remain its essential part. But I will not be surprised if further economic development necessitates limiting business activity to particular sectors or even encourages alternative ways of organizing economic systems. As an element inherited by capitalism from preceding economic formations, business has its pluses and minuses. And since it is likely to stick around while you and I are still here living on this planet, we should recognize the need to make business our servant rather than a taskmaster.

Unfortunately, humanity has done a lousy job in this respect – it is business that dominates media, dictates fashions, shapes opinions and rewrites history turning politics and wars into instruments of profit-making. It is business that has become the golden calf of our time, elevated on the pedestal of glory and so enthusiastically worshipped by economists and politicians. In their devotional fury, they remain absolutely deaf and blind to extensive evidence that, without unbiased strategic planning and control by the wider society, business becomes detrimental to further social and economic development. It may be prosperous and thus arrogant in times of plenty, but, when facing no opportunities for further expansion, it starts tossing about wildly, like a decapitated chicken in mortal agony, willing to break any law or moral principle for the sake of more profits. Luckily, some countries do see the danger of exposing their economic systems to chaotic convulsions of oversaturated markets and take unorthodox measures to ensure economic sustainability.

Boris Anisimov

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