The inherent flaw of capitalism

[Ludwig]

Biff, I get your drift about being able to have opinions, but given that Cuba is so different to so many other places, it's difficult to understand what actually goes on there in people's lives without having been there. Mostly when people talk about Cuban experience they are referring to certain films, which in my view somewhat mis-represent the place. (Perhaps if you had been in East Germany/East Berlin before the wall came down or similar, that would begin to cover some of the issues on the ground.)

I visited East Berlin briefly before the Wall came down. It was only for one day, so I couldn't give anything like a detailed description of life there, but what struck me above all was (a) the terrible food and beer and (b) the intangible atmosphere of quiet oppression. A friend and I walked around the streets in the evening, and there was nobody else around - it was creepy. You really did feel you were being watched, and clearly the locals felt that too.

The feeling on returning to West Berlin was rather euphoric - it felt glamorous, free and friendly, and, at the time, really made me appreciate the world I'd been born into.

[sweat]

So the last government we had was a different system? Missed that one

... and the point of the post as well although that was probably deliberate.

I'm not content for people to continue perpetuating lazy falsehoods which only distract from the real issues at hand.

[RichUSA]

According to Marx, capitalism contains the seeds of its own destruction. What he was essentially getting at is that the endless competition between industrialist bosses would inevitably lead to a collapse of their customer base. This, in turn, would lead to civil unrest and, eventually, revolution.

The reason for the above is the need for profit. In its most essential form, profit may be defined as a situation whereby you exit an economic transaction with more resources than when you went in. In order for anyone to extract a profit, a loss must be incurred by someone, or some thing, somewhere else. Either the supplier of the raw materials makes a loss, or the manufacturer makes a loss, or the retailer makes a loss, or the customer makes a loss, or the workers all the way up the production chain makes a loss. Someone or something has to make a loss. The above leads to the paradox of a situation where the ideal for any capitalist would be to do away with all workers and automate all production since this would prove to be the most profitable arrangement.

However, those workers are also their customers. Thus, in doing away with them, they have destroyed their customer base's capacity to spend money on buying their products.

Growth is the only thing that has allowed capitalism to paper over this fundamental flaw in its very heart and so allow it to last for as long as it has. Which, in historical terms, is not very long at all. This is not to say that any system of human organisation would not have run up against the same resource buffers. It's just that capitalism has proved to be very efficient at getting us here. In this sense, whilst resources are available to enable growth to occur, the "loss" is incurred by the Earth itself. Now that growth is no longer physically possible, the days of win/win capitalism are over. In a static or contracting economy all profits must be balanced with losses.

Or, to put all of the above more succinctly: Capitalism does not work in a static or contracting economy unless one is prepared to accept considerable levels of bankruptcies/social unrest etc. Fractional reserve banking (FRB) stimulates and amplifies economic growth by borrowing from the future and so avoids, for a time, the inherent flaw in capitalism. The earth has finite amounts of easily accessible industrial resources eventually resulting in a situation where growth has stopped. Capitalism's inherent flaw is exposed.

I need to expand here, on a subsidiary, but very important factor. That of fractional reserve banking. FRB is a financial process whereby if I go to a bank and borrow money from them I must pay it back with the monetary fruits of my own future productive activities. The money that the domestic bank lent to me, they also borrowed from a commercial bank. The commercial bank lent that money into existence. However, they only did so on the back of knowing that they can go to the central bank, after-the-fact and make good their lendings. Thus, ultimately, central banks/commercial lenders decide how much is lent into existence to you and me based on an assumption of how much productive activity will be happening in the future such that the lending can be repaid. Of course, the reality of how the credit trickles down through the system is far more tortuous and indirect than the schematic, above. But, in principle, this is how our FRB "money" supply grows.

FRB, in the above conceptualisation, may be seen as borrowing from the future. Or, if you prefer, FRB is a form of the lending of the future to today. The semantics of the description matter less than the actuality of the process. FRB has been yet another weapon in the armoury of capitalism whereby the losses incurred today can be papered over. In FRB's case, by drawing down profits from the future. Thus, economic growth is accelerated under an FRB system of money creation.

However, there is a fundamental truth we all know in our guts and which science has merely formalised. Namely, that there is no such thing as free lunch. As long as there are a large amount of resources, we can pretend, for a while, that there is. Once we hit the limits of those resources, though, FRB stops working as a consequence of the future failing to honour the FRB promises of today. At that point, we get economic collapse (the current crisis is the beginning of that collapse). From now on in, in order for profits to be maintained, someone has to lose for someone else to gain.

Perpetual economic growth is over. A money supply that is increased over time via FRB credit is over. Capitalism is over. The future will be either some form of socialism or a return to serfdom for the majority

Back to the original post. First, capitalism needs to be controlled by government regulation preventing monopolies. Second, a free market place must exist to provide for fair exchange of goods and services.
Then controlled capitalism in addition to producing fair exchange of goods and services also controls unrestricted population growth. When employable people exceed the number of jobs available families contract in size. When jobs exceed the number of employable people for those jobs wages increase and family sizes increase. The result is on going swings between relative full employment and some degree of unemployment. My opinion, this state could go on indefinitely. Controlled capitalism with free markets does not self destruct.

[RenewableCandy]

Erm yes but how long does it take for a family to contract in size?

And, how long does it take a family to contract in size given that there exist things like the Pope??

[RogueMale]

I visited East Berlin briefly before the Wall came down. It was only for one day, so I couldn't give anything like a detailed description of life there, but what struck me above all was (a) the terrible food and beer and (b) the intangible atmosphere of quiet oppression. A friend and I walked around the streets in the evening, and there was nobody else around - it was creepy. You really did feel you were being watched, and clearly the locals felt that too.

The feeling on returning to West Berlin was rather euphoric - it felt glamorous, free and friendly, and, at the time, really made me appreciate the world I'd been born into.

I've been in the GDR twice. The first time was over thirty years ago, and was my first time abroad, for a scientific conference. When we reached the border, to our surprise we were waved through. Then, a short distance later we were stopped. It was the West German border guards who had just waved us through, the East Germans then gave us and our car a thorough examination. It was a bit like going back in time: the road system wasn't as well developed or maintained. Trabants were everywhere - you didn't see many other makes of car. Food was OK and cheap, beer was cheap and just about drinkable but there wasn't much choice. Most coins were made of aluminium. In a pub there we socialized with some other delegates, including a Pole who told us how much he hated Communism. I visited the daughter and son in law of a professor at the university where the conference took place. They secretly listened to West German radio stations and were fans of King Crimson. We visited a nearby town which seemed rather run-down.

On the way back we went through Checkpoint Charlie and stayed overnight in a youth hostel. My recollections of the American sector was that it was a bit tacky, but I didn't see much of it.

I returned last year. The GDR is still there - it's in ruins though - and if you don't know where to look you won't notice it. What I couldn't have noticed 30 years ago, and struck me last year, was how heavily occupied the East was by Russian troops. One of the places I visited, in the middle of a forest not far from Berlin, was best described as a small city occupying many square kilometres where Russian troops and their families were based. It's now slowly being demolished. They also took over some large sanatoriums for military use - also now in ruins.

I spoke to a West German who described the Ossies as somehow having been scarred by their experiences before the wall came down. I'm also aware of Mauerkrankheit, a very specific mental illness that some people there suffered. It's very difficult to get the feel of a place through a short visit, and things like that are difficult to spot. I didn't know enough about life in the Federal Republic to spot any differences either.

I know that, during the Cold War, there were plenty of American troops in the UK, but not in so large numbers and they blended in better because they spoke English.

It's easy to gloat - we won the Cold War without a fight. Capitalism's lasted over twenty years longer so far, but I don't see it lasting indefinitely, and there's nothing waiting in the wings to replace it with. At least the Warsaw Pact could replace their failed system with capitalism.

[RichUSA]

Erm yes but how long does it take for a family to contract in size?

And, how long does it take a family to contract in size given that there exist things like the Pope??

I can't speak for all the ways people would deal with the contraction in the economy. There is a natural attrition of the labor force. Some in the labor force retire. Those in retirement still require goods and services and spend down assets over time, etc. Ajustments in labor force would fluctuate over time. Sometime reaching equilibrium would take longer than we would like. Other times equilibrium would be reached sooner. People are creative, resilient and survivors. As for the Pope, he's not everyones leader.

[biffvernon]

The inherent flaws in capitalism seem to be appearing in Spain. Here's a picture a Spanish friend of mine posted on facebook. I asked him what was going on as there seem to be a lot of people out for a walk and he replied:

"Hi Biff! The policies of the new government (right wing) are taken the people out to the streets: Cuttings on Education and Health, more taxes... Combined with the crisis -well, I guess an African child would laugh at our definition of crisis, but anyway...-, the situation is getting critical. In the province of Valencia, some days ago some students went to claim against the cuttings on Education and they were badly repressed by the Police. And corruption scandals too."

[woodpecker]

Re Biff's post on Cuba, it is a very difficult country to comment on as it has effectively been politically cleansed as opposed to ethnically cleansed. There is no political opposition, or very little, in Cuba because they have all left for, or been forced out to, the US. There is no repression because it's now not necessary.

I disagree. 'They' haven't all left, there's a tremendous undercurrent of hostility and in many cases desperation, but ordinary people know better than to discuss it. There are still political prisoners, and there are still controls on leaving the country. The government can still make life miserable for you: the government determines whether you get a holiday with your family at a state-run Cuban-only resort (somewhat more run-down than the tourist equivalents), with its own 'spies', as a reward, or wether you are sent to work in a cement factory in the boondocks.

Mostly, the people who seem able to freely discuss the situation in Cuba are those at the very bottom of the pile (nothing to lose?), though I think more people these days feel able to express fleeting remarks that are not supportive of the Castros and the regime.

I had only two long and serious discussions in Cuba. One was with some people we had spent several days with, we were at the top of an isolated tower in the middle of a power blackout. Presumably they felt there was no way that we were being eavesdropped on. (Like in Spain under Franco and like East Germany under the Stasi, I suspect there's still a degree of 'social spying' in Cuba, as well as any perceived threat from technology. Maybe just paranoia, but just because you're paranoid doesn't mean...) The other time was while spending a day horse-riding in the mountains in western Cuba. Again, nobody to overhear.

In Havana, (apart from hotels) we stayed twice with someone who had been a senior Cuban minister back in the early days of the revolution - now retired - and his wife, and they seemed to be just getting by and keeping their heads down. Lots of (1950s) crockery and glassware, not much to put in it - though they have more to put in it when you are there (see below).

Commenting on the origins of the extreme monetary poverty of nearly all Cubans is difficult because of the unknown effects of the US sanctions on the economy. Cubans, in the main are extremely poor by most accepted standards but most will profess to be happy with their lot. Those who work in the tourist industry are richer because of the tips they receive but are probably more discontented than other Cubans because of the wealth that they see in the tourists that they encounter. the vast majority of Cubans are kept separate from tourists so that any discontent is minimised.

Well, the vast majority of tourists keep themselves separate from ordinary Cubans, pretty much by choice. They go to resorts, and island resorts, where no Cubans actually live, such as Varadero. It's easy enough to meet thousands of Cubans under ordinary (non-tourist resort) conditions if you choose to.

Those Cubans who work in the tourist industry, or have any encounters with the outside world, have a serious advantage: not money per se, but being able to obtain convertible currency. If you don't have convertible currency, there's all kinds of things you can't buy in Cuba.

On the other hand, the prices in non-convertible currency for the things you can buy with it are very reasonable: there's a dual-price system, with a huge differential in prices, and in theory as a foreigner you should always be paying in convertible currency at the higher convertible currency prices (though in practice that doesn't always work, especially in rural areas where the person concerned may never have seen convertible currency).

The standard of catering in the country in the main tourist industry is abysmal. Despite having masses of fresh vegetable available, in even a top class tourist hotel you are quite likely to be served up nasty tinned mixed vegetables. The meat is often low quality and badly cooked. If, however, you go to a "casa particular". an unofficial restaurant run in the front room of a private house, you will get very good home cooked food and good service at a reasonable price.

The resorts and hotels are in effect all controlled by the state, which seems more concerned with avoiding health scares (strong chlorine in the salad veg) than with providing interesting food.

There's plenty of good - but basic - food to be had, but it's all home cooking, either at B&Bs or front-room restaurants. But these people work with an advantage that ordinary Cubans dont have: they are receiving convertible currency from you, and so are able to go to certain markets or shops for certain kinds of things. The first thing they do when they get your cash is to go to the shop or the market.

You'll also get good food at B&Bs outside the cities that run small-holdings (and there's a lot of those), as they keep and slaughter their own chickens and pigs and grow their own greens.

If you live in a city and have no land or family with land, and you don't have access to convertible currency, I think the food situation is rather grim.

The food available in the ration stores is miserable, both in terms of quality and availability. I've seen ration stores with just completely empty shelves or with three bags of rice. This rather reminded me of a visit to East Berlin's 'flagship' department store back in the mid-80s.

Travelling across Cuba (north, west, central and south), I was struck by how much land is/was occupied by the military (decrepit old buildings, firing ranges etc.), and how much is seemingly not used. In many areas, we rode through mile after mile of seemingly abandoned grassland. The regime does now allow people to undertake 'private' agriculture, but the people we spoke to about this (in the west of the country) said that the prices being charged by the government for leasing land were very high, almost too high to make it worthwhile. This is a country highly reliant on manual labour in the countryside, and those that work it do work hard.

Small towns off the tourist trail have very little in terms of a retail offering. There's maybe a roadside bar, a part-time ration store... It reminded me of rural Rajasthan (India), only the offering in rural Rajasthan is actually better.

And it's not just food that is a problem. We took bags of Western drugs to the people that run a city-centre nursery. That's one area where the US embargo has serious effects.

It's the same old story of communist countries and nationalised industries where there is no incentive to do a good job because why bother, you don't get paid any more. Most houses in Havana are falling apart as they are owned by the government, who haven't any money to repair them, if they had the inclination, and the residents don't have any money to repair them either, nor the inclination as they wouldn't get their money back. In a few years time Havanna will start falling down around their ears. If you go there don't walk down side of a residential side street if its raining or windy because lumps of stucco or even masonry are quite likely to fall on your head. It's that bad.

Old Havana *was* falling down, but over the last decade or more there's been a huge repairs and renovations programme. The seafront houses have almost all been fixed, and most of the iconic buildings too. Old mansions have been turned into quite nice hotels. And they have made a lot of headway on just about every street of architectural value, including renovation of ordinary homes, putting in proper sewers etc. There's a rather brilliant architect in charge of the whole project, who is getting masses of stuff done, and very well done. I don't think a western country would have managed to achieve so much, so well, in such a short space of time.

All this work is paid for by the tourists who visit the hotels: there's a kind of hotel tax that pays for it all. So by eating the indifferent food in the hotels, you are helping to get it all fixed.


(snip)
[/quote]

[woodpecker]

"Despite having masses of fresh vegetable available,..."

Last time I checked, Cuba was still not 100% self-sufficient in fruit and veg. Despite all they headway they have made since the 90s, despite the frankly wonderful climate, despite all that land (yes, there's a lot of mountain etc., but also a lot of the rest), they still cannot produce enough to supply a reasonable quantity of fruit and veg for everyone in the country.

In recent years, there's been the emergence of the 'shopping centre only for those with convertible currency' (out in the wealthy area of Havana towards the Russian embassy). Doesn't seem very socialist - although I suppose there are parallels with what happened in the old USSR.

If you go to an ordinary shopping centre in an ordinary suburb, there's (in my experience) hardly a fresh anything to be found.

[UndercoverElephant]

"Despite having masses of fresh vegetable available,..."

Last time I checked, Cuba was still not 100% self-sufficient in fruit and veg. Despite all they headway they have made since the 90s, despite the frankly wonderful climate, despite all that land (yes, there's a lot of mountain etc., but also a lot of the rest), they still cannot produce enough to supply a reasonable quantity of fruit and veg for everyone in the country.

"All that land" is a pretty meaningless expression...doesn't it all rather depend on how many humans are living in Cuba?

If you're 50% self-sufficient in fresh fruit and veg, then you either need twice as much land or half the number of humans.

[woodpecker]

"Despite having masses of fresh vegetable available,..."

Last time I checked, Cuba was still not 100% self-sufficient in fruit and veg. Despite all they headway they have made since the 90s, despite the frankly wonderful climate, despite all that land (yes, there's a lot of mountain etc., but also a lot of the rest), they still cannot produce enough to supply a reasonable quantity of fruit and veg for everyone in the country.

"All that land" is a pretty meaningless expression...doesn't it all rather depend on how many humans are living in Cuba?

If you're 50% self-sufficient in fresh fruit and veg, then you either need twice as much land or half the number of humans.

Cuban population density is nearer to that of Spain than of France, and a long way from that of high-density countries.

"All that land" is what I referred to in the previous post: you go though mile after mile after mile of what appears to be very serviceable land, which is not used for anything. And the - as I also mentioned in the previous post - people who do farm somewhere tell you about the situation with leasing land from the government (who are the only ones you can lease land from) and you start to understand why. It's the kind of land that in Spain would be given over to cereals or orchards or olive groves or whatever, depending on local climate. You can travel for 50 miles through non-mountain/forest terrain, and not see a single crop.

This is quite different to what you see in the Chinese countryside, or the Indian countryside, or the French countryside...

[woodpecker]

I accept that you're not going to see extensive agriculture in Cuba, given that they are incredibly highly reliant on manual labour and oxen (not on the tractor), but still, that is not dissimilar to India or China, which both seem to have quite effective use of small-scale approaches that make use of what land there is.

[biffvernon]

Old Havana *was* falling down, but over the last decade or more there's been a huge repairs and renovations programme. The seafront houses have almost all been fixed, and most of the iconic buildings too. Old mansions have been turned into quite nice hotels. And they have made a lot of headway on just about every street of architectural value, including renovation of ordinary homes, putting in proper sewers etc. There's a rather brilliant architect in charge of the whole project, who is getting masses of stuff done, and very well done. I don't think a western country would have managed to achieve so much, so well, in such a short space of time.

If you want to see houses falling down you have to go to Detroit.

[woodpecker]

Here are some short pieces about this architect's work in Old Havana.

http://www.juventudrebelde.co.cu/intern ... d-un-prize

http://www.cubanow.net/pages/articulo.p ... &item=9778

[Ludwig]

I spoke to a West German who described the Ossies as somehow having been scarred by their experiences before the wall came down. I'm also aware of Mauerkrankheit, a very specific mental illness that some people there suffered. It's very difficult to get the feel of a place through a short visit, and things like that are difficult to spot. I didn't know enough about life in the Federal Republic to spot any differences either.

What is "Mauerkrankheit" - a sort of nostalgia for the Wall? I think a lot of East Germans struggled in the transition from the nanny state to a Western society where you had (mostly) to look after yourself. It doesn't seem hard to us, but when you've never had to make decisions about your future, I can imagine it is traumatic.

I don't think life in the Federal Republic has changed significantly more than life in Britain since the early 90s, though on my last couple of visits I think I have detected the same ennui that afflicts other western nations.

I've visited Berlin 3 times: before the wall came down, just after the wall came down, and in 2006.

It's a different city now to what it used to be. On my first two visits, the atmosphere was electric, like London or New York. Obviously on my first visit, this applied only to the western sector. There was a strange feeling of exhilarating danger at being surrounded by a hostile country. It was both oppressive and exciting, if that makes sense.

In 2006, though Berlin was still a fascinating and appealing city, something seemed to have been lost. The economic strain of the surrounding regions seemed to have infected it somewhat, and it felt a little depressed. Another thing that struck me was how light the traffic was compared to other European capitals. I suppose this should be regarded as a good thing, but it seemed a symptom of the general sense that the city wasn't as exciting as it used to be.

I know that, during the Cold War, there were plenty of American troops in the UK, but not in so large numbers and they blended in better because they spoke English.

More to the point, I think, the Americans weren't oppressing us.

It's easy to gloat - we won the Cold War without a fight. Capitalism's lasted over twenty years longer so far, but I don't see it lasting indefinitely, and there's nothing waiting in the wings to replace it with. At least the Warsaw Pact could replace their failed system with capitalism.

I think there is something waiting in the wings but it won't deliver the goods.