Monday, July 04, 2005


Lie of the Day

British Economist Stephen King has just had his critique of a singer's remarks dutifully published by the Independent.

Chris Martin, lead singer of Coldplay, reportedly said, "I think shareholders are the great evil of this modern world." You wouldn't think such a remark would merit a 1300-word response by an economist, would you? But it did. Here's why—

Mr Martin's comments are symptomatic of a more general backlash against businesses and corporations: and, because Coldplay, alongside other like-minded rock stars, have a huge global audience, they cannot help but influence the moral compass of others. So, if Chris Martin thinks that shareholders are evil, a lot of other people are going to end up thinking the same thing.

That would be bad, wouldn't it?

It's easy enough to see how this view can take hold. Some companies, and some shareholders, don't always behave in quite the right way, whether it's their use of sweatshops in Asia, or their unwillingness to provide drugs to combat HIV in Africa. These observations, though, are not good enough to suggest that all shareholders are really in league with the devil. It's a bit like saying that, because Hitler was an evil leader, all leaders are evil. And that would be less than fair on, say, John Major.

Just because some corporations are responsible for economic slavery and millions of deaths—they're not behaving "quite the right way"—doesn't mean we should throw out the baby with the bath water, Mr. King argues. Fair enough.

But here comes the deception—

The real problem, I think, is that people simply don't understand fully how economies work, and how successful economies get wealthier over time. In these circumstances, it's easy to suggest that the haves benefit only at the expense of the have nots. This "static" view simply assumes that each of us is struggling to get our hands on a decent share of a fixed pie. But the really big issue, the one that matters in explaining the difference between rich and poor, is how the pie can be made bigger and bigger over time.

No, Mr. King. No one disputes that economies grow by making a bigger pie, but the "really big issue" is who gets to eat that growing pie.

Notice also that Mr. King coyly uses the adjectival nouns "rich" and "poor." Rich and poor what? Countries? Or people? The pie metaphor handily explains the difference between rich and poor countries but says nothing about the people of those countries.

Mr. King backhandedly acknowledges this later on, but then ends by asserting another lie—

The irony is that those who are most sympathetic to Africa's plight are often those who are most critical of capitalism. This is understandable. Capitalism has nothing to say about the distribution of income and wealth: instead, its concern is limited only to the efficient allocation of resources. Yet the joint stock company, underpinned by the legal rights and framework that allow and protect its existence, has been one of the most successful institutions in the history of mankind in creating wealth for the many rather than for the few.

Socialism has been the most successful institution in the history of mankind for creating wealth for the many rather than for the few. It may be criticized—and invariably is—for not being the most successful institution for baking bigger pies.

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Lie of the Day (6/20/05)

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