Thursday, August 23, 2012

The waning of Society

When I wrote the book "Subverting Capitalism and Democracy" (click the picture to buy it) I was more interested in understanding why we, as a society, were unable to foresee and then stall the crisis. In my inquiry I found that there was systemic rot that had taken place. The reasons for the systemic rot is what I aimed to explain in the book. 

The systemic rot impacts social fabric on many dimensions. It explains poverty, our helplessness or inability to change the system, how and why political system was compromised, how media was compromised, etc. I have detailed these concepts in the book. To understand the systemic rot, we must understand some basic issues.

  1. We must see the economic-society as a network of transactions, not simply millions of transactions happening together, but a network connecting resources with needs. 
  2. We must understand that each transaction has bargaining power equation embedded in it. Unlike what economist like to believe, people participating in transactions always have some burden weighing on them. Using this burden one party is able to command better terms than fair exchange would allow. Michael Porter's 5-forces analysis captures the principle behind this very well from a corporate standpoint.
  3. Bargaining power is additive in nature. Thus, imagine a transaction chain A-B-C. A deals with B and B deals with C. Now, if A has higher bargaining power than B and B has higher than C, then C will have twice the burden. C will feel twice the pressure in the transaction with B. 
  4. In our democracy-capitalism system, bargaining power slowing started accumulating with the financial industry. In fact currently, the bargaining power rests with the investors and occasionally goes to the inventor. Thus, apart from financial institutions, companies like Apple seem to be doing really well.
  5. If bargaining power accumulates in certain places within the network of transactions, then it can give rise to a quasi-fiefdoms. It is incumbent on the government to ensure that this accumulation of bargaining power is broken down to allow a distributed system to start working again. 
  6. The fiefdom cannot survive only because there is bargaining power accumulated within it. It needs one more dimension when it becomes tyrannical. That happens when there is a class where bargaining power is always low, where bargaining power is always suppressed. If there is no such class then internal forces prevent formation of fiefdoms or allows fiefdoms to be taken down if they are formed at all. But if there is a class that does not have bargaining power at all, then it becomes victim of the bargaining power accumulation.
  7. Similarly there will always be poverty, because by definition, poverty is relative. However, if the poverty becomes permanent, then it is a sign that somewhere the bargaining power equations have gone awry.
  8. The capitalism-democracy system is highly regarded because it provides for three mechanisms wherein bargaining power is available to all. One is voting, second is entrepreneurship and third is judiciary (which cannot act on its own without exceptional circumstances). For a feudal society to remain stable, it needs to impair both these processes. Sadly, the current society everywhere in the world, this is true. It is true of USA, of Britain, of India, of Myanmar and every other country.
  9. The democratic system envisages a watchdog - the press. The role of press is to identify and call out any accumulation of bargaining power. The report of press has a lot of weights and can trigger a governmental response. However, even this part has been compromised. 
A revolution is not a solution. Traditionally, revolt works better if the new system is dramatically different than the old one. That is not the case. A functioning capitalism-democracy is the best system available currently. However, it needs to be populated with good people who understand the dilemma. The system needs additional checks and balances to ensure that this does not happen. The problem is any system we design will have forces that want to compromise it to their advantage, it will breed a set of incumbents who want to tamper it to their advantage, it will have its own set of power struggles. The solution is not another system but a refinement in system of checks and balances.