Ideas / Economics
Capitalism

RICARDO HAUSMANN ... Does Capitalism Cause Poverty?

Burgess COMMENTARY

Peter Burgess

Does Capitalism Cause Poverty?

CAMBRIDGE – Capitalism gets blamed for many things nowadays: poverty, inequality, unemployment, even global warming. As Pope Francis said in a recent speech in Bolivia: “This system is by now intolerable: farm workers find it intolerable, laborers find it intolerable, communities find it intolerable, peoples find it intolerable. The earth itself – our sister, Mother Earth, as Saint Francis would say – also finds it intolerable.”

But are the problems that upset Francis the consequence of what he called “unbridled capitalism”? Or are they instead caused by capitalism’s surprising failure to do what was expected of it? Should an agenda to advance social justice be based on bridling capitalism or on eliminating the barriers that thwart its expansion?

The answer in Latin America, Africa, the Middle East, and Asia is obviously the latter. To see this, it is useful to recall how Karl Marx imagined the future.

For Marx, the historic role of capitalism was to reorganize production. Gone would be the family farms, artisan yards, and the “nation of shopkeepers,” as Napoleon is alleged to have scornfully referred to Britain. All these petty bourgeois activities would be plowed over by the equivalent of today’s Zara, Toyota, Airbus, or Walmart.

As a result, the means of production would no longer be owned by those doing the work, as on the family farm or in the craftsman’s workshop, but by “capital.” Workers would possess only their own labor, which they would be forced to exchange for a miserable wage. Nonetheless, they would be more fortunate than the “reserve army of the unemployed” – a pool of idle labor large enough to make others fear losing their job, but small enough not to waste the surplus value that could be extracted by making them work.

With all previous social classes transformed into the working class, and all means of production in the hands of an ever-dwindling group of owners of “capital,” a proletarian revolution would lead humanity to a world of perfect justice: “From each according to his ability, to each according to his needs,” as Marx famously put it.

Clearly, the poet and philosopher Paul Valéry was right: “The future, like everything else, is no longer what it used to be.” But we should not make fun of Marx’s well-known prediction error. After all, as the physicist Niels Bohr wryly noted, “Prediction is difficult, especially about the future.”

We now know that as the ink was drying on the Communist Manifesto, wages in Europe and the United States were beginning a 160-year-long rise, making workers part of the middle class, with cars, mortgages, pensions, and petty bourgeois concerns. Politicians today promise to create jobs – or more opportunities to be exploited by capital – not to take over the means of production.

Capitalism could achieve this transformation because the reorganization of production allowed for an unprecedented increase in productivity. The division of labor within and across firms, which Adam Smith had already envisioned in 1776 as the engine of growth, allowed for a division of knowhow among individuals that permitted the whole to know more than the parts and form ever-growing networks of exchange and collaboration.

A modern corporation has experts in production, design, marketing, sales, finance, accounting, human resource management, logistics, taxes, contracts, and so on. Modern production is not just an accumulation of buildings and equipment owned by Das Kapital and operated mechanically by fungible workers. Instead, it is a coordinated network of people that possess different types of Das Human-Kapital. In the developed world, capitalism did transform almost everyone into a wage laborer, but it also lifted them out of poverty and made them more prosperous than Marx could have imagined.

That was not the only thing Marx got wrong. More surprisingly, the capitalist reorganization of production petered out in the developing world, leaving the vast majority of the labor force outside its control. The numbers are astounding. While only one in nine people in the United States are self-employed, the proportion in India is 19 out of 20. Fewer than one-fifth of workers in Peru are employed by the kind of private businesses that Marx had in mind. In Mexico, about one in three are.

Even within countries, measures of wellbeing are strongly related to the proportion of the labor force employed in capitalist production. In Mexico’s state of Nuevo León, two-thirds of workers are employed by private incorporated businesses, while in Chiapas only one in seven is. No wonder, then, that per capita income is more than nine times higher in Nuevo León than in Chiapas. In Colombia, per capita income in Bogota is four times higher than in Maicao. Unsurprisingly, the share of capitalist employment is six times higher in Bogota.

In poverty-stricken Bolivia, Francis criticized “the mentality of profit at any price, with no concern for social exclusion or the destruction of nature,” along with “a crude and naive trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.”

But this explanation of capitalism’s failure is wide of the mark. The world’s most profitable companies are not exploiting Bolivia. They are simply not there, because they find the place unprofitable. The developing world’s fundamental problem is that capitalism has not reorganized production and employment in the poorest countries and regions, leaving the bulk of the labor force outside its scope of operation.

As Rafael Di Tella and Robert MacCulloch have shown, the world’s poorest countries are not characterized by naive trust in capitalism, but by utter distrust, which leads to heavy government intervention and regulation of business. Under such conditions, capitalism does not thrive and economies remain poor.

Francis is right to focus attention on the plight of the world’s poorest. Their misery, however, is not the consequence of unbridled capitalism, but of a capitalism that has been bridled in just the wrong way.

Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Director of the Center for International Development at Harvard University and a professor of economics at the Harvard Kennedy School.

COMMENTS

Comment Andrés Galia JAN 2, 2017 No creo que lo que el papa Francisco esté defendiendo cuando critica al actual sistema económico es una economía manejada por el Estado. Las 'pruebas' que el autor de la nota presenta con la renta per cápita es un cuento de hadas. Más que el ingreso per cápita lo que se debería presenter es cuál es la redistribucción de ese ingreso, y creo que Picketty ya dio la respuesta. Y si les cabe alguna duda OXFAM ha publicado un informe donde se menciona que 60 personas ganan más que 3.500 milllones de... READ MORE Reply

Comment Jose Oyola JAN 2, 2017 This excellent piece by Hausmann on poverty and capitalism forgot to mention the case of China, which experienced the single largest erradication of poverty in modern history. The uplifting of 1 billion chinese from abject poverty in 30 years was not caused by a program sponsored by an investment program of the UN or the World Bank. Private investment by the largest capitalist enterprises in the world did it. Reply

Comment Robert Kolker JAN 1, 2017 One thing we have learned from the various 'socialist' experiments in the last 150 years. If you want to guarantee failure, let the government run things. Thomas Jefferson once wrote that if the government ordained when we should sow and when we should reap, we should soon want for bread. Reply

Comment david lilley JAN 1, 2017 In the UK we replaced capitalism with the mixed economy or state interventionism even before Marx (standing on the shoulders of Smith and Mill) wrote Das Kapital. In the mixed economy the wealth creating private sector funds the spending of the elected representatives, the public sector. We must always be cautious of using the word government as most that do so fall into the 'us and them' trap. Parliament houses your servants doing your bidding and the governing party is out of office if they fail to do your bidding. The debate today in the mixed economy is big state v small state. We don't need to bring up the long gone 150 years dead concept of capitalism. The big state team always want more than the private sector can provide and always get their extra spending money from sovereign debt. The small state team want the same things for society at large but appreciate that robbery and credit are not the best way forward. The public sector should manage on what the private sector can provide. If it cannot then how can it possibly manage if it has debt servicing costs to boot. The US economy ripped for over one hundred years when the public sector was next to nothing. READ LESS Reply

Comment David W. Rothschild JAN 1, 2017 Okay, I accept the accuracy of this article but why does it omit any reference to Francis' support of Christina Kirchner's disastrous Peronist inspired policies ( expropriations, subsidies, pandering to unions, currency controls, a centrally controlled economy, populism, etc. ) ? Reply

Comment LAXMIDHAR N BHOLA MAR 13, 2016 Capitalism in a free society 'not a cause of poverty':-It's a Leadership Challenge. If Leadership have good nationalist attitude and have vision for their country, they can experiment economic redistribution model to see 'inequality balance is under check always'! Reply

Comment Ben Leet MAR 10, 2016 A 2015 USCensus report 'Statistics of U.S. Businesses Employment and Payroll, Summary, 2012' says that 56.1% of workers, 60 million, work in firms of over 500 employees, and another 14.0% work in firms with 100 to 500 employees. I think corporatism is a mmore apt description of what you outline. Read professor Lazonick who details that 94% of corporate profits in the S&P 500 go to stock buybacks and dividends, and note also FRED stats at St. Louis FRB that the 'average weekly earnings of production and nonsupervisory workers' has decreased by 4% over the past 51 years, and the economy 'per capita disposable income' according to the BEA has increased by 177%. The picture is that corporations do not raise the incomes of most, 80% of their workers over 50 years. Corporatism is not serving society. It's in danger of a backlash, I predict. I write a blog, Economics Without Greed. Greed I believe is somewhat hidden, but the profit imperative has squeezed income out of the lower-earning majority, threatening the whole works. READ LESS

Comment david lilley JAN 1, 2017 Ben Leet MAR 10, 2016 Ben, You are entirely mistaken. I dismissed the concept GREED before I was eleven and have had no time for it since. Yet you make it the compass of your world view. You are forgetting Adam Smith's 'invisible hand', the butcher, baker and candle-stick maker may only be concerned with their own self interest but their efforts create an invisible hand that spreads wealth though-out society. READ LESS Reply

Comment Ricardo De Angelis MAR 7, 2016 Frenar la expansión del capitalismo en países en desarrollo sí ocasiona problemas como los mencionados, se merman las oportunidades de las personas y aún más allá, se frena el desarrollo de sus capacidades en nuevosd y avanzados procesos. Pero decir que el capitalismo no es causante de la pobreza usando ese argumento como bandera me parece lavarle las manos a un sistema que es causante de profunda desigualdad y marcada pobreza. No pretendo aquí redactar un contra-ensayo ya que esto debe ser un comentario, pero es necesario observar las consecuencias del capitalismo en las economías como un sistema en general que tiene virtudes, sí, pero que también genera pobreza inclemente contra quienes fracasan en sus intentos por acoplarse a este. READ LESS Reply

Comment Manu Oquendo MAR 7, 2016 Do not call it 'Capitalism'. It is the Wrong Word. For every 100 new Capitalist companies born................. les than TWO survive at the 10 year Mark. We forget this huge recycling machine too easily. Visualizing it is very interesting but the Academic and Political world are not interested. 'Capitalism' can work reasonably well if kept in a Power environment not equal but conceptually similar to the national market preservation rules of, lets say, Breton Woods. Including some sort of monetary limits on Governments. Not necessarily metallic limits. But, if the rules change --to those of Globalization and Mass Democracy-- it becomes Entropic and Not Sustainable. For several reasons. 1. The process of Oligopoly creation becomes 'automatic', Systemic. The Externalities it creates are taken up by the Public Sector. A never-ending Process. 2. As a result The Redistribution Process grows without limit accumulating System Driven Externalities onto the Public Domain. 'Financialization' inevitable ensues and lasts for a while. This is Agonic Keynesianism without listening to the Real Keynes. It seems nobody wants to read Keynes today. 3. One of the externalities created by the Political System Today is the Progressive Reduction of Individual Freedom by the Sheer weight of Rules. Mountains of Rules and barriers. 4. As a result Incentives cease to exist ant turn negative for a growing number of citizens. Misery grows necessarily. Systemic output cannot keep up with the growth of the Cost of Controls. 3. Global and Social Order can only be sustained by Military and Coactive Policies. Explosive. The above is not New. It was predicted By Tocqueville (4th book of his masterpiece), announced By Adam Smith, Guglielmo Ferrero, Robert Michels, Röpke, Michael Mann and many Others. It is happening before our eyes. The game is a Power Game. The economy is only one of the 'means' which interacts with the Power System. Again, nobody wants to look at the realities and results of Our System of Social Power. Not an easy subject and no easy ways out. Rgds. READ LESS Reply

Comment Juan Pablo Valdivieso MAR 7, 2016 La finalidad de un sistema economico y político debe ser la dignidad del ser humano, la satisfaccion de sus necesidades y la elevacion de sus potencialidades fisicas e intelectuales. El gran desafío es la sobrevivencia de la especie frente a los riesgos producidos por el calentamiento global y la sobrexplotacion de los recursos naturales Reply

Comment Kenneth Pao MAR 7, 2016 Perhaps both the Pope and professor Hausmann are looking at too narrow a capitalism 'system'. Because Of course, the success of capitalism is not assured by a business friendly government only. Capitalism success depends on a government that encourages entrepreneurism and provides a peaceful and stable environment for development, a system of rules of law ensuring level playing field for all and easy availability of risk capital at affordable prices for the entrepreneurs. Wherever the Pope points to where capitalism failed, invariably one finds unstable political system, poorly educated labor, or lack of sufficient rules of law or lack of sufficient investment of capital. Not all of those deficiencies could be blamed to capitalism per se. READ LESS Reply

Commented Alexandre Negreiros MAR 6, 2016 Maybe you should explain why northern Europe's nations keep heavy government intervention and still produces high GDP capitalists outcomes and, as so many advocate, high social benefits due to that high interventions. And yes, there are a significant number of the most profitable companies in 3rd world countries, many of them taking high advantages of the lack of interventionism its fragile governments let them. And plenty of observers connecting those chronicle issues and the asymmetric international labor division distribution with some of these advantages, many kept this way exclusively for the 'north hemisphere' benefit (USA/Europe). READ LESS Reply

Comment Mark Dallas MAR 6, 2016 Professor Hausman, Seems like a serious case of 'selection on the dependent variable.' First, you offer no clear definition of capitalism, except economies with large, highly productive firms. Is that really the complete definition of capitalism? Second, by doing so, you conveniently define 'capitalism' as anywhere you see large productive firms and middle class incomes (advanced countries), while everywhere else (India, Bolivia, Mexico) is NOT capitalism. Hmm, with this kind of definition, you can't possibly by wrong!! Finally, if what we see in India, Bolivia and Mexico is NOT capitalism, pray tell, what exactly is it? Do we have a name for it? What do you call it? Markets largely dominate, ownership is largely private..... After decades of liberalization and 'following the game book' to allow markets freer reign, most agree that the promise land is still far away. I imagine your response would be it IS capitalism but with too much state intervention? (you hint at this). But, this is the same, old canard that led to widespread liberalization in developing countries. I'm not a fan of developing country states, but I'm highly dubious of anyone who says that this is a cure-all. I think most areas of the world are now capitalist, so one can't escape the development conundrum by carving out rich areas as 'capitalist' and poor areas as not. It is that there are VARIETIES of capitalism and not all versions are good. (This contradicts Francis too, of course). Thoughts? READ LESS

Comment Kenneth Pao MAR 7, 2016 You ask a valid question. Of course, the success of capitalism is not assured by a friendly government only. Capitalism success depends on a government that encourages entrepreneurism and provides a peaceful and stable environment for development, a system of rules of law ensuring level playing field for all and availability of risk capital at affordable prices for the entrepreneurs. Reply

Comment Seeta Grayson JAN 10, 2016 Any person who has the intelligence to have a degree has the utmost necessity of truly seeing Capitalism has been controlled in the most awful ways in the undeveloped countries stated in the article such as Mexico. however, the proletariat, the working class posses their own obstacles to seeking a better life without poverty such as their own mindset of thinking, not being able to access Education . Explotaition hapens in all three perspecttives due to the main advantage is that the production will always be owned by a small groups of people, like it or not. READ LESS Reply

Commented Mark Rego-Monteiro DEC 22, 2015 Ultimately, theory has to reflect reality, either preceding it or following it. I'm interested to finally see a reference to Vanek's work somewhere, but in fact, the reality was much larger since the co-op model actually began in two steps in the 1840s following Robert Owen's efforts and legacy and the 28 struggling, but inspired workers in the Rochdale pioneers. More recently, David Ellerman's theoretical work has forged a modern Labor Theory of Property which links easily to Human Rights, as well as applying this to conventional economics, with reference both to Vanek and Mondragon, I recall. Mondragon similarly is an entrepreneurial phenomenon that has hammered out strategies in co-op organization. Good work. READ LESS Reply

Comment lakshma reddy DEC 13, 2015 Recardo Houssmann thinks marx prediction of proletarian owners of labor and capitalist owners as false with rise of factual of network of people possessing different types of middle class human capital in Admsmith's division of labor and also refutes the criticism of Pope Francis of capitalist greed for profit as cause of poverty in countries with his assertion of lack of unbridled capitalism in many backward countries like Bolivia and more state control in wrong way as the cause for their poverty.I agree with his conclusion. But I am not inclined to concur with his analysis.one should not see Marx in isolation from the Adamsmith and Recardo and many of the classical period economic writings. The original idea of labor theory of value formulated by Adamsmith in his wealth of nations book in an explicit theoritical basis and it was subjected to critical review by later writers in the light of new facts or reality.Recardo affirmed the law of value but could not explain the inconsistency of law of value with market prices and so also the relationship of profits to surplus value, to wages or rents and interest rates as ruled in the markets. Mr Houssmann here also raised the same questions of high wages in capitalist industry with low wages in non capitalist poor countries.He poses a question to Pope stating that no multinational company is allowed to operate in those contrives to exploit the people by wrong way state control hence capitalism is not the cause. Well, he is partly right but does he mean to say that global prices are formed from the production and supply of one or more countries and further the poor countries labor value is not cumulated in global market prices and through which the said poor countries market competitive prices are affected? In effect,the author is approaching the global value and globalisation effects front much narrower corporation which is less than national entity and it is totally erroneous from Adamsmith and as refined by Marx analysis of production of value to prices and it's consequential effects on global distribution of value and prices more particularly against the countries with lower mode of production and mamagements. I hope the author not to belittle the observations of Pope Francis in such casual undeserved egostic way and work for global approach in stead of too much nationalised approach in understanding the present day perplexing issues. READ LESS Reply

Comment Andreas Psaras DEC 13, 2015 It is of interest that at a time when is clearly proven that the analysis of Marx explains, to a large extent, what we experience in our times a professor from a leading university comes out to support exactly the opposite. Marx understood two basic shortcomings of capitalism while recognizing its positive contributions. Capitalism, Marx said, is a better system as compared to the system it has... READ MORE

Comment Tom W MAR 6, 2016 Some more reality check for the wildly incorrect claim: http://data.worldbank.org/indicator/SE.XPD.TOTL.GD.ZS We can see that for countries with available data, government spending on education as a percent of GDP is mostly in the 3-6% range. Yes, I know this includes all levels of education. Yes, I know that theoretically, wealthy countries could transfer quite small percentages of their GDP to education in poor countries translated to quite high percentages. But these data also exclude private spending on education, which is substantial. READ LESS

Comment Tom W MAR 6, 2016 Andreas write 'undisputed data shows that if the world stopped spending on military for eight days it will save enough money to provide quality education for all children in the world for 12 years.' All spending in USD: Global military spending is ~1.7T/yr (1.7x10^12). That is 4.7B/day or 37B over 8 days. Using that over 12 years provides $3.1B/yr There are roughly 1.7B school age children. So if all military expenditure ceased and were re-directed it would provide 1.80 per child PER YEAR. Even in the poorest countries, you cannot educate a child for under two dollars per year. Another way to see through this preposterous claim is to note that military spending is about 2.1% of global GDP. So 8 days of it is about 0.05% of global GDP. Can we provide for all children's education with only 1/2,000th of our output? Of course not. Also, implicit in this wild claim is that without capitalism, there would be no need for military spending. I suppose this implicitly assumed an unassailable global government that requires no need to suppress malcontents. It also implies that current developed world military spending would be redirected to poorer nations' educational needs. READ LESS Reply

Comment Miro Alibasic DEC 13, 2015 Inequality is main issue, caused not by capitalisam but human greed. Atb Reply

Comment Shihab Khan DEC 12, 2015 So if Marx didn't see the rising wages, the entire capitalism stands vindicated? Utter nonsense. If it brought people out of poverty, it put others in abject poverty. Just a glance through the wealth and income disparity statistics could show that. And as for the pope, I'm highly confident that he wasn't talking about the Scandinavian or German capitalism when he was calling it the misery of human kind. It's precisely this kind of extremist Laissez-faire Milton Friedman type of capitalism that has caused so much of human misery in the hope that the absence of government regulations would somehow result in Capitalist Utopia. On top of that, it's only such capitalists that depend upon government inflicted violence to enforce their agendas. Latin America bears witness to these experiments. And this is a Latin Pope you're taking about. READ LESS Reply

Comment Miguel de Arriba DEC 11, 2015 Sí claro; es por eso que sucede esto ... http://www.marketwatch.com/story/americas-middle-class-has-lost-nearly-30-of-wealth-2015-12-09 Reply

Comment Stamatis Kavvadias DEC 11, 2015 Personally, I see no mistake in Marx's prediction. It is unclear if western lift of living standards comes from capitalism or various forms of colonization and imperialism. It is clear that after 1970, a private banking system --exploiting money creation gains and socializing losses--, rent-seeking and an increasing storm of races to the bottom, have made capitalism and all its gains the prerogative of the 1%. It is *very* unclear if this was not the original tendency of capitalism, or it has just gone wrong, as life-long supporters (that never new anything else) are advocating. The arguments in this article are a joke! READ LESS

Comment Phil Cartier JAN 2, 2017 Poverty and highly stratified economies have many causes, including type of government, graft and bribery (particularly bad inside a government) but always an added burden on productivity, politics- virtually every political system is dominated by elites of one sort or another- economic, political, military, totalitarian, religious, or simply thugs, cultural and tradition causes, geography and resources(minerals, oil, mountains, rivers, climate, fresh water, oceans) and surely others. The worst cause of poverty is human nature- honest, rational, respectful, educated and wise peoples can generally get along pretty well. But, unfortunately pride, envy anger, gluttony, lust, sloth and greed can and do always interfere with life both within and between people and nations. The results are always some form of poverty, in spirit, livelihood, freedom, material goods, and happiness. I've read much about this, including this article, and almost all the

Comments fall far short of any useful ways of keeping humankind's bad inclinations is check. Nothing can prevent the growth of poverty and inequality in any system. i've read a number of studies in economics and game theory that describe experiments that show that no matter how smart the players, even starting with equal assets, any system of trade rules always ends with one or two players dominating and the rest stuck in poverty. The only way to upend the stalemate is an upset- war, cataclysm, or pestilence, or if it's a game, flipping the board over. READ LESS

Comment Stamatis Kavvadias DEC 12, 2015 It is unlikely that capitalism would have existed without private money and exploitation, it is unclear if capitalism could exist without rent-seeking, but it is clear that races to the bottom can be the lethal pill for capitalism. Can you even imagine capitalism without these things? Can the author?

Comment Stamatis Kavvadias DEC 11, 2015 Of course, there is no question if global warming is man-made and thus capitalism made. Reply

Commented Laurent Enckell DEC 11, 2015 The author's tired argument relies on a caricature of Marx and, to a certain extent, Pope Francis. Why Mr. Hausmann is paid to teach at Harvard escapes me. I suggest that he at least try and read Piketty. This latest article comes with an appeal for financial support for Project Syndicate. Although I have found many of the past pieces instructive and challenging, too many have been trite and ill informed, so that I will regrettably cease to follow this website. READ LESS Reply

Comment Michael Warhurst OCT 5, 2015 YOU WRITE: 'As Rafael Di Tella and Robert MacCulloch have shown, the world’s poorest countries are not characterized by naive trust in capitalism, but by utter distrust, which leads to heavy government intervention and regulation of business. Under such conditions, capitalism does not thrive and economies remain poor. Francis is right to focus attention on the plight of the world’s poorest. Their misery, however, is not the consequence of unbridled capitalism, but of a capitalism that has been bridled in just the wrong way.' Your quote is incorrect in its conclusion. The poorest countries have little distrust for capitalism, aux contraire mon cher. The governments have been captured through corruption of politicians and the political process by corporate capitalist interests. What seems to be democracy on the surface is actually plutocracy. Those plutocrats controlling a country protect their possession from falling into foreign hands and destroy democracy through political corruption and money pollution followed by crippling austerity. This is not a naive trust in capitalism but by having democracy corrupted through capitalist bribes of politicians and capitalist interests facilitated and protected by politicians and military - at the cost of democratic rights, destruction of worker protections, and carte-blanche to corporate plutocratic interests. READ LESS Reply

Comment Ken Niehoff SEP 19, 2015 Article ignores capitalism as exploiting earth's resources at any environmental cost and Wall Street's making money on money and producing nothing. The pope isn't condemning capitalism but is pointing out the consequences of its excess and collateral damage. Some of us may be wealthier but will we survive? Reply

Comment Lawrence Louie SEP 18, 2015 It is always interesting that the persons who are writing to defend the existing system are always old rich, white guys. They want us to believe that this system that they INVENTED and re-enforced over the past generation is the best thing for mankind. The fact that they sit at the top of this pile of shambles since the Financial Crisis as living gods with power over trillions of dollars and billions of live had nothing to do with their optimistic assessment of the situation. After all, poverty has been RISING in the U.S. (the wealthiest nation in human history) for a generation just as it became even MORE capitalist than it ever was. How does Hausmann explain that? He cannot. All he can do is repeat his mantra and hope no one notices what is happening around them. The 30-yr experiment is OVER. It failed. Be a real man and own up to your mistakes. READ LESS Reply

Comment Enrique Woll Battistini SEP 6, 2015 Professor Hausmann, On the morning news shows of August 31, in Lima, Peru, I saw the civilian authorities pleading with corporate crooks to let them enter the palm oil farms in Ucayali and Amazonas where the clearing of rain forest and jungle areas covering thousands of hectares is being done with total impunity; this is called corruption, plain and simple. This is a currently valid example of unbriddled capitalism. See: http://nbcnews.to/1fR3cts. The upward and downward swings of the largely unbriddled capitalism system prevailing in too much of the developed world suggests the need for an early warning system, as professor Nouriel Roubini has noted in a recent Project Syndicate article. There will always be a need for a financial early-warning system; but how relevant, important or critical that system would be to peace and prosperity, is inversely proportional to the realism and efficiency, and thus the value and stability, of the existing resource allocation systems in countries and the globe. The better the articulation and coordination of the private and public entities involved in socioeconomic development, and the better they are able to promote comprehensiveness and balance in investment and production outlook, freedom of choice in consumption, and fairness in the distribution of income and the accumulation of wealth, the more inclusive the world will become, the less room and opportunity for corruption there will be, and the more stable it and all its socioeconomic systems will be. Thus, the improvements in technological innovation, and production efficiency, and in all areas of human endeavor, desperately needed to attain world peace in this century, would require an for-profit articulation of all entities charged with addressing comprehensive socioeconomic development, both private and public, governmental and multilateral, in order that investment be directed in optimal ways. The need for this articulation would be best served along three north-south axis, Asia-Oceania, The Americas, and Europe-Africa. Moreover, to create and maintain fairness in the distribution of production among the labor forces at both ends of the scale, and generate the concomitant incentives and savings to maximize individual productivity and prosperity, widespread tax reform would be needed. Obviously, rampant capitalism will not meet these requirements, as Thomas Piketty has already shown, and it must be curbed. The following documents posit some practical possibilities addressing the above identified requirements, and provide an informal proof of Piketty's Thesis: 1. On Articulation of Development Entities: https://www.academia.edu/12823841/Mathematical_Model_and_Simulation_for_A_Partnership_for_Development_with_the_United_States_of_America_-_December_1999 2. On Tax Reform: https://www.academia.edu/13062837/La_Reforma_Tributaria_del_Siglo_XXI_The_XXI_Century_Tax_Reform_-_2011100411 3. On Rampant Capitalism: https://www.academia.edu/13062623/Informal_Proof_of_Thomas_Pikettys_Thesis-2014060802 READ LESS Reply

Comment M A J Jeyaseelan SEP 2, 2015 That communism is failed is no reason why capitalism would succeed. The roller coaster rides, which now characterise the capitalistic economies are equally shameful. Growing inequalities is the direct result of capitalism. You may read more about this phenomenon at https://www.linkedin.com/pulse/root-causes-inequality-jeyaseelan-m-a-j Reply

Commented Mark Friedman AUG 30, 2015 The author wrongly assumes that a capitalist organization of production is the only way to achieve efficiency. Vanek and others have rigorously shown that labor managed firms can be as or more efficient, with far fewer external costs and no extreme inequality. Systems of such firms rely on market mechanisms, but that is not the same as capitalism. Look at the economic democracy of Mondragon for a possible model for the future. Reply

Comment mike sheffer AUG 30, 2015 I found references to God in the Pope's address but none to Karl Marx. Francis does not conflate the two. He says that we all now live in a 'system which [imposes] the mentality of profit at any price, with no concern for social exclusion or the destruction of nature? ' That is the framework of a moral critique. The author may call it a Marxist critiques if he likes; if so, perhaps Karl ought to have been a Pope. While the author seems willing to accept that 'social exclusion and the destruction of nature' are facts, he refutes the Pope's conclusions as to cause: they are the direct consequences of having bridled capitalism, he says. I wonder how many Greeks would say that their profound human suffering is a direct consequence of too much bridling of the global financial system? Do we or do we not now live under a system where 'the mentality of profit at any price, with no concern for social exclusion or the destruction of nature' predominates? No serious person can deny it. To think we can best solve these problems by betting it all on unfettered capitalism is perfect folly. READ LESS Reply

Comment Tor Syvertsen AUG 30, 2015 “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” ― John Maynard Keynes (1883-1946) Reply

Comment VS Aditya AUG 30, 2015 It shall never be seen as a cause instead its a follow-on modality with capitalist structure! Reply

Commented Seth Wagoner AUG 28, 2015 Whoops. Again I want an edit button darn it. Like they have on FT

Comments. I just looked at that table again and the relationship I'm referring to only applies in poor countries. And of course, it is from a previous decade. So I absolutely rescind the 'conclusively' in my prior

Comment, but it's still fascinating data. Reply

Commented Seth Wagoner AUG 28, 2015 Heh. I just read some of that paper. I'm loving table 1 where it fairly conclusively shows that under a left wing govt capitalism is worshipped, but under a right wing government it is hated. So why on earth would good capitalists support a right wing government? Only if they don't mind being hated this table is saying, which to me just as obviously means, only if they don't actually live there, or if they do, they never have to meet anybody who's poor. Reply

Commented Seth Wagoner AUG 28, 2015 Apart from, of course, the most popular politicians in the Western World as of right now - Bernie Sanders and Jeremy Corbyn. Neither of whom has made the usual completely empty blanket promise to create jobs and growth at absolutely any cost, or equally idiotic promises to renationalise anything in a violent or regressive fashion, but they are certainly both talking in the kind of terms that many younger voters have been dying to hear for quite some time. They probably won't win, but they might well force the rest to finally somehow learn how to speak some actual sense again. READ LESS Reply

Commented Seth Wagoner AUG 28, 2015 Drat, you can't edit or delete

Comments? Oh well. Scratch that last one, I meant to finish with something along the lines of 'IF the capitalists would just stop selling and/or giving all the paranoid authoritarians an infinite supply of weapons' ... but I guess it's probably best to only propose ideas that are at least remotely possible. My apologies for that outburst of unreconstructed utopianism,

Comment Enrique Woll Battistini SEP 6, 2015 Yes, editing typos out and improving redaction in the tiny window allowed for this would help me too. Reply

Commented Seth Wagoner AUG 28, 2015 With respect, it may be 'obvious to you sir, with all your experience, but young folk in the developed world are going to require a lot of convincing. Unbridled capitalism to *us* means unrepentant exploitation, and we are pretty sure it's even worse in the 3rd world than we see it here, or why would we be getting so many refugees? War and poverty could be solved in a decade with half the money the pentagon pays the consultants that are still cunningly failing to fix it's ERP systems.

Comment Tom W MAR 6, 2016 Wasteful spending at the pentagon is surely the pinnacle, but those cunning consultants are all over government. Remember the launch(es) of the ACA. Beyond incompetent and bad. Criminally bad, but they get wealthy. Look at the numerous 'attempts' to modernize the FAA's systems. Billions down the hole. And yet you suggest that the solution is to give the government more direct power over our affairs? Does Bernie sprinkle the magic dust and make it all pretty? Or does he put together a squadron of 'enforcers' to root out all of the waste, fraud, and abuse? READ LESS Reply

Commented Seth Wagoner AUG 28, 2015 The reason it fails is that the bridle is always designed and selected to suit the rider, with little or no appreciation given to the horse. Reply

Comment Jose araujo AUG 26, 2015 One thing this article is good is that it made me look into the definition of capitalism and socialism, and in this I came into this aberrant definition if major English sources. Which define capitalism and socialism by the property of the means of production, where capitalism is when they belong to the individual and socialism when they belong to the state. READ MORE Reply

Comment jagjeet sinha AUG 26, 2015 Inside the Sistine Chapel when the College of Cardinals elected Pope Francis, Democracy was undiluted by Dollars - enabling him to democratically serve the billion plus congregation as its Supreme Commander. Inside the White House when the College of Capitalism elected Barrack Obama, Democracy was NOT undiluted by Dollars - the Supreme Commander beholden due IOUs to democratically serve Capitalism. Inside the Zhongnanhai when the College of Comrades selected Xi JinPing, Democracy was undiluted by Renminbis - the Paramount Leader serves his billion plus congregation more democratically in practice than Capitalism can. Capitalism in Democracy is NOT UNDILUTED by Dollars to discharge its duties to democratized Wealth creation. Whereas the Supreme Commanders inside Vatican and Zhongnanhai discharge their duties more democratically. Hence their Billion plus believers rejoice at their trophies, one Victory after another. Whereas Capitalism Supreme Commanders become Billionaires, whilst their believers wallow. READ LESS Reply

Comment ron smith AUG 26, 2015 Hausmann seems to have confused 'capitalism' a la Adam Smith with 'unbridled capitalism' which Smith specifically abhorred. Discussion of 'capitalism' or 'not capitalism' as the means to bring forward backward economies in Africa or the Middle East completely misses the key point which is 'enough political stability for the citizens to be safe.' Of course, prior

Commenters are absolutely correct in pointing out the dumbbell shape of the current asset curve, especially in the US. but that leaves us with the question of who are the dumbbells at project syndicate? READ LESS

Comment Lawrence Louie SEP 19, 2015 People like Hausmann are barely aware that there were FIVE Volumes to Adam Smith's Wealth of Nations. They always conveniently quote whatever they want from Volumes I+II and sometimes IV but completely ignore the others (especially Volume V on the role of the state). The failure of the past generation of economics is its failure to appreciate that for the system to function properly, the ENTIRE system must be implemented and not simply whatever catches one's ego. READ LESS Reply

Comment Richard Miller AUG 26, 2015 I believe that Mr. Hausmann misses a lot in his article. First let me give my definition of capitalism. Enterprise makes a profit, accumulates a surplus (capital) and reinvests that surplus into the community to make more surplus. Is that what happens in the global economy? NO. Enterprise operates in a region, makes a surplus, and withdraws that surplus out of the region, and/or out of the country. It may invest some of that surplus (capital) somewhere in the globe, if there are obvious advantages of low wages, no environmental concerns and low taxes. The rest of it might go into puffing various markets and making profits on the back of a bubble, and also enormous profits on the necessary correction (the market crash). But no value is added in these operations. It is precisely this vacuuming effect that has sucked dry most of the world’s secondary cities and many marginal countries that have opened their doors to globalism. If you have money to invest would you build something in Maicao, or would all your money all go to Bogota? If capitalism got the green light to operate more in Maicao would they build something there, or would they keep building their holdings in Bogota. The answer is obvious. I live in Thailand and this trend is glaring. Bangkok with 5 million people (8 million with the suburbs) and the next tier of cities in the 300,000 range. I believe that the nature of money as we know it, will always flow out of the periphery and toward some centre. The solution is to work with a different mix of local and national currencies, and not to open the floodgates so that multi national corporations can have a field day. READ LESS Reply

Comment R Richard Schweitzer AUG 26, 2015 Catholic social teaching, calls for “dealing with the structural causes of poverty and injustice.” '. . . the elimination of the structural causes for poverty is a matter of urgency that can no longer be postponed.' Cardinal Maradiaga, at the Catholic conference, “Erroneous Autonomy: The Catholic Case Against Libertarianism.” (6/3/2014) Washington, D.C. RRS: There are no 'structural causes for poverty.' 'Poverty,' mere subsistence or less, even the failures of subsistence have been the beginning and end of much of human existence and experience. It has always been the beginning. Sufficiency, which is the displacement of mere subsistence and of poverty, has been accomplished through human interactions with one another and their surroundings. Where the conditions for those interactions have been optimal and occurred in the greatest conditions of freedom, abundance has accompanied sufficiency. History is replete with examples of 'structural obstacles' that have limited those conditions of freedom of interactions which could produce the sufficiency to displace poverty. They are with us everywhere today. The 'urgency' is to remove the structural obstacles to freedom of human interactions, without political direction or ideological determinations, before mankind's faith in its given nature to produce sufficiency is further weakened, requiring longer and harder efforts to regain the power of that nature. READ LESS Reply

Comment R Richard Schweitzer AUG 26, 2015 It is odd that references are still to 'ownership' of capital (whether means of production or other forms), rather than to concern with the control over determinations of its uses, or the means of its acquistions. We are in a managerial age. Those who would have that role through the authority of governments or states are still with us; though the motivations for seeking those powers is now more diverse. We are constantly getting 'sucked in' to regard capitalism as a 'system' when its is actually a resulting condition. That condition results from human interactions in seeking objectives and selecting means in particular circumstances. Among those circumstance are variables of degrees of freedom and degrees of open or limited access to the facilities within the social organization. The profit motivations that are among the factors that result in the current form of capitalism are the motives of the members of the society, not of some presumed 'system.' READ LESS Reply

Comment Onyedimmakachukwu Obiukwu AUG 26, 2015 Three questions for Ricardo Haussman: After the 160 years of rising wages, what happened? Why is income inequality globally, and in the United States, at an all time high. Why are so many Americans feeling the Bern of a Democratic Socialist? Thanks. Reply

Comment Allan Hauer AUG 26, 2015 I’m often bemused by articles like this that ignore what seems obvious. Vibrant free markets are, of course, the engine that drives productivity. They are not, however, the whole of society. We need both a strong entrepreneurial and strong public sector. Clearly there are problems that transcend market forces. From the national weather service to sponsorship of our world leading research and development the public section is a mandatory component of economic success. Anyone who has... READ MORE Reply

Comment Harland Brown AUG 25, 2015 I am not quite sure what 'capitalism' really is. Does it refer to an identifiable political, economic and ideological system of beliefs? What seems beyond doubt is that greater specialization of roles leads to greater overall wealth creation, while at the same time creating a bigger gap between the richest and poorest members of a society. You can even observe this trend as societies moved from hunter/gatherer, pastoral, agricultural, mercantile to industrial economies. So it really makes no sense to ask whether wealth creation is preferable to some measure of economic equality. There is an inherent tension between those two objectives that no ideology can solve once and for all. The market surely has an important role to play in wealth creation and resource allocation, but many decisions about who will be assisted by the state are based on non-market criteria (i.e., not letting people starve to death in affluent societies). READ LESS

Comment Lawrence Louie SEP 18, 2015 Skill specialization and some basic form of the standardization and assembly line long preceded capitalism in its modern form. All capitalism did was introduce the concept of the 'corporation' as a new legal form as the repository of 'capital' (i.e. money, wealth, whatever) independent of a person. Prior to capitalism, property was legally owned only by persons instead of a legal entity. But corporations have become monstrosities no better than the monarchies of old and worse in that they do not hold any repository of moral content that a person could possibly possess. Absent the ethical constraints placed on them by other institutions, they have devolved into huge unthinking machines that destroy at will in pursuit of their 'mission'. READ LESS

Comment Jose araujo AUG 25, 2015 I don't think labor specialization and free markets are an exclusive from capitalism, whatever that means. If we consider the amount of wealth concentrated in the 0,1% of the population, I don't find it hard to think of a better wealth generating system that's much more equal. In the end capital accumulation makes no sense, capital is a mean not an end, and that's why capitalism has no meaning or sense, its just a word we use to refer to a good system (ours) in opposition to a other systems. READ LESS Reply

Comment Francesco Scornavacca AUG 24, 2015 Don't forget about the politics regarding each market procedures. I'm talking about things such as legislation, democratic institutions and, of course, unions. Much of today's wage levels on developed world was thanks to unions, a marxist organization regarding class dispute on the wealth. I would say that it's not about capitalism, or socialism, or whatever that 'ism', it's about creating a good and healthy environment for the people.

Comment Lawrence Louie SEP 18, 2015 Mr Miller, the only thing that is different today compared to 50 years ago is that capital is now global and is permitted free reign to organize and move across national borders at will while unions (that is PEOPLE) are not allowed the same power and freedoms. This is the main difference - UNEQUAL BEFORE THE LAW and LACK OF REPRESENTATION. The very same things Americans fought a war in 1776 to abolish.

Comment Richard Miller AUG 26, 2015 Unions aren’t going to do much in this day and age. Globalism has ensured that any move that attaches to corporate profits will shrink that enterprise or force it to move out. We certainly need a new “ism” since all the old ones are useless for the majority. When capitalism had local ownership is served the community. Local ownership could now happen with employee owned enterprises, (let’s say medium sized). There would be no central subsidy to support bloated redundancy. They would have to run at a profit or they would fail. They would build the community for their children and family. This would bring equity back into society. Another part of the mix could be local credit creation. Mutual credit from local complimentary currency. This would correct the tendency of money as we know it to flow out of the region. READ LESS Reply

Comment Jose araujo AUG 24, 2015 I think its self evidence. Just read a bit about 19th century stuff. You can start with David Ricardo and the definition of wages. You can also read about all the deaths of workers both in the US and the UK, or then read a bit about the captains of industry and the way they treated and though about workers. We are for sure much closer to a Marxist/socialist state then a Ricardo/classic society. The roots of our society are humanists/socialists. Compared with previous societies, to think of us all being equals is pretty much a socialist/Marxist thought. READ LESS Reply

Comment D. V. Gendre AUG 24, 2015 There is no such thing as the capitalism! Daily live in business is influenced by all sorts of politics. We have central banks 'manipulating' currencies and credit - and therefore debt - on a daily basis. We have pegged currencies and 'free' floating currencies (whatever that may mean in a world of central bank interventions). Many prices are set by governments. Most food prices in the western world are manipulated to the disfavor of all other coutries. All sorts of subsidies are paid in favor of some few businesses but to the disadvantage of all others. In 1914 the world has lost it's anchor - the gold standard - which has connected a finite world of resources with a man made monetary system that today has no real connection to this finite world anymore. The sky is the limit for such fiat currency system that relies entirely on trust in governments. This set the western world to unlimited power which by then, 1914, had already built up a reputation of credibilety and creditworthiness (trust). Now benefiting from this reputation by increasing the money supply to ever higher levels, it gave the western world the ultimate buying power it needed to finance an unsustainable, disconnected way of live and for governments warfare, eating and consuming away all resources that can be financed by the trust into its governments and therefore fiat currency. READ LESS

Comment D. V. Gendre AUG 27, 2015 Dear R.M. Even under a gold standard was never a 'fixed amount of money'. Furthermore credit, book money, bank notes etc. were very well established to complement the payment system. Nothing 'dies'. Everything is in balance - as you write. But every piece of wood that burns down is still on this planet atom by atom just in another form. Every grain that grows is built on molecules and atoms from the surrounding soil and air. So resources are limited and finite but they don't die in the sense that they disappear forever! Our monetary system is flawed because it has no connection to this real world. This has nothing to do with capitalism. In all economic systems such monetary system, based on irredimable currency, will and would cause the same problems. READ LESS

Comment Richard Miller AUG 26, 2015 A fixed amount of medium of exchange (money) might have been good when most people spent the majority of what they made. But now by far the majority of money is taken out of the real economy (hoarded) such that the real economy would grind to a halt without continuous money creation. Part of it might be that all real assets die. • Everything in the balance of nature dies. • Human capital dies, or children are retrained. • Resources are used up. • BUT MONEY DOESN’T DIE. Therefore it grows and grows, and is certainly out of sync with the earth and is unsustainable. READ LESS Reply

Commented Todd Clay AUG 24, 2015 Not sure what you're getting at. That not everyone has been swallowed up by the international corporations? Today's capitalism is just creating wage slaves. Not enough to even pay their bills, buy food or get medical help. I doubt anyone of those people would see capitalism as savor but an exploiter. An exploiter that leaves human and environmental damage in it's wake. Reply

Comment Carlos Rodrigo Zapata C. AUG 23, 2015 Si todo objeto pudiera ser reducido a una propiedad, con derechos claramente establecidos y perfeccionados, posiblemente el capitalismo habría podido avanzar más, no solo ampliando el control de esa “gran mayoría de la fuerza laboral” que aún está fuera de su alcance, sino también proveyendo bienes y servicios públicos indispensables, así como evitando la inmensa cantidad y variedad de externalidades negativas que asolan nuestro mundo (ej. calentamiento global, cambio climático, etc.) y a las que el capitalismo ha contribuido abundantemente. Pero eso no es posible, porque no se puede trozar y dividir materias y substancias que forman parte de un todo y asignarles derechos propietarios, como a las múltiples funciones ambientales que prestan los bosques, las abejas y muchas poblaciones humanas que conservan los recursos y ayudan a la naturaleza a cumplir sus funciones. Y en la medida en que se asignan derechos sobre aspectos parciales de estos objetos, se tiende a alterar y desestructurar el funcionamiento de unidades y conjuntos que no operan correctamente sin todas sus partes. Es decir, no hay forma de ayudarle al capitalismo a generar una agenda que le permita “promover la justicia social”, simplemente porque en su propia raíz se hallan “las barreras que impiden su expansión”. READ LESS Reply

Comment Michael Public AUG 23, 2015 Capitalism releases the creative power of the individual while communism suppresses it. The issue is that this presupposes the existence in sufficient quantity of such a creative power. China has been largely successful under communism (the creative power found a way) while Greece has floundered with a capitalist system (the creative power was not present in sufficient quantities. Reply

Comment Edward Tomchin AUG 23, 2015 Highly doubtful. Poverty and inequality pre-existed Christianity, Judaism and any other religion. In fact, with the advent of capitalism, more people have been raised up out of poverty than ever before. Reply

Commented Merijn Knibbe AUG 23, 2015 Seems a bit unfair to Bolivia, according to recent data. Poverty is going down fast, income is going up fast.http://databank.worldbank.org/data//reports.aspx?source=2&country=BOL&series=&period= Reply

Comment Midhat Dzemic AUG 23, 2015 Seems that Mr Hausmann felt it would be easy to discard Pope Francis's statements with few citations and few examples. I am not sure if Mr Hausmann has really read Pope Francis's Encyclical, not mentioning the works of number of other economists, political scientist, phzlosophers produced last at least 20 years (some of them regularly publish their works at this site) not mentioning a number of other, older, works starting with Marx. Definitely the analysis performed here by professor Hausmann desrves more serious approach, READ LESS Reply

Comment Luc Lapointe AUG 23, 2015 Dear Ricardo, I don't agree (not that it matters anyway) with the Pope's view about capitalism and yours as well. Your comparison fails to mention that economies are much more complex than created job and expecting canned souped, canned fruits, and meals in a bags (microwave ready). If you look at the countries generating the most wealth in Latin America ...you also find that they are also the countries with higher inequality and highest rate of poverty ..and a Middles Class suffering from chronic poverty. Businesses do what businesses are good at (business). You talk about Bogota's success but nothing about being one of the most dangerous in the world. There is no such thing as Society of Victims ....but more as a Society of Victims living in a system that borrows on future generations. As much as we pride our self to be rational being, we keep on making the same bad decisions about the place we live in for the sake of protecting jobs. Pepsi still bottle water in California ..in a state living in one of their most severe drought. Blaming capitalism is like blaming the universe ... consumers make irrational decisions every day because it's cheaper ...but cheap as a hidden cost (someone will be paying for it eventually). The problem with 'poverty' ...if we can call it a problem, is that the people that are most affected by it do not see any benefits in being part of the economy. Unbanked? why? because bank fees are high and it's not like the bank will lend them any money soon. Informal economy? Why? as it was recently highlighted in a survey in Colombia .. only 18% want to join the formal economy ... 82% think that they are better off on their own - if they can make it today ... that's just fine for most of them. You make it sound like capitalism 'exist' = capitalism is the game that consumers are willing to play but it's a personal choice. Bolivia is an interesting...neighbours of your previous country of origin. Corporations are not in Bolivia for the reason that you mentioned ....but the rate of poverty are much less in Bolivia than Brazil, Colombia, and Mexico. Capitalism and the economy ....do not exist in a sense they they are purely the sum of a set of financial, economic, and social transactions that we accept to play without knowledge about the direct and indirect impact. We are not Victims of Society but purely and simply a Society of Victims. Saludos cordiales READ LESS Reply

Comment E Walker AUG 23, 2015 Marx was right. Working people, men and women, who once could be self-sufficient in his home community were torn from their farms and sent into factories where they slaved for hours just to eat a miserable meal. To accomplish this, the State stomped on them with militias and poorhouses. The kindly capitalists didn't freely share the rewards of that productivity. They did so out of fear that they would be murdered in their sleep and their families with them, or that their factories would be burned to the ground. Now they have their feet on the necks of billions of people. Hausmann can cheer for this from his perch in the relative safety of Harvard, and his children will never know the misery his capitalists inflict on working people. READ LESS

Comment Enrique Woll Battistini SEP 6, 2015 Mr. Waller, Your summary of the rise and workings and emd-results of unbriddled capitalism in 'Marx was right. Working people, men and women, who once could be self-sufficient in his home community were torn from their farms and sent into factories where they slaved for hours just to eat a miserable meal. To accomplish this, the State stomped on them with militias and poorhouses. The kindly capitalists didn't freely share the rewards of that productivity. They did so out of fear that they would be murdered in their sleep and their families with them, or that their factories would be burned to the ground. Now they have their feet on the necks of billions of people. ... ' are what China has been experiencing in the last two decades. It has led to extreme corruption, environmental destruction, flooding of world markets with toxic consumer products, and poverty at home. READ LESS Reply

Comment Gustavo Lopes AUG 23, 2015 Venezuela - and Bolívia as well - underwent such kind of political and economic advisory sponsored by Mr. Hausmann and the results were disastrous, as even the WB recognized. No wonders that during Carlos Andrés Perez tenure (Mr. Hausmann should remember quite well), there were riots stemming from poor people angry against Perez Economic measures. Reply

Comment Ric Shorten AUG 23, 2015 Corporation vs Individual workers? Who wins? Labour Courts instead of unions would be an improvement. And a CEO that pays themselves 500+++ times more and management bonuses for beating down subordinates has to stop. Real team building skills and style taught in College and enforced in business would work. Reply

Comment Cary Fraser AUG 23, 2015 As Professor Hausman acknowledges, 'For Marx, the historic role of capitalism was to reorganize production.' As a general principle this is correct but the question is for what purpose and for which consequences. While capitalism does generate wealth, should capitalists determine how that wealth should be distributed? As Hausman has previously argued there is a case for an effective state to promote and regulate the workings of capitalism. As the Great Depression and the Great Recession have demonstrated, bankers as cornerstones of the capitalist order can, and, do make extraordinarily stupid decisions and engage in predatory practices that pauperize people on a massive scale. If these disasters can occur, why should anyone rely solely on the judgment or efficiency of capitalists about how to reorganize production? Pope Francis is correct to make the observations that he has made because the underlying symptom of the malaise that threatens the Earth is a capitalism powered by a dependence upon fossil-fuels that have contributed to, and are apparently accelerating the processes we now know to be climate change. Fossil-fuel based capitalism has indeed reorganized production but it is now evident that the capitalist reorganization of production will have to be based on reversing the threat of global dislocation and the threat of mass extinctions. READ LESS Reply

Comment Sergio Barbosa AUG 23, 2015 I would tell the pope Francisco that corruption of the great majority of the poorest Latin American governments because the capitalist system and that even this corruption impoverishes and debases the capitalism itself. As a Mexican citizen and resident of Latin America manifest that government corruption is more harmful to our people that the capitalist system and acknowledge that the Pope is concerned about the millions of Latin Americans who have the misfortune to be extremely poor, but it is regrettable that the status of ' Head of State 'will not allow this terrible reality express Francisco. If capitalism or socialism have not been implemented in Latin America it was due to the corruption of the rulers responsible for implementing such models but it would be impossible to see the Pope told this in the face of Evo or the president of Ecuador. Hausmann does not take into account the massive corruption that is capable of impoverishing the prestige of the corporations that have transformed the production system as Walmart paid bribes to Mexican officials under President Felipe Calderon and was discovered to the public opinion The New York Times and could cite many more examples of how the capitalist system is debased by corruption in our governments. I think that the author archaic lift us to Marx whose world was very different from ours and especially not known as it survives and can be rich or poor in Latin America. Hausmann did not need to make reference to the futuristic vision of Marx and seem to want us to believe that the Pope is communist but I remember him Hausmann Marx in one of his many letters written about the War of 1848 between the United States-Mexico and states like the United States and Mexico won remain under his tutelage for it implies that Mexicans are lazy and quite wild. It sounds contradictory but the world was so different back then that Marx saw the proletariat with hope for the emergence of the US as power and Mexicans saw us with much disdain. Marx saw us well and in his opinion, the nineteenth-century Mexico was in disgrace by the vices of their governments and their citizens and asked the author of this article What is not? READ LESS Reply

Comment Sergio Barbosa AUG 23, 2015 Yo le diría al Papa Francisco que la corrupción de la gran mayoría de los gobiernos latinoamericanos causa más pobres que el sistema capitalista y que incluso esta corrupción empobrece y envilece al propio capitalismo. Como ciudadano mexicano y habitante de Latinoamérica manifiesto que la corrupción gubernamental es más nociva para nuestros pueblos que el sistema capitalista y reconozco que el Papa se preocupe por los millones de latinoamericanos que tienen la desgracia de ser extremadamente pobres pero es lamentable que la condición de «Jefe de Estado» no permita a Francisco expresar esta terrible realidad. Si el capitalismo o el socialismo no se han implantado en Latinoamérica fue gracias a la corrupción de los gobernantes responsables de implantar dicho modelos pero sería imposible ver que el Papa le dijera esto en la cara a Evo o al presidente de Ecuador. Hausmann tampoco toma en cuenta a la corrupción enorme que es capaz de empobrecer el prestigio de las empresas trasnacionales que han transformado el sistema de producción como Walmart que pagó sobornos a funcionarios mexicanos durante el gobierno de Felipe Calderón y que fue descubierto a la opinión pública por el diario The New York Times y podría citar muchos ejemplos más de como el sistema capitalista se envilece por la corrupción de nuestros gobiernos. Me parece arcaico que el autor nos remonte a Marx cuyo mundo era muy diferente al nuestro y que sobre todo no conoció como se sobrevive y se puede ser rico o pobre en Latinoamérica. No era necesario que Hausmann hiciera referencia a la visión futurista de Marx y pareciera que quiere que creamos que el Papa es comunista pero le recuerdo a Hausmann que Marx en una de sus muchas cartas escribe sobre la guerra de 1848 entre Estados Unidos—México y manifiesta gusto que Estados Unidos la haya ganado y que México quede bajo su tutela pues da a entender que los mexicanos somos salvajes y bastante perezosos. Suena contradictorio pero el mundo era tan distinto en aquel entonces que Marx veía con esperanza para el proletariado el surgimiento de Estados Unidos como potencia y a los mexicanos nos veía con mucho desdén. Marx nos veía así y en su opinión, ese México del siglo XIX estaba en la desgracia por los vicios de sus gobernantes y sus ciudadanos y yo le pregunto al autor de este artículo ¿Y no es así? READ LESS Reply

Comment Per Kurowski AUG 23, 2015 Pope Francis somehow forgot to consider The Parable of the Talents which seems completely applicable to the discussions http://subprimeregulations.blogspot.com/2014/11/pope-francis-please-go-and-explain.html Reply

Comment Sergio Barbosa AUG 23, 2015 Corruption causes more poverty in Bolivia and Latin America. Corruption impoverishes capitalism. Reply

Comment Mark Robertson AUG 23, 2015 Capitalism with elite capture (motivating drive of neoliberalism and austerity neoliberal debt solutions) causes extreme and increasing poverty. Examples: USA, Britain, Greece. Reply

Comment Petey Bee AUG 23, 2015 Capitalism doesn't cause poverty. Poverty causes capitalism. People in wealthy countries value social protections to look out for the well-being of the next generation -- as insurance against cyclic variations that can ruin an otherwise good life. Reply

Comment Abdella Abdou Abdou AUG 22, 2015 The article calls for the dispossession of family farms and businesses so that we can get Toyota, Airbus and Walmart. But, not all the dispossessed will get jobs. Perhaps majority will not. So why would they volunteer to lose the little they have? Capitalism may have came about the way Marx described it. But, that does not mean we have to repeat the same agony of capitalist birth. Human evolution demand that we come up... READ MORE Reply

Comment Aale Hanse AUG 22, 2015 Capitalism cause poverty? Probably. Capitalism is only a tool used by humans to for-fill a need. Where capitalism is active we see a lot of negatives and not so many positives, more so today than yesterday. Have a look at the Capitalist countries and all is not well. Poverty is not really present in those countries as in say some parts of Africa but many people are impoverished when doing comparisons within them. The current crop of big companies dominating the world and use the capitalistic tool, certainly do exploit the environment and fellow humans without a second thought. We are our own worst enemy when it comes to our well-being because keeping up with the jones is not a viable solution and only feeds the capitalist pyramid. READ LESS

Comment Zsolt Hermann AUG 24, 2015 I fully agree with your

Comment. It is not capitalism or any other tool that causes poverty but the user, the human being using it. Since our inherent nature is self-serving, egoistic and greedy we distort, corrupt anything we invented, developed however beautiful and optimal it looks in theory. And since the only differences in between people is the hunger, the strength of desire to fight, to sacrifice for self-reward, profit this renders humanity into a pyramid. And the tip of the pyramid exploits the lower part of the pyramid in the form of a giant 'Ponzi-scheme'. The writer proudly mentions growing wages and growing middle-classes but now we know that this simply provides, keeps alive the producer/consumer masses to create profit for the tip. The problem is as every Ponzi-scheme has a final state by exhausting the bottom part of the pyramid our present 'constant quantitative growth/infinite profit' game is also at its end. So we are reaching another breaking point, end of cycle as many times in history. The question is if we blindly, instinctively fall into the next cycle after an inevitable explosion? Or perhaps finally we start to make conscious adjustments by changing our inherent nature, trying to build a better next human society to avoid the same predictable process happening again? READ LESS Reply

Comment Alejandro Moreno AUG 22, 2015 Neither one nor the other. It is the center of economic policy making. Pope wants the the developed countries keeping and care: the employment rates, universal quality health care accequible, Public Education quality, environmental care etc,. and getting the purpose of the economy be the the human being. Besides the Pope Francisco wish the Latin America and other emerging countries reach it too. All Into united world based on human being and the principles of humanism of liberty, equality and fraternity sugiró as Voltaire, Rousseau, Montesquieu. A capitalism with social responsibility. Closer to Keynes, not Marx, far from this, but also far from the political ideology of Darwin. the struggle of man against man . And I guess closer to the Christian principle of 'loving your neighbor as yourself.' READ LESS Reply

Comment Robbie Jena AUG 21, 2015 'Does Capitalism Cause Poverty?' NO, idiots at high end cause poverty...based on Jared Diamond's Collapse. Reply

Comment Jose araujo AUG 21, 2015 Most of the successful countries in the world are socialists, not capitalists nor communists, so that makes Marks right and Hausmann wrong, does it?

Comment dan baur AUG 21, 2015 It's like saying: 'the horse won the race due to its many parasites'. Socialism is a parasite organism on a healthy economy and sustainable (Sweden, etc.) only as long as it doesn't kill that economy (Venezuela, etc.). Reply

Commented Moctar Aboubacar AUG 21, 2015 Prof. Hausmann goes a little fast here. Developing country government intervention in markets is not the result of an utter distrust of capitalism as it were, but a distrust of the uneven footing on which they find themselves with respect to advanced economies. Government regulation is a response to that (and, as the paper cited here shows, a response to domestic political factors); it is not a strike against capitalism. Capitalism thrives in environments of heavy regulation just as it does everywhere- whether the regulation itself is a success is another story. READ LESS Reply

Comment Jose araujo AUG 21, 2015 If capitalism is defined by capital accumulation, then yes, by definition capitalism causes poverty. 19th century Ricardian/Classic capitalism fuels on poverty and labor exploitation. If we look at the time where Marx lived, then we are much more closer to a Socialist society then a capitalist 19th economy, but off course Hausmann forgets that. READ LESS

Comment Tom W MAR 6, 2016 'If capitalism is defined by capital accumulation, then yes, by definition capitalism causes poverty' File that under 'I just make things up and say they are facts'. Nothing logically follows. Perhaps in some warped ideology in which wealth is evidence of poverty, it makes sense. In other words, if all improvements to our stock of productive assets is believed to somehow have been taken from people who had those assets, but didn't really have them, but, wait, huh? Exactly, nonsense. READ LESS

Comment Jose araujo AUG 26, 2015 I see myself has a liberal almost libertarian, or in a classic view an utopian socialist and I have no doubts of the following. In the heart of capitalism, if you associate capitalism with free markets and our current society is a strong socialist proposition. Almost all of the axioms of efficient markets are socialist by definition. Equality & Freedom are at the heart of socialist movement, Marx included and they are pillars of the free market, without them free markets cannot exist. Now 19th century society was ancient regime by definition, it had very few of the ingredients of today's society and was bases on privileges and classes . Rent (both capital and land) was at the heart of the economic system, i.e. Rent defined by the steady influx of income derived from the property of a resource. Democracy is also a socialist proposition, one man one vote is something that wouldn't cross the mind of 19th century society, yet I cannot conceive today's society without all of us being equal. In then end if we classify capitalism has the economic system that follows feudalism and the worker has the replacement of the servant has the base of production, then what follows capitalism is socialism/communism where the worker is replaced by the robot/machine. You see in the world/society of the plenty where both resources and needs are infinite, capital work and property have no sense. Now I confess I'm an optimist and I see ourselves evolving to that kind of society, not to a resource limited world, where only the fittest will survive, that in my opinion is regressing not progressing. READ LESS

Comment Heinz Günther AUG 25, 2015 Mr Baur, a strong argument for the statement that nowadays systems are more socialistic than at Marx's times is a historybook (or wikipedia). If you check the history of the german social system, you will find that its roots were established in 1883 (Marx died that year), with a very basic health insurance. From there the system was enlarged untill 1927 with the establishment of an unemployment insurance. To ask if it is good ar bad is is kind of silly, as this depends first of all of the angle from where you look at it, and further, there is not one way to establish and run a social system. But i think it is fair to say that it was improving the lifes of a majority of the population. Working 16 hours and more was very common at that time, with no holidays, and a wage that was forcing the whole family to work (incl. children). Germany is maybe not the right country to look at for that, as it was facing a lot of different episodes in the following century with hige differences. But Switzerland might serve as a good example. It established the social system around 1885 and I think it is fair to say that it did at least not harm Switzerland as an economy. Neither the fact that children can go to school nor that you do not need to starve when you are unemployed is a result of technology, but a political decision. READ LESS

Comment dan baur AUG 21, 2015 Do you have any reasonable arguments to go with your empty statements? 'we are much more closer to a Socialist society then a capitalist 19th economy' - is that a good thing? Or are you just confusing technological progress with the 'benefits' of socialism? Reply

Comment Julian Sayer AUG 21, 2015 Capitalism is the most successful and efficient system, but it only works in certain markets. There are abnormalities that your article does not cover. Capitalism promotes cronyism. Capitalism wants to be a monopoly or oligopoly at best. Capitalism reacts far faster than anything, it does not promote long term planning or sustainability. READ LESS

Comment dan baur AUG 21, 2015 How does capitalism promote cronyism? Are you aware of the socialist/communist cronyism? What monopoly is worse than the state monopoly? Are you aware of the abysmal record of 'long term planning' everywhere in the world and especially in the former communist countries? Reply

Comment Alvaro Rojas Ferreira AUG 21, 2015 Good point but forgets some variables. Capitalism is responsible for mass production and therefore mass wastes, it has stimulated low payment work in countries as India and overexplotion of natural resources as coltan in Congo

Comment Alvaro Rojas Ferreira AUG 24, 2015 Hi Dan, thanks for your reply. I am aware that through comunism as well as through every other economic system there have being abuses to workforce. I am not saying capitalism is good or bad, I'm just highlighting that there are several opportunities to improve the system in order to reach the fairness and the sustainability we all want for our societies. Before agreeing in open every economy to the capitalistic system, it is important to agree in a legal framework to protect those who are more vulnerable, including the the natural resources. READ LESS

Comment dan baur AUG 21, 2015 Nonsense. India suffers because of the anti-business bureaucracy. Are you aware of the over-exploitation in communist China, Eastern Europe during communism, etc.etc. ? Reply

Comment Procyon Mukherjee AUG 21, 2015 The celebration of capitalism stems from its success to create wealth in the first place, that allowed millions to move out of poverty. The objective of the system, if it gets narrow in scope and is relegated to the pursuit of a game that defies rules that have been created over years of strife, the blame should not fall entirely on the system, but on to those who have misled the society. Capitalism is actually best when it is closely nurtured with a real invisible hand, that does not bestow favors, nor punishment; such fairness is utopia, but we can get close as much as we educate ourselves to the virtues and vices. READ LESS