[Debate] (Fwd) Khadija Sharife v bourgeois economics

[Patrick Bond]

(... includes a welcome crit of Pogge's drugs-incentivisation project.)

http://www.theafricareport.com/index.php/20120516501811636/columns/economics-selling-the-truth-or-telling-the-truth-501811636.html

Economics: Selling the truth or telling the truth?

By Khadija Sharife

The fundamental market theory of equilibrium, in economics, can be 
compared to notions of justice conceived in other disciplines, such as 
electoral democracy and politics. After centuries of trading trials and 
wars, we were told by leading governments (who may be called 
'geographies of power') that the magic bullet for the greater common 
good could now be achieved. But whilst the Market is equated with 
self-evident truth, its routine consequences are characterised by 
inequality. The question then is whether these routines are naturalised 
through the system, or naturally occurring? Put simply, is the world's 
large and increasingly impoverished population poor and dispossessed in 
spite of the market's current architecture, or because of it?

The market phenomenon is propagated as existing for a purpose that is 
greater than technical global regulation structured to govern 
self-seeking economic actors and geographies of power. The metaphor thus 
exists that there is a higher moral currency to the market, a 
'fact-based' value to the scheme of it, a logic to the design. 
Developing government intervention - such as generic medicines, 
subsidised agriculture, pro-poor taxation and the like, is perceived as 
disrupting an efficient pricing mechanism located within the broader 
structure of multilateral systems.

The design posits statements that economic efficiency (Pareto 
optimality) is a rational expectation, and consequence, of the Market, 
provided there is little or ideally no intervention; or alternately, as 
a system dynamically developing devising the best way forward.

Far from being just 'theories', general equilibrium (GE) models such as 
Arrow and Debreu's 'Existence of an Equilibrium for a Competitive 
Economy' 1954 are cited as unquestionable proof that such logic 
generates viability and efficiency via a self-adjusting system.

Nobel prizes by the Bank of Sweden were doled out. Stanford University's 
Professor Peter Hammond rightly called it the basis of 'almost standard 
assumptions'. It was lauded as a major advance in economic theory, and 
considered proof of rational engagements with 'commodities' - unbundled 
and precisely quantifiable goods - mediated by markets (existing for 
every time and place), relative also to microeconomics. Conventionally, 
it includes markets like human resources, with labor presented as a 
temporary state until the economy functioned efficiently.

Socializing risks, privatizing profits

But this logic, of zero tolerance for intervention, clearly does not 
apply to geographies of power, peddling such economic medicine: entities 
like Bear Stearns, the US's fifth largest investment firm, received over 
$30 billion, in public funds, from the US Fed to guarantee the company's 
riskier investments. Here, we see risk socialized and profits privatized.

And not for good reason: About 75% or more of the company's 
'investments' were conducted in secrecy jurisdictions such as the Cayman 
Islands, via the Walker Group. Others, like Bank of America, would claim 
$2 trillion. Far from being isolated incidents, over 80% of hedge funds 
globally, and 39% of foreign direct investment (FDI), operate through 
commercialized sovereignties, like the Caymans, that peddle secrecy to 
corner the market in immobile and mobile capital. And from these secrecy 
jurisdictions operating on the quiet and sly, island 'offshore' 
economies are usually satellite offices to the major 'onshore' secrecy 
havens. For instance, over 50% of the world's secrecy havens are 
controlled by the UK.

What does this mean for developing nations? A significant cornerstone 
underpinning the political muscle of state sovereignty is regulation of 
property rights, and relations. The GE model facilitated an unbundling 
and re-conceptualisation of sovereignties, relative to the right of 
authority and approaches to propertisation. This notion has necessitated 
the cultivation of markets in every aspect of life, expanding now to the 
commons - ecologies which are neither public nor private, but commonly 
shared, such as the air. Such commodifiable resources, transformed into 
marketable goods, must ideally be propertised and financialised in order 
to be quantifiable. For, if a market is to be free, it must not only be 
barren of all potential constraints, but also, capable of making markets 
everywhere.

The GE model was cause for celebration in its timing: in 1954, the 
Soviet Union was gathering steam, appealing to be part of Europe's NATO. 
This was rejected by Western powers, like the US (generating 27% of 
global GDP at the time), who cited incompatibility with economic and 
political aspects of democracy. At the heart of this ideological 
engagement - mispresented and manipulated by both sides - was the 
contested notion of property and human rights, with the West positing 
the individual as sacred, specifically as regards political and civil 
rights: first generation. And the Soviet Union promoting the collective 
good, through economic and social rights: second generation.

For its time, ushering the forthcoming logic of the 'free' market under 
the US, the GE model was usefully evident that if self-seeking agent 
(man as homo economicus) interacted with society through the market, 
social welfare could be best achieved. Adam Smith said of this, "it is 
not from the benevolence of the butcher, the brewer, or the baker that 
we expect our dinner, but from their regard to their own interest."

That it was mathematical theorem rather than a political statement, 
weighed heavily. While various versions and tweaks would follow, the 
basis of Arrow-Debreu remained generally unscrutinised in its methodology.

To what extent is the GE model blatantly incompatible with its own 
logic? In real-world terms, it largely elides reality - from innovation 
to intra-company trading (comprising 60% of global trade). It proceeds 
on the gross assumption that trade of resources is fair at its source; 
ie: control, access, distribution, transformation. It presumes that 
markets are purely economistic, eliding the role of power and politics. 
It considers that there is a perfect market structure already in 
existence for every good, or alternately, that markets must be made to 
represent anything of value. Consequently, if it has no market (capital) 
value attached to it, it has no value at all.

Patents and interests

The very notion of market sovereignty has now achieved primacy of 
position in immobile and mobile as well as fiscal and legal terrains, 
above and beyond sovereign governments, whose intervention is descried 
by global powers, even if it is the social good that is prioritised.

Patents, for instance, grant monopolies representing the public good - 
such as vaccines - to private interests. Now, in order for this to be 
realised, political approval is required as a mandatory legitimising 
force. Is this the spirit that provided the foundations of great nations?

Thomas Jefferson is celebrated in US history as a visionary and 
principled leader. But less his words on the monopolization of 
knowledge, when he rightly claimed, "Society may give an exclusive right 
to the profits arising from \[inventions], as an encouragement to men to 
pursue ideas which may produce utility, but this may or may not be done, 
according to the will and convenience of the society, without claim or 
complaint from anybody. In some other countries it is sometimes done, in 
a great case, and by a special and personal act, but, generally 
speaking, other nations have thought that these monopolies produce more 
embarrassment than advantage to society."

Despite this, when leading intellectuals such as Professor Thomas Pogge 
- considered revolutionary voices in their field, discuss the issue of 
intellectual property, particularly in the context of pharmaceutical 
industries, we find that the deliberately exclusionary nature of patents 
is elided, and even justified, by Pogge, while new publicly-funded 
'Health Funds' are designed to alleviate systemic flaws. That is, reward 
systems and incentives must be created to convince companies to act a 
little more kindly toward the suffering. The social good must be 
additionally financialised. The idea of stripping the right of monopoly 
is not even considered.

Said Pogge et al in their paper, 
[LINK=http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1431180]'Incentives 
for Global Public Health: Patent Law and Access to Essential 
Medicines'[/LINK], "With medicines, the fixed cost of developing a new 
product is extremely high for two reasons. It is very expensive to 
research and refine a new medicine and then to take it through elaborate 
clinical trials and national approval processes. Moreover, most 
promising research ideas fail somewhere along the way and thus never 
lead to a marketable product. Both reasons combine to raise the research 
and development (R&D) cost per new marketable medicine to somewhere 
around half a billion dollars or more."

In reality, as public health specialists like 
[LINK=http://www.amazon.com/The-Truth-About-Drug-Companies/dp/0375508465]Harvard 
University's Marcia Angell reveal[/LINK], the bulk of R&D for new 
innovation medicines (priority + NME) is publicly funded (and this at a 
cost that is just 10% of similar corporate developments); more than half 
the cost is capitalized (compared to profits that may have been 
generated on Wall Street), tax incentives and subsidies finance almost 
40%; etc. Overall, as 
[LINK=http://www.aljazeera.com/indepth/opinion/2011/06/20116297573191484.html]these[/LINK] 
articles 
[LINK=http://www.aljazeera.com/indepth/opinion/2011/06/201162994039172374.html]show[/LINK], 
almost 90% of the corporate costs of developing new drugs is mispriced 
and manipulated. Is Pogge, a highly intelligent and deeply concerned 
man, correct to protect the concept of patents, in the hopes of walking 
the 'political feasibility' line? At what point must we draw the line 
between reforming a bad system by obtaining a seat at the table – as 
Pogge has respectably done, or calling a rotten system for what it is: 
lethal and genocidal?

Sovereignty and markets

But, we know, were these States to deprive private corporate persons the 
right to proceed, the nature of intangible could easily shift borders 
and hide claims in a legal, though illicit, form. Secrecy jurisdictions 
like the Netherlands, the US's Delaware, Ireland and others, seek to 
capture just such tangible and intangible capital-movers. Take Google: 
The company managed to 
[LINK=http://www.businessweek.com/technology/google-tax-cut/google-terminal.html]reduce 
the overseas tax rate by $1 billion annually[/LINK], circulating 
intellectual property through a series of ring-fenced opacity economies 
offering tricks like passive holding vehicles remitting 'royalties' to a 
series of shell companies. Locations included respectable Netherlands, 
Ireland, and Bermuda. Such prostitution is old hat: During the apartheid 
era, South Africa's pariah corporations - 
[LINK=http://mondediplo.com/openpage/old-bad-habits-die-hard]like SAB 
Miller[/LINK], one of the world's largest beverage companies - used 
secrecy jurisdictions to eliminate taxes and elide sanctions.

Kratochwil contrasts traditional state roles with that of capital's 
mobility: "While political systems are boundary-maintaining systems, 
markets - although dependent for their creation upon political power - 
are not." The current system has split the idea of sovereignty between 
differing forms of authority: one for the masses of people that are 
fixed and immobile, and another for the mobile moneyed. Moreover, were 
any State to deny private authorities the right to access exclusive 
intangible capital monopolies, the key geographies of power would come 
crashing down - in the name of competitiveness, efficiency etc.

Market sovereignty therefore is most performative for those able to play 
the game. And in an age of financialisation and corporate 
self-regulation, everything has been reduced to paper and fiction. This 
is how companies like Glencore (via MCM) in Zambia can 
[LINK=http://www.aljazeera.com/indepth/opinion/2011/06/20116188244589715.html]export 
billions in copper while declaring no profits[/LINK].

The market, by design, forbids society from speaking in a collective 
voice because large demographies as participatory agents change the 
nature of the game, politicising conditions. Yet, even were we to 
discard all undesirable realities external to the model, we'd still find 
astounding internal rot - namely that money - capital - is either 
dismissed or neutralised from such models (by Smith, Ricardo and 
others). Said Frank Hahn of Cambridge University, "The most serious 
challenge that the existence of money poses to the theorist is this: the 
best developed model for the economy cannot find room for it. The best 
developed model is, of course, the Arrow-Debreu model..."

[B]Selling the truth or telling the truth?[/B]

In his article, 
'[LINK=http://triplecrisis.com/what-is-equilibrium-never-existed/]What 
If Equilibrium Never Existed[/LINK]', Dr Alejandro Nadal questions the 
bricks that built the deified house (extending to Adam Smith's invisible 
market hand). He goes on to describe how the Nobel winning model was 
found to be inconsistent and 'devoid of economic sense', by its own 
founder, Professor Kenneth Arrow, following a short debate with 
Nadal.\[see footnote]

We're lucky to have professors such as Nadal to spend decades probing 
and analytically dismantling self-evident truths. And unfortunately, it 
is not always easy to differentiate between those who tell the truth, 
and those who sell a truth. Particularly when its peddled by specialists 
who claim that such knowledge is too difficult for people to understand. 
More often than not, what appeals as right is not so much content of 
principles, which requires context and reflection, but whether the 
source of principles is identifiable to us, as inspiration, sympathy, 
rationality.

Belief in a certain person or system often suspends judgement. Suspended 
thought prevents debate, and more crucially, the possibility of other 
possibilities. Countries like Iran and Cuba may not have 100 different 
flavors of ice cream, but even with – sometimes severely- constrained 
political freedom, also suffering from decades of sanctions, these 
countries have found tremendous ways of educating their people by the 
mass – doctors, engineers, teachers, scholars, while doing their utmost 
to fulfill basic needs. Is free health care and education, economic or 
political? Arguably, there is no difference between the two, because the 
decision to provide or withhold the public good comes from the highest 
political mandate. Meanwhile, in the US, voting is a political right, 
but the right to develop your mind and abilities at a university, is 
not, and it unlikely that your voting will alter that. So, who is more 
free, politically and economically?

The question then extends to what if 'economics', as we know it is not 
'economic' per se, but the product of socio-political arrangements 
between institutions of power and those conforming to such principles? 
Routine or repetition of certain actions and policies would therefore 
produce a 'normality' - whether inequality or not - that is calculative. 
Such calculations would be studied, pondered over, adjusted, in the 
annals of academia, research institutes, and NGOs – all cloaked in an 
atmosphere of tremendous respectability and high-level credentials. The 
value of those credentials as it relates to the mandate of those 
subjects is rarely queried. What stops the world from intervening is 
perhaps the reality that specialist languages, that provide the content 
of 'economics' is almost entirely illogical to 'lay people' – you and I, 
because it was designed to be exclusionary.

They simply don't feel qualified enough to say, 'Get lost, devil!' The 
alternative? Hell and slums. In other words, the present.

[B][I]Footnote[/I][/B]

[LINK=http://nadal.com.mx/publicaciones/lsd.pdf]Writes Nadal[/LINK], 
[I]"In our paper.. we demonstrate that none of the mappings used in the 
various proofs of existence of a general equilibrium involving a fixed 
point theorem is a good representation of the law of supply and demand."[/I]
Next
[LINK=/index.php/20120509501811110/columns/homosexuality-the-gambia%E2%80%99s-smoke-and-mirrors-501811110.html]Homosexuality: 
The Gambia’s smoke and mirrors [/LINK]
Last Updated on Wednesday, 16 May 2012 11:30

Khadija Sharife is a journalist; visiting scholar at the Center for 
Civil Society (CCS) based in South Africa and contributor to the Tax 
Justice Network. She is the Southern Africa correspondent for The Africa 
Report magazine, Africa project fellow at the US-based World Policy 
Institute, assistant editor of the Harvard "World Poverty and Human 
Rights" journal, assistant Africa editor of "Capitalism, Nature, 
Socialism", and author of Tax Us If You Can (Africa), among co-authored 
works. Her writing has appeared in African Business, Forbes, The 
Economist, Al Jazeera, Foreign Policy, BBC, The Thinker, London Review 
of Books, African Banker, among others.