On Natural Selection and Responsibility

A colleague of mine and I, had an interesting discussion recently. Often times we have a lot to agree or disagree about, concerning a tremendous range of political and economic topics. Usually our discussion began with one of us linking the other to an online article, and today's article dealt mostly with how big banks rigged their products, in order to gain profits over the short term, but the former practice is under investigation, to see whether or not the practice was legal (http://bit.ly/aoBo6Y). So, the debating ensued, and of course we both had our own perspectives on not whether their business dealings were illegal, but who was ethically at fault for enabling the fiasco of our current economic downturn.

Currently, several of the large players, Merrill Lynch, CitiGroup, and various other investment banks are all under investigation for creating "fake demand". The problem that exists for the investigators is that there is no transparent evidence pointing to the illegalities of creating a mechanism that told investors, that the product for which they sought, was somehow a "hot item", but below the surface, through the act of savvy investment deal strategies, the investment firms were selling cold, undesirable products. It is apparent after reading the lengthy article, that there was evident abuses committed, and that the markets, in the words of the now humbled Alan Greenspan, "took care of themselves", at the hefty cost of investors who were simply kept in the dark about the true nature of the products they were buying.

So, do we plant the blame on the government for not taking the reins, and implementing stricter regulations, even though it was hindsight, and that there were no effective policies in place to keep a mindful eye on investment schemes of the past decade? Or, do we point a finger at the private firms, who   created complex mechanisms, complex, so that the intricacies were flexible enough to dodge what little regulation was already in place?

The private industry in this case is the one to blame. Back before any of this economic strife was at hand, most Washington economic thinkers, like Alan Greenspan, Robert Rubin, and Larry Summers, were all big believers in a free market capitalist system, that promoted the philosophy that businesses should exist amongst an economy unbound by government regulations, or policies put forth to oversee their transactions.  Of course this made sense, because constitutionally, business is perceived to have the same rights as an individual person, and a person has the right to not be restrained by government to perform open business with another individual. That makes good sense, right?

Well, for one, U.S. law states that corporations are recognized as having rights and responsibilities just like people. Now, considering the notion of capitalism, a corporation's main objective is that of acquiring as much profit as possible, it is that final goal of acquiring as much capital as possible that begins to weigh in on how much priority is given to maintaining the right of the individual. If the rights of the individual are at stake, then we must consider the rights of each and every person associated with a corporation, whether that be employees, investors, or its clients. Each one of those people has a self-interest in gaining capital. That is separately, every person will gain for their own interest, and the interest of the company to sustain itself with ample capital is a collective interest. This collective interest at all times is parallel to the interests of the individual, and does not retain the obligation to preserve the sustainability of that individual.

So, evidently, the individual, or person is involuntarily in conflict with a corporation from various levels. As a member of a corporation, whether it be an employee, investor, or client, an individual must always consider its own right to prosperity over the prosperity of others. Sure, everyone involved with the corporation has the same goal to increase capital, but at some point, each person requires an isolated individual need from the overall gain. Since the corporation has the same rights as the individuals associated with the corporation, it reserves the same right to prosper as well, but the point at which the corporation begins to shed its right as an individual is that it is made up of a conglomerate of individuals, and the sum of the requirements necessary to prosper extremely outweighs those rights of the genuine individual through a non-democratic process, where only its directors or managers are capable of determining who is entitled to more prosperity than another individual.

When you consider the conventional characteristics of corporations, that take advantage of the loosely defined conceptual policies of free markets, and that they break the barriers of national laws through globalization, the corporation paints itself as less of an individual, and more as an institution that is not bound by the laws of nations that sustain individual rights. If there were a global governing structure in place, and an international law that recognized corporations as does U.S. law, then corporations could legitimately claim the rights of the individual, but they currently exist beyond those rights in a global free market.

Externally, an individual's rights are heavily weakened by the laws that protect corporations as individuals. In today's current economic crisis, individuals are faced with a government that acts as a conveyance of public funds to private industry. The current U.S. tax structure draws a larger chunk of revenue from the middle and lower class. Each individual pays into a system, that is meant for social or public security. When the financial crisis hit, large sums of tax revenue were handed over to big banks that failed to provide a responsible and stable financial mechanism to individuals, all of whom had the right to invest in these companies. The sole individual, the taxpayer has no recourse to isolate it's public funding from the individual entity of a corporation. The corporation on the other hand has a certain power to politically convince government that its individual financial subsistence is more important than that of the individual taxpayer. This is a power not granted to the individual. In all of economic history, not a single one person, has walked into a government agency, made a request to be financially stabilized, and was given an affirmative inconsequential response. Sure, a taxpayer has the very minimal benefits provided to them via social security services, that are funded by their tax dollars, but how does a corporation fit itself into this social model? It simply cannot, especially when economic policies that do not heavily tax these corporations because of their higher rate of profit, but when there is a need for these corporations to be provided a large sum of capital, in order to preserve its existence, the individual's right to exist as an equal is eliminated.

It is often the view by most free market capitalists that the markets "will take care of themselves". What is meant by this is that if there is something intrinsically wrong with the markets, whether that be abuses, failure to gain capital or be socially responsible, by its nature, the market will correct its malfeasance, so to speak. A lot of these type of economic thinkers have a tremendous amount of faith in that an economic system has a natural tendency to maintain the welfare of all whom participate within it. It's as if there was some Darwinian philosophy applied to free market principles. Natural selection is a great concept when applied to the business aspects of economy, but it fails to address the evolution or benefactors of economic progress. So, how does a naturally selective business model sustain an improving economy?

Well, let's take for instance, a room full of people, not particularly businessmen, but just average people, and there is a table in the middle of the room, and upon the table rests a $10 in small bills. Now, the first human instinct would compel each person in the room, to either grab as much of the money as they could, or take at least some. If we were to consider the current economic system in the United States, and apply it to this situation, someone in the room would be placed in charge of distributing the bills to the rest of the people, and then there would be some sort of transactional mechanism in place to allow those people to exchange the money, so that different people will have different amounts of money at different times.

Now, consider that the current economic management structure is set up, so that the the person in charge of distributing the capital, believes that the responsibilities of those granted the capital, do not have to abide by certain rules. These rules only apply to those who do not receive the money from the person in charge. The people capable of exchanging money go about swapping the bills, and performing business as usual, but what about those who were not granted money? Will the lack of rules allow them to participate in the exchange as well?

The room started off with a chaotic system, a natural one, whereby everyone was equal in obtaining the money, but left to natural selection, the most capable person could have disabled the other physically, and created an economy that would only serve itself. So, a person was placed in charge of money distribution, similar to the U.S. Federal reserve, but that person failed to implement rules by which that money maintain its currency within the room's economic system, and therefore, has created a scenario similar to the initial chaotic system of natural selection.

This example proves that an economy modeled after natural selection is not capable of maintaining itself for the good of society. A man-made system can never subsist as a mechanism of nature. At some point this type of system would implode on itself, and not supply the needed resources to all those who make up the greater economy. A smaller percentage of people within the system enabled by a capital distribution agency will naturally consider its needs before those of the general economy, and without regulation, there is no present boundary or firm definition as to what the needs of those people are. In other words necessity may be taken to an extreme, where the need for more capital is never met. As the capital flows upward, or is tightly retained by this section of the economy, those less advantaged, will increasingly fall into economic despair, and as the demand for more capital goes up for those initially granted it, the harder the rest of the economy needs to work, in order to gain a smaller piece of capital, if any at all. An economy based on a model of natural selection fails to guarantee an improving economy.