Businessmen should not be running the World’s Economy… Then who should?

Back in the 90’s I sat down and chatted with a philosopher from India that was passing through my local town. He said one thing that I have thought about for years. He told me that according to Indian culture, there are 4 types of people related to the elements, Fire, Earth, Air and Water. Fire people do best in sports, exploration and the military. Earth people do best in business. Air people are the intellectuals who think through theories and innovation. Water people were the wise people who understood a balanced and sustainable society. Water people he said should be the ones guiding government policies and overseeing society in general.

I asked him… But we see a world now where the Earth types of business are running the government and overseeing society. What happens with that? He said that it is not good for the Earth types or business to control society. He did not give any specifics to explain that statement, but can we understand what he meant?

Look at China… There policies are simply unsustainable. Investment is running too high in comparison to labor’s future ability to consume the increased production. Economic growth is creating severe pollution conditions in their cities. Their housing boom is set to burst at some point creating societal damage.

Look at Abenomics in Japan… Again we see policies to give incentives to business. Nominal interest rates have been lowered to spur private investment. Fiscal spending is creating demand and spending, yet labor share of income and wages are not budging higher. The increased business is creating increased profits for cash-rich corporations, but the extra money is not finding its way to labor. Poverty have been rising in Japan for decades. Then we see their sales tax going from 5% to 8%, and then to 10% in October 2015.

Look at the US… Monetary policy is supporting business and investment liquidity. Corporate profits are very high. Effective tax rates on the rich and corporations is low by historical standards. Yet, labor share is at its lowest level since WWII. The millennials are not buying houses so much and the recent college graduating class is the most indebted in history.

Th point I am making is that in the examples above, businessmen are creating policies that they see as beneficial to business. Yet, they do not include labor within their social vision. Labor is still seen as a cost of business, which should be lowered in order to be more competitive.

I have always considered myself a Water type person after talking with that Indian philosopher. I am concerned about the overall balance and sustainability of social economics. My guiding principle is “Marginal social benefits = Marginal social costs”.

The problem with Earth business types is that their guiding principle is “Marginal private benefits = Marginal private costs”. They believe that when business is strong, society is strong. They believe that shareholder profits is the guiding light of economic health. So all they have to do is make business strong. Yet, a chain is only as strong as its weakest link. And if labor continually gets weaker from lower and lower labor share, the economic chain itself becomes weaker and less able to maintain production “sustainably”.

Businessmen should not be running the world’s economy. They create a society that is unbalanced and weak, while they seek to make business strong. Businessmen lack the vision needed to construct an economy which sustains a healthy society.

However, in Chile, Michelle Bachelet is the president. She is a Water type person in a country with a long history of inequality as the result of private interests. She is pushing strong against the traditions of tax evasion among the rich. She just appointed Oscar Landerretche as the Director of Codelco, Chile’s largest state-owned copper mine. Oscar Landerretche is a socialist economist who thinks about economics the same way I do, that “marginal SOCIAL benefits = marginal SOCIAL costs”. President Bachelet wants to make sure that Codelco as Chile’s largest corporation is performing in the best interests of the community in regards to the environment, revenues and taxes paid.  We can suspect there will be some internal battles within Codelco.

The world needs more Presidents like Michelle Bachelet.