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Banbury Cross

a pillow for lost thoughts...

Archives for: October 2014

The Third Way

For most of its natural life, the theoretical underpinning of the world economy has been floundering between two extremes devised by two philosophers who have long been dead. One of them is the Marxist socialism put forth by the German economist Karl Marx, the other one is the capitalist free market system that originated in the works of the Scottish thinker Adam Smith.

Frankly, I think that neither author would recognize the fruits of his intellectual labor these days. The Soviet style socialism has imploded two decades ago and whatever is left of it in the likes of North Korea, Cuba or Venezuela would make its founders run for cover. The heavy handed rule of proletariat coupled with the constantly confused planned economy were a travesty of structures originally proposed by Marx. Nor would Adam Smith be very impressed if he saw the inner workings of our modern day capitalism - the never ending struggle with stifling regulations, the pervasive collusion with public officials, the weight of global conglomerates running roughshod over small businesses and, on top of that, the whole global economy being jerked by the manipulations of central banks.

In some sense - and with a bit of vulgarization - the difference between these two extremes can be rephrased as follows. In capitalism, a factory belongs to a capitalist who heeds nothing but his own profits. In socialism, a factory belongs to the state, which really heeds nothing (as it belongs to no one). One is too selfish and the other too lethargic to take care of the needs of the workforce, and by extension of the larger society - especially in the quickly changing world of the 21st century. That makes one naturally wonder why we can't have the system, in which the factory would be owned by all who work in it through some kind of shareholder participation. The middle ground so to speak. Everyone would have some skin in the game. The top management layer would have larger share of ownership, of course, but inclusion of lower ranked workers would provide at least two benefits - not only would it create an extra dose of motivation towards an increased productivity but would also alleviate the growing income inequality.

In other words, we need a brand new paradigm. The proverbial Third Way. Neither left, nor right. Forward! A system which combines the advantages of both extremes - the ideas of sharing and motivation. Instead we have been alternately following the taillights of Marx and Smith, not really noticing that during our journey the landscape has completely changed and we may no longer be going where we want to be. On the road to prosperity and participatory economy.

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