martes, 7 de octubre de 2008

The Wealth of Nations: An Interdisciplinary Approach

The Wealth of Nations: An Interdisciplinary Approach
Another way to analyze the subject at a time of crisis

Alfredo Ascanio (askain)

Why are some countries are rich and others poor? How is overcome poverty? More than 200 years ago Adam Smith in his book "The Wealth of Nations" tried to find a recipe, but the answers to previous questions are very complex.

The complex problems have many components and therefore there are many theories on the matter. There is no single recipe. However it is possible to transfer an interdisciplinary causes and effects of a science to another.

The current population now is 10,000 million and the material wealth of mankind (GDP) is roughly US$100,000 billion in constant US$ of 1990 (real GDP), then the estimated real GDP per person, expressed in US$1,990 is more or less than $10,000 and this is due in particular the success of the industrial revolution and the birth of the modern enterprise, which enabled the sustained increase wealth of humankind, which had not been reached with the agricultural revolution.

The accumulation of knowledge and technologies and solid institutions has enabled the industrialization of some countries. But there is still no coherent theory of historical analysis which tells us the transition of agricultural societies to industrialized societies. What we do know is that the skills and diversification of the tasks affecting the future.

The climatic factors also have influence and are the countries with temperate a climate that favor individuals and benefits their industrialization. The real per capita GDP, expressed in logarithm, is highest in the extent to which countries deviate from Ecuador and its climate is more temperate. In countries with tropical climates is more costly maintenance of physical assets that are deteriorating rapidly and there are more problems with diseases and pests. In countries with temperate climates entropy is lower.

Another factor is the possibility of development and trade using the sea and the major rivers. The flat fertile lands are a good complement to raise agricultural productivity.

A Biochemical process regulated by molecules of DNA in the genes has led to evolutionary biology to interact with the progress. Many problems and solutions depend on the skills and human genes have impacts in the way that men organize their institutions. The effect on the phenotype of individuals impact the behavior and the culture, they have to do with evolutionary biology and ways to manage a business.

Civic responsibility and honor encourages the individual to assume more efficient practices.

The economy tries to manage scarce resources to produce wealth and with the function of financial instruments is a key element when they are handled with rationality. Countries with the lack of working capital and higher productivity usually cannot make an efficient economic activity. The use of capital and labor should be harmonious and also must produce value added at the macro level.

Capitalism is a fabulous, but it must be controlled by the state to avoid chaos, anomie and speculation or monopolistic behavior. It is also true that what is called the "etoeconomy" or economy based on ethical behavior, can overcome the limitations of economics as science.

The index of the Human Development (UN) is highest in countries that have a GDP per capita real value higher. But the rich country, as a whole, does not eliminate totally poverty and inefficient distribution. The so-called Gini index, or the percentage distribution of the wealth of a nation, is very different from for example the Gini of Nicaragua and the United States of North America (41 and 60 respectively). In Nicaragua 90 percent of the poorest population consumes roughly 50 percent of the total wealth of the country, and 10 percent of the more rich population consumes the other half of the national wealth. In countries with a better distribution of profits 10 percent of the population consumes only between 18 percent and 20 percent of wealth.

The rate of poor distribution of wealth is related to inequality in access to education and health due to an inefficient state spending. There are roughly 255 million people in the world who earn only US$ 2000 dollars a year, or US$ 5 a day. African countries are poorer in the year 2000 that the poverty they had in the year 1980, but China and India, for example, are closing the gap between rich and poor in a more accelerated that wealthy countries because they removed the populist policies and have accepted the market economy.

There is a concomitant relationship between freedom and equality of opportunity. If you lose freedom, equality is much harder to achieve. Direct subsidies to the most vulnerable sectors relating to education, health and housing policies are redistributive of wealth and this means that people who receive such subsidies are more tolerant and more interested in participatory democracy.

Natural resources are another variable related to wealth and poverty. There are countries with great natural resources but are poor and other countries without natural resources but are rich.

For example in Venezuela until the year 1975 the GDP grew a real value and with that growth also increased the price of crude oil but from 1980 to 2000 continued to grow in real GDP of the country with lower prices for crude oil, even in 2008 the price of crude oil has been high (more than US$100 per barrel), but its effect on the country's wealth and redistributive aspects remain very small and this has to do with a political style of governing, with a high increase of corruption and an inefficient management of the oil industry and petrochemicals.

The size of the state bureaucracy and its activity is another variable that intervenes in a good or bad wealth generation and its possible distribution.

From 1990 onwards, in Venezuela with a very large and very inefficient bureaucracy, GDP per capita fell to real value and inflation was even more severe. This perverse relationship between the size of the state and its quality and low productivity of the economy is a worrisome variable.

The strength of the institutions of high quality contributes to social progress and evolution. A country with many obstacles to legalize property or to solve social problems harms growth, development, progress and evolution. A strong rule and laws is a guarantee for moving forward.

Other variables are the culture and religion. They are qualitative variables related to ethical values, values of self-expression, self-confidence and secular values.

The mistrust and lack of support among social groups negatively impact the wealth of nations. The laws are very important for generating wealth and economic freedom, especially in decentralized economies.

The investment to improve education, verbal skills and even scientific research as a collective value of networks and relationships that fortify attitudes toward work and business; it is an important cultural resource that contributes to progress and benefit sharing.

The mechanisms to deal with psychosocial problems and crisis makes the best endowed with rich countries can successfully overcome their recessions more quickly and consistently. The learning capacity is greater in countries with strong institutions. But the wars and conflicts are detrimental to the nations. There are also problems when there is injustice internationally. The full freedom and welfare, is an achievement of every nation and not a gift from individuals or powerful countries.

There is a narrow economic rationality. It is very complex to perceive the risk and uncertainty. Sometimes we choose the first solution we have at hand, without considering possible alternatives; this behavior to achieve a minimum of effort that does not optimize the decisions, Herber Simon called "sufficing."

The human trial takes shortcuts that deviate from the most efficient. The politicians also have to cooperate in a crisis situation when others want to cooperate, but they have to be moderate and benevolent, because this attitude is beneficial to citizens; in brief, that attitude add synergy and creativity and are key factors for progress and evolution.

(Este es un resumen en inglés del excelente libro del profesor Klaus Jaffé, La riqueza de las naciones: una visión interdisciplinaria, Caracas, Editorial Equinoccio, UAB, 2007.)

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