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    September 2012
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    CAPITALISM HAS A DARK SIDE

    Don Shaughnessy

    By; Don Shaughnessy
    Capitalism is very fair. Ruthlessly so. In its purest form, you receive value in proportion to how society values your contribution. Your reward depends on what people will buy and at what price.
    Is it fair that baseball players make more than philosophers or rock musicians make more than engineers? Yes! People in the aggregate of society are willing to give up more of their wealth to enjoy the contributions of rock musicians and baseball players. They are satisfying themselves not some arbitrary idea of what should be valuable.
    Although you would be hard pressed to learn this from politicians, capitalism is not a political philosophy. It is a method of allocating the resources available to society. Each of us makes many small decisions and those aggregate to the result we see. Jimi Hendrix music earns more than Mozart music. If you want to change that, you need to change all of us, or as some people believe, use political power to make things work out “right.”
    It is unlikely that we can agree on “right” but the end result of legislating it is that some people get something for nothing and others get nothing for something. Not necessarily a bad thing, some of us need assistance, but it is not perfect when the result requires bureaucratic helpers.
    A bureaucracy cannot solve a problem. To do so would mean extinguishing itself. Never assign a problem to someone who will be personally harmed if they are successful. A bureaucracy grows by making the problem it purportedly solves bigger, more subtle and harder to measure. Ideally for the bureaucracy, impossible to measure.
    This reallocation of resources to bureaucracies is unnatural, so it will not work forever. The dark side of capitalism is always there.
    The dark side, destroys misdirected wealth.  That means, in the absence of political intervention, misplaced assets or assets in incompetent hands, are removed. In the fall of 2008 and early 2009 we saw the efficiency of capitalism. Economist Joseph Schumpeter talked about “creative destruction.” Addition by subtraction.
    Compare that to socialism.
    Socialism has no failure mechanism. Things go on as long as there is political support. Since there is no process to reposition capital through small failures, there can be only eventual catastrophic failure. Think the Soviet Union in 1989. Rather like forest fires. If you prevent or kill the small ones, you guarantee a big one.
    Instead of examining the past several years and trumpeting the “Failure of Capitalism,” intelligent observers should be trumpeting the success of the dark side of capitalism. you cannot ignore that things that don’t work, don’t last. And should not last.
    If our society is to prosper, it will be because we choose to direct excess wealth to growth not to wasteful regulation and inept problem solving.

    Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.  don.s@protectorsgroup.com

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