Thursday, 20 September 2012

Theories of Destruction

While the Eurocrisis is still raging many have found the opportunity to promote their own ideas of new world orders, new forms of government or economic systems. To this day, I have yet to found an alternative to the current situation which would provide stability and prosperity.

Most people's ideas are focused on the "injustices" of the current economic system. By injustices we mean the fact that companies and certain individuals have an income of multiple times the average one. Why should Mr A earn 1 million euros per year and Company B 100 million a year when Mrs C earns only 25,000? Isn't that injustice to the poor? Under other forms of government or other economic systems (the critics declare) things would be better for the common citizen. Hmmm, let me think for a minute. We are trying to find a perfect system, which would not promote either education or public health or something similar, but, it will have than monetary consequences to the ones who adhere to it!

Most importantly, the critics intend to do this by not even acknowledging the fallacies of human nature. First of all consider jealousy (although this is not the formal term for this phenomenon): if my neighbour earns 25,000 a year I would prefer to earn at least 26,000 to be happy. At the same time the neighbour would prefer me to earn less than 24,000 in order for him to be happy! If you do not believe that this is true read this, this or this. Thus, all forms of government which state that people should earn the same wage or benefits are in fact violating this principle. This would mean that these forms of government would not be sustainable in the long run.

I have to admit that capitalism has flaws. It not a perfect system, although I do not believe that we will ever have a perfect system. Systems are as good are the persons who create them, and our basic quality as people is that we are very far from perfect. Thus, having a perfect system is like looking for a perfect man or woman. You will never get something perfect, but what you should get is someone whose faults are such that are not of such significance. Unfortunately, the same holds for democracy. However, in the words of Winston Churchill "Democracy is the worst form of government except for all those others that have been tried."

Now let's think about the following scenario:
Mr A is a person who goes to a 9-5 work every day, works enough to keep his job but not so much as to earn a raise. He has an average house, with a small family and he saves enough of his salary to go for a vacation each year.
Mr B is a person who works the same hours as Mr A, but his overall productivity is lower since he does not work hard enough. He earns a slightly lower salary than Mr A and although he does not have a family, he spends so much that he never has any savings in the bank.
Mrs C, is a person who puts extra hours on her work daily, her superiors are extremely happy with her and she gets a raise almost every year. She saves enough for her to buy a new house and a new car while still maintaining a family.

Given the above scenario would Mr B. or Mr A. have any right to complain if Mrs C gets a raise? Obviously not. However, in real life, we do not understand that most of the people who earn substantial amounts of money, have to work extremely long hours, be very devoted to their work and at times put their personal or family life in second place for a number of years. I heard a story once from a person who at the time of interview was a millionaire, stating that he realized that he had a son when the boy was 18 and leaving to study.

Another thing that most people do not realize is that it takes some kind of ability to become an entrepreneur. Out of millions of small cloth companies, Zara has managed to become a worldwide brand and its founder a very rich man. The same happened to furniture giant IKEA. Why has this not happened to every other furniture or cloth store? I am guessing that it has to do with the manager's ability to work wisely towards achieving what needs to be done. It needs a lot of luck too. In John D. Rockefeller's words: "All it take to be rich is luck, luck and luck."

As for companies, which appear to be making millions of euros every year and use them at their own will, let me remind you that a public company usually has thousands of shareholders, which benefit from those millions, either directly, through dividend payments, or indirectly through increases in share prices. This would mean that public companies are in essence beneficial to an economy as they raise the income level of their shareholders and boost consumption.The only companies which promote accumulation of debt by very few person are private companies, which to be fair, are much cheaper to form when a company is young. What should happen, is that companies which reach certain levels of income or employees, should be taken public so that the regulators have a better grasp on them and their practices.
There are, unfortunately, those who manage to get rich, one way or another, not through work but through other mechanisms. These are plain crooks and should not be compared to people who devote more than 12 hours a day to their occupation. It is the idle we must not accept in society, not the hard-working ones. And trust me, most of those who inherit large sums of money do not hold their money for too long. What we should not accept is unfair and illegal gains. Those who choose to devote their lives to their careers to earn money, are obviously going to come short in another aspect of living. 

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