Optimize The World
This blog is aimed to expose some ideas to optimize the way the world works and try to put some ideas to optimize it. These ideas would include how could we use technological advances to increase welfare around the world and some recommendations everybody should follow in all businesses to try to make the world a better place to live. If these ideas were put into work we would life in a better and more fair society and we would probably be happier.
A long time ago (not that long 50 years ago) the ratio of the lowest paid worker on a company and the CEO of that company was about 30 times. That could be qualfied as fair since it is reasonable that the person who has the largest amount of responsibility is paid according to that responsibility. But recently this multiplier has gone to the incredible 400 times! This would make a CEO of a company that pays a lowest salary of 20 thousand dollars per year earn 8 Millions dollars per year!!
It's clear that this situation is really unfair and I seriously believe is helping increase the salary differences between the poorest and the richest which is not helping the world to be a better place. This is one of the things we should change if we want to Optimize The World !!
Please feel free to show me your opinion about that.
Capitalism is essentially good. Why? Because it empowers competition and efficiency and produces economic growth, political freedom and increases self-organization. History shows that It's been accepted that it is certainly the best economic system.
But then what is wrong with our capitalist world? It's evident the problem is that we don't live in a true capitalist world. A true capitalist world would have these characteristics:
- Similar taxes in all countries
- Uniform working conditions and salaries
- Global commerce would include all countries and all services and goods without restrictions
- Each country would produce goods in which it has comparative advantage
More information about comparative advantage: http://en.wikipedia.org/wiki/Comparative_advantage
The Tobin Tax was the idea of James Tobin to stop exchange-rate volatility. By means of a tax that would charge every commercial or financial transaction with a quantity that would go between 0,1% and 0,5%, international financially driven currency speculation would be almost stopped since on most occasions it searches for a little benefit in a very short-term basis. Nowadays, currency volatility affects real economies and introduces a risk on all commercial activities where several currencies are used.
But in order to answer the question on the top of this post I would like to say that, in my opinion, if we were in a position that would allow us to implement the Tobin Tax worldwide then a big part of the world's problems would already have been solved.
The Tobin Tax in order to be useful has to be implemented on all countries simultaneously so that means that all countries would have agreed on establishing this tax. For me, if we were able to reach that situation it would mean that all countries would also agree that there shouldn't be any tax haven countries and that would already have solved much bigger problems that the ones that the Tobin's Tax tries to solve.
The Tobin Tax it also didn't take into account FOREX markets (markets where currency and stocks are traded in a non-official way) that now move more money than the official ones. This non-official markets should be completely banished and prosecuted in all countries for the Tobin Tax to succeed.
So we can see that the Tobin Tax, as good idea as it is, it would probably never be implemented because it is idealistic to assume that in the near future all countries would agree on that issue.
If here in the European Union we can't even agree on putting and end to crisis with the use of euro bonds how could we agree on the Tobin Tax worldwide? It's so idealistic....
More information on:
That's a question everybody are asking themselves now. And that's a question that has put capitalism in jeopardy (we saw it with the fall of Lehman Brothers in 2008).
With the fall of Lehman Brothers in 2008 we painfully noticed that banks were a different type of business and that some of this banks were "too big too fail" without catastrophic consequences for economy. So were the insurance companies. What that means is something capitalism has to discover yet.
If these companies are different (banks, insurance companies) should they be allowed to make profits? For me that's a good question.
Because what we have seen now is that with the banks the profits are quickly spread among the shareholders through dividends and market value but losses are quickly assumed by states that have to come to rescue them if they have problems. This is truly an extreme unfair situation that goes against the good foundations of capitalism. In a TRUE capitalism bad companies that incorrectly manage risks are destroyed by it's adversaries. But with banks this doesn't happen. A bank can do all the risky investments (yes I'm thinking about subprime mortgages for instance) they want and if they get a profit it's all to be distributed to their management staff and shareholders, but if because of their bad operating habits they fall they can't be left to bankruptcy because people will loose all the money in their deposits and that would crush economy.
In order for this worldwide crisis not to happen again I think that world leaders are forced to agree on strict regulations for bank's activities that protect citizen's taxes from being used to repair the damages created by a few people.
This strict regulations that are not required for other companies as capitalism has shown us in the past are required to maintain the world economies stable. But of course this regulations would make this companies' benefits suffer.
For now, each country has solved this problem using a specific way (state-driven capital injections, buy low/sell high approach, nationalization of banks) each with it's advantages and disadvantages but the root cause of the worldwide financial crisis that we're living today it has not been tackled.
We're now too busy trying to find a way to diminish the consequences of the financial crisis and no one has tried to prevent this from happening again!!
Everybody knows the education is one of the most important foundations of a prosper society. If people are well educated and with that I refer to general knowledge (maths, physics, geography, and so on) and also to the general values that a healthy society has to widespread (compassion, hard work, sacrifice, sharing, generosity and so on) their country would be a better place to live.
The same applies to the knowledge about economy and it's basic concepts. If people knew about how mortgages work, interest rates historical variation, and the influence of debts on their future maybe they would have thought better before buying a property and lots of disgusting situations would have been avoided.
It's true that banks did awful things by giving money to people that wouldn't be able to pay for it during a long time but it is also true that this people should have rejected this mortgages (subprime) because their high interests (30% and more) make them almost impossible to pay. Nowadays, because of that, people that need money to do some interesting projects that would be very useful and bring prosperity to their countries are not getting this money from the banks. We have moved between extremes, first giving money to anybody, now nobody gets anything because each country (except China and emerging countries) is full of debts.
With the people in charge of governments it's worse because although some of them are well instructed on this items the reelection that every 4 years is installed in democracy makes them always take the wrong economic decisions because economy based decision always have to be taken thinking about the long term effects to be effective.
So my proposal is the following one: we have to make sure the following generations would be able to understand how the economy works because if we don't do that we'll repeat our mistakes again and again.
This is essential if we want to optimize the World!!
History has shown us that democracy is the best political system that exists today but that doesn't mean it has important deficiencies.
The most important failure is that mosts decisions are taken based only on short-term basis because the next election is only four years away at maximum.
Decisions in extremely important matters such as education, economy, innovation or taxes should be taken based on a long term perspective (because they would take decades to show the expected outcomes). Such decisions should have to be acknowledged by all political parties and guarantee that they would not be modified except if there was a complete agreement (not by a simple majority) in the future that the outcomes were not the desired ones.
This long term decisions should be designed by independent committees of experts on the matter at hand (now they're called think tanks) so that a specific proposal would get voted and if approved force it to be valid for periods of ten or twenty years.
It's very common in democracy that when governments change of political tendency lots of things that we're done by the last winning political party are undone by the new one and this is always a complete waste of resources. Maybe the winning political party should be mature enough to consider if everything that was done by the previous team was wrong or could be simply adjusted a little bit or even improved.
I do also think that it's important that people feel that the people being elected takes the right decisions and that in case of the most crucial decisions people should be asked their opinion in a referendum. In my opinion, in the near future the massive deployment of electronic voting systems would make that really feasible.
If we optimize how democracy works and make it an even better political system we could optimize the World!!
Do you know why in this world every year during the last 25 years this gap has been widening instead of shortening?
This is really happening and nobody is doing anything to stop it. It is converting this world into and unfair place to live. On modern developed countries (like the European Union and the United States) there is an amazing paradox because they have apparently good financial systems that charge bigger taxes to whom has more money (although if the tax was the same in percentage but was forced on all income without exceptions this would also mean that the richer will pay more than a poor person) but the reality is that the system is not fair globally. I will explain that into detail with a few examples.
Let me put you an example based on progressive tax systems, if you fix a country tax of 10% of your income for the salaries between 10.000 and 20.000 $ per year and a tax of 20% for incomes above 20.000 you would have that a person with a standard low wage of 15.000$ per year would pay 1.500$ on taxes (a 10% of its income which he will see as fair since there are services provided by the state that have to be paid by everybody).
And a person that wins more money, for instance, 40.000 $ would pay 10% for the first 20.000 $ and 20% for all the money between 20.000$ and 40.000$ that would make a total tax of 2.000 $ and 4000 $ which would make a total of 6000 $ or an effective 15 % of his income. He would feel happy to pay the same percentage as the other person (an effective 10%) which would have made him pay only 4000 $ instead 6000 $. What's more why would he work a lot more to earn let's say 60.000 $ if for the last 20.000 $ he would pay more than 6000$ on taxes. That's the difference between fixed tax systems and progressive ones. They always make the richer pay more and the poorer pay less but in the progressive system the effective percentage (and not only the total quantity of money that the person pays) is higher.
There is a lot of controversy on which system is more effective or fair since progressive tax systems tend squeeze middle class people and do not encourage ambition (which is a good quality of a prosper society and leads countries to progress) because those with higher incomes (for instance above 100.000 $ per year) manage to avoid the system by using some of the options available. In lots of countries (like the United States) there are even legal options to avoid the tax system or event it is different for the richer ones because they have special low taxes for richer ones. Yes you've read right! Specially designed low taxes so that this big capitals don't go away offshore and to tax havens (like Swiss, Caiman Islands, and an unending list of places), each developed country has a legal (or let's say simply not illegal) way of making this "big money" disappear from the tax system. It is sad but true.
This is what is making the world an unfair place to live and that should issue should be addressed urgently because it is getting worse year by year!
There is even a movement of rich people (leaded by Warren Buffet and Bill Gates) that is asking their countries to get the richer higher taxes because they want to help their countries on this crisis!
From my point of view (I know that it is really idealistic) all developed countries should agree on which tax system would be more effective (and the Tokyo protocol) and implement it on all countries. Tax haven prosecution would have to be very strong for this common tax system to succeed.
In my opinion a fixed tax of between 15% and 20%, if we could guarantee that everybody and every company (even big multinationals) would pay that for job based income or investment based profits, would be more than enough to pay for state provided services (which should be the minimum but enough for the health of its citizens) since history has shown allover the world that private organizations are more efficient than public ones. Moreover I think that everybody would agree that is a fair tax and not try to avoid paying it.
Let's start to change it, and Optimize the World!
Globalization accelerated growth that has been happening during the last decade has been fueled up (you would agree that I have used the best word to explain it) by cheap oil. But oil prices are expected to rise a lot on the next decade and to put global commerce on jeopardy.
Low labor costs on China and the availability of low cost transportation by ship have helped their products to flood all the world markets making lots of companies to shut down their local factories and establishing new factories on Chinese and Asian territory. This has persistently increased unemployment tasks on lots of developed countries. I want to clarify that I do not have anything against the Chinese people because they are really hard working and are savers by nature (on developed countries we could try to "import" this characteristics on our societies)
This has also created the following paradox: lots of products are transported from one part of the world to another several times during it's manufacturing process in order to be built completely which is a complete madness and also very inefficient from and ecological perspective! I think that actual transportation costs do not include the ecological cost and, therefore, are do not precisely explain the real cost of transportation.
But things are beginning to change, China low labor costs are beginning to rise as their people reclaim better working conditions and cheap transportation is not so cheap anymore (and forecast predict that this raising of costs would continue) and its making lots of companies rethink their globalization strategy. What's more, some of the exporting companies that a few years ago build factories in China have shutdown this factories due to delayed orders and the low quality products that are produced there. This companies are now beginning to build new factories on their original countries to produce high quality products to compete from a different perspective, a one based on differentiation of products instead of price advantage.
I would like to clarify that I am not against global commerce or free trade but I think that we have to be more efficient in transportation because lots of products include on their price a lot more costs of transportation than costs of production which is not reasonable at all.
Let's try to change that by being responsible with our shopping and not encouraging this transportation insanity in order to Optimize the World!
Winston Churchill said "Capitalism is the worst economic system, except for all the others" which I think it is a great quote because it makes it clear that Capitalism is not a perfect system but that the other systems are worse in the sense that other systems have more deep and difficult to correct deficiencies. I think that history has shown us that other economic systems do not create welfare and promote progress of societies. The best virtues of capitalism is that it promotes ambition and competitiveness and this leads to higher productivity levels and more welfare in theory.
All the unbalances of Capitalism are caused by the fact that the world has not agreed on the rules that should tame the beast inside it.
From my point of view here are the issues that all world's countries should agree on before Capitalism should be embraced as the perfect economic system. It is very idealistic to think that this measures could ever be implemented but I think it is a good mental exercise:
- Eradication of tax havens: This is an essential step because the existence of this tax havens creates a totally unfair situation for all economies of the other countries.
- Standardization of taxes for both people and companies: Without this process of standardization companies and everybody would go to the places where they could pay less taxes.
- Standardization of wages: With this I mean that the same kind of work should receive the same wage allover the world
- Distribution of wealth: For Capitalism to be truly fair economic system a mechanism to correct imbalances should exist, without it people born with specific illness or for instance retarded people should not be able to compete with the others and will be left with nothing.
- State weight on the economy: This weight shouldn't be too high because the state is only necessary to correct imbalances and it should have only the resources to tackle that issue. A state with more resources than necessary leads to waste of these economic resources and corruption as it has been shown on lots of countries.
- Balancing work and family life: There should be standard regulations about this crucial issue so that birth rate was the appropriate on all countries allowing the available resources to maintain this level of population and a good balance between work and family life could be established.
- Some kind of flexible family planning: Since the world resource are not infinite all countries should agree that some family planning should be done in order to guarantee a sustainable growth of world population. Currently there are lots of countries in Africa with birth rates much higher than those of developed countries but the level of resources available is much lower causing lots of unnecessary deaths.
If all of this could be brought to reality we could really Optimize the World!
Nowadays, all developed countries economies are facing the consequences of the obsession with unlimited growth that has been fueled during the past decade.
Since the evolution of wages on this last decade has not been able to keep the same pace as the evolution of business profits, developed countries have been able to growth only by means of excessive amounts of credit. To boost economies on these countries credit has been given to people, states and business that were not sufficiently credit worthy (remember subprime mortgages or the Greece partial default) and now everybody is facing the consequences of that actions.
Capitalism has shown the ability to create prosperity and wellness on all countries but It's clear that is not a capable of generating unlimited growth in a resource-limited world.
The improvements on productivity during the last decades should have caused a welfare increment allover the world but since benefits distribution has been neither optimal nor equitable (bank and other companies CEOs and managers remuneration clearly shows that) this has not occurred. Even more, during this period, worldwide fairness has been reduced since the gap between the richest and the poorest has not stopped to extend.
We should care about improving our life by routing all the benefits caused by higher productivity ratios into better working conditions and increase life expectancy and quality for all human beings. Part-time jobs have proved to be very effective in improving simultaneously productivity and balance of personal and professional life. In Germany this kind of jobs have been called mini jobs and have helped boost productivity and achieve one of smallest unemployment rate in all Europe.
I think we should start thinking more about the quality of our life than the quantity of things we own and begin a relaxed economic slowdown that will put the record straight and would probably save the planet viability.
If we are able to think different and start lowering our expectations a little bit (we may not really need that many number of cars in each family) then we are already beginning to Optimize The World!