The CEO Game

Was the crisis a catalyst that helped the rich getting richer or did it actually minimize the gaps between the poor and the rich? What is going to happen to the size of the gap in the future?
The gap between the rich and the poor is slowly growing. This gap has been growing for a long period of time and nothing seems to be stopping it. Many economists that support the business cycle theory, which states that when rich families and organizations lose their wealth over time to new rising tycoon this new tycoon is a better fit for the times. This is because we live in a frequently-changing world in which new innovations and new markets are appearing all the time.

You need money to make money.

The tool for measuring “fairness” of the distribution of wealth is the “Gini coefficient“. This tool can point out how the wealth is divided by the general population. A coefficient of 100 would describe a situation in which one individual holds all the income of the country. Although this is only a theoretical value, there are some countries, especially monarchies and dictatorships that have high “Gini coefficients” such as Sierra Leone with a coefficient of 62.9. In the United States the “Gini coefficient” is 45.2 (2006); this is high compared to Great Britain, which has a coefficient of 34 (2005). While capitalistic, democratic countries are mostly in the middle of the range, the communist countries mostly get the lowest values possible. For example, the Czech Republic has a value of 26 due in part to the influence of the former communist regimes. This measurement tool reveals a high correlation between the form of government and fairness.

One major ingredient that helps the rich get richer is capital. You need money and a lot of it in order to invest in the stock market or in new projects. Most of the people lack the critical amount of money to invest or the proper motivation and vision which are required in order to invest their money and gain more than the normal interest rate over a long period of time. If we look at the cost of the human work force over the years, we will see that it is getting very expensive. But we will not stop consuming products just because they are expensive. If the human cost in production will get too high we will have to find new ways to lower the cost, especially by technological improvements. So in the future, robots and computer algorithms will take care of the production line and services. This progression may lead to a more equal society and a better distribution of wealth, but in order to keep human advancement we must reward individual that creates innovation and new technological improvements, or otherwise our society will look more and more like Communism, and Communism paralyzes any desire to innovate because people do not earn much from their hard work.
In conclusion, in my opinion the gap between poor and rich will keep growing, but at a slowing rate as more and more people invest their time in developing new frontiers.

Omri.

The CEO Game.

Things are looking up for the uninsured in America this week. Not so up that the approximately 46 million uninsured Americans should start relaxing about their perilous well-being, given that it was known all along that the bill would have a much harder time passing in the Senate than in the House of Representatives. Still, the passage of the health care reform bill in the House is a good sign for millions in need. But, is in a good sign for the American economy?

Health Care Bill: How Will it Affect The Economy?

Many people have discussed the economic repercussions of the reform on small business that are now mandated to provide health insurance for their employees (not so great), or for the health care industry (perhaps not zero, in the end) and even gays (who won out in this bill). But no one has discussed the effect of universal health insurance on the ethos of innovation in this country.

It has been posited by many political theorists that there are two different types of capitalist system. One is oftentimes called “liberal”–this is the system at work in Anglo-Saxon countries, including the US. The other is usually referred to as “socialist”, though these days it is far from pure socialist. This system is found in continental Europe. Liberal regimes are guided by a faith in the market and a belief in the importance of the individual. They therefore are characterized by residualism, mean-tested assistance, and stigmatized relief. Socialist regimes have universal entitlements at middle-class standards.

Firms act differently in the different systems. A liberal market economy is made up of firms that coordinate via hierarchies and markets. Socialist or coordinated market economics are comprised of firms that depend on non-market relationships to conduct their business. Importantly, in these economies, production strategies rely on highly skilled labor, which requires industrial relations institutions that equalize wages and skill level across an industry as well as specialized education and training systems. Furthermore, the internal structure of the firm reinforces the networks that facilitate that information sharing, through a bias towards consensus making and incentives.

In liberal market economies, on the other hand, the educational and training systems of emphasize general skills that can be applicable in many ways in a fluid labor market. Inter-company relations are based on standard market relationships and formal contracts.

The coordinated economies have a health care system that looks out for its workers, because workers stay in a specific industry for all of their lives. In liberal economies, the market lets everyone sink or swim, with only meager assistance to those that seem to be sinking.

Political theories have posited that the liberal economies, such as the US, have a comparative institutional advantage in radical innovation, while coordinated market economies have the advantage in incremental innovation. As the United State’s system changes and the market loses its all-encompassing power, with this competitive advantage in radical innovation be lost? Will workers stay at ease in firms longer, no longer needing to come up with the next brilliant idea to maintain their position? Will firms become more cooperative as market signals cease to be the only determinant of their behavior?

I am not suggesting that the US doesn’t need universalized health care — of course it does. But it is worth asking what this really fundamental change in our very economic ethos will have on the country. Will America lose its best edge — the sharp minds that think out of the box and innovative wildly? Only time will tell.

Tamar.

The CEO Game.

Vatican City now praises the man who once described religion as “the opium of the people“.

A New Religious Icon?

“Religion is the opiate of the people“, is one of the most famous and well-known sayings of Karl Marx, a German philosopher and political economist. To his opinion, religion is but a mere deception and a one which through the entire history had misled the weak and prevented them from uprising in order to improve their financial situation. Thus, it’s no wonder that for the last 150 years his books and theories were “banned” from the church. On the contrary, what does sound surprising is the fact that this week the Vatican published an article who praises the Marxism, his doctrine which advocates communist and socialist ideas.

The article appeared in L’Osservatore Romano, the official newspaper of the spiritual capital of a billion Catholics, thus giving it papal endorsement. It claimed that Marx’s criticism on the western capitalism “succeeds in protruding the social alienation that is felt by a large part of humanity” and that remained excluded, even now, from economic and political decision-making. The article also claimed that today, his criticism is more relevant than ever, since mankind is now looking forward to a new harmony between its needs and the natural environment. In addition, the paper argued that Marx’s theories may help to explain the persisting subject of income inequality within capitalist societies.

This sudden approval adds to a constantly growing list of “qualification” actions taken by the Vatican regarding historical figures that underwent an unlikely reappraisal by the church. The first example (is related to the maybe oldest religion-science clash in history) is the legitimization of Galileo, who was on a constant run, playing hide and seek with church only because he cleverly and bravely claimed that the earth is the one who spins around the sun and not the opposite. Likewise, a senior Vatican spokesman argued that Charles Darwin’s Theory of Evolution can go hand in hand and be compatible with the belief of the church in the tale of Genesis. Moreover, in July the same paper also cherished the Irish playwright Oscar Wilde, which if you Google him you will find out why he and his outtakes against the church’s conservatism don’t exactly go single handedly.

And the alibi? Although the article did criticize some of Marx’s theories, it conveniently said that Marx’s intellectual legacy was abandoned over the years because of the misappropriation of his work by communist regimes and their manipulations of his words. In the end it seems that everything is “kosher” for the Vatican when battling with capitalism. It’s just another means to an end. Even though these are times of change, it’s not so clear how a man who once said that religion “is the heart of a heartless world” can now be endorsed by the church, but maybe we are just politically in-correct.

Omer Shachnai

The CEO Game.