Saturday, May 14, 2011

Naked Capitalism Link of the Day

Today: Capitalists Who Make vs. Capitalists Who Take, by Dylan Ratigan:
Looking today at our economy, it’s difficult to see who is creating that higher level of value.   Companies pump up their near-term income by accounting tricks, pump up stock prices for shareholders, without creating real value, all of which has had a hugely negative effect on our global economy.
Umair Haque, is at the forefront of pushing for a new way of looking at what, and how, we grow our economy.  He says:
We have a problem — you know, what is this crisis really about? Is it a debt crisis? Is it a liquidity crisis? I think it’s deeper. It’s a crisis of real value creation and we seemed to kind of have hit the limits of our ability to create real value. And for me, real value is what I call “thick value.” And that’s a little bit analogous to what Michael Porter has recently called “shared value.” For me there are three pillars of real value. It has to be sustainable. It can’t go up in a puff of smoke next year like it happened with the banking crisis. It has to be meaningful, that is, it has to reflect real tangible benefits to people on the other side of the transaction of the relationship. And I think that it has to be authentic.
It’s easier to make money in the short-term through exploitation and the extraction and much more labor intensive with a higher failure rate and a much greater degree of challenge to actually advance and create something that is new and different and differentiates in its creation of value.  “So to me, this is a crisis that is about failing to create real value, but it is a crisis of our institutions.  And it’s a crisis that is of things like GDP and corporate profits, and the ways in which we measure and conceive of income.  And so to really get to grips with this crisis, I think we have to begin by taking a cold hard look at those things,” says Umair.
This is an extremely important distinction which should be made.  Much of the growth in GDP in the finance sector is just extracting rents from others.  That is not productive.  When people trumpet private sector activity over government spending, you must ask what value is gained.  Private profit which doesn't increase value doesn't gain society anything.  Infrastructure investment isn't being maintained, and further privatization won't improve that in most cases.  We need to refigure such issues.

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