یکشنبه، اسفند ۱۶، ۱۳۸۸

Inequality and Development

Economic and social systems respond differently than thermodynamic systems to inequality. When there is an uneven distribution of temperature in a thermodynamical system, what usually happens is that heat flows from the hotter regions to colder regions and in time you have an even distribution of temperature. That is if you don't have a source of heat adding energy to a point maintaining such a state of inequilibrium.

Economic systems do not behave in this way. If you allow an economic system to freely operate without intervention ( Leissez Faire) What happens normally is that the rich will keep getting richer and the poor will keep getting poorer until at some point, either the entire system comes to halt (recession or depression) or the rich will pack up and go somewhere else and leave the poor in destitute.

That's just common sense, you don't have to be an economist to see that. Money give you leverage, which you can use to make more of it and the whole process continues, until the social structure that allows you to conduct the operation falls apart.

In a healthy society with a healthy economic system, the rich, the employed, the educated, the healthy and the young, pay for the poor, the unemployed, uneducated and unhealthy. As a result the lower strata of the society get a chance to move to higher strata. Now no one likes to work and give money to someone else. People have to sit together and contemplate the consequences of not collaborating on an efficient and effective wealth sharing or wealth distribution design.

If the higher class people refuse to take responsibility for the well being of the system that allowed them to reach their more favorable status, there are moral and social consequences. The social consequences is that the better off people will have to travel on crumbling roads, mal functioning public transportation, send their kids to sub standard schools and live in a shameful society, where the circle of their friends and familiar people becomes more and more limited.

A successful society is one that reaches a national agreement on how to take care of each other, then a government becomes the vehicle and the conduit to accomplish this task.

How many countries you know that operates in the above fashion? May be some small European countries, I'd say, beyond that can't really think of an example.

This enormous challenge provides an enormous opportunity. Administrative systems don't have an inherent superiority, they have to be judged based on what they achieve. If Democracy and democratic institutions do not achieve a better quality of life for their people, then they have failed no exception can be made.

There are four systems that have to be developed for a society to operate. An Administrative system, A Financial system, an Industrial/Agricultural system and a Judicial System.

If these four systems operate optimally allowing commerce, production, a social life to go along in tandem turning raw materials, time and energy into products and services and then recycling and restoring the results, the society will start on its path to development. If these systems do not function you have a non-functioning society and every one will suffer, ultimately even the rich.

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Read my notes here, you'll know all you need to know.