Questionário

Tuesday 25 November 2014

We’re all capitalists now

The six pillars of capitalism – private property, profit motive, free markets, rule of law, joint ownership and limited liability – allowed this economic system to be the most productive as well as the most equalitarian system ever tried by humanity. Nevertheless, this result was neither procured nor foreseeable from the outset.

For example, one of the widest off the mark forecasts in history was Marx’s prediction that under capitalism the greater part of the middle-class would constantly sink into the proletariat leaving the population divided into a small bourgeoisie and a large proletariat. Indeed, exactly the opposite has happened. Although the wealthiest one percent has increased its share of total income the number of proletarians (those without any assets other than their labor) dwindled to a small number. So, instead of all becoming proletarians now we are all capitalists.

The explanation for Marx’s failure resides in his erroneous theory of wages and employment and from unforeseen developments in terms of labor organization (unionization), welfare state and compulsory savings through retirement, unemployment and health insurance.

Furthermore, apart from the number of capitalists in society, there were other developments that also changed the perception and the role of capitalists.

In fact, under capitalism the social structure no longer is based on breeding but on work and merit. Social mobility is now achieved mostly through education while the social standing of business people as well as that of wealthy and poor capitalists is now at par with the traditional higher classes of nobility and clergy.

Popular capitalism, a term used to describe the rise in shareholding by individual investors, may occasionally hit the headlines but it should not be confused with the process through which people are now simultaneously workers and capitalists. Whether people choose to own shares in a company directly or indirectly through institutional investors depends simply on their perception about which is the best way to manage their capital.

The role of the capitalists investing in equity has also changed in the sense that most of them do not participate in the life of the company into which they invested or simply monitor its development. Indeed, some do not even want to know much about the company where they invested except its price so that they do not become sentimentally attached to the stock.

Nevertheless, although day trading based in technical analysis is a popular approach among some investors, the majority of investors still follow an investment approach based on event or portfolio investing which require a good knowledge about the company. Thus the signs they transmit through their buy and sell orders cannot be ignored by company managers, even when they are not part of the small group of investors that have or might exercise the control of the company.

So, although trading plays an increasing role in today’s capitalism, we cannot identify the kids gesticulating in a modern trading room with a Rothschild standing at the door of the London Exchange in the XIX century. Mostly because they are just agents, while Rothschild was simultaneously agent and principal. So, traders cannot be used to symbolize modern capitalism. Nor should the wealthy be confused with capitalists whenever they invest only in government debt.

As I said elsewhere, 100% leveraged companies cannot exist in the capitalist sector. In this sector, shareholders are indispensable to preserve the profit motive and profit maximization indispensable to a capitalist system. So, although consumers are the main beneficiaries of capitalism with an unequivocal interest in free markets (another pillar of capitalism) they cannot play the role of capitalists and force managers to pursue profit maximization because they would have an interest in securing lower prices at the expense of profits.

Then, since most people are simultaneously consumers, workers and capitalists, how can they achieve at the same time lower prices, higher wages and more profits? This is a false conundrum easily solved in a capitalist system through competition and profit maximization. To pursue profit maximization firms have to optimize their labor/capital mix while investing more in physical and human capital to increase productivity and wages. Through free and competitive markets corporations are at the same time forced to take good care of their customers and try to offer the best service at a lowest price.

In conclusion, as more people becomes capitalist they improve their wealth and income, and, most importantly, they play a role in keeping the system alive and efficient.

In general, most of us, including those with more than a million invested in securities, cannot live on capital earnings alone. Therefore we do not recognize ourselves in the old stereotype of an idle capitalist with a top hat living on investment income and spending only a few hours a month monitoring or trading his securities. But, generally, now we are all capitalists (whether directly or indirectly) despite not fitting into a stereotype. This is clearly an important civilizational advancement of capitalism.

Wednesday 19 November 2014

Os libertários e os Vistos Gold: Uma nota adicional

Na controvérsia sobre o caso dos Vistos Gold, alguns libertários tentaram separar, e bem, a política de Vistos Gold da sua implementação por parte de funcionários eventualmente corruptos. Porém, alguns foram longe de mais ao defender a política de vistos com o argumento que o dinheiro é todo igual, quer seja obtido através das exportações para a China ou da venda de imobiliário em Portugal aos Chineses.

Já explicámos num outro post porque é que este argumento é falacioso quando estamos perante externalidades significativas. Porém, no caso dos vistos a falácia é ainda maior. De facto, não existe nenhum problema se um país decidir tributar os estrangeiros que o visitam. E, na verdade, quase todos o fazem usando expedientes vários desde o pagamento de selo nas autoestradas da Suíça até à exigência de comprar um visto de entrada para turismo nas fronteiras dos Países Bálticos e muitos outros países. Mais ainda, se esses "impostos" resultarem de um tratamento de reciprocidade ou não forem claramente discriminatórios então serão aceitáveis mesmo numa perspetiva libertária que defende a livre circulação de pessoas, bens e capitais.

Porém, a atual política de Vistos Gold, é totalmente contrária aos princípios liberais por três razões fundamentais:

1) Os Vistos Gold são mais valiosos do que um visto normal, não porque permitem a entrada no espaço de Schengen, mas porque garantem benefícios adicionais em termos de direitos de residência, investimento e tratamento fiscal que não são nem transparentes nem acessíveis a todos. Pelo contrário, parecem concebidos para atrair fundos de origem duvidosa ou para facilitar a evasão fiscal. Ora, não se percebe que Portugal continue a perseguir fiscalmente os seus cidadãos que investem no estrangeiro e ao mesmo tempo queira transformar-se num paraíso para branqueamento de capitais numa clara violação dos princípios de um estado de direito;

2) A “venda” dos vistos não é feita para benefício do erário público mas apenas para benefício de interesses particulares específicos. Se o estado concedesse os vistos a quem investisse em divida pública ainda se compreenderia pois não teriam externalidades negativas nos outros setores da sociedade e beneficiava a todos. Porém, como a sua utilização interessa apenas aos vendedores de imobiliário, os restantes sectores de atividade e os contribuintes ficam com a fatura dos custos de vizinhança indesejável, da má reputação nacional e dos encargos policiais e judiciais. A julgar pelos casos que já surgiram, parece que a hipotética receita adicional de 80 milhões de Euros de IMI não vai sequer ser suficiente para cobrir os últimos;

3) Finalmente, e mais importante sob o ponto de vista liberal, os Vistos Dourados violam claramente os princípios básicos das regras de concorrência internacional. Por exemplo, porquê conceder vistos a quem comprar casas e não a quem comprar sapatos ou recapitalizar empresas? É sabido que os chamados acordos de investimento geralmente distorcem o investimento internacional e por isso organizações como a OCDE têm pugnado pela sua regulamentação e Portugal só ganharia com isso.

Em conclusão, num mundo libertário não havia pura e simplesmente necessidade de vistos. Porém, no mundo atual onde muitos violam as regras de concorrência, a existência de vistos Gold só pode ser justificada em termos de reciprocidade e se comprovadamente os seus benefícios coletivos excederem os respetivos custos. Nunca em nome dos princípios liberais.

Monday 17 November 2014

The origins of capitalism

The origins of capitalism go as far back as the XI century when Pope Gregory VII dictated the Dictatus Papae letters asserting that the deposal of an emperor was under the sole power of the pope and excommunicated Henry IV to reinforce the power of the Church. Unintentionally, he created the church-state with most of the legal and administrative institutions necessary for the subsequent commercial revolution. However, capitalism only overtook the feudal system in the early XIX century.

During this long period of eight centuries the following events represent important milestones: the Champagne fairs in France (XII-XIII centuries), the banking and Italian Renaissance (XV century), the Portuguese and Spanish discoveries connecting Europe with the rest of the world (XIV-XVI centuries), the establishment of chartered companies and stock exchanges (1555,1652), the rise of mercantilism (XVI-XVII centuries), the scientific, transport and industrial revolutions (XVI-XVII centuries), the enlightenment (XVIII), the publication of Adam Smith’s Wealth of Nations (1776) and the emergence of joint stock companies (XVIII century).

The creation of a commercial economy at the beginning of the XIII century, initially in the eastern Mediterranean, but quickly extended to the Italian city-states and the rest of Europe brought not only new products (spices, etc.) but new developments in business practices. For instance, the Champagne annual fairs revived the international trade between France and Italy and led to the development of merchant law (Lex mercatoria) and the creation of an international payment system based on bills of exchange.

The development of a new class of rich merchants and bankers in Northern Italy enabled the development of the double-entry accounting system and new banking techniques. This new class was essential for the development of the new trade made possible by the Portuguese and Spanish maritime voyages of discovery and the cultural renaissance in Italy.

Foremost in the development of capitalism was the expansion of credit. This was permitted by the progressive abandonment of the usury laws initiated with the English law of 1550. At the same time, another important progress in terms of company law was the establishment of Charted companies that latter led to the joint stock company.

Mercantilism, as an economic theory, is the opposite of market capitalism. It advocates the role of the state to protect infant industries and domestic markets while trying to control the main trading routes to secure a balance of payments surplus. Nevertheless, paradoxically, by promoting a new form of imperialism based more on trade supremacy than on pure conquest, it was initially a major driver of the international trade that preceded the industrial revolution. But, its nationalistic and protectionist policies led inevitably to wars and inefficiencies that could only be solved by the rise of free trade and the progressive abandonment of mercantilism. However, today, in countries like China and other transition economies, mercantilism is still evident in their new type of state capitalism.

The birth of the so-called scientific revolution can be said to have started with the publication in 1543 of Nicolaus Copernicus's De revolutionibus orbium coelestium or with Newton's 1687 Principia. The subsequent debate on rationalism and empiricism revived the interest in science and the progressive development of experimental research that led to the subsequent revolutions in transportation and manufacturing.

First, long-distance transportation of coal and other heavy materials between the mining regions and the cities became possible due to the canal mania in England between 1790 and 1810, which was driven by financial speculation. This was continued by a new railway mania that followed the design by George Stephenson of first steam locomotive in 1814. Meanwhile, based on Watt’s 1794 improved steam engine, steam-powered beam engines stimulated the construction of more sophisticated power looms and increased the scale of production in textile mills in the early years of the so-called first industrial revolution.

On a doctrinal level, the enlightenment philosophers promoted the idea that God expressed his purpose through the laws of nature so that the legitimacy of the ruler’s power was no longer granted by God but by the enlightened elected men. And, most importantly, replaced the heaven paradise by the pursuit of prosperity on earth.

Among them, Adam Smith’s 1776 Wealth of Nations refuted mercantilism and advocated free trade as the basis of classical economic theory.

Finally, the English Joint stock companies act of 1844 and the Limited liability act of 1855 completed the institutional requirements needed to consolidate capitalism as the dominant economic system.

By then the six basic pillars of capitalism – private property, the profit motive, free markets, the rule of law, joint stock companies and limited liability – had been largely adopted in Western countries and capitalism began its process of globalization.

Monday 10 November 2014

Sim, “Podemos”, mas não queremos!

O reaparecimento na Europa de partidos que contestam a partidocracia existente em muitos países pode ser um fenómeno passageiro e positivo mas também pode transformar-se num perigo para a paz e democracia. O ressurgimento de movimentos ou partidos alternativos acontece tanto à esquerda como à direita. Na direita os casos mais significativos são o IUKP, Partido para a Independência do Reino Unido, a Frente Nacional na França e o Partido Anti Euro na Alemanha. À esquerda os partidos mais significativos são a Coligação de Esquerda Radical na Grécia (SYRIZA) e o partido Podemos em Espanha.

O aparecimento de partidos anti sistema criados em torno de questões específicas (regionais, imigração, ambiente, agricultura, reformados, utopias, etc.) ou de celebridades mediáticas (por exemplo Marinho Pinto em Portugal) são comuns e de curta duração acabando por desaparecer ou ficar reduzidos a um pequeno número de parlamentares. O seu aparecimento é positivo pois trás uma lufada de ar fresco e humor à vida parlamentar sem por em causa a estabilidade política.

Porém, os partidos acima citados beneficiaram da insatisfação nacional (anti Euro no Reino Unido e Alemanha, imigração em França, austeridade na Grécia e independentismo na Espanha) para atingirem um nível eleitoral que pode por em causa a própria democracia e a União Europeia. Um tal descalabro poderá ser facilitado por circunstâncias internacionais, como o neocomunismo de Putin na Rússia, o fundamentalismo islâmico e o antissemitismo no Médio Oriente ou por motivos nacionais como a desagregação do estado-nação na Espanha.

O caso Espanhol é porventura o mais dramático, pois o partido Podemos surgiu há menos de um ano e já supera os dois principais partidos nas intenções de voto dos eleitores Espanhóis. Como explicar esta erupção do partido Podemos? Na verdade, este partido não trás nada de novo. Em termos ideológicos limita-se a repetir uma série de utopias típicas da extrema-esquerda embora reforçadas com toques anarquistas e antipolíticos.

Para percebermos o seu sucesso temos pois de equacionar o conjunto de circunstâncias que o propiciaram. Desde logo, o famoso temperamento e impaciência do povo Espanhol que o levam a alternar entre extremos como por exemplo o anarquismo e o fascismo no século passado. Depois o sentido de insegurança provocado pelas autonomias, pelo desemprego elevado e até pelos problemas na família real.

Estas particularidades foram habilmente exploradas por um jovem carismático e celebridade televisiva (Pablo Iglésias) e encontraram uma grande recetividade nos intelectuais insatisfeitos com a democracia representativa e entre os jovens naturalmente sequiosos de utopias.

Ambos os motivos de insatisfação são razoáveis, mas as alternativas propostas seriam bem piores. Por exemplo, na era das redes sociais a apropriação da democracia representativa por oligarquias partidárias que apenas se servem a si próprias torna-se mais visível e é natural que os eleitores se deixem seduzir por ideias antigas, mas perigosas, como a democracia participativa ou a democracia popular. No entanto, a história está repleta de experiências dessas que acabaram invariavelmente em ditaduras. Por isso, é importante explicar aos mais jovens o que deve ser a democracia representativa, quais as suas limitações e como podemos aperfeiçoá-la.

A procura de utopias é, felizmente, uma das virtudes da adolescência e da juventude. Aos adultos cabe moderá-la o quanto baste. Quando ensinamos a uma criança que não pode comer todos os chocolates que lhe apetece, temos três métodos: deixá-la aprender à sua própria custa (i.e. comer até ir parar ao hospital com diarreia), proibir os chocolates e castigar severamente a desobediência ou deixá-los comer apenas com moderação e explicar-lhes porquê. Para os adultos, o deixar fazer ou o reprimir são sempre as soluções mais fáceis, mas, infelizmente, as menos eficazes e as mais perigosas, sobretudo quando os riscos são irreversíveis.

Por exemplo, nos anos sessenta, nós contestámos o materialismo dos nossos pais e pretendíamos criar um mundo baseado no amor livre, musica, drogas e vida comunitária. A vida ensinou-nos naturalmente que o “amor e uma cabana” é uma utopia que dura menos do que uma paixão de verão e acabámos por nos integrar na democracia representativa sem fazer a revolução que idealizávamos. Mas conseguimos algo - uma sociedade mais livre de preconceitos sociais e preocupações materiais. No entanto, tal como a obesidade ou as borbulhas causadas pelo chocolate, também o nosso idealismo deixou marcas duradouras na geração seguinte em termos de desagregação familiar e alienação.

Pelo contrário, a geração atual é materialista nos seus desejos (sejam eles roupas de marca, viagens, etc.) mas é idealista ao pensar que o consumismo é um direito que deve ser assegurado pelo estado ou pelos pais. Se, como nós, vier a aprender por experiência própria que tal só se conquista com trabalho será a evolução natural das coisas. Porém, se tal como no passado, a sua ânsia for explorada por demagogos com fins revolucionários, acabará por cair num dos conhecidos abismos anticapitalistas - sejam eles do tipo comunista ou fascista.

É neste sentido que os Espanhóis correm perigo com o partido “Podemos”. Quais são os objetivos deste partido:

1) Assembleias de cidadãos, i.e. democracia popular - todos sabemos como essas experiências acabaram em ditadura na Rússia, Coreia, Espanha ou Cuba;
2) Recuperar a economia, quem não quer? A questão está em como: através do mercado ou, como eles deixam antever, através da coletivização cujos resultados são sobejamente conhecidos;
3) Conquistar a liberdade, de quem? Já vivemos numa sociedade livre;
4) Conquistar a igualdade, de quê? género, direitos, deveres, rendimento ou riqueza? Todos sabemos como acabaram as Revoluções Francesa e Russa;
5) Recuperar a fraternidade, como? Quando o partido defende mais promiscuidade e menos família e cerca de metade da população já depende do estado social;
6) Conquistar a soberania, a que nível? Local, regional, nacional, continental ou global. Para quê? Para acabar com a União Europeia, que tanto custou a criar, e voltar aos nacionalismos que tantas guerras fomentaram na Europa;
7) Recuperar a terra, para quem? Parece que desconhecem o desastre da reforma agrária no Alentejo ou a experiência de Mao que matou milhões de Chineses à fome.

Em conclusão, a juventude deve olhar para este programa e dizer:

Sim, podemos! Mas não queremos!
Não queremos voltar a ser escravizados!
Não queremos destruir a União Europeia!
Não queremos demagogias!

Tuesday 4 November 2014

About limited liability and capitalism

Limited liability can be broadly defined as the legal protection that limits the maximum amount a shareholder or company participating in a business can lose or be charged in case there are claims against the company or its bankruptcy. Liabilities may be personal or corporate and can result from damages caused to third parties or from debts.

The liabilities that need to be limited in a capitalist system are those of firms in relation to their creditors. This type of protection may vary depending on the nature of the legal form used by the company. For instance, a limited partner can only lose his/her investment, but a general partner may be responsible for all the debts of the partnership. Or, parties to a contract may limit the amount each might owe the other, but cannot contract away the rights of a third party to make a claim.

Why is limited liability so important under capitalism? Because it allows the combination of the entrepreneurship indispensable under a capitalist system with the prudence necessary to protect the savings of investors and the development of joint private ownership. Moreover, it facilitates smoother and faster bankruptcies. So, why it took so long to be legally accepted?

The concept of limited liability can be traced back to the Romans, but it was rarely used. In the beginning there were many who considered the idea of limited liability a bad idea, because it was traditionally seen as a sign of weakness and lack of commitment among the part owners.

So, the first modern limited liability law was only enacted by the state of New York in 1811. In England, under the Joint Stock Companies Act of 1844 investors still carried unlimited liability but it was later abolished by the Limited Liability Act of 1855. Nevertheless, the extension of limited liability protection to partnerships only took place in the 1990s. Today, in the rest of the world, there are still many countries where the concept is either ignored or misunderstood.

Within the common law legal systems there were also some who did not oppose limited liability per se but condemned the fact that such privilege was granted by the government. For them, if limited liability was really needed a market for credit insurance and guarantees should be left to develop instead of a legal protection. Such markets did in fact developed but mostly only for international issues and trade where enforcing collections would be more difficult.


Indeed, under the principle of the freedom of contract the parties should be able to choose whether to ask for personal guarantees or to buy protection against the risk of default rather than be forced by law to accept limited liability. However, this would undermine the objective of fostering prudent entrepreneurship and the pooling of capital through joint stock companies which are fundamental under capitalism. This rationale applies only to joint responsibility under the various forms of incorporation, but not necessarily to personal or professional liabilities.

Professionals like lawyers, doctors, accountants and others are prevented by law and ethics from limiting their liability. The argument is that the accreditation of such professionals is not enough to assess the liability risk of their acts and therefore they must be personally responsible for their decisions so that they always make the decisions carefully. In such cases they may opt instead for buying an insurance policy.

Unfortunately, in some countries the definition of professional liability has been abused to make the protection afforded to firms by limited liability void. For instance, Portugal, in a clear violation of the principles of the rule of law, has introduced legislation allowing the tax authorities to seize the personal assets of corporate directors to offset unpaid corporate taxes.

Limited liability provides a strong discipline for both creditors and debtors. Since credits are secured only by the limited assets of the company, lenders must be more scrupulous when assessing the creditworthiness of the borrowers. In turn, this greater scrutiny forces borrowers to be more careful in the assessment and selection of investment projects. The reverse side of this process is that by not relying on personal collateral the volume of debt financing is lower which in turn may limit investment and capital accumulation. Moreover, as long as lenders rely on the future rather than the past value of collateral, the amount of leverage used may be counter-cyclical as they facilitate lending when prices are high and restrict it when they are low.

Yet, overall, these offsetting effects are not enough to reverse the tremendous rise in the role of equity and credit necessary to finance the level of sustainable capital accumulation experienced under capitalism with a rise in small and big firms alike. For instance, between 1860 and 1914, the share of British government bonds of the total market capitalisation of securities in London declined from 50 to 5%, thanks mainly to the rise of equities

Although active markets for risk sharing through derivatives and guarantees have been a positive development in modern capitalism they cannot be a substitute for the limited liability protection. Likewise, the bankers’ desire to protect secured lending by asking for additional personal guarantees should be resisted not only by borrowers but also by regulators to keep the benefits of limited liability.

In conclusion, while liability insurance markets can ease the risk of unlimited liability, the financing of private enterprise and the rise of shareholding ownership is not possible without limited liability. Therefore, limited liability constitutes the sixth pillar of capitalism. And, not surprisingly, some have argued that its unnamed inventor should rank as high as the other inventors credited with the industrial revolution.