Friday, March 25, 2011

Democracy and the Wealth of Nations: A Simple Question of Values

The study of economics today fails to attribute the catalysts of economic development to a crucial combination of human qualities that nurtures a conducive ecosystem for prosperity. What is it that has caused certain peoples in a country to work hard, save and be endowed with entrepreneurial talent? To answer this, we need to look into the psychological mindset and expectations of individuals.

The Individual or the State?

Economists have attributed the rise of modern capitalism to several factors such as the market economy, the utilitarian values of the 19th century or the Protestant ethic. However, they fail to see that behind every burst of economic activity and every technological innovation, is a radical change in the mindset of society. This change is a shift in the social perspective from a culture that puts society’s interest above the well-being of the individual to one that puts the individual’s well-being above that of society.

Which is more important? The individual or the state? Does society exist to serve the individual or does the individual exist to serve society, nation, community or government? The answer is simple: if the individual’s life is finite and death is the ultimate end of the individual, then society and civilization is more important because it will easily outlast human lives. However, if the individual’s soul is eternal, then it is infinitely more important than society, which should rightfully exist to serve man. And this is the foundation of every democratic constitution.

The rise of American capitalism stemmed from a personal strong conviction that all men are born equal and each individual can and should be given equal opportunity to raise his/her economic and social circumstance.

At its best, the free market economy facilitates the individual spirit of enterprise and innovation. At its worst, individualism does lead to a hedonistic society where the rich indulge in ostentatious or unproductive lifestyles while the struggling middle class compete to keep up with their neighbours and peers.

But how do we explain the economic dynamism of Asian countries like China and India where the individual is considered as subservient to society? Social scientists from the West are prone to make the mistake of viewing Asians as placing the community’s interest above the individual’s interest. On the contrary, the typical Asian views the family as an individual unit and upholds the well-being and rights of the family above that of the state/society.

If this were not the case, then Communist China’s transformation into a market economy would not be possible. The economic and social revolution of modern China boils down to many factors but one of the crucial catalysts is this change in the mindset of the people that they can work to improve their economic status. In other words, the well-being of the family (i.e. individual) is as important (officially) if not more important (in practice) than the objectives of the Communist state.

China’s adoption of the free market economy paved the way for the individual family to assert its rights to economic and social progress.

(The gradual opening of the Chinese economy under Deng Hsiao Peng - who was quoted to have said it does not matter whether a cat is black or white as long as it catches mice - in the 1990s paved the way for China to join the World Trade Organisation in December 2001. That landmark event further opened up trade opportunities and helped the country to solidify China's position as a cost-competitive factory for the world.)