Business school has been making me think a great deal about the mismatch between our economic institutions and the actual practice of business. There are many aspects of this which I plan to explore over the summer but one aspect of this is the apparent glut of capital and other goods written about Nick Bunker in this post.
I have to confess, I find the concept of a global oversupply of capital to be incoherent. It can certainly be the case that a nation, or an individual, has more capital then they can possibly use efficiently. But the globe as a whole? How could this be?
The answer, of course, is that its a problem of distribution. If poor people had more capital they would use it more efficiently than rich people that have capital. A poor African like I saw in Zambia could trade their traditional hut with no plumbing for a house with plumbing, let their kid go to school, or possibly invest in a small business. If they had it, they'd put it to good use. Meanwhile, we have a global capital glut because the capital is in the hands of rich folks who are more interested in preserving their capital than putting it at risk. Want to solve the problem? Get it out of the hands of those who don't have a current use for it and into the hands of those that do.
In the context of property rights, I am beginning to see the transition from the feudal era to the capitalist area largely in terms of providing institutions which caused capital to flow from those that sought safety in the form of land to those that were willing to take risks. Our current business friendly regulatory environment has resulted in a social context that is beginning to look more like the feudal era, capital is concentrated in large, mature, stagnant enterprises controlled by people whose goal is to minimize risk rather than maximize growth. If we want to jump start growth we are going to need to rewrite our property laws to get capital back in the hands of risk takers and out of the hands of those that currently have it.
Never thought business school would radicalize me the way it has, but there you go. More on this to come.
*Meant to add an analogy. I don't see how the global glut of capital is any different from America's glut of food. There are lots of starving people that would benefit greatly if we could deliver our excess food to them. However, the infrastructure, institutional and physical, is not present to deliver this bounty to them. The problems don't lie with the quantity of produced goods, they lie with institutions meant to deliver them. Fix these and you fix the problem. Of course, like with the glut of capital, the current situation benefits a lot of people and they don't want them changed.