Chaotic Order – The Economic Relativity

Abstract

A philosophical analysis on economic relativity is provided by philosophizing the dynamic reasons behind chaotic
orderliness in any sizeable economic system. The examples of economic
development in China and Eurozone are discussed to demonstrate how economic
relativity would affect economies in apparently very different situations. The
vital and subtle role of fairness in economy is also discussed in this writing.

Key words
 

Economic relativity, fairness, communism, capitalism, China, Eurozone

Introduction

There have been huge number of writings on the topic of chaos and order, and thus it is
necessary for me to clarify the meaning of chaotic
order in this context before any further discussion.

About 30 years ago when I took the "Chaos and Nonlinear Dynamics" course, the first
class was started with the Baker's transformation. Although much mathematical
complexity has been attached to this issue as the name itself might attest, the
so called Baker's transformation has a simple and clear practical background
from our daily life. When a Baker works on a dough in a traditional handy way,
after a few times of repeated rolling (stretching) and folding, the flour of
the dough would be irreversibly very well self-mixed[1].
A good testimony of this is that if he add a teaspoon of salt at one spot of
the dough at the very beginning, after quite a limited number of above
mentioned operations, the whole dough would become equally salty everywhere. Here
what is relevant to the sense that people would share with the word chaos in everyday life is the disorder or randomness in the sense that after a few handy operations the
distribution of salt completely loses its initially recognizable spatial
orderliness. But what draws special interests of scientists about this chaotic issue is the fact that it only
takes very limited (instead of unlimited as might be previously conceived a few
centuries ago) number of well defined operations to make an ordered system into
a completely disordered system, which they call as deterministic chaos. To add a little more scientifically salty
flavor to this deterministic chaos, we might want to point out that as we could
not predict the exact position of each salt particulate in a dough during the
baker's operation, in general, deterministic chaos is referring to processes
that are the deterministically generated but with unpredictable details.
Furthermore, although the final salty equilibrium of the dough is obvious, in
general, the end state of a nonlinear dynamic system that exhibits some chaotic
behavior could be very sensitive to the initial condition and thus
unpredictable.

About thirty years passed, the writing of this article brought me back to the deterministic
chaos again. While it might sound much closer to everyday life (especially to
nominally random and unpredictable economic events all over the world) than some
other mind changing scientific discoveries fashioned in last century, such as
relativity and quantum physics, chaos theory seems still very much remain as a
fancy ivory decoration in scientist possessions. Even though chaos theory does
unarguably provide valuable insights into the dynamics of Nature, after
countless number of new literatures have been added to those familiar jargons
such as strange attractor, bifurcation, fractal and so on[2],
it is somehow a disappointment that not much practical fruits have been reaped
from this golden tree[3]
^{and [4]}.

This practical infertility of chaos theory brings up an interesting philosophical issue. As Wittgenstein
stated[5],"Philosophy is a battle against the bewitchment of our intelligence by means of our language. " The
philosophical issue behind this practical infertility of chaos theory is indeed
a language issue in the first place; and thus we might first look into this issue from its language perspective.
 

Regardless its sophisticated academic meaning, the scientific term chaos
obviously has its origin from the casual usage of chaos in our daily life. The
fundamental reason that people did not choose harmony or order or
anything else but choose chaos
instead as it is used in chaos theory is clearly related to the ordinary
meaning of the word. More specifically, the reason that makes scientists
believe that they could help to solve social issues including financial or more
general economic problems clearly has its linguistic cause: one would describe
social issues as chaotic for its highly disorderliness and unpredictability,
without the need to know anything about chaos theory. But on the other hand, in
their scientific contexts, professional scientists have been constructing the
so called chaos theory by using the word chaos
in a much narrower sense with some quite strict restrictions.
 

Now we see the clash: the temptation of applying chaos theory to solve complicated real life
problems and the limited applicability of the theory itself. The temptation is largely
due to the linguistic implication that this (ordinary) chaos is that (scientific) chaos;
but whenever people wants to apply the theory to real life issues, they would
clash with the incompatibility between the real life chaos and their
theoretical chaos. Nonetheless, the temptation is extremely high, not only
because so many great scientist names have been attached to the theory, but
also because the great mathematical beauty that has been displayed from all the
works that could be titles as chaos theory. Because of this great temptation,
we have witnessed a very interesting phenomenon that people have spent decades
not for applying the chaos theory to solve problems but for finding problems
that could be a good fit for the chaos theory. However, the intrinsic
linguistic clash between the real life chaos and the scientific canonized chaos
has led to a huge disappointment so far for people who have been struggling to
bring up some practical fruits of theory.

If we have enough faith in the unity of truth, then we might need to believe that the
beauty we have seen so far from chaos theory should be a reflection of
something deep in the general nonlinear world, which warrants some continuous
efforts on bridging the theoretical beauty with everyday life reality. But on
the other hand, we should also take the hitherto practical infertility of chaos
theory and the knowledge about the related linguistic clash as an alert that we
might not have a good enough understanding about what is behind the word chaos for its most fundamental meaning as perceived by
human beings throughout the history.

As a matter of fact, since the pioneer work of Edward Lorenz[6]
on butterfly effect, the philosophical impact of the chaos theory upon human
civilization has much exceeded its mathematical advantages for practical
problems. The general nonlinear nature of this world and its long term
unpredictability due to its sensitivity upon initial conditions has become a
common knowledge even for high school students. This common knowledge, like
relativity and quantum physics, has fundamentally altered the world view of average
people, and is an important reason for many to forfeit the reductionist way of
thinking which was once to be the norm in western philosophy. Similarly, people
would no longer consider the stochastic
process as the only reason for the disorderliness in nature.

Nevertheless, philosophy and specific sciences are functioning in quite different ways. Philosophy
changes the way of thinking, no matter for grand ontological questions or for
detailed personal life management concerns. Therefore, even though throughout
history people have witnessed countless cases when profound philosophical
thinking could bring up direct solutions to practical problems, in general,
philosophy aims to directing the thinking in a more efficient and profound way
instead of laying out the specific protocols to get things done. But on the
contrary, verifiable protocols to verifiable outcome are generally the basic
requirement of any specific science, including the science of applying the mathematical
utility of chaos theory to solve social or natural problems.

Moreover, even though philosophy could also be characterized for the preciseness and
subtlety in its conceptual expressions,
compared to the utilitarian goals of specific sciences, philosophy is more
interested in acquiring profundity and extensiveness about the nature of
being(s). This is indeed where the true power of philosophy lies and this is
why and how the development of specific sciences could get help from
philosophy. In this sense philosophy is more realistic than sciences since it
could always reach certain type of goals while sciences, as we have witnessed in
the case of chaos theory, might be over idealistic when constructing the theory
but lack of applicability in reality.

The difficulty of making chaos theory of practical use due to the linguistic clash between
ordinary meaning of chaos and the professional scientific term of deterministic
chaos could suggest that we might need deeper and wider understanding about the
real life chaotic issues before we could more efficiently bring chaos theory to
reality, which suggests more philosophical thinking on the side of real life
problems instead of the side of chaos theory.
 

On the other hand, even though persistence on theoretical endeavor might bring up great
achievement in the future, we should never confuse ourselves by losing our
vision on the end goal of any theoretical endeavor: the real world issues.
While the knowledge of scientifically identified deterministic chaos might lead to some potential solutions for
economic problems, we should never forget that the real world common sense chaos is what makes all those
theoretical endeavor meaningful.

For all the reasons discussed hitherto, this goal of this writing would not be another
scientific discourse on how to apply chaos theory to economic events; instead
this writing would be a writing to demonstrate some dynamic nature behind the
real life economic phenomena by philosophizing through some logic involved in
economic systems. In other words, this writing is aiming at helping solving
real life economic issues instead of providing more thoughts of how to develop
chaos theory. While I believe in the long run a better understanding of the
general chaotic phenomenon would definitely benefit the effort of applying the
chaos theory to real problems, this writing itself is not coupled with any
chaos theory conclusion.

Correspondently, hereafter in this writing, the term chaos or its adjective version chaotic
would be used in its most common sense, or we may say in its phenomenological
sense, without regard to its scientific specification or dynamic reasons
according to the chaos theory. For further clarity, when it comes to economy,
the word chaos would be referring to the status (phenomenon) that the
intentions, products or consequences of economic activities of different
parties, sectors, or areas are not in synch with each other. In this sense we
might say the economy is in chaos when the general market demand could not be
satisfied by the general supply, or the general supply could not be consumed by
the general demand, and when there are enormous waste of human and material
resources as a result of daily activities in the economic system, or when many
people could not have a chance to work for living. As a synonym to chaos,
economic disorder might also be used in the text for the same purpose, and the opposite to the chaos
or disorder might be described as order in the text.

One of the key
parameters behind the degree of economic disorder and order is what we called
as interest, collective interest or
personal interest. The pursuit of interest could set the local economy into
order and the conflict of interests might drive the global economy into chaos.
This is the economic relativity discussed in this writing and the adjectives
local and global in this context are of relative sense as well. This economic
relativity determines that the meaning of a good economy would be very relative
when judged from different social positions and domains.

Although the
main interest of this writing is to philosophize the dynamics behind the real
world economy in a way similar to the methodological nominalism postulated
by Karl Popper[7],
it is understood that a relatively clear definition could be helpful for
readers to understand the discourse in the text. Therefore, herein I would lay
out the meaning of a good economy to an individual as the capacity to access and dispose resources (including material
and human resources).

Besides, a
general solution to the question like "when the economy would be
good" would not be what this writing intends to answer, not only because
the idea of getting a literal answer for such question is too much idealistic
for any academic writing for today (since for otherwise we would not have to
face the global economic crises that we are still facing to this moment given
so many Nobel prize winning economists as well as professional bankers and
politicians are trying to resolve the issue), but also because that would be
against the central theme of this writing: economic relativity.

Chaotic Order of Economy

Economic system of any sizeable region, no matter what type of economy, is virtually a chaotic
system and the only difference from one system to another is the chaotic
degree. This has been proved by historical practices around the world as we
will see from the discussion in this text. There are some common factors behind
the chaotic nature of economy and the most essential one is the conflicted
interests, which is the key point for understanding all economically disorder
phenomena. In everyday life, the expression conflicted
interests might sound very personal to people; however, it is indeed more
logical or mathematical than personal in the sense that given the limited
natural and social resources available to a social system it is mathematically
impossible for anyone to be always mutually equal-benefiting with everyone
else. In general, people would care more and act accordingly for their own
interests, which might not necessarily always be a positive contribution to the
interests of others or the interest of the common community. Based on our
previous discussion about the meaning of order and disorder, we could see that
the increase of the order of the societal economy could imply an increase of
mutual interest and thus a decrease of conflict of interests. Accordingly a
better understanding of the interest-based economic relativity could help a
better grasp of the art of reducing conflict of interests for the sake of a
better economy.

Interest based economic relativity

The conflicted interests factor has
a dual-sided effect upon the chaotic order of an economic system: each economic unit would manage to set forth its
agenda and resources in good order within its own by absorbing energy from
outside, while the competitions or irresponsible attitudes and actions between
different economic units would increase the degree of disorder (chaos) at the
societal level. Similarly, within each economic unit, there could be various
subunits, and each subunit could tend to manage around the central interests of
its own in competition with other subunits. Down to the smallest subunit of any
economic unit --- a single person, he might effort to best arrange his own
agenda and resources to serve his own best interests. As a result, an economic
system might behave similar to the water system when a river flow passing an
obstacle, which is a turbulent mass of vortices of different sizes, and within
a big vortex, there might be even smaller vortices. This would create a process
in which the energy of the main stream flow is dissipated to the energy of
vortices from the big ones down to the smallest ones. Each vortex is an ordered
dynamic structure, but the whole mass of flow is a disordered turbulence.

This chaotic assembly of ordered
units is a general picture of any sizeable economic system. Any serious study
of economic dynamics should take this general picture into consideration;
otherwise it might be misleading when attempting to define or understand the
health or the wellbeing of an economic system since from different stand points
of view we might get very different ideas about what is a good economy or what
is a bad economy, which has been the central topic of political and economical
debates.

Human beings are socialized
creatures. Based on archaeological data and historical literatures presented to
us in the public domain, we could easily see that the very reason for human
beings to have survived the natural selections to prosper was because of the
advance of social collaboration during prehistorical and early historical ages.
However, because of the conflicted interests between different social units,
the existences of others are not always viewed as beneficial to everyone in
this world. As a matter of fact, human beings have always lived a complicated
interrelationship of mutual reliance and mutual competition or even mutual
threat with each other. The fear of mutual competition is not necessarily always
about the threat from any nominal enemy who might physically hurt someone, but
rather is profoundly rooted in the scare of the lack of basic supplies of
living. In ancient Sparta, people would consider those physically weak as their
burden to discard. Even though the moral system of any modern society would
prohibit the same practices of ancient Spartans, modern people are still living
in the shadow of the fear of mutual competition from our own species all the
time.

Today team work has become a popular political jargon because more and
more people are realizing that their work could not be accomplished without the
functional support of others; however, when it comes to job security, promotion
vacancies, bonus shares, and business opportunities, people would very
naturally view others who might potentially reduce their chances to benefit as
rivals for survival. This dual attitude of human beings towards other people in
their endeavor to survive is indeed a psychological reflection of the logic
possibility regards the values of others. Metaphysically speaking, for anyone
in this world every single other co-living person has dual values: the value as
a person whom can be count on for survival and the value as a person who could
take away good things for survival. We might conceptually express the dual
values as a duplet of positive and negative values, where the positive value
refers to a beneficial contribution to one’s survival and the negative value
refers to a competition or threat to one’s survival. Then we might say that in
terms of the impact upon one’s survival, every other co-living person is
logically a duplet of positive and negative values, and the magnitudes of these
values would be determined by many complicated factors such as mutual
relationship and relative social status. Obviously, for a given person not everyone
is of the same values. The negative value of a loving person might be close to
zero, and the positive value of a savage enemy might be close to zero. When a
friend turns to an enemy, his positive value would decrease drastically and his
negative value would jump up greatly.

Very often what people consider to
be good for them might not be truly good for them, and what they consider to be
bad for them might be potentially very good for them; and thus when we talk
about personal interest we might need to be aware that there is a difference between
true interest and nominal interest, and the latter is what people consider to
be good for themselves. There are many factors that would affect the nominal
interest such as knowledge, emotional feeling, loyalty, empathy, altruism,
cultural influence, political and religious faith, and more. However, although
the difference between nominal interest and true interest might be significant
for particular events, it will not change the general relative nature of
economy as discussed in this context. This is because that even though true
interest would make real difference in life, people would normally only be
aware of the nominal interest before, during and after the presence of the
interest; they might adjust their views about the nominal interest from time to
time but those views would normally be always different from the true interest.
Therefore, people would think and act according to what they consider as their
own interest, not what hypothetically the true interests are. Even if there is
no conflict at all between the true interests of two persons they would still
view each other as a competitor as long as they think their interests are in
conflict. Only if every person would view the interests of others as his own the
nominal interests of different people would no longer be in conflict and the
conflicted interests would no longer be a psychological issue. That would be
the case of a fully altruist society which is impossible to exist due to the paradox
of altruism that if everyone only cares about others then all people are
counting on others to care about themselves.

Conflict of interests is a
universal issue among individuals all over the world. However, the interests of
different people might be closely related to each other through various social relations.
A simple example is that people in the same family would often share many
common interests even though conflict of interests within any family is not a
rare thing. As another example, personal interests are closely related to personal
social status and wealth, and personal social status and wealth is grouped into
classes in any society around the world; consequently people in like social
status or same economic classes might share many common patterns of personal
interests, which means that the so called personal interest could be a social
attribute labeling the social position of each person. Accordingly conflict of
interests could also exhibit various social marks in the sense that the
interests of different socially related groups could be in conflict with each
other.

Since conflict of interests
basically means that people are competing with each other on acquiring benefits
or avoiding detriments, fairness
becomes a fundamental issue for dealing with any social problems impacted by
conflict of interests. At the social macroscopic level, the issue of fairness
is closely related to the issue of social distribution of wealth. Production
(various types of services could be viewed as production in a broad sense) and
distribution of wealth in a society as a whole have always been two essential
factors to determine the general quality of life in a society. If we could have
an ideal distribution that is perfectly fair (if this kind of distribution
could be defined) then undoubtedly the increase of production would benefit
each individual as well as the society as a whole. But in real life with unfair
distribution, productivity alone could not be used to determine the wellbeing
of people in general. The reason is mathematically simple if we could ignore
the mutual influences between the social effects of production and distribution
and also ignore the relationship between production and natural resources plus
environmental quality. With this linear assumption, we could have a very simple
reasoning: in order to have a good life for everyone, we need to have a good
supply for everyone; but in order to have a good supply for everyone, we first
need to have a good total supply since if there is none in total there would
not be any for anyone; however, even if we have a good total supply it does not
mean that we could have a good supply for everyone since a good total supply
might be taken by a very few people without sharing with others. If the distribution
is not perfectly fair, especially when the distribution is extremely unfair,
which means that very few people could be getting most of the products but the
majority would be only getting very little, then even the increase of total
production would not necessarily result in the improvement of life for many
disfavored people.

In the above simple analysis we
ignored the mutual influences between the social effects of production and
distribution, as well as environmental resources. In real life, the social
effect of distribution might be impacted by production and vice versa. A good
production itself could become the weapon for certain group of people to take
advantages of others in the game of distribution, and severely unfair
distribution could also potentially ruin the general production in the society.
Besides, since over-production could hurt environment and natural resource
reservation, the meaning of fair distribution would also infer the fair
consumption of environmental and natural resources. Because of the imperfect
distribution, not only the meaning of economic wellbeing is ultimately
relative, but the moral meaning of a good production also becomes very
relative. Therefore, a good understanding of the impact of demand of fairness
upon the distribution rule in an economic system would be critical for a good
understanding of the economy itself.

Economic wellbeing and
fairness

I was growing up in a non-market
economic system. Like all other traditional non-market economic systems, during
the time of my childhood, good production was almost of the same meaning as
good life in the society because the distribution rule was simply determined by
non-economic concerns (e.g. ideological and political concerns). In market
economic system, production is no longer the most important concern for the
wellbeing of economy; not only the demand and supply takes the place of
traditional production in an economy because of the importance of interpersonal
transaction, but also many other factors such as the employment rate become
important indexes of the economy.

The so called market is some
physical or virtual places where people could sell what they have and buy what
they need. The term market is almost
equivalent to the term trading
because without trading there would not be any meaningful market. Forceful
deprivation, looting, systematically enforced submission of wealth by some
groups of people to some other groups of people are examples of interest transferring
ways that are very different from trading. What is special about trading is its
implication of voluntariness and accordingly the fairness behind the trading,
even though in reality trading is frequently not fair and not truly voluntary. Compared
to other forms of interest transfer, trading establishes at least a nominal
requirement for fair exchange of interests between different parties involved.
Any violation of this fairness requirement for trading could provoke explicit
or disguised protest and resistance. Therefore, the idea of fair trading would
promote fairness in an economy and accordingly set up an ideal goal of
improving general fairness in trading.

However, like many other moral
concepts, the meaning of fairness itself is very relative. People might claim
that an apparent unfairness in a particular short term issue might bring more
fairness in the long run or at a large scale, which is virtually true no matter
we like it or not. This uncertainty in fairness is often exploited for denying
the fairness to some people by the excuse of some other more meaningful
fairness. Owing to the ultimate connection between the idea of market economy
and the demand of fairness, the uncertainty in the judgment of fairness would
be inevitably reflected in the systematical practices of market economy. The
judgment about social needs by makers of governmental economic policies or
makers of real markets would in general be far short of the ideal fairness.
This, in addition to the fairness paradox which will be discussed later, would
lead to practical unfairness in any real life economy. Accordingly, even though fairness is the
fundamental idea behind the market economy and thus the selling point for
anyone who would promote market economy on this globe, the deviation from fairness
in economy is a key point for a good appreciation of the relativity of economy,
which is an important source to many problems that people have been facing to
in any economy including market economy.

The demand of fairness from the
public has always been such a social force that could not be completely ignored
and severe unfairness would hurt general market. Consequently there have been
different theories and correspondent practices around the world in history to
solve the problem of unfair distribution. Communism and capitalism provide two
extreme examples for this type of efforts. Communists attempted to reduce the
chaotic dissipation by suppressing social competitions through centrally
controlling and planning the economy; but they ended up with global economic
bankruptcy among communist countries, basically because while centralizing the
control over the system all through the social hierarchy, they undervalued or
even ignored the values and wills of the majority of individuals within the
system. As a result, all communist governments not only failed to reasonably
foresee many potential needs for running a good economy, but even failed to
mobilize social resources for positive economic construction among the majority
of their people from the very grass root to the top educated elite class.

On the other hand, capitalists attempted
to build up the global economic order by fully mobilizing social resources
through so called free market competition. However, they could not prevent the
economy from going chaotic either. The reason is simple: the benefit of any
individual person or company in an economic system is not necessarily in line
with the benefit of the whole system by and large, and thus the best interest
of any individual person or company is to pursue the benefit of his/its own,
instead of the benefit of the whole system. Besides, we would encounter the fairness paradox whenever the so called
fair competition is going on. Herein the paradox is a consequence of the
conflict between the desired precondition of the competition and the goal of
the competition. While it is always desired or demanded that any competition
should be performed under fair condition, ironically, the goal of the competition
would normally be the unequal positions among the original competitors. As a
result, the so called (pure) free market competition would not only generate
huge amount of waste of natural and social resources but also lead to a
polarization of wealth distribution among the people in the economic system.

Economic relativity
examples: China and Eurozone

The relativity of economic
wellbeing that I have discussed so far is by no means limited to theoretical
speculation, but a very realistic issue when it comes to governmental spending
and political decisions. No matter it is a democratic government or a
non-democratic government, to ordinary people, the most important common nature
of any government is its supreme power to access, collect, control, use, and
distribute material and social resources. Therefore, governmental policies on
how to collect and spend or distribute wealth among the people are of essential
importance for the wellbeing or even survival of many people in a society. But
by any means, governmental collection and spending could never be perfectly
fair; as a matter of fact, there is even no any formula to tell the government
what a perfectly fair collection and spending would be. Consequently there are
always certain groups of people who receive the most benefits from the
governmental operations and certain groups of people who are not much taken
care or even sacrificed by the governmental operations. Similarly, the
invisible hand of self-interests oriented free market could not change the
relative nature of economic wellbeing either, but in fact would be very much under
the influence of the economic relativity.

Because of the economic relativity,
what people see as a good economy from outside an economic system might be
quite different from what many people or sometimes even a majority of the
people inside the system could personally sense day to day. What most impress
people from outside might be the magnificence of infrastructure, the supply of
goods and services available in the market, as well as the large amount of cash
owned by the state or by individual citizens which could be spent inside and
outside the country. However, even if the economy has been developed to such a
stage that the purchasing power of the state and individual citizens could be
on the top of the list in the world, it does not necessarily mean that the
everyday life of average people has already been on the top of the list in the
world.

Example of China. The rise of Chinese economy since the
end of last millennium provides a very good example of how economic relativity
would affect the wellbeing of the economy of a country. The Chinese political
system turned into a hybrid of communism and capitalism in 1990’s. Since late
1990’s we have heard many predictions by many western economic experts that
Chinese economy would crash very soon. However, over the past quarter a
century, while western economy has gone into deep trouble as we are still
experiencing now, Chinese economy has grown at a quite steady pace and become
one of the top economic bodies in the world. Obviously, the wrong predictions
tell us that the Chinese economic growth does not fit into the existing western
economic models, just like what people have recently found that even the Eurozone
crisis does not fit into the classic western economic models. It is obvious
that Chinese economic success could not be explained with a flat economic view
of equal opportunities in the market or the fully rational mindset of buyers
and sellers etc. Actually since its taking off in 1990’s, Chinese economy might
be characterized by its disequilibrium or even polarization among its people.

For people outside China, the most
important reason of Chinese economic success is its cheap labor plus low
exchange rate of currency. With this advantage, China did have accumulated huge
amount cash during the past quarter a century, which enables them to transfer
China from the world factory into a mixture of world factory plus world market.
This co-status of world factory and world market itself implies the coexistence
of two opposite variables: a relatively low labor prices and a relatively high
collective purchase power. This peculiar phenomenon is a great manifestation of
economic relativity. In fact, even though the cheap labor plus low exchange
rate of currency was one of the most important driving forces for the booming
of Chinese economy back to 1990’s, if we look from within China, neither the
cheap labor nor the low exchange rate could completely represent the whole
picture of economic status of its people since not everyone was cheap and not
everyone was doing exportation. Inside China, the distribution of income and
costs has never been flat among its people during the development. Not everyone
could enjoy the sense of a good economy at the same time. As a matter of fact, at
each stage of the development the interests of certain group of people could be
the cost of the interests of some other benefited people. This is typical of
economic relativity in any economic system in the world and the only difference
is the degree of unevenness in the system; in some system the wealth
distribution could be much more uneven than some others at certain time period.
Therefore, from within China, we might find that a major driving force of the
Chinese economic booming during the past quarter a century is indeed its
economic unevenness, which is of course a manifestation economic relativity.

When some western economic experts
predicted a quick crash of Chinese economy years ago, obviously they did not
examine the size of the pool of relatively low income or relatively disfavored in
the country, whose interests were not equally served as those at economically
upper levels or favored in other aspects. Since economic relativity as I am
discussing here basically means that the judgment of economic wellbeing is
different by different groups of people in a society, the interests of certain
group of people could very much sacrificed by the economically powerful or
governing group of people in order to sustain a good economy for the main
stream or for specially favored groups. As a result, the degree of contrast
between poor and rich or disfavored and favored in an economic system could
play a significant role in determining various economic risks as well as the
rate of economic development. This is because the existence of the poor or
relatively disfavored, especially educated and trained ones provides a large
financial buffer for the economic system, which,  while also contribute greatly to the
production of the economy, would be forced to absorb much negative impact upon
the economy and thus virtually reduce the economic risk of the system. Therefore,
any effort of predicting the development trend of an economic system like current
Chinese economy must take into the consideration of this manifestation of economic
relativity.

The fact that the existence of big
contrast between poor and rich or relatively disfavored and favored could benefit
the economic development implies that without that big contrast we might face
bigger challenge to sustain a healthy development of economy. To better
appreciate this challenge from the example of Chinese economic booming, we need
to pay attention to two more facts. First of all, the hybrid of communism and
capitalism in China could be characterized as the centrally controlled capitalist
market. While it has to face the same challenge of fair trading as people in any
other market economy have to, it is much easier for a centrally controlled
system to avoid much risk for state-wise economy at the cost of the economic
wellbeing of certain group of people. (Even so, as in any economic system, the
principle of fairness would always act to battle any practice by the powerful
or rich to sacrifice the interests of disfavored for the wellbeing of others or
for the main stream economy.) Secondly, compared to 20 years ago, even though
the Chinese economy might be more polarized, but the main stream general
economy is greatly improved and the living standard of ordinary people have
been increased tremendously. This tells that even though at certain stage of
economic development the interests of some group of people could be sacrificed
because of the economic relativity, the accumulation of wealth due to the main
stream economic development could also benefit people whose interests were not
respected equally as others at earlier stages. Of course the improvement of the
socio-economic status of any group due to the general economic development does
not necessarily entail equality in its socio-economic status with other groups.
 

Furthermore, economic relativity is
not limited within the border of a single country, but is a global issue. For
the Chinese economic booming, in addition to the cheap labor cost and the low
exchange rate as I mentioned earlier, the global economic relativity is also
manifested in the great market potential created by its great population,
especially a population that is getting ever richer than before since the
beginning of this millennium.

Example of Eurozone.The Eurozone crisis provides another example of the
significance of economic relativity. Creating a greater market was the ultimate
concern to establish the Eurozone since the idea of capitalist free competition
tells that market is the key for economic growth. However, the cause for the Eurozone
crisis is also mainly a result from the pursuit of a greater market, or more
precisely, from the ignorance of the negative side of the so called free
competition in market economy. This ignorance is indeed one version of
ignorance of the economic relativity by assuming that the so called free market
competition is fair and mutually beneficial to everyone in the economic system.

 

If we could take a high level
contemplation seeing through the dazzling financial figures presented to us by
financial institutions around the world concerning the Eurozone crisis, we
could see some very obvious and simple philosophical reason that is rooted in
the capitalist market mechanism itself. Let’s reiterate two important
attributes of a capitalist market economy to facilitate the discussion here: 1)
it promotes (nominally) fair trading with a respect of private interests of the
public; 2) it encourages market based competitions. These two attributes are
commonly acknowledged by economists and many ordinary people as the fundamental
strengths that differentiate capitalist economy from other economic systems.
The first of these two attributes is responsible for producing more to this
world and the second is the key factor of rewarding the winner through
distributing the products within the capitalist market system. Because of the
free trading, capitalist economy could enjoy the greatest productivity over
human history; however, because of the competition, capitalist economy would
ultimately promote social polarization of wealth among people.

In a single country of capitalist
market economy without any exchange with other countries, the social wealth
would flow from some people to some other within that country constantly due to
the capitalist competition. As a result, without special social assistance to
counteracting this polarizing consequence, the general trend that could be
expected with common sense would be that the rich would get richer and the poor
would get poorer. During the past few centuries, one great achievement in the
so called capitalist world is the establishment of social security systems and relatively
reasonable domestic taxation systems within a democratic political framework,
which greatly helped maintaining a happy middle class so that they could avoid
getting poorer and poorer in capitalist competitions.

Now if there are two that kind
countries having international trading with each other, and one of which is
more competitive than the other in almost all economic sectors, then based upon
the previous discussion we could expect a one-directional overall wealth flow
from the less competitive country to the more competitive country. To prevent
this from happening, there are many conventional measures taken by countries
around the world, including tariffs at border, foreign exchange surcharges, or
some special taxes toward cross border international businesses, and more.
These measures function like cash dams to prevent surge of cash flow out of the
country while people could enjoy the prosperity brought by international
businesses within the country.

Now if those two countries decide
to remove any trading barrier between them and also use the same currency in
their daily life, the less competitive country would no doubt lose their
protection on the border to prevent a severe cash flow out to the more
competitive country. Then one question arises: why should we even worry about
this since all the countries have social security systems to prevent the middle
class people from getting poorer and poorer? The difference here is that the
social benefit system of every country only serves its own people while the
legal system of each country within a constitutional multi-country free market
zone (e.g. Eurozone) is demanded to protect the free market business activities
by people from all countries in that open market zone. Therefore, the two
countries of free market business in the example here would face such an
awkward situation that the competition mechanism of capitalist economy would
drive the cash flow in the grand territory of all countries in the zone while
the mechanism to counteract the wealth polarization of each country only
function within its own territory. The poor in the less competitive country
could only request help from their own government since the government of
another country is not elected by them and not responsible for their welfare,
and the politicians of their own government could not make use of the wealth
accumulated in any other country for the rescue within their own country.

Under certain economical condition,
the imbalance between the polarization resulting from capitalist competition
and the counteracting social assistance power caused by the scenario discussed
in last paragraph could potentially drag the less competitive country into
financial austerity whilst the total wealth continues to accumulate within the
grand market formed in those two countries due to the free market businesses in
that market. Then when the general market is ruined by this imbalance to
certain degree, the grand economy of the zone of those two countries would severely
suffer as well. Even though the background assumption made in this analysis is
much simplified compared to real situation in Eurozone, it does reveal the
dynamic consequence that would result from the main conditions that
characterize the Eurozone economy.

The challenge

We could see that the economic
relativity has played an important role in both Chinese economic booming and
Eurozone crisis although they are apparently two completely different cases. In
the example of Chinese economic booming, like the booming of many other
economic systems in history, the economic relativity provides a buffer to
absorb the negative impact of any detrimental happening and adverse condition
for the economic development, in addition to provide a great working power at
low cost; while in the example of Eurozone crisis, the economic relativity causes
the economic austerity due to the breakdown of the social safety net to balance
the negative effect of market economy. One common thing in these two cases is
that the interests of certain group of people become the cost of the benefits
of some other group of people.

The main difference between the
Chinese case and the Eurozone crisis case is the starting level of the average
living standard and the trend of the change of the living standard. The Chinese
economic booming started with a low general living standard. Therefore, even
though during the process the interests of certain group of people was not
respected the same as some other group of people or sometimes even be
sacrificed for the main stream economy, it would not cause much social tension
because most people don’t have the feeling of loss compared to their previous
living standard. On the other hand, the living standard of Eurozone countries
was at a relatively high level when the Eurozone was formed. Therefore, unless
their living quality could be improved, people of any group within the Eurozone
would not accept the fact that their living quality would be worsen as the cost
of the benefits of others. Furthermore, closely related to the different
starting levels of living standard, even though the Chinese society might be
financially more polarized than before, the absolute living standard of the
society as a whole is trending higher during the booming, while economic
austerity has brought the economy of many Eurozone countries into a downward
rail. This would create very different psychological consequences; the Chinese
people might see some hope of a better future regardless the present
unsatisfactory living condition, while people in Eurozone crisis might feel
pessimistic about the future, which would obviously have very different impacts
upon the social stability and very different impacts upon the economies.

Here comes the challenge, since
sometimes the sacrifice of the interests of certain group of people could be
benefiting the so called main stream economy, should people exploit this
advantage and attempt to maintain a big pool of poor or disfavored for the sake
of the wellbeing of the grand economy?

As a matter of fact, even though
people might not be well aware of the philosophical reason behind the economic
relativity, to use a large pool of disfavored or poor to benefit the wellbeing
of favored or rich or the mainstream is a human practice with thousands years
of history. Theories of maintaining low living standard of poor so that they
would not demand much and thus would not cost much is nothing new but familiar
to the rich around the world thousands of years ago. Even in the so called
market economy, shrewd bosses know how to and eagerly do their best to get the
most from their employees with lowest compensations. This means that people
have been practically exploiting the apparent advantage of maintaining a pool
of poor for what they think would be beneficial to their own wellbeing or to
some imaginary societal wellbeing. There have even been the depopulation
conspiracy theories that if only a small percentage of the population left on
this globe then they would be much more prosperous with all the existing
natural resources and human knowledge, which is some renewed global version of
ancient Spartan way of thinking.

The cruel fact is that no matter
how terrible the economy is at certain stage, there is always at least one
chance for it to get better, not through more efficient operations for the
existing market, but at the cost of the interests or even the survival rights
of some people in the society. Even though this might sound foreign to many
people, but there have always been some people who not only know it but really
count on it. This means that, opposite to what many people assumed in their
daily thinking, the goal of good economy is not virtually in line with the principle of fairness, which is the
cruel meaning of the economic relativity.
This shares some similarity with the up and down of stock market. Over the
history there have been quite a few times when some major stock markets crashed
but the global market has always found its way to get back. However, what
people usually tend to forget quickly after the stock market recovers is that
how many people could never get back to their original position due to the
previous crash, especially those who has ended their life as a result of the
crash. The full scale game of real life plays in a similar but sometimes much
more cruel way. So much often the recovery of an economy signifies not only the
end of a period of bad economy, but also the end of previously better life or
previous prosperity or even rights of living of some people who have been
either the victim of the bad economy or the cost of the recovery to the new
economy.

Based upon our understanding of
economic relativity, if we come back to look at the example of Eurozone crisis
again, among many other potential options, we might see two logically viable
possibilities for the Eurozone to get out of current crisis: 1) establishing centrally
administered taxation across the zone, which would be used to help the less
competitive nations in the zone so that the imbalance caused by the relative
differences in competitiveness across the borders would be reduced; 2) to make the less competitive countries more competitive
by restructuring their economy to be the exactly same as those more competitive
countries, which would also reduce the above mentioned imbalance.

If either of the above 2 efforts could
succeed, it could possibly solve the Eurozone crisis. However, since among the
essential elements of an economic structure are the wealth distribution and
social relationship, and also since every existing economic structure in this
world is bound to the existing life style related culture, a recovery by a
quick restructuring of economy might need to come at the cost of the interests
of certain group of people, which indeed echoes what happened in China when
their economic booming started a quarter century ago.

Now the question is that even
though there is utilitarian benefit for the economy by maintaining or even
creating a pool of disfavored or poor and it has been a practice for thousands
of years to exploit this advantage, should the majority of this world endorse
this type of practice for the sake of the main stream economy? To answer this
question, each person should ask himself another question whether he would like
to be the cost for the wellbeing of others or for the main stream economy or
not. If his answer to that second question is “No” and he believes in the
fairness principle, then he might also need to answer “No” to the question
whether the majority of this world should endorse the practice of taking the
advantage of the unfortunate for the sake of the main stream economy.

As a matter of fact, a “Yes” answer
to the above question violates the fundamental idea of fair competition and
fair market behind the idea of so called market economy, and thus in the long
run would ruin the advantage provided by the trading-based market economy and
hurt the economy itself as we have seen from the example of Eurozone crisis.
Besides, it would be very hard to maintain a disfavored group while ensuring
that their living standard would continue to improve when the economy develops
as what happened during the past quarter a century in China. Therefore, it
would be very risky for the economy in the long run to have a “Yes” answer to
the above question.
 

However, even though it might sound
simple to answer “No” here, practically it is not simple at all and most
probably people would actually take a “Yes” position for various pressing
concerns no matter what they might think with their conscience. This is because
so much often the answer of “No” here might practically entail a bad economy to
everyone or at least to the so called mainstream of the society, and thus to
protect themselves, people might have to violate their own believes in fairness
and to choose a “Yes” position to agree to sacrifice the interests of some people
for the sake of the interests of their own or for the wellbeing of the main
stream economy.
 

On the other hand, the danger for
answering a “Yes” to above question is also very clear to most people that once
the majority of people could tolerate social unfairness collectively for any
reason, anyone of them could potentially be the next future victim of what they
endorse currently.
 

Therefore, the economic relativity brings
up two different but related goals for human civilization: 1) having a good
economy in the society which everyone could potentially enjoy; 2) ensuring that
each one of the society would not become the cost for the benefits of others or
the mainstream society. The real challenge is to make these two ethically
supposed to be consistent but practically often inconsistent goals to be
consistent or at least as much consistent as possible. This is equivalent to
make a globally chaotic system of locally ordered units more synchronized or
less chaotic for the society as a whole.
 

However, due to the economic
relativity, even though it would be nice and beautiful that we could still
believe in the theory that a really good economy should always be an economy
that maximizes the fair treatment of people in the society, unfortunately,
people might not have the luxury to prove this theory with real life data when
they need to bring a bad economy back to track if they don’t really know how to
maximize the fairness with a really good economy. In other words, when facing
to the economic relativity, a good will of being fair is not enough for sustaining
social fairness; it needs some better knowledge including better knowledge
about how economic relativity and fairness impact the market economy to help
people to prepare for the fair and good economy in advance.

A myth

The ignorance of economic
relativity might lead to some popular myth in public life. One example is the
myth that the more the employers earn the more they would spend for their
hiring and their payment to employees. This myth is often cited by some
politicians to support the argument that in order to boost economy the first
and utmost governmental economic task should be to help the employers to
acquire more capitals so that they could hire more and pay more to their
employees. It would be nice if life is so simple. Unfortunately, this is quite
a wrong assumption. The ultimate concern of the self-interest driven employers
in general care most about their own earning instead of the living status of
either their current employees or some potential employees in the market. Even
though there might be some generous employers (at least under certain
circumstances), but in general, employers would hire more only if that would be
good for the business, and pay more to employees also only if there is some
specific reason for them to benefit from the higher payment. Higher profit or
higher earning does not necessarily entails the need for the employers to hire
or to pay. There are plenty of examples in the history that big or small
companies share the fruit of higher earnings only among owners or the high
management team but not with ordinary employees, which is indeed a manifestation
of economic relativity.

Closing words

When people in the field of natural
science are claiming that “Philosophy is dead” philosophy is and would continue
to be reviving in the realm of social and economic sciences. The reason is
simple that social and economic systems are open systems with virtually
unlimited dimensions and highly nonlinear constitutive relations. Although the
advance of technology and the avant-garde methodology might provide some
beautiful curves with electronically collected or calculated data for social
and economic issues, we might find that the narrowest bottle neck for any data-based
analysis is the lack of knowledge about the dynamic nature of any social and economic
system. Even though I would not comment much here on the saying that philosophy
is dead even in natural science, I would like to emphasize the above mentioned
difference between natural science and social-economic sciences because this
difference determines that, instead of working with well defined parameters and
well established formula as well as data collected from field or calculated
using those formula for those parameters as in natural science, in the area of
social and economic sciences, abstraction of proper parameters and discovery of
right formula is still a critical task for people to have a better
understanding of the subject at current stage.
 

This indeed warrants an important
role for philosophizing in social and economic study even at this electronic
and information age with advanced mathematical tools. Compared to application
of any new technology or avant-garde methodology to reveal the inner pattern of
social and economic dynamics from collected data, it would be much trickier and
more challenging to construct an abstract framework with limited dimensions so
that we could collect the data in a more meaningful way for social and economic
study, which means we need to have a better understanding of the abstract dynamic
relationship involved in social and economic processes. This is the job of
philosophical analysis and it is what this writing is aiming to contribute to.
 

The ultimate concern of all economy
related studies and practices is to help build a good economy or to avoid a bad
economy. Therefore, the meaning of a good economy is not only of theoretical
importance but also is essential for decision making and action taking in any
economic practice. However, as we might see from the discussion of this writing
that the judgment of a good economy would be ultimately affected by the
economic relativity, and accordingly fairness should be treated with a great
care to maintain a healthy and balanced market. Of course, economic relativity
and the relevant social fairness is a big subject about very complicated issues,
and thus the current discussion could only cover the very rudimentary aspects
of the subject.

[1] Chaotic Dynamics: An Introduction
Based on Classical Mechanics By Tamás Tél,
Márton Gruiz, Cambridge University Press, 2006

[2] The Impact of Chaos on Science and Society, by Grebogi,
Celso, Yorke, James A, United Nations University Press, 1997

[3] Chaos Theory and its
Application, by Haim H. Bau and Yochanan Shachrnurove, December 2003.
University of Pennsylvania: Center for Analytical Research in Economics and the
Social Sciences Working Paper. URL: http://www.econ.upenn.edu/Centers/CARESS/02-02.pdf
12/03.

[4] Chaos Theory and its Importance and Applications in Economics, by Levent
Baykan Bayar, 2005. T.C. Marmara University, Institute of Social Sciences, Department
of Economics. URL: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.114.6606&rep=rep1&type=pdf

[5] Philosophical
Investigations, Ludwig Wittgenstein, § 109

[6] Deterministic Nonperiodic Flow, by Lorenz, Edward N.
(March 1963). Journal of the Atmospheric Sciences 20 (2): 130–141

[7] The Open Society and Its Enemies, by Karl Raimund Popper, Routledge, 1945