Chaotic Order – The Economic Relativity

For the past decades there have been many 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. Around 30 years ago when I took the "Chaos and Nonlinear Dynamics" course, the first class was about 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 indication 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 of 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 obviously foreseeable, 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.

Almost thirty years passed, the writing of this article brought me back to the subject of 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 futility 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 futility 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 strict 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 which might involve some mathematical measurement.

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 with some strict mathematical specification. Nonetheless, the temptation is extremely high, not only because so many great names of scientists have been attached to the theory, but also because of the astonishing mathematical beauty that has been displayed from the works that could be titled as chaos theory. As a result 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 mismatch between the real life chaos and the scientifically 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 futility of chaos theory and the knowledge about the related linguistic mismatch discussed above 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 stop choosing the reductionism, which was once the norm in western philosophy, as the only way of thinking. 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 for 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 practical use of chaos theory due to the linguistic clash between ordinary meaning of chaos and the professional scientific term of deterministic chaos could tell 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 further 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 value 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, the 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 do 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. For this very reason, a general solution to the question like "When the economy would be good?" would not be intended to answer by this writing, 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 that 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.

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). Accordingly if everyone in a society could enjoy a good capacity to access and dispose resources then the people in that society are enjoy a good societal economy.

The chapter structure is therefore as follows.

Section 2, "Chaotic Order of Economy" introduces and discusses the fundamental dynamics behind the economic relativity. It is further divided into four subsections: "Interest based economic relativity" in which economic relativity is introduced and discussed in terms of the idea of conflicted interests; "Economic wellbeing and fairness" in which the relationship between economic wellbeing and fairness is discussed; "Economic relativity examples" in which the example of Chinese economic development and Eurozone crisis issue are discussed to demonstrate the universality of economic relativity; and "The challenge" in which the ethic and economic challenges brought up by economic relativity is discussed. This is followed by Section 3, "A myth" in which a common linear way thinking that might mislead people to ignore the economic relativity is criticized. And finally the Section 4 concludes the whole writing by reiterating the importance of philosophical thinking in dealing with the economic challenges we are facing today globally.

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 the empirical knowledge we all know 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 (e.g. a private corporation) 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 would 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 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 attitudes 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, jealousy, greed, 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 subjectively 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 for 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 throughout 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 end 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[8] 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 of 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 cold 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 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 making 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.