Investing in a vertical society
Investment in a society where organic communities are lacking can be a weird mixture of opportunity and owe inspiring risks. This is largely because all invested wealth needs to go somewhere to be reproduced by capital into a newer form of product, only to enter the investment circle later. When organic community exists in a society, members of each community engage in labor of divided roles and exchange their labor input for gains in monetary or socialized forms. The increment in the value of their labor-output products then can crystallize into fluid capital beyond the support of livelihood. Gains flow within or between communities, as long as these communities are also connected with one another through the division of labor and their generalized social exchange is long-term and ultimately reciprocal. That means the flow of wealth may be temporarily or within a limited length of steps appear to be unidirectional, but through other forms of social exchanges the wealth of the original distributor will be recompensated and flew back to the first community that originally produced the products.
The very distinct nature of social exchanges buttressed by more than one organic community lies exactly in its connectedness and reciprocity. Capital market in the high age of financialized capitalism may disregard the human actors involved in various securities exchanges, still, fundamental analysts implicitly or explicitly assume that price deviation from the underlying labor-production-profit rhythm will recorrect itself gradually and return to the mean of productivity. Yet, only human labor produce goods. At the very minimum, natural goods or endowment need a non-zero input of human labor proportional to its total value to be transacted and evaluated in the capital market. Institutional economists and economic sociologists had discussed sufficiently the necessity of human actors in even the most automated financial market.
It may help visualize the consequence of the lack of organic community in a market by juxtaposing two extreme examples with historical foundations. The Chinese market is highly centralized and controlled by a planning and rational bureaucratic system. Organic communities have consistently been a target for elimination under most unified regimes. Historical experiments aimed at weakening organic communities and preventing the aggregation of local communal powers have resulted in increased taxation to fund the large bureaucracy which exactly resulted from the need to re-appropriate the organization of local population services after local powers have diminished by the same centralization policies. Scattered small families that entered into union by economic consideration first and kinship second form the foundation of such centralized society that received vertical governance through layers of well-functioning bureaucratic cadres. As opposed to organic communities and also distinguished from Durkheim’s mechanic communities, which arise out of the connection between functionally homogenous individuals, I call this type the “vertical community”. Whereas both organic and mechanic communities retain qualitatively strong enough connections and solidarity between their own members at the same grass-root level, connections in vertical communities are attached to a higher-level authority from the bureaucratic layer and report only to the above. Of course, this is an ideal typical scenario taken to the extreme. But compared to both the feudalistic features of medieval European estates and the voluntary associational federalist local organizations of the United States, Chinese societies in pre-modern empires and the current bureaucratic socialist regime adhere more closely to features described for a vertical community.
While financial institutes in societies with recognition of the legal status of local self-organized entities impose certain levels of administrative rights and levy rents in the forms of management fees and proceedings, they largely mediates the existing connection between members and entities of different organic communities. Not so in a society where organic communities are largely eliminated and only small households formed out of economic interests over moralistic bondages persevere. Purely atomic and scattered households may act out of pure rational instrumental motives and participate in an exchange market abiding with the long-term equilibrium. Such as libertarian paradise should not be confused with the vertical communities. Atomic actors or households in a vertical community do not act directly with each other, nor do they find other actors responsible for any interactions based on the principles, as found elsewhere in organic communities, developed eventually by repeated collective bargaining and trial. Instead, actors in vertical communities have the tendency of reporting and resorting to the administrative bodies above them. Financial institutes designed by the administrative system do not function as mediator or a platform that facilitates and manages the exchange between local actors, they rather are governing vehicles set aside by the administrative bodies to help organize and promote the financial wellbeing — to say it in a very positive tone — of the local individuals.
Therefore, for a money economy, where we for the sake of simplicity assume that all labor products are executed and exchanged in monetary form, wealth in vertical communities do not actually flow directly between individual actors or between communal entities such as families, kins, churches, tongs etc. Wealth flows through the intermediary governing agents affiliated with different levels of the bureaucracy. A key feature of these agents is they are all, at least in theory, centrally managed according to minute legal-rational procedures. As with all bureaucracy, this centralization does not necessarily imply efficiency and accuracy. Bureaucrats and technocrat agents behave with in their mind the very principle of procedural justness and accountability, rather than efficiency and justice. It becomes increasingly impossible to invest in a community as it more and more approaches the nature and structure of a vertical organization because these non-self-organizing entities do not spread and grow the investment through connections and trust between organic communal members. Instead, investment inevitably goes back to the hands of the bureaucratic governing agents.
Investors in the Chinese market profited greatly during the first decade of the 21th century not because the Chinese market had adopted any free-market principles or, as liberal globalism shill advocated, that the Chinese society was opening up and liberalizing. To the very contrary, these early investors were able to profit just because the Chinese market at the time was driven up and heavily invested with state capital by the administrative bureaucratic body, and these early investors were rightly jumping onto the same wagon directed by the central government of China. Although a large portion of the industrial sector of China was closed to foreign investors, local liaison investors endowed with governmental connections (vertical in nature) were able to change hand and let the capital flow into foreign capital market. Lay retail investors in China circulate the common wisdom that one should follow the steps of the state to invest, or “buy the fortune of the state”. Investment in sectors that make money directly or primarily from the consumers and the mass local communities is thus a bad idea because that is not where capital is circulated. In general, risking the capital market of China has always been a bad idea for retail investors, unless you are hedging the US equities, whose correlation with CSI300 has become less than moderate lately.
