Counter Economics

Introduction

The term capitalism is often applied as a blanket term that connotes a positive view on any structure that concentrates economic power. Unknown to many that use the term, all economies are mixtures of capitalistic and socialistic structures, regulations and social programs. A free market solution is not applicable to many if not most situations to which it is commonly applied.

What is Capitalism?

In order to think clearly on this most politicized of topics, its important to dispense with the concept, highly touted by power structures, that there is one form of capitalism. Countries around the world follow capitalist principles and policies. This fact does not make them all identical. For instance a capitalist system can be:

• Highly or lightly regulated (i.e. the US in the 1970s, or the US in the 1990′s and 2000′s)
• Highly concentrated in economic power (i.e. Brazil) or have decentralized economic power (i.e. England)
• It can have high levels of taxation (i.e. the US) or low levels of taxation (i.e. Singapore)
• It can treat its workers very poorly (i.e. Indonesia) or well (i.e. Australia)

The concept that there is one form of capitalism and that the US expresses the perfect form is either naive or intended to deliberately mislead. This one size fits all dogma would be rejected in other areas of social studies, but has gathered acceptance in the main stream media. Instead, a reasonable person should say that capitalist systems are a combinations of continuums as those listed above. There is no one single measurement that can be used to define a country as capitalist.

US as Perfect Capitalist System?

Virtually unknown to many, US has ranged between different regulation levels and different levels of economic concentration all while following what most people consider to be a capitalist system. However, the US system is far less capitalistic than most people imagine with large public subsidies for specific industries, high levels of protection for things like agricultural goods and a public sector that is somewhere between 35 and 50% of the overall economy (depending upon how you measure it, such as whether you include deficit spending, etc..). A period which is greatly lauded in conservative lore, the WW2 period witnessed a government take-over of many industries as well as price controls as rationing. This is not unusual as wartime economies increase the central planning in the economy as well as its industrial concentration.

Capitalism in the US in the Modern Era

Starting with the Reagan Administration and continuing to the present day (2007) the US has moved towards a philosophy of:

• Very low regulation
• High concentrations of economic power (as well unchecked monopolies which are allowed to merge with virtual pre-approval by the Federal Trade Commission).
• High levels of taxation (especially if deficit spending and regulatory transfer of monies to the wealthy are included)
• Declining treatment of workers

The US now finds itself with moderately high taxes, very high budget deficits, and an only marginally effective regulatory system. Putting aside concerns about whether this is good for the country for a moment, the US has moved and is moving from one modality of capitalism towards another modality of capitalism. Both modalities are capitalist, but the outcomes for the country are very different. The problem is that this second modality been tried in multiple places and in multiple times and has never proven productive nor conducive for a democratic society. Surprisingly, (to many conservatives) it is also not conducive to economic growth.

Regulation

Insufficient regulation and its relationship to deep differences in income distribution are often discounted by conservative economists (economists view the market simply deciding the right level of income distribution, discounting the political influence on income or weatlh distribution) however there is a critical importance that is not surfaced in the many articles that make it into the mainstream. Countries with high wealth distributions suffer from the following chronic problems.

• Inability to pass or enforce environmental regulation
• Inability to curtail government corruption
• Inability to protect non-monied citizens from predation, either civil or criminal
• Poorly functioning democratic institutions which are often democratic in name only
• Disincentives for poor and well-off alike to enhance their skills (i.e. societies where effort counts far less than birth)

The best way to understand this is that countries with high disparities in their wealth distributions are generally backwards and result in much abuse levied upon those at the wrong side of the wealth curve. Rather than using the term “capitalism” to justify any pro-wealth program or initiative, it i more instructive to look through history to see the effect of the concentration of economic power and what it resulted in for countries that lived through it. The lessons are obvious, however, it is important to consider that the people promoting the market and not necessarily historians, they have a particular incentive to take a “pro market” or “pro wealthy” view on economic history.

Lessons from History in the Concentration of Economic Power

There are no shortage of countries to look at and no shortage of timeframes to analyze. Although capitalism is presented as if it is some new commercial innovation, it is in fact ancient. That this is not discussed, and that capitalism is treated as some new and recent scientific advancement, has more to do with special interests not wanting to discuss its origins rather than any lack of data. (discussing topics that undermine concentrated power are a downer for sponsors, and of course no one wants to be labeled un-American)

Textbook Cases of Capitalism and Inequality

Latin America

The countries of Latin America which have been plagued by extreme income inequality and slow growth. These countries followed a highly concentrated form of capitalism, the likes of which the US is moving towards. This capitalism has lead to low growth, low innovation and a horrid standard of living for all by the top 1% of the populations.

• The lessons regarding working capitalist systems is that regulation and prevention from power concentration is necessary. Concentrated power is negative regardless if the system is capitalistic or communistic. Examples of highly concentrated power in capitalist systems have failed all through Latin America. Here the power concentration is based in societies where European descendants (which form the elite of the countries) see themselves as totally separate from the mestiso and indian portions of the populations. These countries have horrid infrastructure, horrid services and where the main strategy for the non-elite is emigration to another country.

Russia

Russia was heralded as a newly reforming economy just 15 years ago. Anticipation was high as the formerly communist country was moving towards market reforms. What happened?

• In Russia both income disparity and power concentration skyrocketed after the Yeltsin era, primarily because Yeltsin sold off large portions of Russia’s state owned industry to politically connected entrepreneurs who then funded his campaign and helped him defeat a resurgent communist political threat. Very few people know this because the US State department (which is a transmission between corporate interests and international policy) wanted to support Yeltsin as he increased the profits of their multinationals while increasing the mysery of the Russian people (i.e. the irrelevant bottom 98% of the population). Certainly Yesltin made a Faustian bargain to hold onto power. There are some who say he was too drunk during his presidency to have cared. However, whatever his motivations, he recklessly auctioned off some groups of mining assets that would have fetched 5 billion dollars in the open market for just a few hundred million dollars. Russia did nothing but crater economically since that event, until that is, the recent run up in gas prices initiated by the imperialist neo-con US invasion of Iraq. Even though Yeltsin was more instrumentation is giving away state assets to what would become a new super rich class in Russia, he was considered a “reformer” by the western business press. This is not a great surprise as although his people may never recover from him, he did do what US multinationals wanted him to do. The multinationals became wealthy, the national assets were sold for pennies on the dollar. This is the standard by which one is measured as a reformer, at least in the US business press. and the US State Department. People that make concentrated power happy are treated very well in this life and in the history books. Just ask Milton Friedman.

Recent Developments in Latin America

Recently left leaning governments have been taking hold and both reducing income inequality while increasing economic growth (notably Argentina and Venezuela). Venezuela’s success in poverty reduction is striking but not covered in the US because Venezuela has been hostile to US business interests and US business interests own the majority of US media outlets. It also extends past media outlets. Argentina and Venezuela are pilloried by the World Bank and the US press for taking an “independent path,” they continue to do well. Again, the US media has little interest in covering any of this positive economic news. They receive constant feeding by the US State Department that these are countries with bad governments, bad for US companies. The fact the are good for their people is sort irrelevant to US interests and the US media. This is because the citizens of other countries lack the media representation that citizens within the US also lack. The State Department and other news shapers discusses the editorial slant it wants to take by discussing with US corporations which make their dislike for countries that reduce their profits and praise those governments that increase them. The evidence for this can be found in the descriptions within the CIA Fact Book. This is a good resource, not to read for real information, but to read to find out which countries are making money for US multinationals and which are not. The “bad” countries don’t make money for the US or are not sufficiently subordinate to the US in other ways.

https://www.cia.gov/library/publications/the-world-factbook/

Capitalism vs. Communism vs. Socialism

One can not assume simply because one particular form of capitalism was better than than communism that our present form of capitalism is the best system as there are a number of different forms of capitalism. Furthermore the definitions of these different economic systems are poorly understood. Many European countries are called socialist. However, socialism actually would mean that the workers vote for their supervisors. This does not happen anyplace in Europe or anywhere else in the world. Thus socialism can be viewed as a completely theoretical system. Communism, a more extreme form of individual control has likewise never been expressed in any country or any time that we know of. At the height of the Soviet Union’s powers, it was no more communist than the US, there was a substantial upwards concentration of power and workers had little say or control over their lives. The only category where the Soviet Union may have qualified as communist is that it was centrally planned, but central planning does not make a system communist. The US highway system was centrally planned, but the US was not communist when it did this.

Communism and Socialism and Paper Tigers

Commentators would be good to stop qualifying every political program that puts more power into the hands of concentrated power as good because it is capitalist. This simplistic analysis by those with a fetish for the word “capitalism” is used to cover up all manner of corruption. For instance, human trafficking, child pornography and blood diamonds are all activities that naturally arise in capitalist systems. However, none are considered desirable. Whether they are desirable or no is a value judgement, but what makes them illegal is the government. Without this, all of these markets would actively flourish. This may seem like a pedantic point, but it is not. Capitalism itself has no value, it simply means some people are allowed to make money off other people. The will of the people, as exercised through the state decrees what is an what is not acceptable to make make profits in. Before any conservatives get too indignant at the examples, lets remember that the US, for the majority of its existence was either a slave society, or a Jim Crowe society, legally allowed forms of bondage, and mostly supported and even declared necessary to capitalism by what we would know as conservatives today. Stopping the abuse of people and animals by “capitalists” is a form of socialism.

See this article for more on this specific topic of how the legal system interferes with properly functioning markets.

http://counterecon.com/2009/12/09/child-pornography-shows-that-markets-do-work/

In this way communism has played a very important role of a paper tiger. With the collapse of communist systems (that were not in fact communist), no nuanced discussion of what type of capitalist system the US should have is possible. This is because the standard mental schema or intellectual framework is that capitalist systems are the absolute best way to organize anything. This is an environment where everyone is categorized as either a free marketeer or a socialist. Its almost as dangerous to one’s social health as being an atheist in parts of the US. Somehow, because the Soviet Union was not able maintain the economic growth that it produced during the 60’s and 70’s, any form of predatory capitalism is commendable. Lets not forget, capitalism, if that is what we can call it, has not been good for Russia and its satellites either, and has a worse record for growth and income inequality that faux communism produced.

The Problems with Wealth Concentration

The fatal flaw in economic / political systems is in designing policies that concentrate money and power to an elite few. This is never good for the overall economy as systems with high concentrations of power underperform those where power and income is more equally shared. Furthermore it is unstable and leads to economic and scientific stagnation. In the US the period of greatest economic growth was during the 50s and 60s, precisely when the US was the least concentrated in power and income. US income and wealth concentration hit a peak prior to the Great Depression. This is when the wheels fell off of the US economic system. Since 1973 real wages have stopped growing in the US and wealth has become ever more concentrated. Subsequently, productivity growth has also lagged during this time. Overall productivity has doubled since 1973, but wages for workers are roughly 5% lower than 1973. This may seem to contradict the previous statement, however the productivity growth form 1950 to 1973 was the highest ever recorded.

Further Back in Time

Lessons from the trading power that was Venice, promote the idea that stable political and economic systems have a series of checks and balances on power. Venice was the longest continual stable government in human history. These and other important examples have been very carefully excluded from national policy discussions. What has happened is a highly one sided and continuous march towards increasing political and economic wealth concentration. This has been entirely accepted and in fact accelerated by a corporate controlled mainstream media. This is a view ignorant to history and a view arrived at not from observing the evidence of what works, but from the the narrow-minded interests of concentrated power in the US and elsewhere. This has been justified under the rubric of following free “market principles,” in theory, while large companies accept government handouts and restrictions on the market below the surface.

See the book Pigs at the Trough

http://www.amazon.com/s/ref=nb_ss_b/102-2931495-8728918?url=search-alias%3Dstripbooks&field-keywords=pigs+at+the+trough&x=0&y=0

or

http://www.corpwatch.com

For a full accounting of massive corporate welfare programs all lobbied for heavily by companies which worship the market….in their public relations.

Here is a perfect example of the inability to think clearly on the topic of capitalism. For anyone that has worked at a job where there is a bonus at year end, it is known that bonuses need to be earned. And that if you diverge at all from your goals, the bonus can be removed. However, that is if you are a normal worker. If you are a master of the universe on Wall Street, your bonus is legally protected. In a year where Wall Street fell apart like a house of cards, the executives and other high flyers still received their bonuses. This is supposed to be an example of free market capitalism. It is not. The upper class have even come up with a phrase to support their bonuses as their companies crash. It goes like this…”In this environment, stocks appreciation is not a good indicator of actual performance.

How Wealth and Economic Power are Concentrated

As much as companies may say they shy away from politics and simply focus on the market, the resources they put into political lobbying tell a different story. Wealth and power are concentrated primarily with political actions. These include:

1. Allowing corporations to pay very little tax
2. Allowing corporate mergers which increased economic concentration and reduce consumer and worker bargaining power vis-a-vis the corporation
3. Allowing tax evasion at the upper end through both laws and lax enforcement
4. Allowing private banking
5. Creating monopolies in health care under the concept of managed care
6. Promoting labor competition at the lower and middle income levels while restricting it at the upper income levels (i.e. allowing illegal immigration and restricting working class union creation while encouraging unions for physicians and attorneys by calling it “licensing.”)
7. Crafting trade agreements that increase competition but only for the unprivileged classes

These policies are rarely discussed and infrequently questioned in the investment media or elsewhere. For instance, investment banking analysts very rarely speak in balanced or even consistent terms regarding a pending merger. To them every merger appears to make sense. The fact that their firms make fees off of the mergers is supposedly not tied to their positive impression of the mergers provided by these analysts. Instead analysts discuss the cost savings that will come from the merger, the future likely stock price, all without mentioning the fact that mergers are non-market actions sanctioned by the government. The terminology is reconfigured to account for this inconsistency. When large economic power interests form collectives its referred to as “synergy” and praised, however when individuals from collectives (say in the form of unions) its called socialism and scorned.

The Business Lexicon

1. Synergy = Non market economic behaviors and decisions that benefit concentrated power
2. Socialism = Non market decisions that benefit normal citizens

These views are very rarely analyzed in a critical context by the corporate media which reports on this. Furthermore, the conflicts of interest inherent in the views of analysts at large investment companies are also not divulged to the public. Economists, who are supposedly in favor of functioning markets are silent on mergers although they are well known to decrease competition, reduce service levels to customers and generally create less efficient economies overall. Economists can not afford to openly write against them, except in academic journals, because non-academics are employed by large power structures like banks and think tanks.

Conclusion

The discussion level on what is a capitalist or socialist policy is so infantile, and so deliberately misleading that we can only assume that the mainstream media is more concerned with making advertisers happy than in presenting any objective information about events which concentrated economic power. The public has largely bought into Milton Friedman’s unsupported view that any policy that is labeled as “capitalist” by conservative think tanks or investment banking interests is good for the country. The US needs a healthy dose of critical thinkings skills because the policy decisions and economic rules that make the US a vibrant and more fair economy are being stripped away and will continue to be stripped away until the US population becomes conscious.

References