Saturday 18 November 2017
Let's Just Admit It: Capitalism Doesn't Work
Written by John Atcheson and first published at Common Dreams
In almost every way you examine it, capitalism – at least the relatively unconstrained, free- market variety practiced in the US and supported by both parties -- has been an abysmal failure. Let’s take a close look some of its worst failings. But first, it must be admitted that when it comes to exploiting people and the planet for the purpose of generating apparent wealth for the few, it has been a smashing success.
More about that notion of “apparent wealth” in a moment, but now, the specifics.
The logical end-point of a competitive system is an oligarchic monopoly
A recent report by UBS reveals that the global march of economic inequality is accelerating. The report found that the billionaire’s share of wealth grew by nearly 20 percent last year, reaching a level of disparity not seen since 1905, the gilded age. Interestingly, the first gilded age followed decades of uber-free market laissez-faire policies, just as today’s gilded age has.
Not surprising, really. Empirical evidence shows that without constraint, markets will proceed toward a winner-take-all status. In short, monopolies and oligopolies. For example, the United States has had three periods of prolonged laissez-faire economic policies, and each was followed by extreme wealth inequality and the three biggest economic crises in US history, such inequality causes.
Oh, but the magic of competition makes companies compete for our dollar, so they can’t afford to exploit us, right? Not so much.
The magic elixir of competition doesn’t work—for the simple reason that there isn’t much competition anymore. Having convinced folks that regulation is bad, the Oligarchy is in the midst of a frenzy of mergers that is giving a few large conglomerates control of many of the major market sectors.
Derrick Thompson, in a recent article in the Atlantic, lays out some of the grim statistics that illustrate the trend. As Thompson writes,
To comprehend the scope of corporate consolidation, imagine a day in the life of a typical American and ask: How long does it take for her to interact with a market that isn’t nearly monopolized? She wakes up to browse the Internet, access to which is sold through a local monopoly. She stocks up on food at a superstore such as Walmart, which owns a quarter of the grocery market.
If she gets indigestion, she might go to a pharmacy, likely owned by one of three companies controlling 99 percent of that market. If she’s stressed and wants to relax outside the shadow of an oligopoly, she’ll have to stay away from ebooks, music, and beer; two companies control more than half of all sales in each of these markets. There is no escape—literally. She can try boarding an airplane, but four corporations control 80 percent of the seats on domestic flights.
The consolidation of the media is yet another example; just six corporations now control 90 percent of the market. And of course, there’s the inconvenient fact that the “too-big-to-fail” banks that were a major cause of the 2008 Great Recession are now bigger and fewer.
This concentration of market power translates into lower wages, fewer jobs, and higher prices – exactly the opposite of what the neoclassical economic theory embraced by capitalists tells us will happen when we remove regulatory constraints – and exactly the opposite of what the Republicans’ trickle-down myth says will happen. Or what the neoliberal Democrats tell us, for that matter.
But it also gives the wealthy control over our political system, and the people have gotten wise to it. That’s why a little over a quarter of the eligible voters were able to put Trump in power – most of the rest of us are completely turned off by a political system that’s clearly for sale and so, increasingly, many do not show up to vote.
That control has expressed itself in policies that result in extreme income disparities between the increasingly few haves and the expanding have-nots. Today, just five people have as much wealth as the 3.8 billion people comprising the least wealthy half of the world’s population, and nowhere in the developed world is the problem as acute as it is in America. The system is rigged, and our belief in capitalism and the power of the magic markets is what allowed that.
Now, about that “apparent wealth”
We measure our wealth in currency. But currency is simply a surrogate for real wealth, which is based on natural capital and labor. The problem with this is that natural capital is limited, while the amount of currency is limitless. For example, the value of the derivatives has been estimated to be as high as $1.2 trillion, or nearly 20 times the size of the global GDP. So what? Well, since:
currency is merely a claim made against real wealth, not wealth itself; and
currency has the capacity to grow infinitely; but natural capital, the source of real wealth is finite …
That means we are creating claims on natural capital that exceeds the planet’s capacity to provide it. In short, we are essentially creating debt for future generations and calling it wealth creation.
So-called externalities exceed the size of the global economy
Economists have long recognized that not all benefits and costs are mediated in the marketplace, and they refer to these as “externalities.” Typically, an externality is imposed on a third party that is not part of a transaction, such as people suffering asthma from pollution. The way we have dealt with these in the past is to use regulations, taxes, subsidies and property rights to try to internalize externalities – that is, to impose a price on them.
But neoliberals and conservatives have been backing off that approach and the Trump administration is in the midst of a frenzy of regulatory rollbacks that is unprecedented.
But the costs of this denial are staggering.
Because what has become obvious in the last few decades is that so-called externalities actually exceed the size of the global economy. That is, the value of things which we don’t price or exchange in the market but which impose costs on society is much larger than those that we do. For example, a team led by Robert Costanza found that the annual value of just seventeen “ecosystem services” exceeds $142.7 trillion dollars in 2014 dollars.
To put that in perspective, the global world product—the total value of all goods and services measured in the market—was only a little over $78 trillion that year. Thus, our entire economic system routinely ignores values that are nearly twice those we measure. That’s one reason Costanza et al. also determined that some $23 trillion worth of “ecosystem services” had been destroyed between 1997 and 2014, and not a single penny of this vast sum was registered in conventional macroeconomic accounting. Worse, capitalists called this wealth creation.
Ecosystem services include such things as pollination from bees; flood control from wetlands; incubation of fisheries in coral reefs, among others. In fact, the maintenance of atmospheric oxygen – a fundamental prerequisite of life – is an “ecosystem service” we don’t price and take for granted.
The big granddaddy of all externalities is climate change, which would cost future generations as much as $530 trillion dollars if we don't take action to reduce greenhouse gas emissions.
And yet conventional economics is totally blind to this staggering amount. Indeed, the practice of discounting the future, a commonly accepted convention in economic theory, actively discourages the kind of responses needed.
So there you have it. We embrace capitalism, a system which leads inevitably to oligopolies, monopolies and obscene income disparities; a system which confuses currency with wealth, encouraging unsustainable consumption of natural capital, the source of real wealth; a system which considers the life-sustaining value of natural systems as “external” to our economic concerns
To make matters worse, our capitalist belief system relies on an infinitely growing economy in a finite world – a folly of monstrous proportions. And now, with Trump, Ryan and the rest of the wrecking crew, we are doubling down on the uber-free market system that is, literally, killing us, and the Democrats, as usual, mumble lame protestations, and suggest half-measures, too afraid to take on the Myth of the Magic Markets, or to cross their campaign financiers.