Capitalism-But With a Human Face

Solutions. A very simple concept.

  1. Identify a problem and take the necessary steps to resolve it.
  2. Do it in both a fair and equitable manner.

But as the fourth year rolls by, in this global economic ­crisis, nearly everybody who can be blamed for the economic mess has been already been pointed out.

  • Greedy, careless bankers.
  • Heartless corporate executives.
  • Clueless regulators.
  • Hyper-partisan politicians.
  • Underpaid Chinese workers.
  • Lazy Greek workers.
  • George W. Bush.
  • Ben Bernanke.
  • Sarkozy.
  • Merkel &  Papandreou.
  • Errant or corrupted Credit-rating agencies.
  • The euro.

 

Yes, after the worst financial disaster since the Great Depression, there has been no shortage of blame to spread around. With no ready solutions in sight and an election year that normally freezes American politicians in their tracks, a new target has arisen : capitalism itself.

As the economic system into which it has evolved, it’s easy to see why Capitalism would be the focus of new scrutiny. Capitalism, for all intents, is failing miserably at the very thing its proponents say it’s supposed to do better than any other economic system–provide economic opportunity and a better future for all. But unemployment still remains unnervingly high and the middle-class in America is slowly but surely slipping into low-income or even poverty-level classes. A full one in two American is at or near the official poverty level in the supposedly greatest economy on the planet. The same country that is supposed to be of the people, by the people, and for the people.

In college, I was taught that capitalism is a meritocracy under which rewards are available for those who work hard and develop their talents. But contrary to that school of thought, since the financial meltdown of 2008 it appears that only the well-connected or privileged are reaping the benefits of others’ hard work and talents. In the eyes of most Americans, Wall Street remains unrepentant and determined to carry on as if nothing happened.

Of course the trillions of dollars parked on their balance sheets to offset the horrible loans and derivatives they were bestowing upon the unknowing and / or mislead were supplied by the people, but nothing has been done for the people who did so. Worse, the Wall St. bankers are still using the same sort of deceitful tricks today that they used then to get or stay wealthy.

Homeowners are getting evicted only to see their homes and neighborhoods torn down. Europeans, like Greece, Spain, Italy and Portugal, are forcing their citizens to suffer through draconian budget cuts and tax increases to appease restless banks and bondholders in countries that have fared better. And yes, those vile CEOs are still forcing the layoffs of thousands of workers while lining their own pockets with huge multi-million dollar bonuses.

The gap between rich and poor has been widening in nearly every westernized economy. The roots of discontent with capitalism run much deeper through the current slump than ever since before. Over the past three decades, as capitalism has become freer and more globalized, the rich have benefited enormously while the rest of the populace has stagnated or declined in household income.

In a 2011 report, the Organisation for Economic Co-operation and Development figured that the level of income inequality in the 22 member nations it studied increased by 10% since the mid-1980s, but conditions declined significantly in 17 of them. Globalization and free-trade pacts have forged an international labor market that pits Indian and American college students against one another. Those who cannot compete are being pushed to the wayside because they cannot keep up with the necessary education nor skills needed. Factories get closed in the U.S. and Europe, only to reopen in China, costing the West millions of manufacturing jobs and the tax revenue, not to mention the demand for goods and services, that go with them.

This is by no means, the first time for such conditions–probably because no other economic system in history has proved more adept at generating wealth and development. But The Great Depression was pinned on capitalism as well. Greedy and unscrupulous bankers ran roughshod through unregulated financial markets and caused the disaster. Many think the same happened in the years leading up to 2008. Capitalism has also  eradicated poverty on a grand scale; it propelled innovation in medicine, information and transportation; and it stitched together a global community through financial and commodity trades.

Its Core Strength–Flexibility

Flexibility is the hallmark and the cornerstone of capitalism’s longevity. Its main claim to success is its propensity to change in response to what ails it at any given time. Time and again it has reformed itself, according to the conditions in which it is operating, and thus survives and ultimately thrives. The great suffering brought on by the Great Depression gave rise to a movement to make capitalism stable and equal for everyone , which led to greater government ­protection and ­regulation.

Conversely, to overcome the stagflation of the 1970s, capitalism once again morphed to fit the times and became more productive and innovative. Deregulation, free trade and free flows of capital spawned a global economic boom. Today, amid the protracted downturn, capitalism has reached another point-in-time that screams out for another adaptation. The worlds financial sector is so unsound, and the destruction has been inflicted on so many average families, that capitalism needs to morph yet again, to become more inclusive and balanced and less prone to recurrent meltdowns. The question is not whether capitalism must be reformed. It is how, under the constraints of Republican obstructionism, can we reshape our system of Capitalism so that it does not become the one thing most destructive to real capitalism-inflexible. And it is hyper-partisanship, short-sightedness, and obstructionism that will kill this golden goose just as certainly as night kills the day.

As to current requirements for todays flexibility, however, there is no agreement and and can be no chance of success without it. The answer lies with the graceful transitions of the state and market that has determined the many historical twists and turns of capitalism. Many today believe the financial crisis was caused, like the Great Depression, by capitalism-run-wild, fueled by 30 years of haphazard deregulation. As the current thinking goes, bankers and executives can never be trusted to act responsibly. The fear is that they’ll risk the well-being of the economy to ring up bigger profits or work people to death without paying a decent wage. The solution is a renewed ­government role to control the worst, not all, excesses of capitalism.

Mark Bray, one of the organizers of the Occupy Wall Street movement, insists that it’s time for stiffer regulation of bankers. “There has been too much freedom in the financial sector,” Bray says. “If you give [bankers] an inch, they take a mile. The government has not stepped up to that.”  Although Dodd-Frank and a repeal of Glass Steagall is a good start, Chuck Collins, a specialist on income inequality at the Institute for Policy Studies, advocates tax reform that would hike levies on the wealthiest and end the abuse of offshore havens and restrictions on the ability of Big Business to fund and lobby politicians(see Citizens United). Inequality “is part of the natural dynamic of capitalism when there are no checks to counter­balance wealth and power,” Collins asserts.

But governments have nearly exhausted the tools left in their toolboxes to help with the problem. Despite the Tea Party, Ron Paul and now, Newt Gingrich’s call for abolition of the Federal Reserve, it’s one of the tools that has kept the U.S. from careening over the abyss that Europe is now experiencing in unemployment that far exceeds what has been seen in this country (Spain-22%, Greece-18%, Italy-17%, the U.S. 8.5%). With debt and deficits bulging, governments across the industrialized world have been forced to cut back on the social-welfare spending that protects the poor. The debt is also pressuring conservative politicians to make capitalism even freer—by attempting to loosen up protected labor markets to enhance the competitiveness of their economies. Worse still, instead of riding to the rescue, governments across the West are sounding the retreat.

Occupy Has it Right

The troubles being experienced by the global economy, were caused not by a failure of capitalism but by a failure of government. Jim Walker, the Founder and Managing Director of Asianomics Limited, an economic research and consultancy company servicing principally the fund management industry in Hong Kong states, “But they should be occupying Pennsylvania Avenue and the Federal Reserve.” As Walker sees it, regulators permitted the banks to ignore risk, then bailed them out when their risky behavior became a threat to economic stability. Ever since, the Fed has helped Wall Street dodge reform by spoon-feeding it easy money, which allows bankers to turn profits at little cost. In doing so, government has thwarted the self-regulating nature of capitalism.

It is this rescue that Occupy has found so unfair and inequitable, especially since the markets and banks were instead, rewarded for their bad practices. “If capitalism had been left to its own devices, none of these guys would still have a job,” Walker says. Capitalism has not perpetrated injustice; faulty government policy has, Walker says.

Capitalism, though, has not regulated itself all that well either. Shareholders, board directors, accountants and other agents of capitalism tasked with monitoring risk and corporate behavior did not do their jobs. Mike Mayo, bank analyst at brokerage CLSA in New York City and author of the book Exile on Wall Street: One Analysts Fight to Save the Big Banks from Themselves, says capitalists have become their own worst enemies. “Big-bank CEOs are more of a threat to capitalism than those on the outside protesting,” he says. Shareholders and directors, who are supposed to monitor and safeguard the health of corporations and link compensation to performance, ­incentivized managers to notch short-term profits over long-term gains. This reckless abandon encourages them to take dangerous risks and allows them to earn tens of millions in undeserved payouts. Such behavior “defeats the moral justification for having a capitalist system—that it is more fair and based on merit,” Mayo says. His solution is to repair capitalism one boardroom at a time by strengthening corporate governance. “The problem with our economic system today is not a problem of capitalism,” Mayo says. “It is due to a lack of capitalism.”

There is no doubt that one way or another, we will witness another reformation of capitalism once the Great Recession has played itself out. Public outrage has exploded on the streets in big cities across the globe. But we should all realize that capitalism is here to stay. While many in the West have become disenchanted with the system that made them rich, China, India and much of the rest of the rapidly advancing emerging world are slowly, embracing free trade, deregulation and open capital flows in their own desire for U.S.-inspired riches.

The challenge facing the U.S. politicians, economists, bankers and corporate leaders is to learn to shape and reshape capitalism based on current condition, not ideology, in ways that enhance its power to grow and uplift the downtrodden. The outcome will shape the success and configuration of capitalism if it is to continue to grow and thrive, not partisan politics.

 
hg

Harvey Gold