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October 26, 2015


The Week (a weekly news magazine) noted recently in a survey of business columns that The Economist (a business magazine) has reported that capitalism is losing its fans and that “Anti-capitalism is once more a force to be reckoned with,” noting as further evidence that Pope Francis has come out against “the invisible tyranny of the market” and socialist Bernie Sanders is gaining ground in the U.S. presidential race. The Economist cites a Gallup poll on American confidence in U.S. institutions in which “big business” rates second to last – above only Congress.

However, free market defenders argue that “good capitalism is gaining ground,” and that its virtues – competition and innovation – outweigh the vices of “bad capitalism,” such as cronyism and monopolies. I have never heard of good or bad capitalism; I always thought of capitalism as capitalism. We now apparently are to have good and bad capitalism as defined and distinguished by, guess who? Capitalists. I reject having the players in the game decide who wins the good or bad label. We have referees for that and in this case that would be the regulatory authorities in government such as the FTC, SEC et al. They can tell us who are “good” or “bad.” Foxes should not have a vote on safety rules in the henhouse.

To begin, I have frequently blogged that the free market does not exist for a variety of reasons, including but not limited to asymmetry in information to its participants. It is a myth.  I also note that competition and innovation are not the exclusive province of “good capitalists” as suggested by the “free market” defenders. “Bad capitalists” can also avail themselves of competition and innovation or any other policy or practice to enhance their corporate bottom lines.

Corporate PR flacks talk a lot about the virtues of competition but buy up their competitors to negate it  and otherwise engage in what used to be called anti-trust practices such as monopoly pricing, predatory fleecing of their customers (see the trillions in lost home equity of ordinary Americans following Bush’s Great Recession) etc. Capitalists detest competition while pretending to embrace it; it interferes with monopoly pricing. One must lower prices to stay in business, and theoretically, where pure competition as envisioned by Adam Smith and other classical economists truly exists, competing corporations will end up ultimately with zero profits as they cost cut to maintain market share.

Given pure competition, then, the corporation that is more efficient in its operations will survive and the others will not. Historically, those companies who survive (what with their competitors gone) will enjoy monopoly pricing and raise prices for their goods and services to a point where new corporations will get in on the act and reinstate a modicum of competition which will cause the process to repeat itself as prices tumble.

Other corporations seek political help to maintain their outsized profits, notably pharmaceutical giants, who seek laws extending their patents on certain compounds, delays in allowing generics to be made after their patent protection has expired, and lately outright purchase or control of such generic companies (which is not allowed in Europe) which allows them to continue to charge predatory prices. Result? We pay far more for such politically protected compounds than we should be paying, so in view of this and other anti-competitive acts in the marketplace protected by politicians, is it any surprise that polls place “big business” and Congress at the bottom in polls of Americans? Whose side are these politicians on? I thought they went to Washington to represent the people who voted for them.

Those polled by Gallup are finally waking up to what is going on in the world of corporate dominance. Thus the report found that people increasingly resent the “boss class” for reaping huge rewards “regardless of success or failure,” like disgraced former Volkswagen CEO Martin Winterkorn’s golden parachute, worth $67 million. Winterkorn, who should be in jail for his knowing installation of software in cars made by his company that add to poisoning of the atmosphere, can now live out his life in luxury while those left behind who must work for a living have no such guarantees. In America such corporations actively campaign against raises in the minimum wage, support ALEC model statutes for right to work and other such laws, shop around for states whose corporate governance laws are weak or unenforced etc. The deal is rigged but may be on the edge of unraveling as ordinary Americans wake up to such atrocities and the propaganda programs that keep them in place, which I think helps explain the results of the poll. The word that comes to mind is “backlash.” Has Wall Street finally gone too far?

I have noted lately that younger Americans do not have an automatic distaste for the word “socialism” as we had for “communism” in the McCarthy era. Perhaps they are tired of seeing people rewarded for wrongdoing such as in the Winterkorn and big bank predatory lending cases, the latter’s being bailed out while those they cheated had their home mortgages foreclosed and lost trillions in home equity. Perhaps they are wondering why capitalism is so great when they are paying on their college tuition for much if not all of their lives, a debt not dischargeable in bankruptcy thanks to Republican amendments, while social democratic states in Europe provide free or almost free tuition for all students. The list is long – and unnecessary – but that is for another blog.

Still I am a liberal but not a socialist. I hold out hope that capitalism can still work if big business will agree to reasonable regulation of their activities in the marketplace. Those who complain about public regulation of corporate practices apparently want free rein to do whatever they please in the marketplace, anything to make a buck, whatever its effects on the rights and interests and futures of the American people and their children. I strongly disagree with that view.

That sort of libertarian mindset as played out on a crowded planet invites radical responses and if nevertheless pursued in the name of profit by the Gordon Geckos of Wall Street, well, systems are changeable. The Constitution is silent on our choice of economic systems. So are those who want little to no regulation of their activities going to continue to resist reasonable regulation of their activities, or would they prefer a potential system in which such regulation would be much tighter? Their call.   GERALD    E

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