Is Capitalism the problem?

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you dont hate mondays you hate capitalism

Every Friday social media is awash with ‘TGIF’ type posts as people (well, some people) look forward to two whole days of FREEDOM.

Then every Monday we get the reverse with the ‘It’s too early for this’ type of shenanegans.

Eventually some people get so sick of the life as a wage slave that they take to the streets with banners such as those above. But is capitalism really the problem?

As a kid I loved money almost as much as I loved chocolate. I would do anything in my power to earn more, save more and count more.  I even resorted to scouring the house for loose change and pocketing that from time to time – a regular kindy sized crook I was.  My fiscal fascination didn’t go un-noticed and became a slight source of worry by my mum (I seem to remember) as I’m sure at one point she thought she must have given birth to Thatcher 2.0 (I grew up in England in the 70’s – 80’s) but no, that wasn’t it.  See in my house I knew that money was power and I wanted the power and self-determination that money could bring.  I still appreciate the power of money but these days I’m a bit more socially aware than I was when I was 7.  Good job too!

So capitalism has a place in my heart and when I think about economics, capitalism is my default setting and as such, when I see banners like the above my brain starts doing funny things and asking nagging questions like:

  • But what is the alternative to capitalism?
  • What type of capitalism are they talking about or is it all bad?
  • Are bankers always evil?

Let’s have a look and see, keeping in mind that I’m just a writing person with a science background and not an economist. My aim here is to simplify without reducing it to absurdity.

economic models

The first thing that I notice about my table is that I’ve gone and put the economy at the top.  That’s mainly because it was what I was focusing on explaining and not a reflection of its overall importance.  That said I think it is worth mentioning that ‘economy’ is just a word for how trade is carried out and trade is a pretty natural thing for people in a community to do.  As long as there have been people there has been trade although these days the ethics – moral principles that govern an action – of trade are somewhat more complex given the global ‘market’ in which we find ourselves.

So there are different types of economy from your basic family farm, barter and trade Traditional model to the type that I’m used to living in – a mixed market with a capitalist spin on production.

Mixed market economies vary HUGELY from country to country depending on how each government approaches the market.  How governments approach the market usually depends on how they see their people and their ability to generate wealth.

Jobs and Growth.

For a country to be rich enough to create a surplus for investing in infrastructure such as roads, hospitals, schools and the like it needs to be able to generate wealth over and above the basic living expenses of each person.  A good way to do that is by having enough decent local jobs that create value – turning something basic into something that’s worth more money, manufacturing or farming for example.  This keeps money flowing back into the economy.  In the olden days when I was a lad and everything was black and white this was pretty easy.  There were lots of factories in the UK where I come from, making everything from fabrics and footwear to steel and motor cars.  Food was mainly farmed at home (locally produced) with the odd exotic thing like a banana or tea thrown in for good measure.   The ‘buy British’ days were relatively good for the country in as much as lots of people had jobs, the government had money and investments into infrastructure could be made BUT that didn’t mean that everyone with a job was being treated fairly or paid a living wage.  Jobs and growth doesn’t guarantee fairness and equality.

But that’s another story.

Up until the second world war the UK economy was propped up by local manufacturing and production plus imported goods coming from the fruits of colonialism – fair trade?  Possibly not.  The net result was a very wealthy England albeit a little bruised and battered thanks to the war.  After the Second world war everyone agreed that it was totally horrible and that a good way to prevent such a thing from ever happening again would be if we all got together and traded more openly with each other.   The World Trade Organisation was born. Countries that didn’t want to participate were shamed as ‘protectionist’ and the era of ‘free trade’ was born.  We are still on that path albeit holding on by our fingernails as people grow increasingly disenfranchised with the realities of globalisation on an individual level.

Basically free trade meant that countries like the UK could now scout the world for places to produce their goods, places that might be able to offer things cheaper or at a better quality. Sometimes this was good but often it was bad, especially bad for workers who witnessed as their ‘real’ jobs disappeared off to Taiwan or wherever else was flavour of the month.

The good thing about this was cheaper goods and more choice for consumers, cheaper production costs for the government (for industries where they still owned the means of production) and cheaper labor costs.

The bad thing about this being the fact that consumers are not just entities they are people who need jobs and those were rapidly vanishing.

There are probably more costs and benefits but you get the picture. 

NOTE: A real job is a job that produces real, tangible added value either in terms of growing, building or assembling something OR creating something be it a theory, piece of art, book or other piece of intellectual property.  Typically there are more people who want jobs in the growing, building or assembling trench than there are people wanting to do the creating. 

By 1973 in the UK productivity was dropping and we were suffering the first of many hang-overs from this World Trade arrangement. At this point an important thing happened – VAT was introduced (GST here in Australia).  Between 1940 (the WTO came into being) and 1973 there was a consumption tax in the UK called a purchase tax that was levied on luxury items the definition and tax on which changed depending on the issues of the day. The general theory behind setting this tax was to prevent valuable materials from being wasted (commoditized). The fact that it taxed the production of luxury items meant that it impacted the rich making discretionary purchases more than it did the poor.

Again, I’m no expert but looking at the facts what I see is this.  When a country loses control of the production they switch from being a net producer to a net consumer. The government still needs to raise revenue and so turns its attention to taxing spending over producing as that is pretty much all that’s left to tax.

 Consumption is even more unequal than production given that there is a limit to how productive a person can be (8 hours labor a day, 5 days a week) and also given that peoples ability to capitalise on an opportunity depends not least on their individual skill set, personality and will whereas the only limit on what a person can consume is what they can afford and in a global market it doesn’t matter where the cash comes from as long as you spend it!

Anyway, back to the big wide world.

Post war and up to the early 70’s a chap called Bretton Woods called the economic shots. Here is a Wikipedia entry on him and his stuff.  Basically his work was pivotal in forming the IMF (international monetary fund) which pegged exchange rates and made global trade much easier.  The Bretton Woods vision started after the second world war, a time when people were hurting and it was very easy to feel socially responsible and patriotic.  Governments around the world made sure that social welfare provisions were front and centre to policy. It was also relatively easy to find local jobs as so much building, food production and material fabrication was required to replenish the war ravaged country. However, as time went on the sparkle began to rub off. The Bretton Woods currency system went into meltdown when the US stopped allowing the dollar to be directly converted to gold unless it was done on the open market. This was dubbed the ‘Nixon Shock’  and sent international currencies spinning.  I can’t quite work out all of the implications of this but suffice to say it heralded a new change.

Just out of interest here is how UK politics was stacking up. 

In the UK between 1951-1953 we had a Conservative government  (Nordic Model Capitalism like)

From 1964-1970 was Labour (Nordic model)

1970-1974 – Conservative (the rise of liberal capitalism)

1987-1979 – Labour (liberal capitalism)

1979-1990 – Conservative (to Neoliberalism)

What I’ve summarised from al of this so far is that the type of economy you have in a country is separate from the ruling political party and that while different political parties and ideologies can push for  or create a particular type of economy the economy isn’t re-imagined every time a new party is elected to govern. That is a shame really as that could be the best bit…..

I must admit that I haven’t studied in great depth at this stage the various nuances of the mixed markets throughout this 39 year period but suffice to say that what started out being a mixed market with relatively large public ownership of the means of production and a large welfare state (similar to what we now call the Nordic Model) turned into an economy with relatively small public ownership and a smaller (but still significant) social welfare (a model that we are not typically referring to as neoliberalism).

So capitalism.  What are all of these different types and how does that fit into the economy?

So once a country has decided on what type of economy they want (see above diagram) they then have to decide on the way they are going to make that happen. The detail.  If they choose a market economy they could choose to run a socialist market but we will focus on capitalism for now and this is where the different types of capitalism come in and where different outcomes originate from.

  • State Capitalism.  This is rather like Russia or China where the state manages all trade and you quite literally work for the country. The opportunities for personal gain are low and you are pretty much at the mercy of your government as to whether you have a decent standard of living and some individual choice or not.
  • Welfare Capitalism. This is the sort of system that emerged after the war and is now what is called the Nordic model but also encompasses Rhine Capitalism of the type found in Germany and Denmark.  Basically it puts people and social welfare at the centre of policy so while the aim is for business and the country to make profit, the profit is for the good of the people above all else.
  • Liberal Capitalism is one that favours business and private ownership. The type of landscape that favours entrepreneurs and owner businesses.  Liberal capitalism is the type that the USA, UK and Australia have been built on in recent history.  This system is perfect for creating lots of individual wealth and private enterprise but how that feels as a citizen of a country operating with this economy depends on your ability to take advantage of that because if you can’t you might end up feeling taken advantage of.  While there are various levels of liberal capitalism depending on the degree of regulation the government imposes and the level of asset the government owns generally the end game is a free market which is basically where business is allowed as much rope as they need.  Neoliberalism fits in here.

So is capitalism the problem?

Looking at all of this and reflecting on the different economies of the world and given my background I am still saying no, capitalism ISN’T the problem.  I personally love the fact that I live in a country where my efforts and enterprise can be financially rewarded in a unlimitless capacity.  I personally feel that is quite motivating both physically (getting me out of bed in the morning to do the grafting) and philosophically.  If I can generate great wealth I then have a great capacity to choose how that wealth be divvied up.  I can choose to be socially responsible.  I do practice being socially responsible, I donate to charity every month and value resources enough to limit my spending and consumerism so as not to be such a burden on the environment but just because I do that (and I could be better) I don’t expect everyone else to.

My favourite type of capitalism is welfare capitalism where people and their welfare is at the centre of what drives profit-making endeavours.

My least favourite type of capitalism is what we have now, neoliberalism where the key driver is profit for profits sake. The winner is the one with the most money.  That’s not to say that a neoliberal economy can’t be altruistic and can’t produce philanthropists but in this system it is a personal choice rather than an obligation and we all know that people can and do often choose to look after their private selves first.

Economies can and do move as we saw with the UK between the 1940’s and 70’s but looking at what has happened in the past the move towards a welfare type of economy has to be deliberate or essential.  As I said in the beginning to trade is to be human and the instinct to succeed, to profit  goes to the heart of western culture (I say western because profit taking and ‘winning’ isn’t the way of all cultures. Co-operation is a viable alternative and co-operation without communism is absolutely possible). But we have to keep our eyes open. We have to remember that the economy is not something to be worshiped and held over us like a knife poised to cut us to the bone. The economy serves us and in order for it to serve us properly we have to direct it.

I feel that it is time to put people back at the centre of the economy and to re-imagine profit and corporate success in terms of happiness, wellbeing and environmental sustainability.  That doesn’t require us to turn our back on capitalism, it requires us to turn our attention to the point of it.

There is a new economy out there just waiting for us to grab it. It’s called the renewable energy market and it can drive everything.

Well that’s what I think anyway…..

Amanda x

PS: These are my thoughts as they are today. I am sure I’ve made some blunders in my appraisal of the last 40 years of the UK and world economics but I think the point remains the same even if the detail is possibly lacking.

 

 

 

 

 

 

 

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