Now is time to Retool "brutal" capitalism

 

 Risks of unbridled capitalism:
Air pollution 

The COVID -19 pandemic has exposed unbridled capitalism as fragile and myopic. It creates income disparities, low pay for essential workers, discrimination,  false hypotheses, state capture, and fragile economies.  Capitalism has been harshly indicted but no one wants it dead.  Instead. experts call for retooling of brutal capitalism.

 “The American form of Capitalism is brutal. With very little public investment and very little Social safety nets” says professor Robert Reich of the University Of California Berkeley. In an interview with CNBC TV. https://www.youtube.com/watch?v=FQswOcLFYWg.  “It transfers wealth from the poor sections of the population to the rich,” said Bernie Sanders, a US Senator. "It is designed to favour the White Anglo-Saxon Protestant race which considers itself superior," argues professor Bill Spriggs of Howard University. https://www.marketplace.org/2020/06/18/for-too-long-economists-have-dodged-the-issue-of-racism-and-discrimination

This harsh indictment is not communist banter. The harsh reality of it was laid bare by the Pandemic in terms of job losses,  amid calls for government support for weak corporations and businesses. Unbridled capitalists work for larger profits for themselves and weaken any measures that stand in the way including weakening governments.  

The short cut to weakening controls is gaining political power which, given their deep pockets, can be bought. Capitalists latched on corruption to short-circuit the effective bureaucrats by bribing politicians! And because corruption is such a nasty word, they finance Lobbyists and think tanks that coin and support false hypotheses that dominate policymaking.

 In a recent broadcast, the international Business Channel, CNBC, said that the Lobbying industry in the US spent US$3.51 billion last year. https://www.youtube.com/watch?v=FZVfTCBUkgM. Lobbyists simply work to influence politicians to make legislations and policies that favour the elite. They do this by donating to a political Party’s or a politician’s campaign kitty. Incidentally, the broadcast says, most lobbyists are former politicians or they formerly worked for politicians.

 Financing lobbying is a worthwhile investment with huge returns. The broadcast said that every dollar spent on lobbying earns the donors $760 in return from the US government. That is why, these days, every large corporation has a lobbying budget.

Governments are in place to counter-balance market power through policymaking to protect the welfare of all citizens and especially, the vulnerable. Greater socio-economic welfare in a country embeds resilience in society, experts argue. We are talking about strong regulatory authorities, strong labour unions embedded in strong laws that protect the society from capitalist excesses by ensuring fair distribution of wealth and good manners. That is why there are safety nets embedded in the law. These are the gamekeepers that keep the poachers at bay.

However, governments have abdicated this role and instead adopted technocracy. Technocracy focuses on maximizing profits by minimizing costs. It is selfish, myopic and fragile. Governments were weakened by the fancy but false hypothesis that sound like economic theories such as tax cuts will always pay for themselves. 

This false hypothesis saw the Trump administration cuts tax rates for the top corporations and billionaires which resulted in a ballooning public debt. The rich got richer while the poor got poorer. 

The US now is awash with poor infrastructure, and poor provision of social services and lack of safety nets due to tax cuts.  Professor Reich says that tax cuts in the US transferred two trillion dollars to large corporations and billionaires. The result; the top one present in the US, some 663 individuals and companies, saw their wealth grow by more than $800 billion in the six months of pandemic induced lockdowns which cost millions of jobs. 

 The idea that tax-cuts benefit the country through the so-called “trickle-down effect” is a Zombie idea says Professor Paul Krugman of New York University and a Nobel Prize Laureate.  There is no evidence to support such a hypothesis. Robert Reich agrees; “there has never been any trickle down from the 2 trillion dollars transferred to the rich,” he says. Zombie ideas are simply falsehoods couched in economics jargon that is sustained by think tanks financed by the billionaires. “It doesn’t cost a whole lot of money to keep a bad idea alive,” says Krugman. If the $1 to $760 cost-benefit ratio accruing from lobbying is anything to go by, then he is right.

Lobbying leads to the capture of the state by the elite skewing policymaking in their favour against other actors of production, especially, labour.  Strong workers unions in the 1960s spawned the growth of business associations to counter-balance them. However, given their deep pockets business associations went on to weaken constraints to corporate power.

That is why wages for unskilled labour are low because business associations argue that higher wages are a sure killer of jobs. That is a false proposition. Higher wages eat into profits and reduce the income gap. On the flip side, low wages mean higher profits for capitalists and widens the income gap.  

The irony of this myopia is: It has produced somewhat efficient but fragile systems stripped of resilience, argue Anna Florin and Sunil Sharma in an article in Finance and Development Magazine. Fragile systems, cannot withstand shocks such as COVID-19 and the vulnerable always pay the price of this myopia.

The exclusion inherent in unbridled capitalism such as racism is also a lost opportunity for the corporate sector. An article on the cost of racism in the Finance and Development shows that the income disparity between white and Black Americans will cost the economy between $1 trillion and $1.5 trillion in lost consumption and investment between 2019 and 2028. That is an estimated 4 to 6 per cent penalty on GDP growth lost, it says.

Given that American capitalism is diffuse, the same unbridled capitalism is exported everywhere hence, the bads of capitalism are diffuse.

So should we kill capitalism? NO. Say, experts.  Retool it! Just kill the false hypothesis and re-introduce checks and balances. Among these are false propositions that seek to weaken the government’s role in counter-balancing market excesses.

Governments must demand that all citizens pay their fair share of taxes so that they invest in public goods.  They must also strengthen bureaucratic controls and strengthen labour unions' bargaining power to protect workers’ incomes and welfare.