Understanding economics. Part 4 – Private enterprise fails
Perhaps the greatest transformational invention of capitalism is the freedom giving automobile. It opened people up to different communities in different places. It allowed people to connect. For many it was a part of their early sexual experiences. But it’s killing us. The defining creation of our market driven capitalist economy is not the positives of the automobile but the climate crisis.
All the goods and benefits from the recent ‘capitalist’ post WW2 surge is now exposed as largely a completely wasteful, extravagant and inefficient use of scarce resources. And Efficiency of the market is ‘the’ sale feature used to sell neo-liberal economics. The efficiency and effectiveness of market to solve all the worlds problems; not create them. Neo-liberal economics is supposedly the mechanics of that market, the equations that back the actions needed to ensure it works well. And the market is the ‘how’ of capitalism to do things for capitalism’s purpose which is the creation of wealth.
The climate crisis exposes the very heart of the problem with market capitalism; its inability to think about and plan for the future – It’s total dependence on short term thinking. A profit driven economy can’t think beyond the next quarters financial report or at most the annual report. Because the consequences of the short term market are very serious for the financial health of business, the existence of the business, and the wealth of the shareholders. Yes there can be downturns but the board knows it has to turn that around quickly. The consequences of falling share prices, no dividends, and exposure to a risk of loan recall are the behavioural drivers of the boards of director, because the death of the company is the death of their wealth. All other considerations are peripheral. Market capitalism sets up a deep seated insecurity in how we think about the world and how we gain wealth. It’s all about now.
This profit driven survival instinct – short term thinking – is exactly what scarcity of resources , our environment and our society does NOT require. The climate crisis proves this. Market capitalism is failing society, and the biosphere. Capitalists can’t turn around and blame the communists now. Look: Ken Starmer, Joe Biden, Macron, Putin, Mr Robertson; there are no communists, they are all market driven and work to facilitate the market. The climate crisis is all on market capitalism just as Maggie Thatcher and Ronald Reagan said it should be.
The profit driven structures (companies, trusts) that were set up to gain and retain wealth, initially through violent colonial exploitation, and then through neo-colonial tax havens, are all there to serve short term profit maximisation strategies. They are creating chaos in world economies and societies, and destruction of our environment. These wealth creating structures are no longer appropriate for civilised society in their current form. We must create new rules and structures that will lead to organisations adapted to very long term thinking and planning.
But ‘planning’ can be manipulated to sound very authoritarian. Capitalism’s marketing campaign has harnessed itself to a certain type of freedom – freeing the innovators, the thinkers, the doers, the makers; from regulations that hold back the creation of the best of all possible worlds. Because great ideas exist in the minds of great men. Men like; Elon Musk, Jeff Bezos, Mark Zuckerberg, Eric Watson (?), and the friend of Jeffrey Epstein – Bill Gates. This is enough to see what a fake and fraud that campaign of freedom has been. It was a freedom that did not free the innovators, doers, or makers; it simply allowed the exploiters.
Freedom can only exist; within the bounds of societies consent, or within the bounds of a person’s human rights but outside the bounds of another person’s human rights, or outside the bounds of the environment’s rights. Otherwise freedom becomes the tyranny of the bully. The boundaries for our profit driven structures have not been set well. The freedom of ‘the plan’ is liberation from the bullies.
The poor boundaries in our profit driven structures is a major reason why capitalism fails to deliver the purpose of the economy. The purpose of an economy is to provide for the needs and some of the wants of all the people in society. The evidence is it hasn’t: the climate crisis, the housing crisis, the growth of food banks, , education crisis, health crisis, the struggle to pay the bills, the homelessness.
These crises are not poor decisions by a person or a government. They are signs of a system with significant constraints that can’t adapt to meet the needs of people because it is not designed to. It is a system designed to meet the wealth needs of those who control the profit driven structures.
One of the things needing to change is our understanding of the purpose of a business. Many think it is to maximise profit on the supply of goods and services so the owner can live well, innovate and grow the business. But the real purpose of a business is to provide quality goods and services and money for the community. This means the business is permitted to be economically active within the community if it does provide quality goods and services and provide tax. Tax revenue is an essential output of a business just as much as the good or service.
If it can’t provide quality and tax then why would the economic community permit it to trade? The community is incurring costs to support the business to trade e.g. streets, courts, police, sewerage, water, transport infrastructure, education and health for workers and customers. The work of the business must pay for these things; that is why it is allowed to trade. If they are the wealth generators then generate. Business must have new boundaries so it knows its purpose.
But market capitalism has been failing to serve their economic community; the evidence is glaring and obvious. Modifications are required and climate will not wait so there is little time to waste.
The political choice for a voter should be – who has a vision to change the system. At the moment our politicians seem blind. But there are more problems we need to explore so we understand what needs to come in the future and how.
My short summary is that people are the problem since most of us are selfish. There is only one system that I know of that changes a person’s motivation & that involves self-sacrificing love. I suspect that most of the world would rather hang onto their treasures so there will not be a voluntary change by many. I believe that things will keep getting worse to the extent that the state will force behavioral change but that is not the answer either.
“The political choice for a voter should be – who has a vision to change the system”.
Never a truer word! Yet, perhaps never to be. Why so despondent?
Surely, so many things need to change. Must change. I won’t list them all. JM, you’ve done a splendid job of outlining these and why change is imperative. Not modifications to the existing capitalist system. Not tinkering around the edges. Not intervening to ensure the ‘invisible hand’ works for all. The kind of change that sustains rather than exploits the environment. The kind of change that cares for the well-being of all people rather than exploiting a good many of them. But transformative change of such proportion appears so difficult – essentially, it means dismantling (almost?) everything – ideologically speaking and in many cases dismantling stuff in the physical world – that has been built up over the past two or three centuries. Longer. It requires human nature to change.
Agency you say, SM? Politicians seem blind, yes indeed, a euphemism for the power dynamics at play within politics and resultant political inaction. A frustrated vision for the future at best. Agency as in the political choice of ordinary voters? Yes, don’t squander your democratic privilege. Sound advice. But the offerings are pretty slim. And I wonder how many voters REALLY want change of this magnitude. Yes, for sure many want to be kinder, more humane, more caring. But governments can’t regulate for this. Nor should they. Yes, many want to see an end to environmental degradation. Clean water, clean air, conservation of forests and coastal environments, better management of catchment areas. There ARE political choices here. And yes, many voters want the system to be ‘fairer’ – but in many instances don’t want to give up their own privilege; or more to the matter, a good many see their own success as the fruit of their labour, intellectual or physical, or equally, the result of being able to negotiate the existing system to their own benefit – and to that of their family, whanau, hapu, iwi. Let’s be honest, who’s going to bite the hand that feeds them. And let’s be honest, capitalism HAS delivered for a good many – modestly for some, more generously for others. A secure roof over their heads, a means to sustain their family, discretionary spending – and a legacy of past modifications, education and health systems that, while not perfect, deliver for a good many.
But wait! Increasing numbers of people falling between the cracks, without a secure roof over their heads, on the minimum wage, if any, can’t even afford enough food let alone heating. Their own fault though bad choices? Just bad luck? Collateral damage? The legacy of colonialism? And I think there ARE political choices here also.
And finally, the elephant in the room. Sustainability and reliance on a carbon-based economy. The end result of climate change in this era. The evidence does now really suggest its less climatic variability and more the result of human activity. That’s a good enough reason to WANT change and bring about real ACTION to ensure change happens, is it not? Political choices here? All rhetoric and promises with little action? As a disappointed teenager, Greta Thunberg had a point. In the bigger picture, history hasn’t been too positive in this regard. Civilizations have come and gone, most often a result of depleted resources. But on global scale?
I apologise, I don’t have much positive to add. Sometimes, even the prospect of change is overwhelming, let alone change itself. Real change, not virtue signaling! But thankyou SM for an insightful series of essays.