Understanding economics. Part 7 – Market capitalism has evolved (devolved from its purpose)
Our lived experience today with market capitalism is one of seeing dishonesty and waste. We see dishonesty in the ads; You too can be a southland rugby playing tough bastard if you buy the Isuzu d max SUV; it’s patronising. Constantly being yelled at, ‘but wait there’s more.’ All the puffery. And the sales of 40%, but it’s actually fake starting from massively overinflated prices. The poor quality of goods, and everything plastic.
Capitalism is inefficient and wasteful and we can see it everyday. But deeper than the waste; currently in large enterprises there is no concern taken for whether all demand for goods and services is met, because that is the governments problem. There is no accountability about world resource use because the pricing mechanism is not good enough to send the correct signals on wasting resources or damaging the biosphere. The proof of that is the climate and pollution crises.
But was the market and capitalism always like this? In town/village life demand and supply sort of worked in real time but at the end of a market day because some produce would waste they could sell at low prices to poor people or even give away. The monasteries often performed social welfare functions. The market system was sort of efficient but there are significant other values than a straight profit motive at work.
Much later Henry Ford famously paid his workers extremely well to expand the number of people who could afford to buy his car. Also through mass production techniques he drove down the cost of the car. He burnt the money candle at both ends because he hoped it came back for him. It did.
His context of course was a new technology with a huge number of competitors (lots of car companies) and plenty of effective alternatives; trams, trains, horse and carriages. And very bad roads. Like others he chose to use the existing infrastructure concept that previously used barrels of whale oil to now use barrels of oil (rather than electricity). But he was also massively subsidised by government building of roads and infrastructure that supported his cars. But his wealth accumulation came because Ford had to produce a quality good and service at a reasonable price to make a profit.
But through all this growth there were devastating boom and bust cycles that unjustly ruined ordinary peoples lives. The accumulation of wealth was very much left to its own devices except for the wealthy elite sponsored government violence in crushing unions or making wars in other countries to secure assets. This economy was about raw power and was quite unjust.
Many or most people at this point will say this is overstated I’m demonising market capitalism and neo-liberal economics, because the facts show life is so much better now than it used to be. We see this in the life expectancy data, we see this in the comfort of how people live their lives, we see this in lower disease, we see this in the technology advances. The data is true, but not delivered by market capitalism.
In the 1930’s economics reached its Galileo age; John Maynard Keynes transformationally saw the economy revolved around the people; the demand side of the economy. If the demand side stayed strong the economy stayed strong. The government, was the only force capable of organising to the scale needed to support the demand side of the economy.
And the tasks of the government were to ensure essentials like health, education, public infrastructure, housing etc. And government supplied this more efficiently because the market does not supply to those who can’t pay the equilibrium price. And the cost of government services is much lower because it does not have to deliver a profit. The cost of profit drives up prices.
The domestic economies boomed under a benevolent social wealth government, and research thrived bringing many of the advances through the auspices of government money. But since the 1980’s economics regressed with the belief in the invisible hand of neo liberal economics theory. That theory was developed when reflecting upon a relatively small scale, largely rural society without much government infrastructure visible. By imagining the invisible hand in charge we now have a housing crisis, education crisis, health crisis, and finally the climate crisis being strengthened etc. Things are declining and will continue to do so rather than improving under the challenges we face.
The current wealth and success of our society is largely the remaining legacy of Keynes’s insights. But Labour and the Greens appear ruled by the same incrementalism and cohabitation with neo-liberalism that did not work for Helen Clark. And incrementalism to what? A stasis with inequality and desperate need. Perhaps they delude themselves that they are following New-Keysianism when Keynes said nothing of that sort. Keynes was transformational.
And who are Labour and the Greens cohabiting with? The current neo-liberal capitalism is not same as the one of Henry Ford. Market capitalism has completely changed. It is no longer essential to produce quality goods and services as a path to wealth. Rana Foroohar in her book ‘Makers and Takers’ records the US transition from a nation of makers of things (producers of quality goods and services) to the ‘financialisation’ of the economy, and US companies becoming takers and producers of little. Pushing for low wages, moving jobs to nations with lower labour and environmental standards. Driving prices up to maximise profit and supporting that by pushing debt onto consumers so they can afford to make purchases. Using tax havens to avoid tax. Investing in shares, bonds and capital as the new path to easy low effort low cost wealth.
Unfortunately she is very moderate on solutions. An old book but as I recently read it, time has already shown how her few moderate solutions did not pan out. Stronger solutions are now needed. Now is the time of transformation not incrementalism.
Labour seems to have no vision to sell to the electorate of how or what future society we will get to. It’s just some amorphous low brow neo-liberal ‘better than National society’. And it is better than National. The Greens possibly have a vision but they don’t seem to have a coherent series of steps to get there. It’s all new gimmick taxes and statements. Like ‘yes we want green trees cities’; when all their housing policy and urban densification is about destroying trees and greenery by allowing maximise profit development with no community involvement.
I must add there are many good changes in Economics like Behavioural economics, or Doughnut economics. It is starting to take on intellectual maturity as a subject, but as yet these are not in the leadership.
In my next series ‘The people’s economy’ I will go through some steps to transform the economy, tax and legal changes, and expectation changes, so that it more strongly supports local smaller businesses and initiatives, encourages less waste and recycling (not just relying on people to do it but putting in an actual structural driver). But these are just dreams unless there are practical political steps. Because those who make money from the existing status are inclined to fight so political steps are necessary to have awareness of how to deliver change.
As long as the state (not government) relies on stocks, shares, and investments to fund the future through KiwiSaver, The Superannuation Fund or issuing Kiwibonds, one cannot diverge from neoliberalism. As you point out, it does not matter which political part is on the treasury benches, their ability to divest from running the funds or issuing bonds is minimal.
Problem with the dougnut economic theory is that the outer boundary is fluid, based on what the people set said boundary at.
Behavioural economics is the prerogative of the people. A classic example of this is the destruction of the Budlight beer brand and the collapse of the Budweiser corporation by people voting with their wallets. As is their prerogative to form the government.
Yep it is going to be interesting to read “The Peoples Economy”.
How to marry the power of the people to decide their own fate versus PMC designated structures to contain the people. Best bet is one person one equal vote is out the door?
One thing is for sure, we the people will need to be in charge, not the politicians nor their PMC slave masters.
For as the Budlight fiasco has shown, and as Labour inaction and their PMC building is showing, the people hold the power. Even more so now that we have world wide uncensored social media.
You are dreaming, most people can’t control themself so there will not be enough unity for them to achieve positive change via social media which is illustrated by our current situation where we all have access to potentially the same information yet vastly different views still exist. Covid was a major event yet all it did was increase division so it would need something really special to change that pattern.
So the only option is to have the PMC rule the people? There are 8 billion views in the world. The get consensus requires education and truthful information.
The covid example is a good in regards how the “podium of truth” was nothing more than a PMC mouth piece of false information based on what the pharmco’s wanted to sell.
We know best, never mind the numbers of people dying with covid, (even a motorcyclist, with covid killed, in a car crash was labelled a covid death)
All governments have been lying to the people and the question is; how do the peoples representatives gain the trust back of the people that elect them?
Lets start by being truthful both from politicians and the people. Reducing the PMC influence to zero. Increasing education curriculum to teach facts not fiction.
Like I said be interesting the answers in part 7 and how close they come to UN and WEF directives. Directives that are anti freedom, that dont’ believe the people can do the right thing when fully informed, that the planet needs “saving” from the 8 billion by the PMC.
I would trust the people more than the PMC.
Classical economics (distorted by neo-classical economics) is based on a small phrase made by Adam Smith re the ‘hidden hand’ of the market benefits the whole of society. Ie producers are right and consumers wrong. Smith was wrong in his specialisation observation. He completely ignored the role of energy in production. Economists still do not understand the role of energy in economic production. Neo-classical economics as well as neo-liberal economics must be rejected in favour of a full understanding of complex interactions and chaos not trapped in the market/equilibrium ideology. Economic cults are counterproductive to social wellness.
The most successful economy in the last few decades seems to have been the Chinese economy. In part this would be due to the transfer of manufacturing from the US to China. However the Chinese government owns the banking sector, which can therefore be operated as a public utility rather than as a profit making entity. This ensures that money created through credit is used to support productive industries instead of being used to raise asset prices as in the US (and NZ).
The early economists like Adam Smith, David Ricardo and Karl Marx believed that prosperity could be achieved by getting rid of rentier (unearned) income, and they were probably right: rentier income imposed an unnecessary burden on the productive sector and was largely a hangover from feudalism.
When property owners had realised this they seem to have moved economics onto to a different path, one which regards rentier income as form of productive income.
Thankyou for this valuable series.
I’m looking forward to the next.