Thu Oct 2nd, 2008 at 01:32:21 PM EST
I wrote a few weeks ago about why capitalism is becoming "obsolete": Capitalism must die!
I see that my projections were a bit premature. What is happening right now is the development of a post capitalist system. We are still groping for a name for this new arrangement: socialist capitalism, corporatism, etc.
The essence is that governments now actively promote the creations of monopolies or oligopolies, rather than opposing them. In addition the government has made explicit its promise that these monopolies will be protected from failure. Even when firms are "nationalized" this is just a step on the way to their being relaunched as for-profit firms once again. These are pseudo-private firms. The profits go to the select few while the losses are absorbed by the public.
So, for want of a better term, I'm going to call this post-capitalism. Since it now exists, it is impossible to stop, and it seems unlikely that the trend will be reversed, until the conditions mentioned in my essay become severe enough, that is, when population pressure, resource limits, and environmental damage become too big to ignore. Let's call these new entities "Protected" enterprises.
Since we can't change this, the question is what will be the results?
- "Protected" enterprises stifle innovation. To cite a simple example, the auto industry has been propped up for about 70 years. During that time there has been no innovation in transportation. "Alternative" transportation means 19th Century ideas like buses, trains and bicycles are being promoted once again. It's still the internal combustion engine, now with some occasional battery power. It's still dragging a ton of metal around to move a cargo (us) equal to 5% of the total. It's still paving over the environment and, even so, creating traffic jams. China and India are now rushing to repeat the mistakes of the 20th Century with regard to automobiles. Firms that are not protected will be at a disadvantage. A firm that is protected will be able to finance its operations at a lower cost than will competitors. This is what the problem with Fannie and Freddie was. To remain competitive (and produce the high returns that investors demand) the other firms had to shift to risky mortgages and the use of fraud. Protected firms will be able to engage in fraud with impunity. The worst that will happen is that a few scapegoats will be blames and the firm will promise not to do this again.
- "Protected" enterprises control wages. There was a moment in time when the power of the big firms and government met their match in organized labor. This moment has passed. A combination of foreign outsourcing, anti-labor legislation and enforcement, and the demise of industrial production have weakened labor's strength. As a consequence the working classes have been left behind in the economic boom in the west and have gotten a pittance out of the economic booms in Asia and elsewhere. People can cite the reduction of poverty in China, but moving 200 million from farms to cities still leaves a billion who have missed the gravy boat.
- "Protected" enterprises take undue risks. There is much talk these days about the economic term "moral hazard", which basically means that people will gamble more when they know they can't lose. These new enterprises can't lose. They will be designated "too big to fail". What we are seeing now is the winnowing out of the firms which have inadequate clout withing government in favor of those with power and influence on the inside. It is no coincidence that the firm run by the US secretary of the treasury is one of the survivors. As firms fail their assets are being passed on the the preferred entities, usually via government guarantees and sweetheart pricing deals. The excesses of the mortgage industry will soon seem like small potatoes when the next round of speculation starts up in areas not yet anticipated. It may be natural resources, or risky power generation schemes or even water rights.
- "Protected" enterprises are immune to public pressure. We have already seen how favored industries avoid environmental and safety regulations. Starting in the 19th Century, railroads were given the right of eminent domain and could seize private property at will. Mining companies were (and still are) allowed to extract material beneath land "owned" by others. (We only own the surface!) Mine tailings and the like are freely left behind where they leach into the surrounding groundwater or create landslides and the like later on. In West Virginia coal mines are allowed to push whole mountain tops into the valleys (and streams) below. Harmful agricultural practices are sanctioned by the government by declaring unhealthy products and practices "safe". This has been the case with the introduction of trans fats and high fructose corn sweetener in the human diet. Both are manufactured products that humans are not equipped to metabolize properly and are linked to a large number of, once rare, health problems.
- "Protected" enterprises are anti-democratic. Current representative democracies are highly imperfect, but are still democracies. For various reasons (gerrymandering, the power of incumbency, the cost of running for office, etc.) the will of the people is seldom represented well. However, in times of social stress it is possible for the people to cause a change in direction. In the US this has happened at several crucial junctures, most famously the "trust buster" era of Teddy Roosevelt and the New Deal of the 1930's. We may be on the edge of such a moment right now, but only if the trends I'm detailing can be countered. So democracy is imperfect, but these new enterprise are not subject to any public control. Even under the current system shareholders have no meaningful control over the firms they "own". Once these firms become fully protected they will be able to ignore their owners with impunity. It is possible that many of them will be "privatized" as is the case now with firms like Chrysler and the stable of other "public" firms controlled by Kohlberg Kravis Roberts and similar firms. These takeover firms are owned by a small band of plutocrats beholding to no one. The public gets no say in what sorts of policies they pursue and has no recourse if they follow a path of narrow self interest.
- "Protected" enterprises subvert electoral democracy. There is already the widely-noted "revolving door" between government and private business. With protected enterprises those moving back and forth will know that their career path is assured. The firms that they return to will always exist and will be profitable. These government employees will never have to take the effect of their policies on the general society into consideration during their careers. Instead of a golden parachute it will be more like a golden bear hug. They will be in the permanent embrace of the providers of wealth. A change in political party will have even less effect than currently. The new group in government will come from the same pool of protected enterprises as those from the opposing parties.
- "Protected" enterprises subvert civil liberties. I have already mentioned the loss of labor rights and unions having been rendered impotent. But protected enterprises will be able to call on the government to stifle other civil liberties to protect their profits. We are experiencing the first phase of this currently in the battle over intellectual property. Music firms, for example, have managed to get laws passed which impose civil penalties on people using the music in ways not desired by the firms. Internet providers are also pushing for laws which give them the ability to filter, censor and throttle content. In the UK libel laws are being used by publishers to censor material critical of their offerings. Many firms are adopting business models where people don't own the products they buy, but only have a license to use them under certain conditions. Violations are also subject to legal action. You could give a book you bought to anyone, just don't try it with your copy of Microsoft Windows.
- "Protected" enterprises influence foreign policy. This is nothing new, United Fruit influenced US policy in the banana republics for a century. Similar cases existed with the British East India company and similar 19th Century enterprises. In the post capitalist society such firms will not only have friends in government, but will be "protected". We can expect legislation that will require military intervention to back up the needs of these firms. We don't know what secret promises Dick Cheney made to Shell, Exxon or BP before the invasion of Iraq, but in the future these deals won't need to be secret. Enforcing contracts will be mandated by law. This will work in two directions. As protected enterprises become more international and ownership move outside of the west, the firms will start to operate to the benefit of their home state. What will be the reaction when Coke raises it prices in the US to satisfy the demands of some sovereign wealth fund in the middle east that owns a controlling interest? What if the firm is not Coke, but your local power company?
As I said, my predictions about the end of capitalism are a bit premature. What hasn't changed, however, is the global forces which will doom the consumerist, perpetual growth model that capitalism and post-capitalism demand. All that is happening now is that the strongest firms are absorbing the weakest, this time with government assistance, as they try to circle the wagons and forestall the inevitable collapse.
It is possible to have protected firms, the US used to have many municipal electric companies, for example. The trade off was that such firms were limited in how much profit they could make (if any) and were subject to tight regulation. Societies which have protected health care (such as Canada and the UK) have better health outcomes at lower cost than does the US. The sectors that are protected in the US, Medicare, Medicaid and the VA also do better than the "free market" firms. This is why these for-profit firms are pushing for a new health system where they will also be protected via government mandated insurance.
The last time there was a large-scale shift to protected firms was under Mussolini in Italy. The early version of Fascism was designed as an alliance between favored firms and government at the expense of rival political parties like the Communists and Socialists as well as organized labor. It made the "trains run on time", but quickly led to the inevitable police state which protected firms demand to ensure their favored status. Signs of increasing police state action are already in evidence in the US and UK, with hints elsewhere in the EU. China seems to be shifting its state-owned protected enterprises to quasi-public ones, but continues to maintain the police state control rather than permitting real public involvement in governance.
These trends can be countered, it only requires an engaged (and outraged) public. No dictatorship can survive if the public refuses to acquiesce - even the most repressive state can't imprison everyone. The "color" revolutions of eastern Europe and similar changes in South America show what can be done. Why do the citizens of the developed states remain so passive?