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Capitalism is Dead - Did you Notice?

by rdf Thu Jan 22nd, 2009 at 01:57:29 PM EST

The meltdown in the financial sector has brought forth lots of pontificating about the need to restructure the economy or, at least, the financial sector. But before this is done, one has to figure out what the present system is.

Here are some indicators:

All large business sectors get economic support from the government. These fall into two broad categories, tax breaks and purchase support. The aerospace industry is kept afloat because of the purchase of military hardware, as is the US shipping industry. Agricultural commodities receive subsidies and tariff support. Surpluses are bought by the government or their sale is facilitated to foreign states. Transport is subsidized through road construction, airport construction and passenger rail subsidies. Broadcast and telecom firms get radio spectrum and contracts for communications services including contracted wiretapping.

The extractive industries get depletion allowances, cheap land leases, and various other tax breaks. Newspapers and broadcast stations are allowed to restrict markets through joint ownership exemptions. Mortgage and student loans are handled through quasi-governmental firms. Now the big financial institutions have received funds to allow them to keep operating as have the auto companies. Even retail stores get real estate and sales tax breaks as an inducement to them moving into a new locale.

During this downturn the government has been explicitly pushing for the consolidation of financial firms. This is a complete reversal of the policies for most of the 20th Century where "trust busting" and anti-trust legislation was the norm. There isn't even a mention of excessive industry consolidation these days no matter how concentrated markets become. Bulk agricultural products in the US are controlled by three firms, meat processing by about five, etc.

What we have is state sanctioned enterprises which are monitored indirectly by means of the subsidies they get from the government. In addition there is a revolving door between business and government which ensures that the mindset of those in both areas are the same. There is no concern about monopolies, since the government is managing them anyway.

The fuss in the US and the UK at the moment is whether to allow this symbiotic relationship to be made explicit. If the government "takes over" a bank then we are seeing "socialism" which has been the ideological bogeyman of capitalism for 150 years. The fact that we have had something similar for decades is the dark secret.

Bailout plans amount to little more than deciding which pocket to take the money out of and which to put it in. Is there any real difference between the Federal Reserve lending a firm some money based upon "assets", taking preferred stock as collateral or "taking over" the firm? The only thing that changes is the name of the CEO. The present bailouts have all been outsourced to management firms to handle because the Treasury department doesn't have the "expertise" or staff to do it on its own.

I'm stuck with what to call this system. The Chinese seem to call it state controlled capitalism, but maybe we should call it pseudo-socialism or invent a new term altogether. Whatever it is, it isn't capitalism. That only exists for the small players who continue to fail at the typical rate of 80% within five years. This churn makes it look like free enterprise is the basis of the economy, but is more like background noise.

State sanctioned oligopolies have their benefits. They provide high profits at low risk, they provide good earnings to those fortunate enough to get on the inside and they ensure that workers can't push their cases effectively. In other words they benefit the select.

They also have their drawbacks. They stifle innovation and prevent new firms or technologies from entering markets as easily as otherwise. They keep prices high and choices limited. They are inefficient in their use of resources. The allow their economic power to influence political events, that is the are anti-democratic. In other words they benefit the select.

Is there any chance that a new era of trust busting and the elimination of the  alliance between business and government can happen? Have you heard Obama or anyone in his team mention monopolies?

Interesting argument, but there is actually nothing about capitalism that precludes substantial government involvement nor has there ever been, Austrian School ideology notwithstanding.  Marxist theory views government subsidy and welfare systems as critical elements to sustaining what would be an unsustainable system if left to private interests entirely And there is no period in capitalist history where government intervention and support for capitalist social structures has been absent or small.  The nation state itself is a capitalist development according to most historians. So I think, if anything, the current crisis shows that capitalism is alive and well in the world and will be so for the forseeable future.
by santiago on Mon Jan 26th, 2009 at 11:55:16 AM EST

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