Is Capitalism Dead?

Bill's Book Report

I just finished a fascinating book about the economic system in the United States and much of world and its current set of problems. I found it so compelling that I want to share my summary with you; Call it Bill’s Book Report. I hope you enjoy.

In case you want to investigate this topic for yourself, the name of the book is “CAPITALISM’S CRISIS DEEPENS,” written by the well-known economist and Professor, Richard D. Wolff.

Wolff tells the story of capitalism from its beginnings in 17^th century Great Britain coincident with the industrial revolution. Based on British success, capitalism spread around the civilized world since British merchants and manufacturers had achieved domination in many world markets. Wolff describes in detail how the system works and has a built-in, seeming inevitable consequence, of creating a class system featuring extreme differences in wealth among those who participate in the system. On top are the owners of manufacturing concerns and on the bottom are those who produce wealth for the owner by their labor. The all-powerful owner (think CEO and Boards of Directors in our current society) achieves such wealth and standing in society that he can influence government policies that might have protected workers from abuse by regulating allowable manufacturing processes.

Over time, the abuse heaped upon workers led to revolts and experimentation in alterative economic systems. Socialism and Communism were two of the best-known alternative systems that have proved to have shortcomings of their own.

One of the most significant of the shortcomings in capitalism has been its periodic, uncontrollable collapse for a variety of reasons that economists are unable to predict or prevent. The most famous and devastating across the world was the Great Depression that began on Black Friday in 1929 when the US stock market collapsed. It was not the first economic crisis in the US, just the most devastating leading to misery around world as people starved for lack of food while foodstuffs sat in abundance in warehouses. Despite intensive studies and a host of regulations intending to prevent subsequent economic downturns, none have proven effective. For example, in the United States, we have had 11 economic turndowns since the Great Depression with the most recent and second most severe being the downturn of 2007. Another is expected soon since we have one on average every five years and each lead to human suffering as folks lose their jobs, bankruptcies balloon, and poverty becomes a norm.

The downturns always lead to demands for government action to alleviate financial problems. The solutions are always the same:

1.       Major tax cuts are given to the rich and the largest corporations (think “too big to fail” and the trickle down theory).

2.       Costly global wars and ‘over-the-top’ expenditures are given as governments and rich leaders seek and find someone to blame for the most recent economic problem.

3.       Extraordinary government expenditures in the service of these fixes leads to government indebtedness prompting politicians to call for austerity programs. Austerity is always heaped on the backs of the poor; never the rich.

The government borrows huge sums to cover these expenses. Borrowing, of course adds further to the national debt. The borrowed money comes from the rich and super rich, and cash heavy corporations who just reaped unexpected millions from tax write-offs. Foreign governments and their investors love it when they can loan funds to the USA because they earn handsome rewards at low risk. These organizations purchase US Treasury bonds whose financial soundness is, of course, insured by the taxes paid by US citizens. Nowadays, the bulk of this money comes from taxes on middle class Americans. The consequences according to Wolff are the following;

“Real wages in the United States stopped growing in the 1970s and have not grown since, even as workers’ rising productivity has generated even more profits for employers. Consumer debt and overwork postponed for a few years the impact of stagnant real wages on consumption. But, by 2007, with stagnant real wages and further consumer borrowing capacity exhausted, a long and deep crisis arrived. Employers used the resulting unemployment to attack job security and benefits …” thereby reducing their costs and improving their profits.

“Auto industry capitalists took the lead and Detroit exemplified the economic decline that resulted. In the deep crisis since 2007, General Motors and Chrysler got government bailouts, but the City of Detroit did not. The auto companies got bailouts via a tiered wage system, but since the City’s income was based on workers’ wages, the loss to the City could not be made up even though the auto companies recovered. The failures of private capitalism thus drew in the complicity of the Federal Government.” Detroit became a shell of its former self with burned out buildings and poverty throughout the city.

Since both Communism and Socialism have proven to have problems, wholesale adoption of these systems instead of Capitalism is not seen as the solution to the misery created by wealth inequality and government indebtedness. Wolff proposes another economic system that can correct the ills of Capitalism without creating new problems. He calls it Workers Self Directed Enterprises or WSDE’s. In this system, workers who provide their labor for the creation of goods or services join to serve as owners, managers and directors of the enterprise. One of the features of WSDE’s is an egalitarian work environment with workers paid livable salaries and managers earning no more than five times the salaries of the lowest paid. Compare that to our capitalist model where CEO’s earn 400 times the salaries of workers.

WSDE workers will operate in the best interests of their co-workers and the communities they reside in. Gone will be the news that we just heard from General Motors where the CEO and Board of Directors make all the decisions including the recent layoff of 15,000 workers and shutdown of four plants that will devastate the communities where they are located. Does the WSDE scheme sound too utopian to possibly work? Fortunately, there exists real-life examples of such enterprises that are working today. The Basque region of Spain has responded to the 2007 crisis by implementing a sizable number of WSDE’s that compete successfully with traditional manufacturers without the negatives of Capitalism. The Basque region is doing very well while other European regions are still struggling with low wages and 25% unemployment. Will this system catch on and become the dominant system replacing Capitalism? Perhaps now is the time to experiment with alternate economic schemes since we have ample evidence of the failings of Capitalism.