The Capitalism Papers

[Edward theurj Berge]

Balder mentioned The Capitalism Papers: Fatal Flaws of an Obsolete System (Counterpoint, 2012) in this post. Some excerpts and discussion followed. I'm now reading the book so will follow up here with a chapter by chapter synopsis interspersed with my commentary.

In the Introduction someone asks if their relative's local store is capitalism. Mander responds that sort of thing is not the capitalism he is criticizing. The former is more about local products and community welfare. Global capitalism is about generating wealth for wealth's sake in a never ending process of unlimited growth. And in the process buying off government to reduce or eliminate environmental laws and fair labor regulation, as well as externalize on to the commons its costs.

Chapter 1 discusses economic succession. That is, economic systems arise and flourish in certain specific circumstances, as well as flounder and die when those circumstances change, necessitating replacement by other, more appropriate systems. Capitalism requires abundant cheap natural resources and labor and we are fast running out of the former, while certainly creating more of the latter. Climate change, peak oil, resource depletion and population explosion make a continuous growth cycle unsustainable. The correlative worldview of ever increasing commodity accumulation via wealth expansion as a measure of happiness must also change.

Mander sees a major obstacle to this shift being everyone, conservative and liberal alike, buy into the notion of ever-increasing economic growth. This notion presupposes an economy divorced from natural resources, as if it existed in some completely abstract realm devoid of material grounding. As I've long criticized, this is part of the egoic-rational developmental level that Lakoff criticizes, a notion of either an ideal Platonic realm and/or an Aristotelian notion of abstract categories that are themselves created devoid of empirical bases. So we need an embodied economics to deal with the limitations created by this abstract Enlightenment version of reason. Bryant's onticology and onto-cartography is also relevant here, since it deals with the material grounding of our ideologies. As is Rifkin's third industrial revolution, creating material alternatives.

He goes to define capitalism much like I did in this thread here. It is basically based on private ownership of capital and the means of production. He adds that this includes unending pursuit of 'enlightened' financial self-interest, our friend the invisible hand job. He lists the varieties capitalism takes, to US corporatocracy to more central-planning versions like China and Russia to northern European social democracies. Plus there is the distinction of scale from the Introduction, from global to local businesses. The latter are not the problem and in fact later in the book part of the solution.

Mander admits that this book is not about reforming global capitalism. He further admits it is beyond repair, that it is obsolete and must be replaced. The very nature of the system inevitably leads to boom and bust cycles, even when a new product or service legitimately starts to flourish. The root is the need to then over invest in said product or service to the point of overvaluation beyond its carrying capacity, with the resultant crash. And all based on the above worldview requiring constant growth divorced from reality. The system is also intrinsically amoral, inequitable, prone to war, and undermines democracy. Capitalism may have been appropriate early on when it was in a more local or regional agricultural society, but its global expansionism is rife with dysfunctions that are beyond repair in today's world.

[Edward theurj Berge]

Chapter 2 focuses on globalization via a centralized economic vision of the free market connecting the entire world. It was created by non-communist countries in 1944 in Breton Woods, NH in the US. In its wake the World Bank and International Monetary were created, basically designed to take over the economy of poor countries and exploit them for the gain of rich countries. The global banks and corporations took advantage of this and exploited the natural resources of the poor countries for their enrichment while leaving the waste products behind to decimate the environment and the populace. Meanwhile in the US recovery from WWII involved a huge ramp up in consumerism to fuel the economy, with ad agencies leading the way selling a lifestyle that required the latest toys to make us happy. This spin included increased military spending to ramp up the economy, paying huge sums to contractors for the latest and greatest weapons of mass destruction.

He then goes into his own training as a global economist at Wharton and then Columbia business school. It was all the rage in the 50s and he was taught to convince leaders of 3rd-world countries to forget about local and regional farming and economies and join the centralized global corporate market. The latter included the spin-induced terms free trade, which meant the end of national tariffs aimed at protecting local communities and environments.The agenda also demanded corporation deregulation, again designed to protect the public, as well as privatization of the public commons. International laws were instituted to override a country's own laws which heretofore had insulated them from global abuses. Such free trade agreements overrode not only poor country's laws but US environmental and labor protections as well. (Same story today with the secret TPP negotiations.) And the entire agenda of a "rising tide" was supposed to "raise all boats" through trickle-down, the spin of that generation.

Since some countries were hesitant about joined global markets Robert McNamara as head of the World Bank threatened them to comply of get boycotted and excluded from world trade. Global markets required huge transportation and energy networks that enriched those corporations, but destroyed the local environments in which they were built. All of which profits elevated the GDP but that measurement didn't account for the externalized impacts to environments or local populaces. Hence globalization advocates would point to GDP as an index of "rising all boats" but GDP only included the boats (or rather yachts) at the top. The only thing that trickled down was the piss off the side of said yachts. Hence the greatest income inequality since the Great Depression, not only in poor countries but right here in the US!

[Edward theurj Berge]

Chapter 3 addresses climate change hedging by 1st world countries at climate change conferences, including and especially the US. While many accept it as occurring they nonetheless are afraid to name global capitalism as the culprit since they have to stimulate their flailing economies. E.g., Obama will apparently support climate change research but given his political environment and a stagnant economy will contradictorily support Wall Street banks and huge oil companies as necessary to stimulate said sluggish economy. In effect corporate capitalism is the accepted paradigm for any economy and given its direct impact on climate change we need to face the fact that said capitalism has to go. But no one will go there as yet, except for the progressive 'socialists' who are afraid to own up to that title in the spin war. Ironically climate change may do the job of bringing down capitalism, but at a devastating cost to us and the planet.

He gives some example of this conundrum. Bolivia's President Morales talks a good environmental game, even naming capitalism as the culprit, but must also somehow stimulate his poor countries economy. He made a deal with Japanese mining companies to come in and extract lithium but required Bolivia to retain 60% ownership, thereby filling its coffers. The indigenous populace, and many US progressives, doubt that a healthy balance can be obtained and continue to fight such mining operations. While Morales is struggling to balance environmental and human rights with developmental he is at least naming the devil, something no other political leader to date has had the gumption to do.

Due to such countervailing forces climate summits are regressing instead of progressing. At the 2010 UN Cancun conference previously binding protocols on emission reduction was replaced by non-binding pledges. Said pledges were also grossly inadequate. Even if they were honored, a big if given their voluntary nature, the pledges would result in a 4-5 degrees C increase of global temperatures over the next century. If the pledges are not met it would be more like a 7 degree increase. Many climate scientists think even a 2 degree increase leads to some very serious consequences. And all because global capitalism must remain the driving economy in any such negotiations.

[Edward theurj Berge]

Chapter 4 begins the section on capitalism's fatal flaws. It gives examples of corporate schizophrenia, where some of the people within them feel human compassion and accountability but corporations, not being people (except legally), have no such feelings but only the undivided purpose of making a profit. There are a few examples of corporations causing environmental disasters where the executives effuse sorrow and regret while pledging to clean it up. But inevitably they fight adequate, or sometimes any, remuneration due to the cost to the profit margin while cutting back on or abandoning costly clean up efforts. Contrary to the Supreme Court's ruling, these corporations feel nothing and are only directed by their charter, which is to make as much money as possible. The corp's humans must put aside their own feelings and get on with business.

Cost-benefit analysis is the 'rationale' for a corp's bottom line. When the Ford Pinto's gas tanks started exploding they figured it would cost less to go to court over the deaths caused thereby instead of fixing the problem in the cars. When Wall Street collapsed, they figured since they'd created such huge banking conglomerates through deregulation that not only would they not be punished but that they'd receive government welfare in the form of a bailout paid for by the rest of us. On top of that Wall Street banks gave huge bonuses to these masters of greed and deception for not only almost bankrupting their companies but the entire global economy, which would have been the case had they not been bailed out. The bottom line is that whatever human decency the executives of these corps had it was long programmed out by the nature of the corp itself within the capitalist matrix.

Health insurance companies were exposed by Wendell Potter, a public relations manager for one of them. He was required to sabotage Obamacare with deliberate lies and deception, death panels being a more flagrant example. The entire idea was to make money regardless of the health of the policyholder. To do so they engage in anti-competitive behavior, rig unaffordable prices, routinely deny coverage, eliminate preexisting condition coverage. Hence the huge opposition to Obamacare, which has now become law and will curtail some of this activity. But not without a ferocious ongoing battle still being waged by the Congressional regressives, who cannot abide that it might work. Note that health insurance companies are not fighting this so much because Obamacare feeds them many more customers for their voracious appetite and they'll still make a huge profit despite the prevention of previous abuses.

The basis of capitalistic rationale is that enlightened self-interest, aka greed, is good. This invisible hand (job) doesn't need governmental regulation to keep it in check; in itself it is a divine form of good for all. Or at least some kind of physical law inherent to the structure of the world in its own right that we must obey. When allowed to flow unimpeded its benefits will raise all boats via abundant trickle-down prosperity. Capitalists are fond of finding two out-of-context quotes by Adam Smith to justify greed but fail to mention Smith's broader context of being against monopolies and large-scale corporate entities. His kind of capitalism was based more on local and regional economies, not the global monster that grew out of them. For Smith the larger the business organization the more likely the conspiracy to defraud the customer and the increased necessity of government to protect the latter. For him 'enlightened' self-interest was that which earned one a healthy profit while giving a fair deal to the customer for his benefit as well. That is not the kind of self-interest rampant in global capitalism. And most interestingly, Smith promoted the necessity of public goods like roads and infrastructure that required public taxes to fund them, and that the rich should pay more in taxes for this purpose. One does not hear the regressives quoting these passages.

On the other hand Ayn Rand's social Darwinism is the example par excellence of greedy self interest and one will not find therein Smith's kind of enlightenment. Her ideas are echoed repeatedly throughout regressive rhetoric as if from the word of God. And Rand is God to these folks, as is the money in which they trust. Rand's characters rationalize the need to step on and eliminate, if necessary, the 'little people' undeserving of anything but our disgust. It's the makers we must value and stomp on the takers, the same kind of Randian rhetoric we hear from regressives today.

The chapter closed with a discussion of corporate personhood. The Supreme Court--well, its regressive majority--decided that our Constitution and Founding Fathers though of corps this way. Say what? Corps barely existed at the time, and certainly not in the form we see today. Founding fathers like Jefferson warned against giving corps more power. Freedom of speech was in no way intended for corps, only individuals. There was no mass media as it is today, so they did not foresee that such giant medal conglomerates should be given free reign to support whatever its corp's intentions might be. A corp's intentions? Really? What they mean is the people who own and control the majority of the corp's intentions, which are, guess what, making more money, period. And they do so by spending a lot of money, now considered free speech, to drown out an individual's free speech, most certainly not the intention of the Founders.

The final point being, even if people in the corp want to do right, they cannot based on the corp structure. Which itself is an outgrowth of the larger capitalist structure. The structure is the reigning paradigm and you either submit to and fit within it or you're swallowed up and spit out. And it is the paradigm that needs to change.

[Edward theurj Berge]

Chapter 5 is on the intrinsic inequities of corporate structure. He said to be fair equality was never part of the structure in the first place, just making money. And that they do produce jobs, at least provide minimum wage, and produce goods and services useful to the economy. They can also include other options like fair labor policies and environmental concerns (triple bottom lines), but that is generally limited to smaller, private companies. The larger corps become, and especially if they are publicly traded, the less likely will they include such other options. And it is the latter that are of concern.

Corporate profits go to the owners and shareholders only, not the employees, other than their salary. Raises in salary used to be tied to performance and productivity, but as studies have shown, productivity keeps increasing and salaries have stagnated. And ofttimes shareholders are not at all involved in a corp, but just speculate on it with little to no interest in its products, services and especially its employees. If enough speculators own enough of a corps stock then they can pull it out at any time, thus creating financial havoc for the employees. This is especially true if stock prices are unethically and/or illegally manipulated, apparently the rule rather than the exception these days. Remember 2008? It's still going on.

Corps also benefit from government subsidies and tax breaks, meaning mooching of the people's hard-earned money. And of course they get these breaks (aka welfare) due to large contributions to influence government. They also get us to pay for the externalized costs of their pollution, as well as food stamps and other services to their minimum wage employees, who cannot afford them. As legal entities they immunize the managing individuals from legal liability, thus creating a moral hazard. They exploit the intellectual commons, as whatever innovations they make are supported by and based on public education and government research. Apple is one example of the latter. Almost everything they sell had it origins in government research, from microprocessors to memory chips. Yet Apple feel no allegiance whatsoever to our government or our people, saying it will take its jobs overseas because it can make more money. And yet when Apple's products are pirated they expect the government to protect their property rights, again the people's money.

And of course corps take full advantage of the natural commons, like water, plants, minerals etc. Not satisfied with that though they must privatize as much of that commons as possible for further profit, meanwhile expecting free water for their huge agribusiness and computer chips company. And when they pollute the commons they should be charged fees for cleanup, as well as to compensate the rest of us for having to live with it. And how about sharing their wealth made from our commons? Alaska for example pays every citizen for oil extracted in their State. What a concept!

Then there is the issue of executive pay, which is now about 325 times greater than the average worker. A ratio that is the height of income inequality not seen since the depression. Such disparity is a direct result of giving less to those who produce the wealth, the workers, and more to those that often fail their companies, as in the financial crises. Executives of the Wall Street banks got huge bonuses for crashing their companies and the entire economy! Even when an executive does produce more wealth for his company, does he really deserve so much more that in fact requires that less be given to the workers? That is, in fact, one way they increase their share, but cutting into the wages and benefits of the worker. And in this job market they can get away with it; take it or go unemployed so we can complain about you mooching off society and cut you off at the knees there too. And/or just move the jobs overseas where they can pay far less and not worry about health benefits or worker safety standards.

[Edward theurj Berge]

I forgot that also in chapter 5 he claimed that big business interests have deliberately lobbied with big money to denude unions, specifically so as to reduce or eliminate benefits and drive down wages. And they've been successful. See this graph on union decline directly correlating to middle-class income decline.

[Edward theurj Berge]

Chapter 6 is on infinite growth, finite planet. Never-ending growth is one of the defining characteristics of capitalism. There is never enough; we must always create more, want more, need more, more, more. Craving in Buddhist terms. Good girls gone bad in modern parlance. Capitalist growth requires 3 elements that are not sustainable: cheap resource base, expanding consumer markets that equate consumption with happiness, and cheap or slave labor. It's obvious that natural resources are not unlimited. And more and more people are waking up to the fact that toys don't make you happy. Even if they don't, there's only so many toys one can buy, especially when one is struggling to eat. And that we're tired of working for less than subsistence levels, even though many have to. Yes, capitalism did see enormous growth in the past due to the above factors, but those factors are running out, not to mention were dysfunctional to begin with.

The sort of past growth capitalism has seen is its necessary driver. Without it it begins to break down, as we've seen in the past few years with minimal growth. And given the depletion of natural resources that kind of growth is gone. Cheap or slave labor is still seems abundant, hence why many corps now ship jobs overseas. But even that resource is dwindling, as world population reduces from climate change and starvation. As so is expanding markets, as 1st world citizens wake up to other values that make for happiness beside greed, and as minimum wage earners in any country are less able to buy even food, let alone extra toys.

A key fact is that economics does not take account of the ecological cost of producing more houses or cars. The amount of forestry and minerals required. The amount of CO2 generated, or the amount of land covered over with concrete, or the amount of oil deposited in the soil and water. Economics is the conversion of resources with the consequent entropy bill which has heretofore never been taken into account. GDP doesn't recognize its existence, only focusing on the plus side of the ledger, what products have been created and sold. What capitalism and GDP do not measure is all of the other things that add value to a society, like stay-at-home domestic work, one who grows their own food, or who engages in community sharing of talent and resources. Now that the ecosystem is no longer capable of producing what is required to maintain GDP growth, and as return on investment slows, the capitalist system is faltering.

There is also an increasing food supply shortage. To make matters worse, giant corps are buying up arable land in droves and do not grow food, instead using it as an investment for profit. Or some of that land is used to farm, but only with huge agribusiness tech and ships the food out, not creating local jobs or feeding the indigenous population. And frequently such land was taken from locals by governments to sell to the corps. Yet the locals are left with the pollution from such farming practices, and without jobs to buy their own food, thus exacerbating the food shortage problem. This goes double for the clean water shortage, caused in large part by huge agribusiness and high-tech manufacturing. Global corps are now trying to privatize this commons as well to control where what water is available to their production processes, not to thirsty human beings unless they can afford to pay. And so-called free trade agreements are supporting this privatization of natural resources.

[Edward theurj Berge]

Chapters 7 - 11 continue the saga of the fatal flaws and you can read them for yourself. Chapter 12 is about possible solutions. The question again comes up whether capitalism can be reformed or is it too far gone and beyond repair. Mander goes back to the local small business providing a community service or product, divorced from the ravenous hunger of global corps. It's a matter of scale and if capitalism could be limited in scale in might not be so bad, if only we can get our (US) government to move us in that direction as it has in some other democratic socialist countries. But the US government has been bought out by the capitalists and therefore this isn't going to happen; it's up to the rest of us. So what do we do? He notes four megashifts that must occur: nature comes first; local scale; changing corporate values/structures; hybrid economics.

Foremost is that we stop divorcing economics and ourselves from nature. The carrying capacity of the planet cannot handle the strictly abstract economic formulas that do not account for that. The steady-state economics movement is an expression of that. Economic measures like gross domestic product (GDP) must be replaced with something more like the genuine progress indicator (GPI), which accounts for external costs as well as beneficial unpaid services like within-family child care. And which most importantly recognized limits to growth (including population), with a shift from consumption to conservation. This will require some redistribution of wealth, since the poorest countries cannot reduce their already below-subsistance consumption. We need to establish this base requirement and get some people up to it by the more fortunate among us reducing our standards to it, siphoning the surplus to where it's needed. Also needed is restoring the commons to everyone instead of private interests. For example, the US constitution talks about human property rights but nothing about nature's rights.

One program of economic relocalization is the import substitution movement. When a community produces its own food and energy this reduces dramatically the generation and transportation costs of such goods. It also promotes a more direct democracy as people withing such communities must interact more closely to handle the logistics of maintaining such production for the common good. This exemplifies the principle of subsidiarity. Only when concerns cannot be handled locally do they encompass regional trade, and when that is insufficient does it move to national trade and governance. But in no case does it move to global trade/governance. Mander provides the example of the Iroquois confederation as a prototype for the US system. Unlike the top-down US federal system it adhered to the more bottom-up governance process of subsidiarity, where if regional or national consensus could not be reached than local policy ruled.

As for corporations, they aren't inherently greedy but have mutated due to global capitalism. Some local corps, as well as co-op and B corps, can be of great benefit to their communities. It's a matter of scale and corp structure. Hence the following corp reforms are in order. The corp legal purpose must include all stakeholders, including the environment. Healthy profits can still accrue but not to the degree it impinges on these other stakeholders. Corps are not people and should never have those rights, so Citizens United must go. Corps must take all costs into account on their balance sheets, including externalities like the natural and intellectual commons. At least 50% of corp boards must include workers and community stakeholders. There will be limits to size. Individuals within corps will be legally responsible for their actions. Goods and services are limited to a local community. The kind of local corps listed in the beginning of the section will be promoted and possibly subsidized. Top to bottom salary ratios can be no greater than 10 to 1. There are several other examples.

Hybrids is another option. Instead of eliminating capitalism outright how might it be included with other systems to limit its hegemony and destructiveness. Sarkar's ideas are one example, where we can have the kind of local, small business capitalism noted about, along with worker co-ops. But large national structures like finance and insurance requires State control or democratic socialism. One example of such a hybrid is China. He is not condoning their non-democratic governance or minimizing the environmental impacts of their system. But the hybrid economic combinations previously mentioned might be something to consider. Not mentioned is that China is taking up Rifkin's third industrial revolution. He also includes some other speculative hybrids on the drawing board.

Bottom line is that there is no ready-made answer to what is next; we are in the process of creating it and must each take personal responsibility for doing so. I'd argue though that when we do so by getting involved in the political process we not only can but have made significant changes to government policy. And it is government that is needed to legislate the kind of changes we want to see. Other governments are doing so and making progress and we in the US can as well. It's a matter of personal resolve and collective action. Let's join forces with Bernie Sanders, Elizabeth Warren, Alan Grayson and the Congressional progressive caucus and be that change.