Here in the US in 2017, two interesting notions are emerging in parallel that will determine the fate of capitalism: 1) An almost religious faith in its ability to solve all problems at all times (usually held by people on the right who have forgiven capitalism for its shortcomings in the light of the alternative: Soviet-style communism), and 2) A complete collapse in faith by people who are witnessing how modern capitalism is becoming an exclusive club that favors passive wealth over labor (usually held by people on left who equate all capitalism as corruption, or young people who came of age during the Great Recession). According to Fast Company magazine, “51% of young people in the United States no longer support the system of capitalism. And a solid 55% of Americans of all ages believe that capitalism is fundamentally unfair.” By stating capitalism can do everything or it can do nothing, both of these movements are hurting a system that has raised more people out of poverty than any other philosophy or economic system. In short, capitalism is sick and besieged on both sides. If we want to cure this “sick man” of the 21st century, we’ll have to get real about what it can reasonably do…and what it cannot.
Let’s start in the beginning, I am a capitalist, but I’m also an eyes-wide-open realist. Being both a capitalist and a realist, I would like to see capitalism saved it from its own blind spots. If you’ve read my other blog posts you’ll notice I’m partial to making lists, an old military habit I suppose…so here’s another short list to illustrate capitalism’s blind spots:
1) Unbridled capitalism doesn’t do well thinking long term or strategically. One only has to look to the boom-bust cycles of the 19th century, our quarterly earnings report mindset, or our current aversion to reinvest in our infrastructure and people. In the microeconomic view, I’ve been in food processing facilities where the leadership made an intentional choice to ignore food safety in order to gain efficiency; with disastrous results. Another example is healthcare. There is no profit motive in providing healthcare for poor or sick people, yet there are massive strategic economic benefits to ensuring healthcare for all (lower costs, less bankruptcies, more mobility, and greater risk taking by small business owners).
2) It has no mechanism for assessing the prices of shared resources. For example imagine a company that makes its money by ruining the biosphere (air, water, etc) without properly paying for the long term damage. Back before we took these issues seriously, health hazards like smog, rivers on fire, and lead in water plagued our health and environment. This is a topic both sides agreed upon back in the 1990’s when we almost passed “cap-and-trade” which would have assigned a price to carbon emissions but also allowed for trading with those who reduced carbon.
3) A true free market demands perfect information for all players to properly price goods and services, but it is often co-opted by the powerful players in the market who collude to fix prices or obscure prices from the less powerful players. This is pretty obvious to anyone who has only slightly studied the stock market…by the time the news hits you, it’s too late, the fatcats got out and you’re stuck. For a recent example, look to the Equifax security breach where top executives aledgdly sold stock before the news of the breach hit “the street.”
4) Even for those who have a religious belief in capitalism, they/we already agree on limits to the free market (based on both our experience and common sense). We have child labor laws even though the free market wants the cheapest labor. We have borders that stop cheap labor from seeking market needs. See also, bank regulations, Americans with Disabilities Act, public schools, roads, FDA, SEC, etc. Most of all, for $600b per year (more than the other top 10 countries combined) we demand that the government, not the free market, provide our common defense (schooling, healthcare, and housing for military families are all paid for by the tax payers). Common defense is a puzzle that capitalism has yet to crack.
The very best example I can give you is coal. Coal is a 18th century technology that has become so efficient that barely anyone still works in coal, yet the industry still has a huge sway on politicians to protect it when it pollutes or to help it stifle cleaner, more innovative energy technologies. This example proves the point, short term thinking, exploiting shared resources, and a lobby that protects itself from competition…the very worst of all worlds.
I think you get the point, capitalism has some huge blind spots, so enough bashing on capitalism. We also know that capitalism has great potential for saving and improving lives through innovation. I happen to think that market-driven innovation may be the only way out for pressing issues like climate change and jobs lost to automation, but the incentives need to be right…and here’s where government still has a role to play.
So what’s the answer? Socialism? No, the answer is balance. Our grandparents knew this. After experiencing hunger and poverty during the Great Depression and witnessing the horrors WWII, they purposefully built a system where hard work was rewarded, old folks didn’t die from hunger, and children were sent to school instead of the mines or the fields. Even though they are gone, we need to renew their vow to a balanced approach where we can unleash the power of capitalism where it works and restrict/exclude it where it only works for the very few or threatens our children’s future. Once it wasn’t controversial or political that we demand our government to be strategic, people focused, free from corruption, and balanced. It can be that way again if both sides agree to balance. Because without balance, there will only be imbalance and capitalism will only get sicker. We must move forward, together.