Economics

لماذا تحتاج الرأسمالية إلى الشعبوية

May 6, 2019 Raghuram G. Rajan

شيكاغو ــ تتعرض الشركات الكبرى لهجوم شديد في الولايات المتحدة. وقد ألغت شركة أمازون خططها بشأن إنشاء مقر جديد لها في منطقة كوينز في مدينة نيويورك في مواجهة معارضة محلية قوية. كما أثار ليندسي جراهام، السناتور الجمهوري الأميركي عن ولاية ساوث كارولينا، المخاوف بشأن وضع شركة فيسبوك الذي لا ينازعها عليه أحد في السوق، في حين دعت زميلته الديمقراطية في مجلس الشيوخ عن ولاية ماساتشوستس، إليزابيث وارين، إلى تفكيك الشركة. كما تقدمت وارين بتشريع يقضي بتخصيص 40% من مقاعدة مجالس إدارة الشركات للعمال.

قد تبدو مثل هذه المقترحات غير واردة في أرض رأسمالية السوق الحرة، لكن المناقشة الحالية هي ما تحتاج إليه أميركا بالضبط. على مدار تاريخ البلاد، كان منتقدو الرأسمالية يضمنون قيامها بوظيفتها على النحو اللائق، من خلال مكافحة ما تورثه من تركز القوة الاقتصادية والنفوذ السياسي. عندما تهيمن قِلة من الشركات على أي اقتصاد فإنها تتعاون حتما مع أدوات سيطرة الدولة، فينتج عن ذلك تحالف غير مقدس بين النخب من القطاعين العام والخاص.

هذا هو ما حدث في روسيا، وهي ديمقراطية رأسمالية بالاسم فقط. فمن خلال الحفاظ على سيطرة كاملة على استخراج السلع الأساسية والخدمات المصرفية، استبعدت قِلة نخبوية مدينة للكرملين احتمال قيام أي منافسة اقتصادية وسياسية حقيقية. الواقع أن روسيا تُعَد النموذج المثالي للمشكلة التي وصفها الرئيس الأميركي دوايت أيزنهاور في خطاب الوداع الذي ألقاه في عام 1961، عندما نصح الأميركيين بتوخي الحذر من "اكتساب قدر غير مبرر من النفوذ من قِبَل المجمع الصناعي العسكري واحتمال الصعود الكارثي للقوة في غير موضعها".

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0 Comments on this paragraph, 26 Comments on this article

John Sli May 25, 2019

absolutely! Companies like MS and GOOG should be broken up to start with. Then IT competition could thrive again.
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Henk Crop May 14, 2019

For a market to function you need competition. A monopoly can be dysfunctional. In the EU you have a, powerful, commissioner overseeing the functioning of the market. It seems to work well.
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Jack kessler May 13, 2019

"'superstar' firms should now be challenged by grassroots political movements protesting against an unholy alliance of private-sector and government elites..."

The problem though is that "populism" in the current context(s) takes on many meanings -- and among the many the writer's here is only one -- and terms such as "populism" get appropriated, and twisted, to serve purposes for which they are not suited... For another example "liberalism", now used by groups once considered anti-liberal, -- "neo-liberal" -- or "capitalism", now used by anti-capitalists, -- "neo-capitalism" -- one needs to be careful about definitions, in our Orwellian world.

The writer's cause may be just, here -- I share his banker's concerns about antitrust & monopolies & the threats to capitalism's "free markets" -- but these are not the concerns of the mobs following Bannon and Trump now, or Modi, or Xi, or of the gilets jaunes now regularly trashing Paris, or of Duterte or Erdogan or any of the rest of the current crop of "political" forces... all these people and all their enemies too have claimed the current-label "populist"! Qua economist he may believe that his own expertise and concerns are the root cause of all things-current, but he must remember the elderly adage, "When the only tool you have is a hammer..."

"Populism" to the Ancients met different things as well: in the West it was the Great Evil of the rule by the "demos", by the mob, always the precursor to the advent of the dictator, the "tyranos" -- in Ancient China it meant too the absence of order, the time--of-troubles, the terrible anti-Confucian chaos periods which Westerners have translated tamely as "Warring States".

So when the writer here advocates "populism", for his narrow topic economics, he must be careful: yes economics must listen better to The People, to better-govern the imperfect mechanisms of free-market capitalism -- but that is not the "populism" being screamed in so many streets nowadays, that latter usage is something different, something broader and deeper than economics, it is a "rough beast slouching toward Bethlehem" in the words of many poets and artists, and in politics it is greatly to be feared...

We need balance -- better balances than we now have -- and we need change, in a world grown sclerotic in too many post-WWII arenas which we thought might last forever -- nothing lasts forever. But be careful of all "isms": they may serve careful economists well -- but messy mobs mis-use them and in politics they become religions.
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Douglas Leyendecker May 13, 2019

Newton's third law...for every action there is a reaction. Changes in policy have their own reaction. Globalization has given us lower priced lower quality goods and services at the expense of the middle class in developed economies. Globalization has also given us a giant slug of carbon. So it's the responsibility of developed economies to reduce carbon so emerging economies can grow more of their own prosperity? Time for an ebb back to nationalism. Time to save the family farm from burning down.
- Jack kessler May 13, 2019
  
  Will we in The West accept a diminished role of western-style "democracy" to accomplish these new goals, tho? Our Asian Era is handing-off these and other issues to China and India and Indonesia and the Philippines, nations with great governmental differences but none so wedded to democracy as the West has been recently. How will we in the US for example get along with places which solve such problems via fiat or party congresses or elitist hierarchy? Asia plants trees, better than we do, and they redesign their cities for higher locations to safeguard against global warming, while we simply fuss... But they do none of what they do in these arenas democratically, at least not the fussy democracy which we have grown to demand. That is one of our own primary futurist challenges: future politics are changing too.
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Robert Goldschmidt May 12, 2019

One of the best indicators of monopoly is when a corporation’s earnings to wages ratio (EWR) rises above 0.10. During our golden economic age of enforced anti-trust from 1948-1972, the EWR held at 0.10 but has risen since 1972 to over 0.27 today.

If we define worker purchasing power as their ability to purchase the fruits of their labor, today’s family with two full time workers is suffering a purchasing power shortfall of $20,000 per year compared to 1972 because of this growth in the EWR. That $20,000 shortfall is the difference between living with dignity or not for tens of millions of families and is the source of our growing populism.

How would one go about restoring family economics and strengthening our economic/political system?

First we would need to remove the corrosive influence of Wall Street by eliminating all forms of leveraged buyout. This not only leeches off the corporation but interest on such leveraged debt masks fundamental corporate earnings.

Next we should set a cap on a corporation’s EWR based upon that corporation’s W2 and SEC earnings history (each employee’s wages would be capped at $250,000 for this calculation). Any corporate earnings going forward that exceeded the cap would penalized at the rate of 100%.

At this point we would have succeeded in preventing the economics of working families from worsening. In order to restore their economics, we would lower each corporation’s EWR cap by 1% a year until their cap reached 0.10.

This scheme is much more protective of corporate prerogatives than any tax and redistribute scheme. Facing potential excess earnings, the executive committee could allocate additional wages where most effective to allow a portion of the excess to flow to business owners. Also workers would be motivated by the knowledge that most of any savings they generate would increase wages.
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Per Kurowski May 12, 2019

“Amazon canceled its planned new headquarters in the New York City borough of Queens in the face of strong local opposition.”
Really?
- Jack kessler May 13, 2019
  
  What do _you_ think caused that?
  - Per Kurowski May 14, 2019
    
    I’ve no idea. Perhaps some narcissist wanting to paint Amazon’s arrival to New York to be seen as an all bad thing, in order to politically exploit that, and Amazon not liking it, might have something to do with it.
    For instance tax benefits offered Amazon were basically described as cash paid out to Amazon, and not as less tax revenues collected from Amazon… in exchange for much other of what the city with its quite shaky economy needs.
    In summary I do certainly not believe it was some real locals who want their City That Never Sleeps to now take some Big Siestas.
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Per Kurowski May 12, 2019

Capitalism?
Banks have to hold much more capital when lending to the private sector than when lending to the sovereign. That’s not capitalism, that’s crony statism.
http://subprimeregulations.blogspot.com/2015/07/just-before-fall-of-berlin-wall.html
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TS Low May 12, 2019

Without a fundamental redistribution both of power and existing wealth, including assets, the festering inequality will inevitably lead to a crisis, potentially violent and revolutionary. Dodging the redistribution question either in the political realm or in the media (this article) is tinkering in the face of potential catastrophe.
- Jack kessler May 13, 2019
  
  Agreed. That is why l'alternance has become such a vital question now, in the USA and UK -- in both those places it still appears that it will work and be peaceful, although there are rumblings in both -- in France, though, there has been violence already -- the Rich do not part with their money cheerfully, the Poor rarely are gracious in grabbing it. Piketty & Saez made this point pungently last year -- here's hoping US politics will grasp and resolve it more smoothly than UK politics has so far.
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Robert Wolff May 12, 2019

The problem, especially from the viewpoint of US Trump Populism, is that Globalism should not have the effect of destroying financial systems in nations that are net importer of goods.

His solution in the end is an intricate system of trade tariffs which have the effect of balancing national capital inflows with capital outflows and balancing imports with exports, perhaps modified by currency revaluations, to maintain the financial stability within each nation-state. The failure of international financial balances, according to Keynes, was the reason for WWII, predestined by the unsustainable peace requirements levied on Germany after WWI.

If we have learned anything from past history, it is to avoid these avoidable mistakes.

Now is a good time to take the lessons of the past seriously, and solve the current international inequities, well known from the past, before they again lead to war.
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William Allan May 9, 2019

Capitalism certainly needs popular support, but populism as it is commonly understood raises a much deeper set of problems. First, it is not at all clear that disaffected groups (or indeed the wider population) really understand either the causes of their disaffection or the remedies needed. Populists are those seeking political power by appealing to the disaffected and pretending to respond to their needs—successfully in the case of Donald Trump. The disaffected thus do not play a major role in maintaining competitive capitalism; those that are influencing their vote primarily seek power not market competition. Effective policies to regenerate devastated communities can only be generated by progressive politicians who are thoroughly informed on the extent of disadvantage and are deeply aware that the neoliberal system is incapable of and indeed uninterested in responding to these needs. Populism in Rajan’s sense of the word provides no realistic mechanism either to preserve vibrant markets and democracy or to achieve social justice.
- Jack kessler May 13, 2019
  
  Agreeing strongly: the EU, for example, crippled itself fatally by refusing to address the political aspects of their union -- but economics never is enough, as Kelsen put it systems require both efficacy and validity, and the EU came close as to effective economy but when troubles broke out there lacked the political validity to enforce necessary sacrifices. The US faced this too -- our transition from "Articles of Confederation" to our secret "Constitution", it was a painful maturity process.
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- Robert Wolff May 12, 2019
  
  Agree in part. The humiliated and disaffected populists are affected, but do not determine the policies that lead to their humiliation/emotional pain and loss of socio-economic status. Doubt they are seeking power to overcome their humiliation in loss of status, though, and they will readily admit they do not understand the intricacies of capitalist competition and power politics - that would be revolutionary.
  
  All Populism says today is that there is a large group of people in many nations who feel humiliated, not because they lack power, but because the leaders in which they have had faith have become the source of their humiliation, not their supporters and certainly not their saviors.
  
  Agree the neoliberal system is uninterested in addressing the reasons for the humiliation of populists - rather wants to propagandize that they "do not understand", lack political consideration for logical and realistic reasons, and that their continued sacrifice is warranted in the view of the Elites who are the source of their humiliation.
  
  The "vibrant markets" and "democracy" should benefit the working middle class in America, if they are vibrant and democratic, but they are only humiliating the working middle class in favor of the narcissistic superiority of the Elites who are preaching to them that their misfortune is their own fault.
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Ian Hill May 7, 2019

Why should we believe “superstar firms” are an issue? Isn’t monopsony, not
monopoly, driving low wage growth? Isn’t that a bigger deal than expensive gadgets?

Hard for populists to help when pundits don’t give them the right targets.
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srinivasan gopalan May 7, 2019

Well the erudite professor and former governor of India's central bank has expressed his views on how capitalism can be compassionate and still serve the larger constitutency if only the players in the market mend their ways. But in most democracies that are wedded to capitalism the corporate honchos stay in cahoot with the political dispensation to get elected by cook or hook, be it in the U.S or India, the world's two largest democracies where light touch regulation of restricted competition had played havoc and widened inequalities with scant regard for morality or societal values. It is easier to preach pellets of bullet wisdom but when the players both in politics and in the real corporate world remain immune to basic norms of decency and ethical values, much cannot be expected by way of reform or even revolutionary thinking! This is not a cynical way of abandoning one's responsibility but implicit is the need for every player to be responsible and responisve to the larger needs of the community, the nation and the universe!
G.Srinivasan, Journalist, New Delhi, India
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Yaman Cakiroglu May 7, 2019

The paragraph below of this great article says it all:
"Capitalism needs top-down reforms, such as updated antitrust regulation, to ensure that industries remain efficient and open to entry, and are not monopolized. But it also needs bottom-up policies to help economically devastated communities create new opportunities and maintain their members’ trust in the market economy."
The key word here is "trust", free market capitalism lost the trust of all of its constituents except its biggest winners.
That's why we need to transform it to a sustainable capitalism that treats all of its stakeholders both equitably and equally.
It's easier said than done, but we need to keep in mind that before Christopher Columbus and his shipmates started their voyage, Atlantic Ocean was thought to be uncrossable and the Americas were unknown to the rest of the world as a continent.
Nothing is impossible.
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Jag Patel May 6, 2019

Actually, the trend towards concentration of economic power is most pronounced in markets in which the government is the main, or only customer, which happen to be some the most closed in the world, posing significant barriers to entry, with public procurement contracts often handed out on a preferential basis, to the Select Few.

Consider, for a moment, the market in defence equipment.

In the UK, over 42% of MoD’s expenditure on defence procurement for 2017-2018, amounting to over £15 billion, was spent on just ten suppliers – the Select Few. What’s more, this market share has remained pretty much the same over the last decade.

When it comes to procuring defence equipment for the Armed Forces, the UK government has no option but to rely on the Private Sector, because it no longer has the ability to produce military equipment – as it used to do.

This is because the means of defence production, distribution and exchange is now exclusively in the hands of private interests, that is to say, the State is entirely dependent on for-profit organisations for the design, development, manufacture and delivery of new military equipment to the Armed Forces. Consequently, the government has become reliant on the Private Sector for all its military equipment needs, including its subsequent upkeep, when in-service with the user. The harsh reality is that, no department of state in Whitehall is as dependent on the Private Sector, as is the Ministry of Defence. Likewise, these private interests are completely hooked on a steady flow of taxpayer funds for their very existence.

Consequently, as the only customer of defence equipment, the government is in a powerful position to dictate the terms of trade. But it has failed to leverage this enormous purchasing power to its advantage.

The main reason for this failure is that people in Whitehall have little or no understanding of the forces at work and commercial pressures that exist within for-profit organisations which are ready to be harnessed for the benefit of taxpayers – not least, because they have not spent a single day of their lives in the Private Sector – and yet, they have been put in charge of spending taxpayers’ money to the tune of £15 billion per year to buy defence equipment, outsourced services and labour from the Private Sector.

What’s more, the judgements made by these people, as it relates to the expenditure of public funds, are distorted by the fact that they will end up in the Private Sector to pursue a second career, later on. So, it comes as no surprise that MoD employees are, without exception, favourably disposed towards the defence industry because they are completely dependent on it for their subsequent career choices (via the revolving door), when their time in public service comes to an end, or their employment contract is terminated abruptly by political edict because they have been found wanting. Indeed, it is very hard to find anyone at MoD who will aggressively defend taxpayers’ interests, once they have enjoyed a cosy relationship with defence contractors. It is fair to say that they know which side their ‘bread is buttered’!

This mass migration would explain why staff on defence contractors’ payroll is made-up entirely of people who were previously in the pay of the State.

So, how did this total lack of diversity in the workforce of publicly-quoted companies, right across the full spectrum of defence engineering businesses and government outsourcing contractors, large and small, come about? The answer is clear, through the interfering hand of the State – in the shape of the Defence Secretary who has been actively encouraging these defence contractors to hire people, who were most recently in the pay of the State – thereby discriminating against other, equally deserving groups.

Defence contractors may very well call themselves public companies and have their shares quoted on the stock market, but they really are Private Sector organisations in name only, not least, because they are ‘created in the image’ of public sector institutions like MoD Abbey Wood (warts ’n all) displaying all the tell-tale features of: a workforce made-up entirely of people who were previously in the pay of the State (where they developed an unhealthy penchant for rules, regulations and processes), who have succeeded in transplanting a work culture characterised by failed practices of management by committee & PowerPoint presentations and groupthink that disallows external challenge.

What’s more, instead doing the right thing and educating people in the pay of the State about the ways of the Private Sector, these new arrivals (in association with those who have gone before) then set about exploiting the ignorance of their former colleagues at the Ministry of Defence, for one purpose only – relieving them of taxpayers’ money – which has, in itself, left the public finances in pretty bad shape.

There is something very disturbing about people who have previously, as public servants sworn undying allegiance to Her Majesty Queen Elizabeth II, only to then engage in defrauding Her Majesty’s Government of taxpayers’ money on behalf of vested interests.
@JagPatel3
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