The capitalist myth

from the Asia Times:



The capitalist myth
By Dafydd Taylor


As the financial crisis rumbles on we are constantly told that what while there are a few problems, all the benefits of modernity are the unambiguous results of the capitalist system.

That the invisible hand famously documented by Adam Smith is what has brought us industrial progress from the factory system to the telegraph to the Internet. But in reality, the factory system inspired by Arkwright, more than a century before Henry Ford, grew up as a response to the effects of the Agricultural Revolution.

Vast pools of cheap labor created by the enclosure of common land coupled with mercantilist economic policies made especially effective by a growing empire allowed Britain to lead the process of industrialization. It was this interaction between state and private sector that was necessary for industrial development. These are lessons which may be lost to the West, but the current most economically successful country, China, takes heed.

Britain only adopted free trade as a policy in the later 19th century. By this time a fully industrialized nation seeking to defend an entrenched position, including limiting the development of competitors. The key driver for the development of the first electronic communications network, the telegraph, was the British Empire. ...........(more)

The complete piece is at: http://www.atimes.com/atimes/Global_Economy/MK16Dj06.html

and the public sector bad. That all regulation of the private, capitalist, sector stifles innovation. Yet it is unregulated capitalism that lies at the root of the current economic crisis.

1. In reality, neither the private or public sectors are inherently good are bad; rather, it is the character of the people within the sectors that defines their goodness or badness. The major problem with the public sector, relates to the fact that there is no accountability. Take for example the case of Bernie Madoff, (private sector) who is serving a 150 year sentence for his misdeeds. Conversely, The Securities and Exchange Commission (public sector), which failed to stop Bernard Madoff's long-running investment fraud despite repeated warnings, has disciplined eight agency employees over their handling of the matter but did not fire anyone. http://www.washingtonpost.com/business/economy/seven-sec-employees-disciplined-on-failure-to-stop-madoff-fraud/2011/11/10/gIQA3kYYCN_story.html?wpisrc=al_comboNE_b

2. It is unregulated and overregulated Capitalism that lies at the root of the problem. It was the public sector that enacted the Gramm-Leach-Bliley Act, which essentially overturned the Glass-Steagall Act (deregulation). Likewise, it was the public sector that enacted the CRA, which began the trend of lowering the standards for mortgage lending (overregulation).

...... You're peddling a discredited bill of goods.

:boring:

I don't know if I would go so far as to say "hate," but I'm sure it's apt in some cases. It is foolish for people to argue from philosophy when we have years of experience from which to draw. We should worry less about ideological purity and worry more about what works. And the fact is, we are operating within a flawed and failing system. Alternatives are batted away not because their merits have been considered, but because entrenched power does not want to give an inch.

Actually, I would say that we have millenniums of experience from which to draw, and that experience tells us that human beings are imperfect creatures.

Taking that into account, along with a few of Lord Acton?s words:

1.Liberty is not a means to a higher political end. It is itself the highest political end.
2.Power tends to corrupt, and absolute power corrupts absolutely.
3.The danger is not that a particular class is unfit to govern. Every class is unfit to govern.

it is clear that private, for profit, free-markets are superior to markets controlled by the same people we entrust to control the guns (legitimate use of force).

As I mentioned earlier, those who work in public sector are rarely held accountable for their acts of malfeasance or anything else. They are exempt form insider trading laws, and many other laws and regulatios that apply to us commoners.

Only 1 out 5,000 federal workers is fired for poor performance each year. It's 3%, or 150 per 5,000 employees in the private sector. Non-performing federal workers cost US taxpayers billions each year and they also expose the public to dangers like the ones facilitated by the Securities and Exchange Commission.

I agree with your points 1, 2, and 3.

But I can't say whether or not I agree with your conclusion (private, for profit vs. public) without hearing more from you about what you mean. There are numerous ways to organize private and public enterprises and the legal structures they operate within. It's not a question of "A" or "B."

I would add that one of the main problems with the system of private, for profit enterprise we have now is that it results in a concentration of power - which, as you correctly indicate in point #2, is a pitfall.

The architecture of a better system (private, public, or mixed) should include broadly distributed power and accountability. That is currently lacking.

relates to the alliance between the public sector and large private corporations. It seems like the only thing that separates Pennsylvania Ave and E Capital Street from Wall Street, is K Street.

Rather than facilitating a further concentration of power in realm of the public sector, we should focus on breaking the alliance between the watchdogs and the attack dogs.

History has proven that no other economic system can match the creative power and standard of living of Capitalism; however, the quest for ever greater profits inevitably leads to corruption and destruction. And when those who are entrusted with regulating and maintaining a level and assessable playing field, i.e., the watchdogs, crossbreed with the attack dogs, it spawns a monster capable of destroying everything in its path.

The American People need to destroy this hybrid ogre, before it's too late.

Democracy is corrupted by economic power. But that is a natural outcome of the legal framework governing our economic system. The "alliance" is essential - what would you do away with? Limited liability corporations? Contract law? Patent protection? If the system allows for dramatic economic "winners," it is natural to assume they will pursue further advantage. One can't separate the public and private sector successfully without a fairly comprehensive re-write of the rules of business. And that would mean something other than "capitalism."

Also history demonstrates something entirely different from what you suggest. Creativity is natural element of humanity, and it is enhanced by the accumulation of knowledge and the network effect. Capitalism has nothing to do with it. As for "standard of living," going by the very measurements capitalists would insist upon (which aren't entirely wrong, but can be fairly unimaginative), the best results have been achieved by mixed economies with a much stronger public sectors than the US.

And once again - don't get bogged down in dualities! There are more than two choices.

members of their staff, from becoming lobbyists for ten years. I would also prevent them from working for, or becoming board members for any corporations that that were directly affected by legislation they had a hand in drafting or coordinating. Subsequently, I would circle file the entire US tax code and replace it with a standardized system that treated all business the same. They all seek favors and special treatment, but the only way to avoid picking winners and losers, is treat them all identically. (Of course, to do all of this, would require a government that is antithetical to my beliefs--I am the Emperor in this dream :))

Creativity is enhanced by knowledge, but it is also enhanced by culture. For example, ancient Chinese society was known for its advanced inventions, including fireworks and paper. Later, because Confucian society did not value creative production, few people, if any, were encouraged to be creative. According to Confucianism, education is a more important quality for a leader to possess than technical competence or professional expertise.

Conversely, creativity, initiative, innovation and economic growth are hallmarks of societies with liberal market economies.

In years 1000–1820 world economy grew sixfold, 50 % per person. After capitalism had started to spread more widely, in years 1820–1998 world economy grew 50-fold, i.e., 9-fold per person.<62> In most capitalist economic regions such as Europe, the United States, Canada, Australia and New Zealand, the economy grew 19-fold per person even though these countries already had a higher starting level, and in Japan, which was poor in 1820, to 31-fold, whereas in the rest of the world the growth was only 5-fold per person.<62>

http://en.wikipedia.org/wiki/Capitalism#Economic_growth

I would say "context." (Read GUNS GERMS & STEEL.)

Creativity, initiative, and innovation exist everywhere. Can context encourage or suppress them? Yes.

Economic growth is a mixed bag. It's an abstraction. It confers some material benefits, but within capitalist systems distributes them poorly and actually deprives people of basic things like food and a roof over their heads which were previously accessible via subsistence poverty. Alleviating these unfortunate results has actually required tacking on anti-capitalist features.

We wouldn't want to throw out the baby with the bathwater. It's sensible to tease out the best features of what's been tried. But it's not necessary to retain capitalism in order to preserve those features.

to create a better "mix." Clearly, there must be regulatory oversight of markets, but it seems to me that a more centralized or planned system would tend to be more vulnerable to corruption. Our legal system is adversarial in nature and while we surely have some arcane laws (drug laws in particular), in most cases, it protects the rights of the accused (private) as well as the injured party (public).

Earlier, you mentioned a central process or architecture of broadly distributed power and accountability. How would overcome tendency for such a structure gravitating towards Acton's #2?

"Only 1 out 5,000 federal workers is fired for poor performance each year. It's 3%, or 150 per 5,000 employees in the private sector."

Is a unless factiod. Having worked in Human Resources in both the public, I can tell you that a good percentage of those 150 per 5,000 employees' termination had more to do with office politics/organizational fit, than poor performance. The difference being ... public sector employees have civil service/merit rules that afford them the due process protections that the private sector can ignore.

I must correct you with respect to your final point ... "it was the public sector that enacted the CRA, which began the trend of lowering the standards for mortgage lending (overregulation)."

You are mischaracterizing the CRA. I worked with the CRA for many years. It need exactly nothing to do with the lowering of lending standards ... that is an enduring rightwing, blame the poor folks meme.

The CRA was not the sole cause sub-prime crisis; however, as far as I can tell, the relaxation of credit standards that allowed the meltdown did start, with the CRA.

Now, I agree that the CRA's role is overstated by by the right, who are unwilling to admit that free-markets can produce bad results. But at the same time, it is understated by liberals who are unwilling to admit that regulation, too, can effect disastrous unintended consequences.

The mentality behind the CRA, made regulators extremely unwilling to intervene. Everyone wanted to make credit more widely available to the poor. But let's be honest, the poor are not good lending risks. Thus, in order to afford them access to credit, it was indeed necessary to relax lending standards.

"The mentality behind the CRA, made regulators extremely unwilling to intervene. Everyone wanted to make credit more widely available to the poor. But let's be honest, the poor are not good lending risks. Thus, in order to afford them access to credit, it was indeed necessary to relax lending standards."

Two things ... First, CRA only requires that banks make credit available to the (geographic) credit-worthy community from which it accepts deposits. From my experience, CRA was designed not so much for the real estate market; but rather for the retail/commercial markets. It was enacted, primarily, to combat commercial disinvestment of urban communities.

Secondly, an analysis of the FannieMae/FreddieMac loan/default rate would indicate that the CRA played little to no role in the mortgage melt-down. The melt-down started with real estate investors walking away from failed investments.

Over the years it evolved from a somewhat benign law into one that focused on outcomes. Towards the end of the nineties, regulators began to hold banks accountable in serious ways. Banks responded to the pressure by increasing the CRA loans they made, a move that entailed relaxing their lending standards.

Subsequently, during W's administration, CRA lending standards were further relaxed. W was a major proponent of the kind of mortgages that banks had started making under the CRA. He supported what became known as "no-doc" mortgages and the elimination of down-payments.

We certainly don't want there to be a fine print preventing people from owning their home, we can change the print, and we've got to...Freddie Mac just began 25 initiatives around the country to dismantle barriers and create better opportunities for home-ownership. One of the programs is designed to help families with bad credit histories to qualify for home ownership loans. You don’t have to have a lousy home for first time home-buyers. You put your mind to it the first time low income home buyer can have just as nice a house as anyone else.
http://www.whitehouse.gov/news/releases/2002/10/20021015-7.html

Subsequently, his regulators instructed banks to create alternatives to traditional credit histories because CRA borrowers often lacked traditional credit histories. Likewise, they were instructed to relax income requirements and allow stated-income to suffice as proof of income. Creative eh..? After all, that solved the problem created by the gap between the actual income and reported income of borrowers.

This of course, caught the attention of con-artists...the rest is history.

http://www.dailykos.com/story/2008/09/23/607383/-George-Bush,-proud-parent-of-the-mortgage-crisis

Bill Heffernan, a rural sociologist from the University of Missouri, and an expert on market concentration, has been saying for over 30 years that the so-called free market will not deliver on its promises because only a handful of trans-national corporations control a disproportionate share of our markets.

As time moves on, his message has been proven right time after time.

A slight advantage in growth could also be called "a slight advantage in appeal", leading to it being chosen more commonly, leading to growth. Or:

A slight advantage in "control" could lead to the same effect - a system with a door "in" but no door "out", so to speak, rather than free movement or choice - again leading to growth.

For instance, if some type of organization can grow 3% a year, it will double in size every 30 years or so; only a few doublings are necessary to overwhelm whatever other type of organization there might be. The one check on that sort of thing (such as worked against communism, for example) is human nature...which says, generally, "meet the news boss, same as the old boss" is pretty close to how things are and will be. Technology has allowed us a good level of wealth now, but as far as organization we have the same thing repeated over and over again all over the planet and spread back through history.

Competent government (or lack thereof) makes more difference in the quality of people's lives.

Ever in the history of Mankind.

You may be referring to the former Soviet Union? That was State Controlled Capitalism and nothing but. Therefore, Capitalism defeated Capitalism. So what? Capitalism has been defeating itself for hundreds of years, most recently in 2008 and we are still suffering the terrible consequences of relying on a fraudulent, flawed system of economics.