Senate Why don't people love capitalism?

http://www.economist.com/news/finan...de&spv=xm&ah=9d7f7ab945510a56fa6d37c30b6f1709

Buttonwood

All it needs is love

Capitalism’s reputation has been damaged by the bankers





Nov 15th 2014 | From the print edition





WHY don’t more people love capitalism? After more than two centuries, the economic system has brought vast gains in living standards and longevity to the countries that have adopted it. But even in America, capitalism’s spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. Another recent poll found that less than half the populations of Greece, Japan and Spain had faith in free markets; support for capitalism, on average, was higher in poor countries like Bangladesh and Ghana than in the advanced world. The recent financial crisis has intensified criticism of the system, from the Occupy Wall Street movement to the support for parties of the far right and left in Europe.
Perhaps the problem is that the word itself is off-putting (it was invented by 19th century critics). Our image of a capitalist is a 19th century millowner in a top hat or a miserly plutocrat such as Montgomery Burns from “The Simpsons”. The Merriam-Webster dictionary defines a capitalist as “a person who has a lot of money, property, etc, and who uses those things to produce more money”; the Oxford dictionary defines capitalism as “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state”. Neither definition sounds very positive.
Few people would class themselves as a capitalist, or believe they had “a lot” of property or money, and few live directly off profits; most are “wage slaves”. So capitalism sounds like a system that benefits other people, rather than ourselves.
Nor does capitalism relate easily to the Christian ethic which still permeates Western societies. Jesus did not celebrate bankers; he turned the moneychangers out of the temple. His advice to a rich man was “sell all you have and give to the poor”. The role model is the good Samaritan, who selflessly helps others, rather than himself. When we raise our children, we emphasise principles of sharing and fairness; we dole out food and presents equally to each child, regardless of how well they have “performed” during the year. The most reliable complaint of any child is that a decision is “not fair”. It is hardly surprising then that in adulthood, some people see the great riches accumulated by a few and feel that is not fair either. Inequality is seen as a major problem by 56% of people in rich countries, according to the pollsters.
But there is cognitive dissonance at work. Ask people what they think about a system that gives them the right to own property and the result would be overwhelmingly favourable. Similarly, consumers have no problem appreciating the benefits of competition, eagerly seeking out the best restaurant or the latest gadget. Those options are the product of capitalism. Britons would not enjoy such a choice of mobile phones and services if the industry were still controlled by the old nationalised British Telecom.
So perhaps it is a question of terminology. We need a word that implies a system of private property and competition and makes people think of the local newsagent or market stallholder—businesses they can relate to. These people are capitalists in the sense that they make a living by putting their money at risk. But neither the business-owners concerned nor their customers think of them that way.
Terminology is not the only problem, however. In the past 30 years or so, capitalism has become associated less with businesses operating in a competitive market, and more with the banking sector. The best and the brightest of society’s graduates have flocked to investment banking. Financial capitalism is inherently less appealing. It produces not iPads, but complex structured products with obscure acronyms. And when governments and central banks are forced to step in to rescue the titans of finance, the idea of a free market also goes out the window. A system that privatises profits and nationalises losses is impossible to justify.
All this matters because voters are in an ugly mood, perhaps because they have not enjoyed real-wage growth in recent years. That marks a change from the 1980s and 1990s when advanced economies enjoyed steady economic growth, encouraging parties of the centre-left to adopt market-friendly policies.
The risk now is that voters back parties that pursue policies which damage trade and investment, and make the developed world’s problems even worse. The reverberations of the financial crisis make it hard for mainstream parties to fight back. Somehow, capitalism, for want of a better word, must be rescued from the bankers.
From the print edition: Finance and economics


Not a bad bit of analysis/thinking to kick off a discussion on why people are soured on a model which in theory is egalitarian, humane, and generous.

Critics cite inequality, monopolies, and inflated salaries of a few bankers - plus their aggressive risk-taking approach. They cite these shortcomings as systemic faults in capitalism's make-up. To that point, I defer to Winston Churchill when I say that yes, absolutely. Capitalism is the worst economic system, apart from all the other systems.

After all, didn't Soviet central planning not also produces excess, greed and inequality?

The idea that an economic model can promote competition and innovation is a compelling one - some of you will have seen my argument that the market, not the state, will solve our climate crisis. And the idea that there are no barriers to participation in the economy, or that a person with the right idea can make a profit - these are commendable ideas which should be encouraged.

So why do people hold capitalism to account for actions which the advocates of the model strongly cautioned against? Adam Smith's invisible hand is laughed at by people who've never read Adam Smith and therefore don't realise the market as a self-correcting force is supposed to resist and weed out corruption, monopolies, and the like. People scoff at trickle down economics without realising it is exactly how the middle class keep the economy going (of course, if you just have super rich who don't spend their income on consumer goods, you have issues).

Similarly, like any economic system, capitalism is not very good at policing the bad elements in society. Like Soviet-style centrally planned economics, it is victimised by greed though arguably less badly than in the Soviet system. The appeal to the primal instincts of greed and gratification mean that people can think they support a system, when in fact they just support their getting their clip of whatever transacting is going on.

So how do we turn the perception around? Can it be done?

Why don't you like capitalism, eh?

 

Paging Rogue_Ten

 

Capitalism without a heart is a like a disease that infects a body and destroys it from the inside out.

 

People dislike those who exploit a system, make their exploitation stick and immune to prosecution, and ultimately harm the system by doing it.

EDIT: Beezel I am trying to have a serious discussion on this topic, so no more posting pls.

 

I think that piece answered the question. Capitalism has delivered more prosperity and material advancement than any other system. But in the last generation it has increasingly come to represent stagnant wages and a middle class seeing their expectations diminished.

It's part of what happens when we see a massive wealth transfer take place over the last 6 years benefiting banks and CEOs. As the piece noted, you privatize the gains and force the taxpayers to foot the losses. Why wouldn't people be be disillusioned? This is not the great promise of capitalism. This is not democratic capitalism. This is not even state capitalism in nation states with a healthy social safety net. This is capitalism eating itself. There's a disconnect and a crisis of legitimacy for capitalism right now for many people and it is earned.

 

That might also explain why in Ghana and Bangladesh the term is more favourable?

 

I've thought about that. Maybe it's the promise going from abject poverty to a relative comfortable life is huge while the last half is not nearly as important? So in those countries, people have more desire to get to that first 50-60% of prosperity versus the advanced democracies, who are already at that level of comfort.

When capitalism offers the promise of material survival and a annual income of $20k annually versus $300+ yearly, you will love it. China is quickly on its way with that(I think China is currently at 9K+). That difference is huge. Difference between starvation/crazy levels of poverty and the next level of being able to worry about things like home ownership and investments…and the next iPhone.

edit:
From a theoretical standpoint, liberal capitalism promises to take these previous hierarchies of wealth accumulation and disperse them. Usually, those mechanisms have to be coupled with democratic measures.

It also has to be said though that capitalist institutions are not the only ones suffering from perceived illegitimacy, but scientific and republican ones as well.

 

Well I think if you look at any developing nation where capitalism is just starting to take off, and look at what you see relative to established economies like the US or UK or Germany... it's opportunity. The reason a person on the street in Developmentia can build the nation's biggest mobile phone retailer is because no such economic infrastructure exists. The buy-in costs are comparatively low and so your capex costs are modest (accounting for a reasonable rate of future expansion and investment in new stores and some additional services). You think of people who decided to get stupidly wealthy by importing Audis into China - it's the same thing. So much more in the way of opportunity which, contrasted to our world, hasn't already priced ordinary people out of the equation.

 

I'm the infinitely less successful sibling of someone who's ranked as one of the top 50 m&a advisors in the entire world. One of the things we argue about over Thanksgiving dinner is whether the financial sector is actually good for human progress, or whether it's become such an oppressive private sector tax on the transfer of money that it significantly inhibits the real work of the capitalist economy. Naturally, he comes down hard on the side of sexy efficient markets lubed up by the likes of Goldman Sachs, but that's at least partially because he personally pockets a significant percentage of the fees his investment bank collects for his work.

 

Funny you should say that, Jabba- the Economist also has an article in this weeks' edition (or last weeks) about how mobile telephony is cutting out FS middlemen. And my favourite example is the point which highlights how an exchange traded fund like iShares can outperform an index consistently with mostly passive management yet for lower returns you pay a higher management fee to a fund manager.

In some instances, the financial sector provides services that others can't. It can lend large amounts of money against balance sheet. I am aligned to a business area which produces, among other things, an investor directed portfolio service offering (not sure what the analogue product in the US is, but it's a wrap service). IDPS and IDPS-like offering use omnibus accounts to achieve operational efficiency and sufficient buying power to provide investors with wholesale unit prices. Anyone can in theory achieve such a service for investors but it's unlike to be a non-financial sector entity given the complexity of the product.

But in retail banking spaces - retail broking, banking, etc I think it does just provide a tax for middle-manning an arrangement. Is that a systemic fault in capitalism though?

 

Yep. Low barriers to entry and unrealized potential for markets in numerous things. Huge potential for growth. It's like small cap stocks. Explosive growth…..or implosion.

One thing capitalism does better than any central planning is allocate things people actually want.

 

You could also throw in the advocacy of shareholder capitalism over all other variants - if a company's share price goes up by it sacking 500 workers out of say 1500, then that is good, despite that action by the company is likely to practically dump a host of costs on the state and society.

Similarly the line was: Person gains employment at company, gets promoted by company due to their contribution helping the company to succeed and so on. The version for a lot of people has become: Person joins company, works their arse off for them, person gets laid off due to 'down-sizing'. Quantitative evaluation has taken over from qualitative, it's the know the cost of everything and value of nothing approach.

In the same way, it used to be that businesses operated and contributed to the state and society that enabled them to set up in the first, but the big global corporations have blown that social contract up with ease. Small businesses still do this, but they get eclipsed by the monoliths. Nor am I convinced that the likes of The Apprentice does business any favours, quite the reverse.

But all of this is relatively recent - which says the problem isn't with the system of capitalism necessarily so much as the dominant variant of it that's ruled for the last 30-40 years. One thing that Marx didn't foresee about capitalism was its ability to reinvent itself, therefore there is nothing to say that the version of capitalism that many are pissed off with has to stay as the top dog version.

 

No, he probably did in some capacity, dude was a Hegelian. I can't remember a specific quote but I do recall reading that his theory was that a true revolution (In the sense that he desired it) could only come about globally precisely because of how malleable capitalism is. That said, I agree with your specific thesis that traditional Marxism per Marx is probably not equipped to handle modern economic realities, but I'd also probably contend that Classical per Classicists and Keynesianism per Keynes are also not really up to snuff. There's post-Marxism the way there's Neoclassicalism and post-Keynesianism.

 

Okay now that we have that out of the way, I'll address the question.

Why don't people like capitalism? Well, your article is actually fairly decent on addressing this. It probably hurt deep inside that it said the US was the spiritual home of capitalism, but it's true. America, in constantly tripping over itself to sound as capitalist as possible (akin to a Muslim wearing a 'Go America!' t shirt) has created all sorts of nonsense policies. As a result, ordinary people like myself have not had a great experience in the Holy City of Capitalism.

And then you hear the ardent defenders of pure capitalism, Anarcho-capitalists, promote things like sex slavery and starving your own kids (read up Mises' stuff...it's pretty bad), and it gets pretty distasteful. But then Soviet-style Socialism or Chinese-style State Capitalism isn't particularly great to live under, so I don't know.

Run a hopeless red queen race here in the free market or live in a grey-scale world under the politburo? Honestly, I'm not sure I like either.

Do you think this is it, Ender? Is capitalism the final state of human society? Is this what we're destined for until the sun becomes a red giant?

 

I'd be surprised if someone hadn't come up with some new stuff in the last 18-20 years Ramza, as the reinvention point was from a course I did on Cultural Marxism a long time ago!

I'll throw in this notion too: The dislike for capitalism is due to the perception that is an ethical void! The line that comes up frequently is a fair day's work for a fair day's pay! The pro-worker outlook says wages should cover the cost of living, a pro-business outlook says it should be as low as the business can get away with! That's before you even get to quantifying the rate, which brings in power relationships. To invoke a UK stereotype: Should a business employ and train up a just qualified UK teenage electrician or should they employ an experienced Polish electrician at the same price or less, who's more desperate for work and needs no training?

So long as the dominant perception of capitalism and business is that it's ran by a load of dodgy chancers gaming their way to riches, the problems will continue.

 

I don't think we should embrace an economic system based upon how the ideology appeals to us. I think we should choose a system based on what's stable and provides the best living for the most people.

 

1) When you're trying to describe a physical system, then it's important to not let ideology cloud the interpretation of evidence. When you're creating public policy, ideology is most definitely going to come up.

2) "I think we should choose a system based on what's stable and provides the best living for the most people." IS an ideology.

 

what does that even mean? how would we even know what provides "the best living for the most people" without constant large-scale experimentation?

or was that just your special-snowflake way of saying "capitalism is the end of history francis ****yomama pwnage nyaaaahhhh!"? because lol if you think any system, particularly one characterized by constant boom and bust and dependent on the unrestrained consumption of finite resources, will last forever. i mean, talk about "stability"...

 

Marx is frankly very useless as an economist; his ideas really only get relevant when you filter them through Lenin.

I don't know why those awesome quotes were there but I approve.

And I think America, despite getting some stuff right, has managed to get a number of things wrong. The inability to break up monopolies is one; the net result being you end up with extraordinary concentrations of wealth.

Chinese style capitalism isn't too bad if you're just a middle manager. It's a nightmare for Western managers and companies, and it's terrible for the lower classes.

But yes, anarcho capitalism... look. I am a firm believer in privatisation and to quote the greater thinker beezel just you wait Guys. The market will fix the environment better than the state. But the point of capitalism is that it unleashes human potential. Not that it replaces law and policy.

I don't think Marx's prediction of growth into revolutionary socialism and communism is true, but I think the situation in the US is getting close to a tipping point that'll spill over globally.

 

that's intersting, because as a socialist living in the united states, i think we're a lot closer to a fascist coup than a socialist revolution

 

If by lot closer you mean 0.01% I agree with rogue.

 

agreed. I think the disaffected masses are more likely to form brownshirt mobs hellbent on mayhem rather than rise up and reclaim their rightful control over the economic value of labor.