Back to Capitalism and Free Markets, Pretty Please

Photo by Paul Fiedler on Unsplash

Understanding Capitalism

“Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market — known as a market economy — rather than through central planning — known as a planned economy or command economy. Functionally speaking, capitalism is one process by which the problems of economic production and resource distribution might be resolved. Instead of planning economic decisions through centralized political methods, as with socialism or feudalism, economic planning under capitalism occurs via decentralized and voluntary decisions.” (source: Investopedia)

  • “Capitalism depends on the enforcement of private property rights, which provide incentives for investment in and productive use of productive capital.”
  • “Pure capitalism can be contrasted with pure socialism (where all means of production are collective or state-owned) and mixed economies (which lie on a continuum between pure capitalism and pure socialism).”
  • “The real-world practice of capitalism typically involves some degree of so-called ‘crony capitalism’ due to demands from business for favorable government intervention and governments’ incentive to intervene in the economy.”
  • Problematic corporate rent-seeking: Basically, a company has its “properties” where it generates revenue. Our bakeries are located in disadvantaged neighborhoods, so we decide to lobby our local government for a tax abatement for five years, or else we’re moving our locations to more affluent neighborhoods. They agree but this only applies to us. Our competitors that move-in, including mom and pop shops that grew up their whole lives in that neighborhood are subject to the full tax code. We’ve succeeded at increasing our revenue without making any investment into productivity. Not to mention, we’ve also managed to hurt our competition’s ability to compete.
  • Problematic individual rent-seeking: Let’s say, in order to be a baker back in the day, all you needed was the willingness to learn and an ability to sell your product. As more and more bakers entered the scene, they decided it’s getting a little too competitive and everyone is making less money. An exclusive group of bakers gets together and creates a baker’s licensing requirement they lobby the government to pass. They pitch it as some novel way to control the quality of professional baking. They even convince the government to facilitate the program (i.e. this is paid for by our tax dollars). Now, new bakers have to go through a long, inefficient and costly process if they want to do anything more than amateur baking. The existing group of exclusive bakers has succeeded in limiting competition and driving their prices up, all at the cost of the taxpayer and with zero investment on their end.
  • Barriers to entry: Let’s skip the text book stuff. It’s like I’ve described above. It’s making life harder — higher startup costs and added hurdles for competition to enter the market.
Photo by Brett Jordan on Unsplash

Capitalism and Free Markets are Broken

I think we have a solid background on capitalism; let’s talk about why we should be angry. I’m not going to give all the reasons just some broad brush strokes.

  1. Forever Stimulus — Low interest rates and corporate welfare forever.
  • Only a little over 50% of Americans are invested in the stock market. (Source: Lexington Law)
  • Of this group of invested Americans, 50% have less than $40,000 invested. (Source: The Washington Post)
  • Among non-investors, 53 percent say they don’t have the money to invest and 21 percent say they don’t trust stockbrokers or financial advisors. (Source: Bankrate via CNBC)
  • More adults in the United States own homes than stocks. (Source: Chicago Tribune)
  • For 9 out of 10 households, even a shift in value of 10 percent — enough to qualify as a “market correction” — would “at most, have a 1 or 2 percent impact on their wealth holdings.” (Source: Edward N. Wolff via The New York Times)
  • Here’s a big one: Foreign multinational and other investors own 35 percent of all United States corporate stock, up from 10 percent in 1982. That share of the pie exceeds the single slice owned by taxable American shareholders. (Source: The New York Times)
  • Oh, remember that welfare stuff I’m yapping about: In 2017, when stock options were taken into account, chiefs at the 350 largest U.S. companies received an average of $18.9 million for their services — a nearly 18 percent increase over the previous year, and 72 percent since 2009. (Source: Economic Policy Institute)
  • The richest 1 percent of households controlled 50 percent of the total value of stocks in 2019. (Source: Goldman Sachs via Yahoo)
Photo by Christina @ wocintechchat.com on Unsplash

Too Long, Didn’t Read

This is a lot to read, and I’m incredibly thankful for your patience. The idea was not just to spew my distaste without providing a grounded rational and context for why this distaste exists in the first place. Here’s the TL,DR:

  • Governments and Corporations need to wake up and realize shareholders aren’t their largest constituency. Shareholders are a slice of a much larger piece of societal (civilian) stakeholders. Without turning our attention to the sustainability of the earth and the true health of the economy instead of purely corporate and classist-individual wealth creation, we truly miss the bigger picture of long-term survivability in all areas of concern.
  • Governments shouldn’t be preoccupied with the survival rate of public enterprises. We may not want an entire system to fail, but we can definitely afford to let members of the system explode in all their glory.
  • Bankruptcy doesn’t mean death, and it doesn’t mean permanent unemployment either. It means restructuring, new management, and the wiping out of shareholders (which is largely concentrated risk for the wealthiest of our society).
  • The government’s need to consistently force growth into the economy through (expansionary monetary policy:) suppressed interest rates, availability of credit, (expansionary fiscal policy:) tax cuts and governmental spending is only a ticking time bomb resulting in deeper pain each time a crash occurs. Not to mention, we continue to transfer the opportunity for wealth creation from the youth in the form of asset inflation for the wealthiest of our country. We get the debt, they get a solid retirement plan. And, guess who has to pay the bill eventually?

Conclusion

We are in a state is disrepair. Unfortunately, since politics are broken too, there’s no a lot of hope for getting the train back on the tracks soon. However, as you vote for elected officials, or assume the ranks as an executive at a corporation…or maybe as you become the founder of the next unicorn startup — I hope you can think about the world (politics and economics) with clarity. I hope you can contribute to the conversation and transformation being equipped with the knowledge of what’s broken and why.

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Justin Bridges

Justin Bridges

15 Followers

I’m a fashion photographer, podcast host, and educator. I shoot for brands, teach on Skillshare, and host Freelance Kills.