The last time capitalism was under attack was during the Great Depression. Without proper bank regulation and government stabilizers like unemployment insurance, people began to question its efficacy. Postwar growth ended the conversation. The failure of the Soviet Union discredited Marxism. It is hard to see central planning as a viable alternative to free markets. It’s not so hard to see an economy with more government involvement. The major death blow to capitalism is globalism. We were told that it would deliver four things
- Additional foreign capital for investment
- Additional technology and innovation
- Additional consumers to buy (our) goods
- Additional workers to produce all these new things.
All we got was #4. It turns out we didn’t really need more capital. We have more than enough available to us through our own capital markets. New technology and innovation seem to largely come from Silicon Valley rather than from Shanghai Or Mumbai. All the new consumers turned out to have virtually no money [relatively speaking] so they couldn’t afford to buy anything that was made in America. That left us with all those additional workers who were eager to make goods for us – at a much lower wage.
If you add new capacity with new workers but no new demand then there is no reason to invest in new plant and equipment, especially in the United States [or any other developed country] . Excess corporate cash is used instead to either buy out competitors or to buy back stock. The result is an ever greater amount of concentration in virtually every industry in the United States from energy to finance.
Every economics textbook has been rendered quaint. How do professors discuss “perfect competition” when there is none. How do they discuss free trade when none of it is free? The rise of populism and the growing absurdity of policies born from theoretical economics is not just a coincidence.
If Thomas Friedman is right and there is no going back then we shall descend into one common global living standard. There will be no difference between a laborer’s standard of living in Delhi and that of a worker in London or Cincinnati. Education will add less value over time as robotics renders it pointless. Owners of capital will roam the earth avoiding taxes like golden Gods. All the luxury condos in Dubai will sell out.
It turns out that globalism ate away at the ability of a state to control the excesses of capitalism. Worker protections, pollution limits, and minimum wages are only possible if we reconstruct state sovereignty. That’s possible with protectionism and isolationism. Western populist movements seem to have stumbled on these policies without seeing the wicked invisible pile of unwritten import restrictions on Chinese imports, and the absurdity of the Ricardian trade model. They are lashing out and liberals feel their pain but defend their targets. Every tortured liberal economist who celebrates the rise of China also laments the horrible job prospects of his children. They must pick a side.
Adam Smith knew all about the flaws of capitalism. The current crop of defenders sound more like plutocrat sycophants. Everyone knows it has major problems but few seem willing to accept the obvious cures. Must the populist revolts from below become violent before our policy makers accept that changes need to be made? The people of Europe seem to understand that the Euro is a failure better than their governments. Rural Tennessee voters understand that trade with China is deleterious while the entire Democratic party has its head in the sand. We have allowed the idea that “capitalism is a perfect model” to spread because we love the theoretical model.
Unfortunately the model and our reality are completely unrelated.