Capitalism: An Economic Nightmare

By: Leroy A Binns Ph.D.

Capitalism oftentimes referred to a liassez-faire regime and lauded as the primary engine of economic growth is currently undergoing intense intellectual scrutiny in the absence of a vibrant alternative.

The earliest form of capitalism emerged in the seventh century AD with the passage of products for profit across North Africa, Spain the Middle East and Asia. Over time this monetary activity achieved momentum in the form of mercantilism originating in the early middle ages in Rome and the Middle East. Although less sophisticated the expansion of the aforementioned practice bore responsibility for social advancement within the Roman Empire and comparable development in Europe initiated in the 1300s. Later an endorsement in 1776 by Adam Smith, a British philosopher and economist in his thesis entitled “The Wealth of Nations” legitimized the sustenance of the free market enterprise.

The hypothesis of his text supports the notion that the production and exchange of goods via private industrial and business endeavors divorced from government intrusion will incite economic advantages. Moreover this timely revelation that in time would become the theoretical basis in the study of political economy inherited international acclaim through relevance to historic incidents namely the Industrial revolution – a transition from an agrarian to a technical society and the immediate post World War II era under favorable conditions associated the debacle.

According to protractors such as the Center for the Advancement of Capitalism the positive characteristics of this phenomenon inclusive of economic stimulation through the materialization of healthy competition, worker/customer satisfaction and the distribution of a wide assortment of commodities and services bear accountability for an endless litany of accomplishments.

 Benefits of Capitalism

 Components                                                                Attractions

Individualism/decentralization                                     Manufacturing enhancements and job

                                                                                      provision

Acquisition of the means of production                       Innovative commercial transactions

                                                                                     Profitable returns based on market value

 Beyond terse inferences to momentous instances cited documentation underscores the accumulation of property and its marriage to productive labor as the ingredients to economic prosperity

 US Upper Class Structure

 Division                                               Percentage                               Portfolio

Super Elite                                           5%                                            investors who possess

                                                                                                              most of the nation’s net

                                                                                                              wealth

 

Second Tier                                         15%                                         owners of large and mid                                                                                                              sized companies

 

The working class                                80%                                         largely consumers with

                                                                                                              limited ownership

                                                                                                              (if any)           

 The notion of inclusiveness is also at the forefront of the debate.

 US Job Growth Rate (1945 – 2001)

 Years                                                              Employment

1945-49                                                           +8.7%

1949-53                                                           +11%  

1953-57                                                           +6.5%

1957-61                                                           +1.5%

1961-63                                                           +6.5%

1963-65                                                           +1.1%

1965-69                                                           +16.5%

1969-73                                                           +8.7%

1973-74                                                           +4.5%

1974-77                                                           +2.3%

1977-81                                                           +13%

1981-85                                                           +5.7%

1985-89                                                           +11.2%

1989-93                                                           +2.4%

1993-97                                                           +10.6%

1997-01                                                           +9.5%

             Over the years classic illustrations of success as demonstrated by Fortune 500 companies and beyond have attributed to longevity and a sense of falsehood regarding this school of thought. Yet contrary to popular belief the unanimous approval of this ideology has polarized American society as has idiosyncrasies affiliated with this doctrine highlighting limitations to real growth and variations of protectionism at the expense of worker – its core constituents.

 

            A quest to satisfy the untapped curiosity of shareholders has fabricated a decline in economic growth along with an acceleration in unemployment therefore social scientists among others are vigorously challenging the assumptions that lend credence to “trickle down” economics. Some contend as did Karl Marx, a German philosopher, revolutionist and co-founder of scientific socialism that our environment is entrenched in a struggle between the exploiting and the exploited that defines the ruling and oppressed social classes. Such mirrors reality and poises a contradiction when considering America’s social caste composition which includes 1% owning more than the remaining 95% combined. Besides a more daunting revelation paints a picture of marginalization – a diminished middle classification currently at 50% and an expanding lower category at 25%.

    

            Liabilities of Capitalism

            Elements                                  Percentage                               Status

            The middle class                      50%                                         source of labor, many

                                                                                                              underemployed

            The lower class                        25%                                          underemployed

 

            Despite an improvement in the acquisition of jobs as indicated by the Bureau of Labor Statistics the average jobless rate over a 17 year period spanning three decade remains relatively consistent.

            US Jobless Rate

      

            Years                                                               Unemployment rate

            1961-63                                                           6.0%

            1977-81                                                           6.5%

            1985-97                                                           6.2%

            In addition the records omit accounting for scores of unemployed who are unregistered for social benefits or to whom such has expired.

 

            Stagnation or downward spiral is embedded in years of history. Industrial production declined by 10% between the first quarter of 1948 and the last four months of 1949 and by one-fourth between 1944 and 1949. There was also a monetary translation of consequence as the GNP declined slowly in 1949 from $262 billion to $256 billion by the end of the year. Further in March 1950 there were approximately 4,750,000 unemployed as compared to 1,070,000 in 1943 and 670,000 in 1944.

            Gloom ensued as manufacturing profitability realized in 1965 was transformed into a reversal of fortune – a decline of 40.9% at the hands of Japan and Germany from 1965 to 1973 and in the years that followed the situation worsened. Between 1980 and 1988 seven major steel producers were liable for a 50% drop in wages and a 62% loss in jobs within the industry. In a comparable fashion by 1990 an irreversible slump in business magnified the process of replication. As the Big Three lost a combined sum of $10 billion and others followed suit layoffs climaxed at 300,000, doubled three years later and quadruplicated by the turn of the century. To date 3 million jobs have been lost since the year 2000 as major corporations the likes of IBM, AT&T and GM utilize “downsizing” to maintain a competitive edge.

 

            With the domino theory in effect bank closures which exceeded 2,000 at a loss of over $316 billion were aggravated by the industry’s worst ordeal, the savings and loan scandal estimated by the New York Times at the century’s end at $480 billion plus the Wall Street disaster – the Enron and World Com fiascos valued at $30 billion. Hence an all inclusive “fallout” unabated by government’s, corporate board’s, management operative’s and unions’ concessions is subject to ongoing negative results notably wage reductions, a freeze on cost of living expenses, renegotiations of contracts, layoffs as previously mentioned, plant closings, the transfer of assignment overseas and bankruptcies.

            In an era reminiscent of Alvin Toffler’s “The Third Wave” and commonly associated with globalization the ramifications of the catastrophe is disheartening particularly to Third World countries seeking trading privileges with industrialized partners. As cultivators of cheap resources (e.g., cocoa, banana and sugar cane) they lack the ability to forge judicious commercial arrangements and boost competitiveness that would in return foster economic dividends and social aspiration to over 300 million impoverished citizens worldwide who survive on $1 a day. In essence in spite of gestures by an affluent few in the form of trading blocs and treaties the parties in question face constraints in expanding markets, pricing exports and negotiating tariffs – all of which reduce purchasing power, shrink consumer markets, constrict international business and exacerbate unemployment.

 

            Understanding Production

          

            Type                            Definition                    Example                 Represent highest % of

                                                                                                                        of GDP for

            Raw material                goods not processed    oil, rubber                Africa, Central Asia, the

                                                or manufactured          minerals                   ME and Latin America

 

            Intermediate goods      goods that are              car parts                    Asia & Eastern Europe

                                                for use in production   semi-conductors

                                                or another product       for computers

 

            Final goods                  a product that is sold    auto computers

                                                to its final user             electrical appliances   First world state

 

            Most recently the World Trade Organization concluded its ministerial conference in Cancun, Mexico on a disturbing note. Despite seemingly good intentions on matters related to trade liberalization within the global market the following issues of significance were unresolved.

 

            Farm subsidies to American and European farmers

            New tariffs to ensure an enhanced trade regime

            Liberalization of foreign investments to less developed countries

            Increased competitive policies and transparency in government bidding processes

            Expansion of existing and new markets for lesser developed countries’ goods and services

 

           

            Unfortunately the aforementioned is profound indication of an economic quandary gone awry with the First World and elsewhere.

 

            Thus far incentives such as lowered short term interest rates, tax reductions of approximately $2 trillion and the injection of hundreds of billions of dollars into education, homeland security, transportation and the military have been futile exercises. Furthermore amidst a drained treasury and a -2.0% job decrease, speculators imply a protracted recession in which the gap between government spending and revenue could exceed half a trillion dollars by 2004.

 

            To offset continuity to an ageing process of doom our world demands a new paradigm incorporate of all participants – economies in which producers and consumers share appropriate empowerment and receive fair and equitable incomes. A demonstration of pluralism and morality must entail rewards in accordance with labor and sacrifices and grant opportunities to democratically participate in the conception and implementation of fiscal policy. The cooptation of such ethical culture will guarantee the greatest fulfillment and maturation of the majority and secure global prosperity.