The fall of capitalism

[duncan drennan]

Capitalism has come to represent some sort of freedom. We are free to choose our own destiny and create wealth. But are we creating wealth, or just self-wealth these days?

When we see politics permeate every sector of life, we call it totalitarianism. When religion rules all, we call it theocracy. But when commerce dominates everything, we call it liberty. Can we redirect capitalism to its proper end: the satisfaction of real human needs? Well, why not?

The world teems with elemental wants and is peopled by billions who are needy. They do not need iPods, but they do need potable water, not colas but inexpensive medicines, not MTV but their ABCs. They need mortgages they can afford, not funny-money easy credit.

To serve such needs, however, capitalism must once again learn to defer profits and empower the needy as customers. Entrepreneurs wanted! With micro-credit, villagers can construct hand pumps and water filters from the clay under their feet. Pharmaceutical companies ought to be thinking about how to sell inexpensive retro-virals to Africans with HIV instead of pushing Botox to the “forever young” customers they are trying to manufacture here. And parents can refuse to relinquish their gatekeeping roles and let marketers know they won’t allow their kids to be targeted anymore.

To do this, we will require the assistance of democratic institutions and an adult ethos. Public citizens must be restored to their proper place as masters of their private choices. To sustain itself, capitalism will once again have to respond to real needs instead of trying to fabricate synthetic ones – or risk consuming itself.

The full article is certainly worth a read and a think.

[Dave A]

How can the author confuse commercialism with liberty? For starters, capitalism is no guarantee of democracy.

[Marq]

Confusion Politics..methinks?? Certainly a definition problem exists.

Made me think of confused politicians:-

From an article in yesterdays Daily News about the Durban street naming fiasco :-

Mlaba said it was time to build the province.
"This is the time to talk. We all represent the same communities and need to engage to ensure peace and unity in a province that is seen as less competitive economically, but has great potential," he said.

This is after they have steamrolled the name changes through, provoked all and sundry,ignored public sentiment, told every minority group (and majority groups) where to put themselves, created huge financial burdens after having ignored eia's and other inputs, trying to railroad a rates bill through to the detriment of all, created additional electrical charges that few have questioned and generally seem intent on destroying Durban.

Shades of the same confusion politics that Magube sprouts?

[Graeme]

Spearing the Bull

For those who do not read Finweek, the following letter sums up events in SA rather nicely:

“Sizwekzi Jekwa, in her Black and White column (12 June), ponders the lack of entrepreneurship in South Africa. Imagine a satirical cartoon: A bull - reflecting growth, industry, jobs and economic well being - lies dead with a thousand spears in it. Imagine the blood leaking out of it inscribed with the words “Capital, skills and enterprise”. Imagine labels on the spears reading every conceivable tax, labour law, black empowerment, “equity” this and that, mining laws, compliances and regulations, local government taxes, Excon, etc, etc. Imagine three mighty warriors called African nationalism, the SA Communist Party and Labour throwing spears at the dead bull. The spears in their hands are labelled land expropriation, competition law and “healthcare”.
The underlying caption of the cartoon could read: “Legislative overkill….” That’s how investment and enterprise see it.

How do emerging countries manage without all that legislation - and achieve higher growth rates to boot? If business (big, medium and small) is overburdened and under-investing what chance do the indigenous people have to grow organically? Do aliens worry about registering for tax?

SA is too complex for its own good and legislation is more often than not ill considered and counter-productive. Pulling out one or two spears won’t save the bull. Government regulates every aspect of life in SA yet is completely useless in itself, unable to deliver much to anybody. It talks, takes, looks after itself and consumes its inheritance.
SA is de-industrialising and losing its capacity to produce under the sheer weight of Government and the hurdle it presents. Where would SA be today were it not for the huge price increases of minerals? As the world locomotive slows, SA will have plenty of time to ponder why its system and politics are failing. Like all socialist regimes the environment breeds - as you say - lazy, uninventive South Africans. Soon we’ll become victims justifying the system.”

Mike Sampson
Econresearch

[Alta Murray]

What an excellent article,Graeme, thank you. In ye olde English -- Capitalism does not a welfare state make.

Capitalism is actually such a cool phenomena, it creates it's own checks and balances in the sense that profit becomes the boundaries. Capitalism is supposed to flourish as free enterprise, so whilst it does not guarantee democracy, it does, and has to, by it's own essence, have free enterprise (freedom) as it's playing field. Wow, sorry, that sentence reads like a politician wrote it

When Government becomes a source of employment, as opposed to serving it's people, it will become a burden and carry complexity.

I might be wrong, with all the other things on my plate i have not had time to explore this fully, but it seems to me like the economy is struggling to become a hybrid of all the forms that have gone before. I, for one, believe in capitalism, and that the government should take care of the welfare of the nation.

It is surely not our responsibility to provide the ABC's, the water etc. so if the market demands Botox and iPods -- supply! Is that not what business people do?

Or hang on a second, let me hang up my hat, close my doors, as I am surely not providing basics to this world, and try to fill Governments shoes for them. I wonder what I shall eat? Should I feel guilty that I have picked up what life gave me, studied and work until two in the morning, made it on my own, not had a vacation in 8 years, nor a weekend off, and that I now am one of the people that have meaningless demands like expensive perfume?

Last night I have been told that I am a know-it-all, always sprouting research and stats so let me get off my little soap box for a while

[Dave A]

That really paints the local picture so well, Graeme. Thanks.

Capitalism does not a welfare state make.

But it is an excellent way to finance one.

I see the problem being when capitalism is confused with social systems. It is an economic system. Capitalism is about the most effective economic engine for generating wealth we've come up with so far. Nothing more, nothing less. Its only test for success is (and should be) the ability to produce profit from an enterprise.

What is done with the wealth created is the next step, and that is where social systems come into play. And it needs a healthy dose of wisdom.

Some can be spent on improving social conditions.
Some must be reinvested to increase the capitalist economic engine to produce more wealth for future consumption.

In July 2007 I wrote an article called Bulletproof for our newsletter. Quite apart from the example used, it was also motivated by what I saw as the overburdening of the economic engine that is expected to finance our social reform. And now the chickens are coming home to roost.

Our government seems driven to manage (perhaps even own) both wealth creation and how it is used. Business is increasingly being burdened with "social responsibilty" whether it can afford it or not. The responsibility really needs to be placed elsewhere, financed out of the distributable excess made from the economic engine.

If you look around at what are steadily becoming the most effective socialist systems, the wealth was generated first, and then from the abundance the social support emerged. History has already shown that attempts to shortcut this process have failed so far.

Last night I have been told that I am a know-it-all, always sprouting research and stats so let me get off my little soap box for a while

We really appreciate people with that kind of knowledge around here, Alta. So keep on bringing it on

[duncan drennan]

I see the problem being when capitalism is confused with social systems. It is an economic system. Capitalism is about the most effective economic engine for generating wealth we've come up with so far. Nothing more, nothing less. Its only test for success is (and should be) the ability to produce profit from an enterprise.

Is it really? Our whole social structure as well as our economic structure are based on the ideas of capitalism. For example, capitalism and rights are inherently linked. The concept of a free (laissez-faire) economy goes hand in hand with capitalism's social structures. The economic system can't exist without the social system. I found this tour of capitalism, and also some history and fundamentals quite interesting.

I, for one, believe in capitalism, and that the government should take care of the welfare of the nation.

This is an interesting comment, as if you look at the tenets of capitalism the role of the government is only to protect the rights of the individual. If we start talking about welfare, surely that is more in line with socialist thinking?

I have a number of question marks around capitalism at the moment - it may be the best we have so far, but that does not limit us from creating new and better systems. Here is a group who are trying to figure out better ways.

I have come to realise that I have two big issues with capitalism,

1. We do not have infinitely growing resources, and capitalism requires resources to fuel expansion of wealth.
2. There is no concept of responsibility within capitalism, only rights which are defensible by force.

[Dave A]

Hmm. Rather than go into detail about the extraordinary leap in logic right at the end of the tour, I think this extract on Capitalism.org from SiteTiki.com has relevance:

The Capitalism Site is a moral, political, and economic defense of the unknown ideal: laissez-faire capitalism. The term 'capitalism' is used here in the broader philosophical political sense, and not in the narrower economic sense, i.e. a free-market.

I tried to track down the ownership of the site - didn't get very far... Identity of the owner is protected.

The history and fundamentals link is far more relevant I think. Linking Capitalism with social freedom is questionable, particularly if we look at the industrial revolution which was financed by capitalism, but it could be argued also produced a form of enslavement of the masses.

In my opinion, extending capitalism beyond an economic system only leads to confusion. The inherent self-interest of capitalism needs to be balanced by a social system and social values.

We do not have infinitely growing resources

Only if you limit your thinking to raw physical resources

[Yvonne]

If only "capitalism" had some sort of built in ethics though!

At a dinner party recently a friend who has an excellent business, and has made a fortune, who has almost everything he could possibly need or want - passed this comment - "last week I checked out our competitors prices and he charges way more than we do, so even though we are making an enormous profit, I put up my prices to match his, as we already have more work to handle than we could cope with!
Is'nt that great! He said! Money for jam! "

I forced myself to keep quiet as I know how I felt would be extrememly unpopular!

Surely this type of: Me! Me! Me! "grab everything I can get" mentality and "unethical" price increases - results in the perception of capitalism as evil.

Capitalism - Business today - means make as much profit as you can!
Period!

Unfortunately in certain industries there is insufficient competition, or Govt. control to naturally control costs! Steel, Fuel, Food etc.

I worry a lot about this as our particular "niche" market, just does not permit price increases, it is becoming more and more difficult to make a profit!

Every day brings communication advising our suppliers increased costs - we accept this as "normal", but what is one to do when our market simply will not accept increased prices for services? We have brain stormed this - from a number of angles! please dont take this post to mean that we have not tried various forms of strategy.

I absolutely do not agree in the government having any control on prices, but it seems to me as if the "have's and have nots" are now potentially categorised by their field of business, the adage that "the cost can be based on what the market will bear!" - might be fine for some industries, but weakens other's!

I believe all of business and economics is "Balance" - through natural laws!" and whenever this is out of kilter - problems follow!

Forgive the "vent" - perhaps just jealous!

Yvonne

[Dave A]

In theory, your happy friend should have more competition entering his field in time. The question would be "What are the barriers to entry?"

Closer to home on your tight margins, it takes a bit of courage to be a pricing leader, but every industry needs them. The trick is not to compete on price but on some other aspect that is important to enough people for you to be viable. You don't need all the business. Pursue the part of the market you want - the part that pays best.

[Alta Murray]

First of all, a huge thank you to all on this thread! I am learning so much, and when I have more time, I really want to go over this thread line by line again.

But Capitalism has some sort of built in ethics!! That is why I said it has it's own checks and balances, as society has an impact on capitalism. Capitalism can be expressed as
Profit := supply & demand. That's it. Many people think that it is based on a philosophy, but if you check the history, you wil find that it was a natural evolution of trade in the market place, finding it's place in the expression of pragtamism.

I have never seen a National Convention of Druglords. Why? Society will not allow it, so though it has supply and demand as ground factors, it is not accepted. As we move more into a green area and feminine age, more businesses will follow suit. They will become unacceptable. So with capatalism we have the social factor, and as the end result is profit, it can never be profit at *any cost*.

Like any system it can be abused, and it will be abused, and Yvonne, I get it. In my area we have an electrician with a helipad at his home, so I always go -- How fair is that? How hard is his job compared to mine? What is the world coming to if it rewards a blue collared worker to the extent that I am left behind? Giggles galore....he is a better business man than me.

Training, education, policing, medical staff,clergy -- we take this sector for granted. Why? well mostly because society see this as a calling vs a career. See society's check in action. The minute society changes perspection on that, those careers will enter the true business arena.

As for your friend -- it is his good fortune, and let him lick his jam. There are balances in place that will find him, like Dave said, more people will enter his sector, always happens, and the prices will have to become competitive again.

But do give us more detail on your problems that you face, and perhaps if we all jump in, we can help you out? I surely will try, I know you are in training but I am not sure what training?

[Alta Murray]

Oodles of excitement!! Isn't it great Dave! I love the tidal pattern of capitalism, and yes, more people will follow if a sector is making too much of a profit. But in some sectors like you so rightly stated, barriers are erected to make entry almost impossible, and it is then when I talk about a mafia mentality. But those barriers are man made, so they never hold out in the end, people just like to think they do, and they might hold for a decade, but not for ever.

I agree with your advice on pricing, and it sucks to be a price leader, but if you persist you will win through. In my industry, one of the blessed, the prices have been whatever you wanted them to be, but we are sticking to our guns.

[Alta Murray]

Nooo Duncan, don't you dare stray off. You do need resources, sure, but it might just be the gray matter between your ears, and that seem to go on forever. As for exhaustable resources, in the wrong hands it becomes a politcal tool of relevance. The Boer Wars ring a bell? I would rather have that in the hands of people who have long term profits in mind.

No responsibility? You can try that, and it might even work for a while, I have seen this happen, but the system will spew you out eventually.

It is not a perfect model, but what is? I am going to put my foot in it again, it seems that the model is straining to become a hybrid, and I don't think it is such a bad thing to find a new expression to mirror the times we live in. That was it's origin to start off with, so it seems natural for this to happen. A community farm and the way we all have to get up at 4 to work it seems like a great idea to my mind, just like the Russians did,and I am ducking whilst I type this.

But please!! What astounds me is that people are ranting on about poverty and the haves and have nots like they just discovered them. I hear this a lot, so please pardon the irritation. Hallo! They have been there throughout history, and I am not saying feed them cakes, but the gap between the two has been bigger.

I have tried my best to help people my entire life, ever since I was little, so let me leave yu with this gem : Some people want to be helped, some don't, they get stuck with the begging bowl sydrome and a sense of entitlement. It matters not what your background or disability in this life -- if you want to make it out, you will.

What system would one propose to change that? Feed those that think the world should take care of them? Encourage this type of thinking? Next time you put a dime in a beggars bowl, offer them a job and see what happens.

laissez-faire usually used in connection with aristocrats? Now it is the meritocrats who rule.

[duncan drennan]

The single driving fundamental of capitalism is to create a profit - essentially to sell goods/services at a higher value than we obtain them for.

Our ability to do that is governed by some form of social system. For example, individual freedom is a prerequisite for capitalism. We would not call a country which enslaved its people to work to create profit for a single person a capitalist society, we would call that a dictatorship. Inherent in our current discussion of capitalism is the concept of the individual's freedom to trade.

i.e. Capitalism (in the economic sense) requires a social system to support it, and thus we must look at both the economic and social system.

With regards to capitalism and ethics - there is no mention of ethics or responsibility in the profit fundamental of capitalism. All that is required to be a capitalist is the drive to create profit.

Just to be clear: I believe ethics and responsibility are incredibly important, but technically they are not a requirement for capitalism. In a lot of ways, this is the reason for this discussion.

Going back to the original post which started this thread. I probably should have entitled it "The downfall of Capitalism" instead. One of the problems with capitalism is that once basic needs are met it must continue to manufacture needs (create demand). If there is not sufficient demand, then profits dwindle. If you can create an artificial demand, then profits can continue. It you want to create a demand for vehicles, then move people away from their workplaces and access to public transport (i.e. create suburbs).

The way to overcome this limitation of profit was worked out quite a while ago (in the 1920s). If you can convince people that no matter how much they have it is never enough then you have won - you have created consumers. (The Gospel of Consumption is a very interesting read)

The effects of this on us, I believe, are profound. From human happiness through to increasing pollution and dwindling natural resources. The system and its effects are so deeply ingrained into our society and conscious that we struggle to see the correlation between it and the outcomes.

I am sure we all believe that the creation of profit is a good thing - we are all business owners after all - but when responsibility is replaced with rights we end up with a flawed system that exploits people (either subtly or expressly) as well as our habitat. We see this all around us, from consumerism to abject poverty, from polluted rivers to global warming.

[Dave A]

Reading that last post, I think you have made a strong case against advertising, Duncan

With regards to capitalism and ethics - there is no mention of ethics or responsibility in the profit fundamental of capitalism. All that is required to be a capitalist is the drive to create profit.

Just to be clear: I believe ethics and responsibility are incredibly important, but technically they are not a requirement for capitalism. In a lot of ways, this is the reason for this discussion.

I think Alta makes a strong point on this. Ultimately, you still need customers, and unethical behaviour can hurt that. There is a balancing force even at an economic level.

I agree you need the right social conditions for a healthy capitalist environment. But the presence of capitalism should be part of the overall socio-economic condition, not the cause of it.

Capitalism does have its drawbacks, mainly that not everyone is starting off the same capital base. But there is an adage (I'm trying to remeber who said it) "Distribute the world's wealth evenly amongst all its citizens, and it is only a matter of time before it ends up back in the same hands."

For me that is the appeal of capitalism - everyone has an opportunity. The starting point for each of us might well be different, but whether we realise that potential or is largely up to us.