Free-market, a casualty of the global corporate capitalism, and the tech-leveraging paradox



🎙 Post no 3 – 4 august 2021

Might one not have to create a different economic world after Covid … which is not capitalist, whether right- or left-leaning …

The world of the last decade has been spinning too fast. Most economic indicators, such as credit creation and debt liability, which have increased exponentially, have privileged financial assets and fostered an ever bigger global corporate capitalism subsuming both liberal as well as leftish economic practices. With the blessing and participation of the monetary authorities, the concentration of financial wealth in the hands of the few has given rise not only to an obscene level of income disparity but, more concerningly, also to immersion of the top holders of wealth into the political and social spheres through explicit economic power domination, usurping and upsetting the processes of governance that maintain fragile balance in the fabric of democracy.

The sustained capital accumulation in terms of the means of production during the last centuries and its recent acceleration due to financial proliferation have led to the development of the lifestyle afforded by today’s global economy with all its advantages in terms of conveniences as well as all their adverse consequences.

The paradox in which the globe finds itself: the economic forces that feed Aggregate Demand with consumer goods and services (that sustain the current growth of wealth and employment compatible with the present lifestyle) are the very same economic forces that exacerbate both the adverse effects on the health of the planet, and on the prevention of the creation of sustained productive employment.

The planet and its nine billion people would be better off if many material conveniences were curtailed or did not exist at all. Imagine if the only cars manufactured were those without comforts of heat in the winter or air conditioning in the summer; the use of cars by billions of drivers would look much different. Imagine if drive-throughs were not available to customers; millions would have to walk to a counter to be served rather than sitting in running vehicles waiting in line. Imagine if single-use plastics – shopping bags, bottles, packaging, all such disposables – were not available; reusables would be the alternative. Imagine if there were no super super-markets or mega farms; small businesses and farms would be viable. Imagine no large-structure, money-making retirement houses; caring for the elderly would be much different. Imagine golf courses that don’t guzzle millions of gallons of water for perfect greens. Imagine the enjoyment of parks without roads and GPS orienteering … Imagine, imagine, imagine … Such a world would find itself on a different growth path in its use of resources from that of the present, which is an outcome of global corporate capitalism.

Criticism from the right and the left of the political spectrum continues to be directed toward the flaws of capitalism. For some, politics and government regulations hamper free enterprise and intrude in the way of life. For others, the free market is to blame for the ills of the capitalist world and the exploitative opportunism of private enterprise. Globally, the proponents of a yet ‘freer’ status-quo and the advocates for dogmatic radical change to a new economic organization are colliding in an unhealthy and divisive manner, leaving civil society in the lurch. More than ever, capitalism and the free-market economic organization are on trial, but aren’t the two synonymous?

The fierce competition for market share and the drive to lower costs and prices, leading to large scale production volumes and the flooding of the market with cheap goods, have effects: to steer the industry to increase automation and concentration in its means of creating wealth, to foster the pattern of production in which capital eclipses labor, to render a great deal of human participation redundant and to create ever greater discrepancies between social classes, some highly debt-ridden and all with an ever-present desire for consuming more.

Without huge financial capital investment, there would be no large-scale production of anything. Finance drives investment, and investment directs how, how many and where resources are utilized. The fascination with the stock exchange as the measure of economic success validates further the dominance of the economy of rent. For many observers, this situation is to be blamed on the laissez-faire of the free market economy.

Current “free-market” global corporate capitalism is hardly recognisable or compatible with the free-market system that Adam Smith and his early followers had envisaged, namely, a world in which the freedom of individuals is best protected when the ‘forces of nature’, or the market, are allowed to act and react freely and unhindered. Individualism and the unhindered market economy are usually equated with the principle of laissez-faire. Capital accumulation, a consequence of laissez-faire, has, however, over the years given rise to monopolies and disparities, with such a concentration of excessive economic power in the hands of a few, that the very freedom of choice and the balancing of forces by the large number, which in the first place provided the propitious environment for capital accumulation, have now become jeopardised. Are concentrations of wealth and monopoly power the results then of the free-market economy as determined by ‘the forces of the market’, the participation of the large number?

Capital accumulation, on the scale seen in the manufacturing sector during the Industrial Revolution and more importantly during the last decades in the financial sector, would hardly have been possible nor even conceivable without the instauration of institutional man-made rules, which have nothing to do with natural market forces. Examples of such institutional rules are:

  1. the legal creation of the concept of ‘corporation’, which shifted responsibility from a person/s to a fictitious entity and transferred financial risks from management to shareholders; the instauration of insurance companies to offer protections and thereby to allow the transfer of the costs of risk to the public at large; the legislating of discriminatory State policies of subsidies and government incentives; legislation regarding bankruptcies and take-overs; the granting of exclusive privileges to group interests; the allowing of lobby groups to influence legislation;
  2. the organization of a heavily legalized labor market and the unionisation of workers; catalysts for fostering incentives for technological change that favour capital intensive modes of production compatible only with economies of scale (accelerating capital accumulation);
  3. above all and most importantly, the monetization of the market economy: the imposition of State money as the legal means of tender; the establishment of a peculiar banking system in which the purchasing power of a nation in the form of money is handed over to a few financial institutions to manage and control as credit at their discretion, significantly impacting wealth creation and determining income distribution.

Under such rule-bound constraints, the notion of laissez-faire in the capitalist market, i.e., letting the forces of the market and the participation of the large number determine the best outcome for all, is meaningless.

It is thus not the free-market mechanism per se that is to blame for the resulting ills of current capitalism but the foundational legal institutional framework on which it is built. It is what allows the few who control the levers of financial capital to pursue economic investments which suit principally the interests of rent-seekers. The free rein and the selfish strategy according to which mega investments operate have resulted in unsustainable global economic growth.

A slow-down in the acceleration of capital accumulation would change the course of global economic growth to a manageable level. For that to happen, however, there is need to reform the banking system and its role in money transmission, to re-examine profoundly out-dated corporation and labor laws, and to deinstitutionalize the risk factor.

Without affecting the freedom and liberties of individuals or enterprises, although some economies of scale may be unavoidable, a mere three legislative institutional reforms could create market forces which will shift economic activity from global to more local, put a cap on monopoly power and foster greater diffusion and diversification of small-scale production, especially in the service industries of retail, hospitality, and information technology. They would generate a culture of production competitiveness over speculative drive and increase the cost of capital relative to labor. This would favour labor-intensive modes of production, direct investment toward technologies that sustain employment and participation of the labor force in the production of added value, from which its purchasing power is obtained.

In sum, the productive activity that generates added value ought to determine its own need for the medium of exchange and not the other way around, the way which lets financial power dictate market activity mostly in the interests of rent seeking. Read more in post 1.

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