What's so super about capitalism?

SUPERCAPITALISM

“And one day we must ask the question, "Why are there forty million poor people in America?" And when you begin to ask that question, you are raising questions about the economic system, about a broader distribution of wealth. When you ask that question, you begin to question the capitalistic economy.”
Martin Luther King Jr.

The questioning of the capitalist economy is brilliantly undertaken by Robert Reich in his book Supercapitalism[1]

            People are of two minds about capitalism. One mind thinks as an investor and consumer and one mind thinks as a citizen.

            As an investor we think about profit and earnings.  We are doing famously, the value of our investments has more than tripled since 1978 and our annual return has been about 8%. As a consumer we think about the price of goods and we have a wide choice of goods and wondrous new inventions at increasingly lower costs. The present system is a great success!

            Our other mind is as a citizen and we think about the social trends and consequences that we are experiencing: widening income inequalities, decline of the middle class, job insecurity, poverty, expanding prison populations, unemployment, global warming, etc.

            Robert Reich, in his excellent book, finds that after the horror of the Second World War, there was a social conscience in the mind of the economic leaders and for a few decades the real family income growth of the poorest quintile was 116% while the richest quintile was 84%. The society was reducing the income inequalities and most were prospering. He describes that era as  The Not Quite Golden Age.

            Since the 1970’s, however, the picture has radically changed. The income growth of the poorest quintile was a mere 2.8% and the richest quintile was growing at 63.6%.

            The main reason for the change is that competition between companies has become so intense that companies that bear the costs of social responsibility lose both consumers and investors. For example, inn 1993 after the events at Tiananmen Square, Levi Strauss decided to phase out its production in China because of that nations’ poor human rights record – a decision widely praised.  But Levi’s customers were unwilling to pay higher prices for jeans produced at higher cost in nations that respected human rights.  So in 1998, the company reversed its policy.  Either rely on Chinese manufacturers “or risk losing out in the competitive game of the global apparel business,” explained Peter Jacobi Levi Struss’s president.

            Economist Milton Friedman argued several decades ago that the business of business is to make a profit, not to engage in socially beneficial acts. Friedman made his argument at a time when many companies still had sufficient discretion to be socially responsible.

            Today, the goal of the modern corporation – goaded by consumers and investors – is to do whatever is necessary to gain competitive advantage.  . Any company that raised its prices or reduced its quality risked invasion by a rival that would offer the same thing more cheaply or better.

            Globalization, the internet and improved transportation and communication  systems  have empowered consumers and investors to get better and better deals – and these deals, in turn, have sucked relative equality and stability, as well as other social values out of the system. Reich calls this system Supercapitalism.

            To gain competitive advantage, corporations have been compelled to pay exorbitant salaries to CEOs. For example, Jack Welch became CEO of GE in 1981 and the value of the stock was less than $14 billion. .  When he retired in 2001 the value was about $400 billion. Fortune named him “manager of the century. Between 1981 and 1985 he laid off one in four GE employees earning him the moniker “neutron jack.”  He did what he was supposed to do as a CEO of a corporation. He made both customers and investors happy. When he retired from GE he took a severance payment of $417 million, the largest such payment in history.

            To gain competitive advantage, corporations move plants and offices to countries where labour is cheap, taxes are low, and there are few safety regulations or environmental laws.

            Corporations now spend billions lobbying governments and financing political to gain competitive advantage. For example in 2012, the top big box retailers  in the USA spent $27,000,000 on lobbying and an additional $13,000,000 on campaign contributions.

            Capitalism’s role is to enlarge the economic pie and it is certainly successful and doing just that. How the slices are divided and whether they are applied to private goods like personal computers or public goods like clean air is up to society to decide.  This is the role we assign to democracy.  Democracy is a system for accomplishing what can only be achieved by citizens joining together with other citizens – to determine the rules of the game whose outcomes express the common good.

            The corporations spend billions convincing both citizens and politicians that regulations and rules are unnecessary. “Government is failing to provide leadership on environmental concerns and industry has grown more willing to address the problem,” says Jonathan Lash, president of World resources Institute.  Such comments are an attempt to prevent government from setting rules.      

            For example, Kraft announced it would stop advertising certain products to children under the age of twelve. The news was hailed as a glowing example of corporate social responsibility. It was no such thing. Two bills in congress had been proposed that such advertising be regulated. Kraft’s announcement was designed to pre-empt those bills.  As public pressure mounted for laws barring advertising of junk food directed at children, General Mills, McDonald’s and Coca-Cola made commitments to dedicate at least half of the child-oriented advertising to messages that encouraged “healthy lifestyles" – So no bills were passed. The corporations continued to advertise with no regulations to enforce compliance with their ``voluntary``commitments.

            Actually companies do not ignore public responsibilities, they hire public relations firms to tell the public that they are responsible.

            In 2002 BP began promoting itself as the environmentally friendly oil company with a vision that went “Beyond Petroleum” to embrace solar cells and wind power, In a $200 million advertising campaign its insignia was transformed from a shield to the more wholesomely natural green, yellow, and white sunbursts…..notwithstanding its new image, BP continues to be one of the largest producers of crude oil on the planet. It committed itself to devoting $800 million a year to alternative fuels but that is a tiny amount compared to annual profits from oil of over $20 billion and its annual capital expenditures in recent years of over $14 billion.

            Reich writes that keeping supercapitalism from spilling over into democracy is the only constructive agenda for change. All else is frolic and detour. The most effective thing reformers can do is to reduce the effects of corporate money on politics, and enhance the voice of citizens.  If corporate social responsibility has any meaning at all it is to refrain from corrupting democracy.

            Much of the above is taken directly from Robert Reich`s Supercapitalism which is highly recommended by the Holistic Party. For a more complete review of the book, contact

Ross Hermiston at rosshh@live.ca.

[1] Robert  B. Reich, Supercapitalism. Aflred P. Knopf. New York. 2007