Capitalism (not Socialism) is Killing our Free Markets
The man who produces while others dispose of his product is a slave. –Ayn Rand
As a viable economic concept, free markets no longer exist in America. Oh, there are a few vestiges of it remaining here and there, but in the main, it’s gone. And those who have done their level best to kill it don’t want you to know it’s gone. They continue to praise free markets as the greatest system for good that was ever invented. What they really support, however, is capitalism, not free markets.
Capitalism’s opposite is socialism, and capitalists want you to focus on socialism as the “boogie man.” In fact, there is very little outright government ownership of the means of production (the definition of socialism) here. And government regulation in the main is to assure, not impede, free trade and competition. Capitalists and others incorrectly refer to programs such as unemployment insurance, or Social Security, or Medicare as “socialism.” These programs are not socialism at all.
In this essay I will set forth a few examples that show why, when, where, how, and by whom free markets have been guillotined, and what the future likely holds for you and me and our children—and our posterity. It is an issue that needs to be examined often, with facts and data, sound analyses, and defensible conclusions. Our markets need to be as free to function as possible. And we all need to understand where and why they are not.
The fundamental tenet of free markets is competition. Take away competition and you no longer have a free market. Competition in America is virtually gone. And it’s not coming back any time soon.
Dwindling Competition. Competition is the force behind excellence in design, utility of use, innovation in technology, safety and convenience to workers and consumers, and all of that served up to you at least cost consistent with demand. That’s the theory. You’ve heard the old adage “build a better mouse trap, and the world will beat a pathway to your door.” And who could argue against any of those desired outcomes? Certainly not me. But they are desires, and I don’t argue as if desires were facts. I ask about the extent to which those desires are being met. And therein lies the rub between essayists like me, and capitalists like Mitt Romney.
Producers have a different set of objectives. They love profits, and hate competition. And they have found out that it’s easier and more profitable personally to kill competition than it is to put their workers, their products, and their consumers at the center of their efforts.
Here is a case in point. The Koch brothers (David and Bill of oil fame) now have the LA Times and seven other major newspapers in their sights for purchasing. The link between news reporting and oil production is nebulous at best. News reporting and its link to advertising, to persuasion, and to influencing public opinion via propaganda is overwhelmingly clear. There is nothing new in that revelation because every major television network and newspaper in the country is owned by larger corporations who control what is presented as news, with which bias, and toward whose political or commercial agenda. It’s just that the Koch brothers are so blatantly situated on the far right and seem to have a personal hatred for truth and the average citizen. Arguably their ownership of news reporting is to violate free trade and to manipulate public opinion for their benefit. And with a net worth somewhere north of $50 billion, they are a wealth beneficiary center of considerable influence.
Let’s get back to competition, how it is being killed, and why.
The conglomerate is a phenomenon of the last 40 years or so. Through mergers and acquisitions larger and larger corporations have come into being. They often reduce competition via “vertical integration" (owning all production from extraction of resources, refining, production, distribution, and sales outlets). They control entry of competition via patents and licensing; reduce competition with non-compete contracts; and via advertising on a scale that smaller firms cannot match. Their size also buys political influence via lobbying and bribery. The trend in America has been, and continues to be, fewer and weaker small companies, against larger and wealthier oligopolies.
Old Boys Network. A few years ago when former Bank of America CEO Ken Lewis introduced his successor, Brian Moynihan, to his audience of fellow bankers, he soothed their fears with these calming words: “Don’t worry. He’s one of us.” His audience may have breathed a sigh of relief, but you and I should have heard another nail being driven into our free markets’ coffins.
Brian Moynihan is just another name in the network of 63,000 American CEOs that form an “old boy’s network” of impenetrable power. You are not welcome to join this club. To a person they would say they are not driven by money, wealth, or greed, or that they comprise an old boy’s network. The facts, however, argue for precisely the opposite conclusion. They receive 500 times as much in income as their employees, thousands of times more in bonuses, stock options, personal and retirement benefits, and they make all the rules that keep the wealth and income flowing away from you and to them. Each sets on the board of directors of 8 or 10 of their fellow CEO’s companies. They thus form an interlocking web of power and influence that assures their own ultra wealth and income. Collectively, through corporate and political action committees, they also direct billions of dollars to office holders and candidates who support their agendas. They are nearly unanimous in their Republican Party affiliations.
A similar case can be made about the 3,700 private equity fund managers. Although smaller in number, they collect considerably more in average salaries and bonuses than do the corporate CEOs.
Lost GDP. These two groups are equally adept at diverting huge sums of wealth and income to offshore tax havens. An estimated $32 trillion is currently hidden in such accounts according to a recent Huffington Post article, which represents hundreds of billions in lost tax revenues just from the interest income. Even more importantly, this sum represents a huge loss in GDP, the source of jobs, income, and the general well-being of everyone.
What alternative explanation would account for hoarding cash in offshore accounts other than greed? You cannot simultaneously argue that you are a philanthropic humanist with no concern for greed while you are hoarding and causing all the problems associated with the very wealth and money you are denying others. Well, that is the argument they make, but it does not resonate with the 50 percent of Americans who comprise the upper half of the IQ bell curve.
Manipulated Demand. Proof of how easy it is to dupe the typical consumer is the ease by which we are manipulated into diverting huge sums of money into the hands of athletes and their supporting casts in such sports as football, baseball, basketball, tennis, and golf. This outcome is the result of careful manipulation via TV ads, as well as other media. The absurdity of this consequence is self-evident when almost any sports figure appears on television and tries to utter a complete and understandable sentence in English.
We also do not seem to mind that capital gains are taxed at less than one-half the top income tax rate, and even less than that when income is diverted into private foundations. Both result in a smaller amount of taxes collected from the rich, less money that is available for needed programs, and higher taxes on those less able to pay.
Free markets are driven by money in circulation, not by money in private foundations, or tied up investments, or in offshore tax havens. Free markets are intended to be made to work by the 150 million participants in them, not by the 63,000 CEOs who are dedicated to their own welfare. Free markets are intended to be kept free by laws designed to keep them free, not by laws designed to encourage pollution, or eliminate collective bargaining, or reduce job safety, or reduce taxes on the rich and those who contribute most to political campaigns. All the trends in place today suggest that things will get worse, not better, in the coming years.
There is a glimmer of hope further down the road. The 63,000 CEOs represent only about 0.04 percent of our workforce. The rest of us comprise 99.96 percent of that same workforce. They have greed and enough of the Congress on their side to favor their objectives while obstructing many others; the rest of us have a sense of justice and fair play on our side. They have a network of those they have cultivated to be “one of us.” We have them outnumbered 2500 to 1.
I will keep this conversation alive for as long as I am able, and while there are readers around who refuse to be duped by false or misleading information about how the economy actually works by relying on facts, and sound reasoning, and good conclusions.
Keep up the good work as long as you can. There are graduate students out there that will carry on after you and I are gone.
Ron
That's all I can say.
John