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Issue #1798      October 11, 2017

Can capitalism be “fixed”?

Some economic commentators are now questioning aspects of the “free market”, and have even asked whether capitalism has had its day. Some years ago US speculator Warren Buffett, who made an astronomical fortune largely on the stock market, declared that corporations weren’t paying their share of tax, and that he himself should be paying the same rate as his office staff, who were then paying more than double his rate.

Buffett’s statement contradicts the phoney argument of conservative leaders, including Turnbull in Australia, that cutting corporate tax rates benefits the whole community.

Buffett was right. Because of corporate tax avoidance an ever-increasing share of the cost of government services is now being borne by working people. Yet speculators like Buffett are at the heart of a problem that’s eating into developed western economies. They buy companies, then squeeze them for maximum profit by cutting their operating costs, rather than investing in new equipment to enhance their efficiency, or entering into entirely new areas of production.

Buffett has invested in some companies involved in material production, but only where they’re regulated, as in US electricity generation or railroads, where profits are virtually guaranteed by government.

Journalist Robin Harding commented: “Buffet ... does not start companies or gamble on new ideas. ... The beating heart of Buffettism ... is to avoid competition and minimise investment in the real economy.

“... [Buffett] is working with Brazilian private equity firm 3G as it slashes costs and drives up margins at Burger King and Kraft Heinz. ... If rivals also cut, rather than invest and compete, Kraft can cut even more.”

Cost cutting can be achieved by slashing company asset maintenance, (as BP was accused of doing prior to its Gulf of Mexico oil spill disaster), but also by sacking workers or increasing their exploitation through longer hours and/or lower wages.

In the US, innovative capitalists like Elon Musk, whose company is currently building the world’s biggest lithium-powered battery in South Australia, are now becoming the exception, and speculators like Buffet the rule.

The speculators are accused of being parasites, of benefitting from the production of value by others. That’s certainly true, but it’s also pretty ironic, given that exploitation of the work of others is what capitalism is all about.

Vicious cycles

The “boom, bust and war” events that occurred during Buffett’s 87 years of life illustrate the cyclical crises of the economic system under which he has prospered to an obscene degree.

He was born at the climax of the “roaring twenties” boom, and his childhood was spent in the Great Depression. During his adolescence the most terrible war in human history raged, and afterwards he gained an enormous fortune riding a succession of economic booms, downturns and wars.

Buffett and Ray Dalio, head of hedge fund Bridgewater Associates, have recently expressed deep concern about social divisions within the US.

Dalio admits the US economy isn’t delivering benefits to the worst-paid 60 percent of income earners. He said: “I’m worried about the wealth and social gap and the conflicts that we’re going to have with each other.”

With the decline of union membership, US pay rates have been largely stagnant for almost 20 years. Recently-released figures showed that real median household income increased slightly in the US last year, but prior to that it had hardly increased since 1999.

Inflation effectively reduces the income of working people. The result of their insidious impoverishment is economic collapse or recession. Some commentators now admit that Marx was right about the plight of the working class and the rise of the finance industry. They’re particularly concerned that speculative investment is increasing, even within the companies themselves.

Regarding the UK, economist Adair Turner noted: “most of the money in the system is being used for lending against existing assets.”

According to economic journalist Rana Faroohar, only 15 percent of the capital in [UK] financial institutions involves directing employee savings into new businesses. “... the rest exists in a closed loop of trading and speculation. ... In the US, finance has doubled in size since the 1970s and now makes up 7 percent of the economy and takes a quarter of all corporate profits ...

“1% of the population takes most of the world’s wealth, and a single industry [finance] that creates only 4% of jobs takes nearly 25% of US corporate profits.”

Nor have new innovative companies instituted reform that would benefit customers, the community or employees.

According to Faroohar, “Uber looks to outsource, downsize and liquidate formal employees as much as possible. ... Apple has issued billions in debt and made commitments to issue nearly as much as it has sitting in overseas bank accounts (some US$200 billion) to avoid paying more US taxes, and used the money to do buybacks that artificially jack up the price of its sagging stock.”

However, none of the latter-day critics of capitalism have been able to offer a comprehensive solution, because of their invalid assumption that capitalism can be repaired.

They recommend some worthwhile initiatives, like cracking down on misleading advertising, collusion and asset stripping, cutting huge corporate executive salaries and closing tax havens.

But it’s not enough, and capitalism wouldn’t co-operate anyway. Its motivation lies in the insatiable greed that has led to the malignant growth of the finance industry, and its fundamental failings lie in the antagonistic relationship between those who produce commodities and those who own the means of producing them.

Working people are now disillusioned with capitalism. In a recent survey only 50 percent of US citizens over 30 years old said they believed in capitalism. The proportion for younger citizens was even lower.

As Georgi Dimitrov noted, fascism breeds on disillusion. That’s evident in the US, where the demagogue Donald Trump has made facile but unrealistic promises of economic revival while demonising ethnic minorities.

For their part, speculators like Buffett aren’t particularly concerned about Trump. They’re far more concerned about the possibility of a government led by an alliance of communists and left-progressive forces, which would transfer power and profits to those who create wealth, not just benefit from the wealth created by others.

Ultimately, that’s the only way to “fix” capitalism.

Next article – Wash plant workers reject eroded rights

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