Workers’ Capitalism
May 2010
The main goal of Capitalism is to make profits. Those profits are made for the business owners, investors and stockholders.
There are several ways or combinations of factors that businesses use to generate profits. Businesses can: 1. make a profit by selling products and services, 2. buy natural resources as cheap as possible while selling their product for as much as possible, 3. expand as efficiently as possible to hire and exploit as many workers as possible to get rich from their actual labor, 4. work very hard to become very efficient to increase their productivity. This involves innovations and automations. This leads to computers and robots replacing human workers, 5. advertise to expand their market and create brand loyalty to sell more of their products, 6. out compete other businesses causing them to fail, creating a monopoly for themselves, 7. avoid taxes by moving accounts and offices offshore and overseas, 8. pay politicians to create tax loopholes, tax shelters, and tax free zones, 9. avoid paying the true costs of production, such as pollution, infrastructure, and disposal--and shifting these costs to the government and income tax payers.
And 10. One of the best ways businesses can make profits is by paying workers poorly.
While it is true that business, both big and small, create jobs, it does so only in pursuit of profits. The more jobs a business can create the more workers it can exploit to create profits for the owners and investors. But as soon as workers are no longer profitable they are terminated. Businesses constantly push workers to maximize productivity at the cheapest wages to maximize profits. The less workers get paid the more owners can pay themselves. Over the past 30 years American corporations have been moving factories and operations to developing nations where labor is cheap. In the United States corporations make poor states and cities compete for the lowest paying jobs and biggest tax breaks. Unions have been broken and find it hard to organize in a globalized world of cheap labor.
Last but not the least way to make large profits is by getting into the financial / banking business loaning money to others and then charge them interest--and then make it easy for them to stay in debt. And better yet, create crazy, difficult to understand, financial transactions and instruments (derivatives, synthetic collateralized debt obligation, synthetic rate swaps, hedge funds, credit default swaps) to make money with other people's money while avoiding risk.
In a Capitalistic system, money and profits flow upward and accumulate at the top--to the most wealthy. The rich (the capitalists) get richer. In a capitalistic system, so the theory goes, anyone can become rich in profits if they have a new and better idea or invention, or if they work hard enough to make their small business into a large business. This they say is what makes America and capitalism great. If you’re not rich it’s your own fault for not working hard enough.
Generally when the economy is doing well, capitalistic businesses want the government to stay out of their business. This is particularly true of small business owners who can't afford to hire lawyers, lobbyists and politicians to gain the big advantages (incentives, tax loopholes, corporate welfare) that the big businesses can buy. It is the big corporations that have the money and power to influence and manipulate politicians behind the scenes to create a government of the corporations, for the corporations and by the corporations.
Yet, all the while the big corporations complain about big government regulation and interference. They do this as a way of keeping the masses focused on being taxed and repressed by the government who is trying to take away their money and freedom to spend in the free market. Big business wants people to be against big government so that they, big business, can continue to control big government and make it smaller and even more easy to control.
When the economy is growing well we praise freedom and capitalism. When the economy goes bad we blame the government and the politicians and want them to fix the economy.
In 1929 the stock market crashed and was followed by the Great Depression of the 1930's. Increased government spending on infrastructure, work programs and World War II lifted the economy out of the depression and back to growth. In 2008 the financial market crashed taking the stock market down with it. The great recession of 2009 - 2012 followed. This time government bailouts and again a stimulus package of tax rebates and spending on infrastructure and jobs saved the consumer economy.
The government has several tools to stimulate the economy into growing and creating profits for business. Several have already been mentioned. The government can:
1. give money or loan money to business
2. bail out failing businesses
3. create incentives and tax breaks for certain economic actions
4. cut taxes to business and consumers allowing them to spend more
5. encourage the federal reserve bank to cut interest rates to make money cheaper to borrow
6. create jobs programs
7. give out unemployment benefits, welfare money, fuel and housing assistance, and food stamps to the poor
8. build infrastructure systems (roads, airports, schools, electric grids, sewers, etc.)
9. invest in research and development projects through universities and agencies and then turn over the results to private corporations to reap the financial rewards.
10. enlarge the military, make more and new weapon systems and then export military product to other countries
11. start wars with other countries and then do nation building projects
12. import illegal aliens for cheap labor
13. sell national natural resources from public lands cheaply to corporations
14. borrow or print money in order to keep money flowing
What should be the role of government in a capitalistic economic system? Is it just to keep the system growing and profitable, and to intervene and bail it out when it's not? Is its role to provide for the common good, that which the private sector won't do because it's not profitable? Is it responsible to create a safety net for the poor so that they don't riot and overthrow the government of the rich? Is it to create an armed force to ensure free flowing cheap resources from around the world? To make the world safe for capitalism? Is it the government's job to serve the capitalistic system? And why doesn't a purely laissez-faire capitalistic system always perfectly take care of the economy or regulate itself? Why does capitalism need the government to intervene?
On September 11th, 2001, terrorists attacked the United States collapsing the World Trade Center in New York causing the Stock market and the economy to crash. Then President Bush directed American citizens to do their patriotic duty to keep the economy going by spending and consuming. Over the past 40 years consumer spending as a percent of America's gross domestic product (or the total economic output) has been between 60% and 70%. Capitalism and America's economy depends on consumers spending and consuming.
Over that same 40 year period of time government spending as a percent of gross domestic product has been between 30% and 40%. Capitalism and America's economy is helped by government spending (much of which is now borrowed money, making someone rich from interest payments). Most of the money spent by the government goes to private sector businesses and eventually into the hands of the most rich.
Does government spending interfere with private consumer spending? Keynesian economics says it supplements and saves a purely capitalistic failed system. Adam Smith, Milton Friedman, Reaganomics, Republicans, Libertarians and Tea Partiers would say government is the problem and should stay out of capitalism's business. The less government consumes, taxes, and borrows, the more individuals are free to consume.
The problem with modern, late capitalism is that it divides the world in two: the capitalists--those who have capital to invest to own the means and rights of production and receive the profits; and consumers.
In the old days, Karl Marx saw the world divided between the bourgeoisie and the proletariats or the capitalist owners and the workers. After the defeat of communism by the capitalists, workers were converted into consumers.
Nowadays in America the top one percent of the bourgeoisie owns 38% of the nation's net worth and the top 10% owns over 70%. The bottom 40 percent of proletariats own less than 2 tenths of one percent of America’s wealth with the bottom 90% owning less than 30%. (Source--Federal Reserve's Survey of Consumer Finances)
What does the American government own? Some buildings and roads; mostly constructed by private contractors who make profits. Public lands; whose natural resources are sold cheaply to private corporations and businesses to be mined, logged and grazed. They own the military, but the weapons and supplies are bought from private corporations. The American government owns almost no means of production; exceptions include Amtrak, NASA, and the Postal Service, all of which run at a financial loss to provide services to the public. We in America are not very socialist in the true sense, where socialism means nationalized means of production. America is only socialistic in the late capitalistic sense, where the government is a public consumer, but mostly of privately produced goods and services.
Lately in America, socialism is being demonized. Most recently the health care reform legislation was characterized as a government take over of health care to create socialized medicine. The government only owns the Veterans Administrations Health Care System. The vast rest of the system is in private control. The governments’ medicare and medicaid programs buy health care for the old and poor from private business providers. In the new health care law the government will help finance individuals and small businesses better afford to buy private insurance.
Demonizing socialism and consequently government is a way of legitimizing capitalism and consequently the inequalities of wealth. By focusing on the threat of a big socialistic government, it takes the focus off excessive profits and wealth going into the hands of a few at the expense of the masses of workers. It takes the focus off the power of big business to exploit workers. The masses focus their anger and attacks on the government rather than on the corporations.The masses are dependent on the corporations and are afraid to bite the invisible hand that feeds them. They focus their rage on the taxing government that has its visible hand in their pocket stealing their hard earned limited money.
When corporations get taxed by the government, they raise prices, passing the taxes onto the consumer. So too when the capitalist owners get their incomes taxed, they compensate by raising prices to keep their profits inflated. The income paying workers are consequently triple taxed.
The banking implosion of 2008 that resulted in the great recession was caused by the financial industry getting greedy and manipulating the market to make mostly legal but unethical excessive profits. They were legal because the politicians were persuaded by banking lobbyists and paid with campaign contributions to deregulate the banks. In 2008, the year of the crash, 25 percent of the Fortune 500 companies (the 500 largest U.S. corporations) did not make profits but lost money. In 2008 the top 500 corporations total profits fell almost 85% from 2007 profits, from $645 billion to $99 billion. In 2001, the year of 9/11 about 10% of Fortune 500 corporations lost money. In 2002, 20% lost money. In 2003, 100% posted profits. From 2004 to 2007 about 10% were in the red with losses. In 2009, 25% of the top 500 corporations lost money and a third of the next 500 corporations (ranked 501 to 1000) lost money.
The good news about the 2008, 2009 recession years is that 75% of the Fortune 500 corporations made profits. Smaller profits, but profits for the owners and stock investors.
Capitalism has been good to the fortunate rich even in bad times. Thanks to government bailouts and stimulus spending the capitalistic economy didn't destroy itself in the 2008-2009 recession. But can capitalism survive the next inevitable melt down?
What if, instead of repeating its flaws, mistakes, selfishness, greed and sins, capitalism reformed itself? What if the wealthy capitalists decided to spread the wealth throughout the economic system by paying higher wages and by regularly paying workers profit sharing bonuses? And what if large corporations charged consumers less for products. What would happen? What would workers and consumers do with more money?
1. They could spend it and consume more. This would create more demand, which would lead to more production and more jobs, which would generate more profits for corporations and businesses.
2. They could save it and then start their own free enterprise businesses.
3. Workers could work less and enjoy life more. Perhaps they could become more informed and active citizens. Shorter working hours would create more jobs for other workers.
4. They could save a healthy down payment on a house loan, car loan, or business loan which would better stabilize the banking system from defaults and bankruptcies caused by low or no down payment practices.
5. They could save money and allow others to loan it out and then collect interest payments.
6. Workers could become investors buying stock shares in corporations and businesses. They could save and invest more in their own retirement accounts. This would stimulate sustainable steady growth. Currently about 50% of U.S. households own some equity funds or mutual funds as part of an employer's retirement plan (401K, IRA). Less than 20% however own stocks outside an employer sponsored retirement plan. Currently only 20% of stock market investors own 80% of the stock market’s value.
7. Workers could pay a portion of their increased income to the government in taxes, to help the government get out of debt and to sustain a balanced budget to pay for the public's government expenses (such as roads, schools, police, safety inspectors, safety net programs, the military). This increase in governmental income would stimulate and stabilize the economy by steadily employing workers and buying goods and services from private contractors.
When a business increases wages, it will decrease its profits, causing it to raise its prices, causing it to lose sales and business to cheaper competition. Under the current conditions and unwritten rules of capitalism, there is no incentive for any one business to increase wages for its workers. Quite the opposite, there are only fatal disadvantages. How can wages be increased without causing prices to increase in order to pay owners more without going out of business? Corporations and business owners and stock investors could adjust and limit their expectations of the size of profits they can make.
A better way to spread the wealth and steadily stimulate the economy is to simultaneously raise all workers wages or a significant number of workers wages. This would have the same effect as cutting taxes and giving tax rebates to workers as has been done regularly since President Reagan. If a large percent of wages were simultaneously raised (one out of six U.S. workers are employed by the top 500 corporations), no one business would be at a competitive disadvantage. Perhaps some small businesses (with less than 5?, 10?, 20?, 30? employees) would pay less taxes to compensate for increasing wages compared to large corporation's increased wages.
The other way to spread the wealth to create wealth would be for corporations and businesses to regularly share profits by paying bonuses to workers. There could be set wages and if profits are made they are shared with workers as well as stock owners. The percent of profits shared between workers and owners could be variable. If all large corporations and businesses agreed to adopt this profit sharing strategy and to coordinate it on a macro economic basis no micro economic business would be at a competitive disadvantage. Profit sharing bonuses could occur yearly, bi-yearly or quarterly. Perhaps just as the Federal Reserve regulates and fluctuates the prime interest loan rate, the Fed or a similar entity could set or suggest percentages for profit sharing for workers and stock owners.
By spreading the wealth more to workers, they consume more, save more, and become investors and stock owners. Eventually more money circulates through the economy creating continued coordinated sustained growth in the economy, jobs, and the stock market, that benefits all, not just the rich.
Tax policy could be set by placing higher taxes on corporate profits not shared more equitably with workers in the form of wages, bonuses, healthcare, 401K retirement investments.
Capitalism will not continue if it continues to stay as it is. Capitalistic greed will destroy the economy. Bank money and corporate money will try to force the politicians to keep capitalism the same as it is. Government is in no position to force or cause capitalism to change. America’s democracy is owned by the rich capitalistic corporations. America’s government works for big business.
Following the financial collapse and the governmental bail out, followed by a recession and a weak jobless recovery with big profits once again for the banks; there arose a clamor from the public and the politicians to reform the financial industry. In the end big Business will control the legislative process to minimally tinker with regulating the banks and big business. They will always find new ways to manipulate the system to embezzle profits. This reform process is a farce and a diversion away from reforming capitalism. This type of financial reform will only solidify America’s delusion that capitalist capitalism is god. And in their god they will continue to trust. They will be deceived into believing that they have no choice. Make no mistake about it, financial reform will do nothing to reform the underlying moral corruption of capitalism.
There is however an alternative. Capitalism could reform itself if the rich owners all decided to more fairly and equitably share the wealth of profits with workers and consumers. Capitalistic self interest must voluntarily and conscientiously be balanced with the good of the all. The capitalistic idea that the invisible hand of self interest will always and perfectly lead to the betterment of all is a delusion doomed to continue to fail. There must be a better distribution of wealth between the rich few and the masses of exploited workers and consumers. The profits of capitalism must be justly shared by all, for the greater good of all.
Capitalism's future now depends on a new prophet. I say to capitalism---repent and reform yourself!