Grantham: ‘Twas Capitalism That Killed Capitalism

By David Llewellyn-Smith, founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Cross posted from MacroBusiness

From the always essential Jeremy Grantham’s latest note:

An extraordinary, large exit poll run by Reuters/Ipsos in which 45,000 people participated took place in the early evening on election day in the US. To say this was a detailed poll is an understatement. The spreadsheet for each question in small print runs the length of a generous dining room table, 11 feet! It will tell you how the American Hindu sample of 172 voted. The poll’s early results of 9,0002 inputs also revealed on the night before the election, when the bookies’ odds 3 against Trump were 5 to 1, that the odds were wrong. The critical statement polled, in my opinion, was this: “America needs a strong leader to take the country back from the rich and powerful.”

From my perspective, the pushback against the rich and powerful for several decades has been very unexpectedly wimpy. “Occupy Wall Street” aside, the average voter had sat still for a series of major tax cuts for the higher tax brackets and on capital – capital gains and dividends. The lowerincome workers had paid the cost of outsourcing and labor-saving technology but had received no material help, while corporations and corporate officers and owners were the beneficiaries. In fact, money spent on worker training and education declined relative to foreign competitors. This shows up clearly in declining educational standards where today the US global rank is, to be friendly, mediocre. Most scarily in this regard, the average Chinese 20-year-old now ranks 2 full years ahead of his American counterpart in math proficiency! So, all in all, we can say that global forces pushed wages down and politics pushed them deliberately lower. The combined result is shown in Exhibit 1: The share of GDP going to labor hit historical lows as recently as 2014 and the share going to corporate profits hit a simultaneous high. Similarly, Exhibit 2 shows that the share of all income going to the top 0.1% rose well beyond any previous record and approached 100% of all the recovery in total income since the lows of 2009!

The “rich and powerful” not only increased their share of income and capital at an unprecedented rate in recent decades, but they also increased their grip on politics through a rising tide of political spending, including lobbying and the new Super PACs, courtesy of the Supreme Court’s ruling in Citizens United. Even before this ruling, Princeton University Professors Gilens and Page had reported4 on the complete lack of influence that voter opinion had on the probabilities of any bill passing through Congress. If favored by the public the average 31% chance of passing rose to a dizzying 32%. If not favored, it fell to 30%, justifying the nickname given to the influence of the average citizen: “Gilens’ Flatline.” When favored by the richest 10%, bills passed at a 65% rate – there is inertia after all. But when opposed by the wealthier and supported by inertia, the passing rate was essentially nil. Those hoping that there is any life at all left in representative democracy have to hope that some critics of this work are right when they claim that the data is complicated to sort out and the conclusions may be overstated. Anecdotal evidence on such issues as the minimum wage and gun laws, though, suggests that majority opinion is, shall we say, easily offset. Scarily, Gilens’ work does not include the post Citizens United data on political spending that is shown in Exhibit 3. I could not resist throwing in political contributions from unions, which are often cited by right-wingers as somehow balancing the books. And once upon a time they did. But, as unions have been severely weakened by the same combination of global forces and politics previously described, political contributions from unions have become a rounding error, offsettable by a mere handful or less of billionaires.

The Citizens United ruling reminds me of what a good ally of the “rich and powerful” and corporatism the Supreme Court’s majority has recently been, particularly in its strange assumption that corporations are human and deserve the same constitutional protections as we humans. It turns out, though, that humans are quite often cooperative and altruistic for no apparent self-advantage. Corporations, tied as they are these days to the single-minded goal of profit maximizing, seem to be close to saying that altruism, or the common good, when it compromises profitability, is a dereliction of their duty. In a human this would be considered pathological. (I wonder what the Founding Fathers would really have thought of this odd idea of corporate humanity. Or the equally odd idea that unlimited spending by corporations on elections is the moral equivalent of free speech.)

It is data like this that has led me over the last 10 years to believe that this country does indeed need to be saved from “the rich and powerful”; to believe that corporate interests were coming to dominate the public good; to believe that when in conflict corporations would, perhaps under the usual career risk pressure we all know so well, choose short-term profit maximizing over the well-being of workers. Nowhere was this better demonstrated than in their dispensing with the jewel in the crown of the old social contract, the defined benefit plan. This was done on the stated grounds of unaffordability even as corporate profits hit unprecedented high levels of GDP. Pensions that guaranteed a share of final salary were always going to be expensive and in hindsight we should perhaps consider it remarkable that it was ever voluntarily done at all…a testimonial to the old days when labor, cities, and countries of origin were also considered to be stakeholders of corporations. Worse yet, when deciding between their grandchildren’s well-being in a climate-controlled world or maximizing profits in a climatedamaging world, so far at least, they have collectively chosen short-term profits. In fact, the erosion of democracy began in earnest in the mid 70s when Senator Lawton Chiles (D. Florida) began his successful crusade to shine light in the dark places of government. His “Government in the Sunshine” legislation opened the door to vastly more effective lobbying by those with the means to pay, because the spotlight his legislation cast on government work, such as Committee mark-ups of Congressional bills, enabled lobbyists to pay fully only for loyalty they could actually observe.

The data on rising inequality also led me to check what others had thought and written on this issue and made me realize that a self-destructive streak in capitalism had been well-noted in the past. A particular surprise to me was Schumpeter – he of “creative destruction fame” – who believed capitalism in its current form would eventually fail through overreaching, using its increasing power to dispense with regulations designed to protect the public good (that has a painful echo today doesn’t it?) until pushback FDR style (or Teddy Roosevelt style) results in a more controlled mix, which Schumpeter called socialism. There was also a suggestion in his work and that of Keynes that excessive corporate power would weaken the demand from ordinary workers and hence weaken the economy. This last point is also emphasized more recently by Mancur Olson, who argued that “Parochial cartels and lobbies tend to accumulate over time until they begin to sap a country’s vitality. A war or some other catastrophe sweeps away the choking undergrowth of pressure groups,” as The Economist rather eloquently summarized his thinking in his obituary of March 1998.

To promote a pushback against excessive corporatism (and elements of oligarchy) one needs first of all to recognize the problem. Given the rather apathetic response from what used to be called “the workers” to the last 30 years of relative slide, there appears to have been no such recognition. But then on the eve of the election I realized that the point had finally been made. For an astonishing 75% of those first 9,000 polled agreed that, yes, we did indeed need to be saved from the rich and powerful. From now on, in my opinion, we live in a different world from the one we grew up in. A world in which a degree of economic struggle between the financial elite, perhaps 10% but more likely 1%, and all the rest is finally recognized. The wimpy phase is probably over. The question now is which path will this struggle take? Will it be a broad societal effort through established political means to move things back to the 1950s to 1960s when a CEO’s pay was 40x his average employee’s pay and not today’s over 300x; when corporations never dreamt of leaving the US merely to save money; when investment banks set the standard (and a very high one) of ethical behavior? Or do we try to do it through the other historically well-used method, and a much more dangerous one – that of resorting to a “strong leader?” Strong leaders work out just fine if we end up with a Marcus Aurelius, the mostly benevolent and wisest of Roman Emperors. But when things go wrong, as they often do, we could more easily end up with Caligula.

As I read the poll on election night, “recapturing the country from the rich and powerful” seemed a long overdue cry from the broad public. The kick in the stomach, however, was the “strong leader” bit. On feeling that kick, a more dynamic betting man than I would have realized how wrong the 5 to 1 odds against Trump were and would have made a big wager on him. He not only would have scored higher on the “strong leader” bit than his rival, but despite his personal wealth, the words “rich and powerful” were much more closely aligned with “establishment” for candidate Clinton, almost a “Ms. Establishment 2016” in the minds of supporters and opponents alike.

I felt the pain from the “strong leader” bit because, like almost all in my age cohort, I am fanatically well-disposed to democracy. We were born, after all, at a time that overlapped the trio of nightmarish, strong leaders of the 1930s and 1940s, Hitler, Mussolini, and Stalin. But I believe this fanaticism has weakened in other age cohorts born less close to these three as they have receded steadily into history. A recent report5 captured this decline: Of those born, as I was, in the 1930s, fully 75% gave a 10 out of 10 for extreme support for democracy. But each younger cohort felt less enthusiastic: 62%, 57%, 50%, and 43% for each younger cohort by decade until by the time we get to those born in the 1970s, the 40-year-olds, extreme support is down to 32%! And this is not the worst of it. The same report listed those who were actually against democracy as a “bad” or “very bad” way to “run this country.” Shockingly, in the period from 1995 to 2011, the percent of each age group agreeing to that proposition doubled. From 5.5% to 12% for those over 65 rising to a frightening 24%, up from 12.5% for the 16- to 24-year-olds.

By this time some readers may be asking for a profile of the 74% of the final 45,000 who voted against the rich and powerful. Who are these people? Well, they are us. All of us. I have never heard of a vote so uniform: whether Republican 72% or Democrat 77%; Male 74% or Female 75%; White 75% or Black 74%; Rich 70% or Poor 79%; Christian 74% or Muslim 72%; Graduates 68% or not 76%; they all agreed. They have all had it with the rich and powerful. And as for me, I don’t blame them. I think capitalism has lost its way. And has badly diluted the value of democracy along the way. We can only hope it is very temporary.

Trump recognized this streak of strong opinion and played to it, clearly stating his intention to look after the forgotten workers. Clinton diffused her message as looking after almost everyone and, I suppose, that includes you workers – as it were. To move the dial in the right direction is very important: Measures of income equality are correlated positively with everything valuable in a cohesive society. Exhibit 4 shows nine of these clear correlations, for which the US shows poorly in all! How far away this is from the widely-held belief that the US is best or nearly best at everything that matters. The way to improve this situation, though, is fortunately straightforward: Increase taxes on capital and on the very rich, perhaps slowly over a number of years, and increase the effort on worker training and education. These actions will by no means be a total cure for long-term job displacement but they would be a great and necessary improvement.

The real challenge in promoting less inequality is to increase the share of GDP going to labor. Almost certainly, for any given increase in their share of GDP there must be a decline in the share going to corporate profits. How does the program of the new strong leader stack up on this one? He is surrounded by capitalists and billionaires who, to further advantage corporations and the super rich, are apparently prepared to wage war on the already sadly diminished regulations that defend ordinary people (and, yes, with no regulations corporations would make more money). The war would also include direct tax cuts for the rich and corporations, which would further increase the share of the pie going to corporations. This is a strategy that if successful in the long-run – despite its current market appeal – could not possibly be worse for the workers if he tried. Perhaps they, the workers, will feel betrayed as their share drops in order to further fatten corporations. Perhaps they will be bamboozled enough not to notice the betrayal. For bamboozlement of the working poor has become an art form in the last 30 years, with bamboozlement defined as an ability to persuade people to vote against their own economic interest for one reason or another. For example, 62% of voters do not like the sound of “death tax,” which in the form of estate tax is paid by only 1-2% of American families. An astonishing 35% of those earning less than $10,000 a year do not approve of increasing taxes on the rich. Does it get any richer than that? It has been called the Homer Simpson effect,6 whereby the poor voter reacts negatively to the idea of tax, which like death has little appeal, but does not get the point that a tax decrease for the rich has unpleasant implications for them. But, the gods willing, you probably can’t bamboozle enough of the people enough of the time. And the Reuters/Ipsos poll clearly shows that the worms have turned. The lack of class war or economic war in the US has always been a fiction, but it has been mostly hidden, and deliberately so, by the side so completely winning the undeclared war. Perhaps the 74% vote was indeed a public declaration that the war is now official.

Post Script

The Republican Administration seems to feel that it received a broad mandate and perhaps it did. But my guess is that this poll provides the real mandate that waits to be addressed. And it is a narrow, focused one: Save me, oh leaders, from the rich and powerful! It looks so far as if this point has been largely missed. If it has been, there will likely be powerful and sustained pushback from the poor and not yet quite powerless.

Spot on, as usual.

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      1. Jesper

        You’re of course right, cronyism kills all -isms.
        Capitalists claim we’re in a meritocracy (how else to justify the high wages for the ‘elite’, the outsized profits etc) so they’d rather see a problem with capitalism then seeing a problem with themselves getting outsized gains.
        If their wages and profits are due to meritocracy then capitalism works, if their wages and profits are due to cronyism then they can’t really justify them.
        The elite has a choice, blame the system (capitalism) or accept blame. So their choice is to vaguely claim there might be an undefined (unsolvable) problem somewhere in the system and if they are given enough time and resources they’ll figure out what it is and fix it – we’ll just have to trust them and wait….

    1. Deadl E Cheese

      Capitalism is inherently cronyist, like all systems designed to reward the powerful with more power over the system. If capitalism wasn’t cronyist, it wouldn’t be capitalism. It’s like saying authoritarianism killed fascism.

      That said, what’s really killing (or going to kill) capitalism isn’t cronyism. Feudalism is even more corrupt than capitalism yet lasted thousands of years. What’s going to kill capitalism is either the system crashing against the hard limits of ecology (whereupon humans bring it to heel or go extinct with it) or the invention of strong AI (whereupon humanity and its systems get replaced entirely and/or labor becomes obsolete).

      1. Olga

        Feudalism was all about inequality, but the main difference between then and now is that most people lived in small communities, where they had access to land (thus – food) and built their own homes. Energy came from wood or water. Once you have food, shelter, and some source of energy – you can survive. So feudalism could last centuries. Capitalism and neoliberalism is all about markets and constant growth (and taxes). Salaries fell or stagnated – but not the cost of living. Not sustainable – and yes, also starting to bump against ecological constraints.

        1. oho

          >> So feudalism could last centuries.

          The feudal elites lucked out as they had a monopoly of arms and communications.

          To be a cynical realist, an armed citizenry is a pretty darn good check on overreach by bicoastal elites.

          Mao and politics via barrel of a gun and all that. (i don’t own a gun)

          1. LT

            Only about 30% of Americans own guns and just 3% of those own about half of the guns out there.
            I guess with the unregistered ones for criminals there may be a bit more.

            Maybe everybody does need to get a gun (like the news already makes you think has happened). They’d sh — pants.

            1. SomeCallMeTim

              I’m guessing the 30% and the 3% are strongly represented in the folks destined to be disappointed when their strong leader does not save them from the rich and powerful.

          2. Mel

            They lucked out too by having a working life-support system: hordes of agricultural workers whose lives were also supported (to a rudimentary but effective degree.) Contrariwise, the modern Market doesn’t privilege any mode of activity. That’s how America could de-industrialize, without any big effect on the lives of the decision-makers who ordered it all.
            [snarky faux-intellectualism off now.]

    2. Ez

      Well I don’t think we’ve had a good president since Eisenhower. America was fortunate to have FDR, Truman and Ike . Has anyone since measured up to those three?

      1. sierra7

        Truman gave birth to the CIA (and subsequently to successive presidents’ to their own “private” army and the Deep State); Eisenhower refused to recognize the neutrality of South East Asia countries and gave great impetus to the Vietnam War.
        That said, neither Republican or Democrat parties remotely resemble those during both those presidents’ times.

  1. Dead Dog

    Makes me think outside my boundaries… NC that is, continuing to be my first read when the computer is turned back on.

    I accept the meme that capitalism is self destructive and history shows this, yet I reckon the modern version of capitalism isn’t dead yet, the elite are pumping young blood into the dying body and it might bounce back, just when you thought something better was happening.

    For me, it’s the way in which we have allowed the limited liability corporation to exist and to have more rights than us humans. Right now in Australia, we are being told to accept austerity while the govt reduces corporate taxes on the premise that we need to be more competitive. Shit me silly, as if we need more corporations here that don’t pay tax anyway.

    Debt protection, ability to buy property and our homes, these are all things that we allow corporations to do. And, when they automate the service personnel who take your order or tally up your purchases, you don’t get a discount for doing their job, we just shrug our shoulders and forget about the people that used to earn a living doing that job. We let it happen, we don’t complain. And our politicians watch it happen, say lots, do nothing and continue to profit from corporate donations.

    The problem seems insurmountable with money influencing the actions of politicians everywhere.

    1. Yves Smith Post author

      Some companies in the more paternalistic days would provide housing for workers. And many thought the health of the communities in which they operated was important. The prevailing corporate governance theory prior to the 1990s was that corporations had duties to all stakeholders, although they didn’t use that term then.

      And capitalism takes many forms. In Japan, entrepreneurs are revered because they create employment, not because they might get rich.

      1. salvo

        ok, then some capitalists have been in some way connected with the social good, whatever that means (and I suppose some of them still are), but capitalism per se? It was (and it is) a matter of a personal choice, possibly with a special interest in mind, such as establishing and maintaining the own power base. Here in Germany one of the main slogans of the more radical neoliberals which want to reduce or eliminate the role of the state in providing a kind of social redistribution is that they want to give that role to the wealthy themselves back.

        1. Yves Smith Post author

          Capitalism sits inside a social and legal order. You’re trying to depict it as something monolithic when it isn’t. A big problem is that the US has become the dominant capitalist player, in combination with the fact that US multinationals explicitly were vehicles of foreign policy. So we basically exported our model of capitalism. If you read De Toqueville, Americans from the get-go were a mercenary lot. That had a great deal to do with how capitalism evolved here.

          The proof is in all those social indicators charts that Grantham showed, and we’ve referred repeatedly to The Spirit Level over the year. Those other societies with better outcomes are capitalist too! Why are their results so different from the US?

          1. salvo

            well, that’s certainly correct, if you choose to use this frame to describe Capitalism. But then, it is always connected to the social ‘good’, however this good is defined. And, I suppose, the definition of what is good in a society is greatly influenced by what those on the top ladder think is good. No neoliberal would say i.e., I think, the dominant form of capitalism, neoliberalism, is disconnected from the social ‘good’. They, on the contrary, would say, it frees the individual from the shackles of the state, because the ‘market’ provides for better outcomes.

          2. Paul Boisvert

            Marx’s insight was that capitalism doesn’t sit inside a social and legal order; rather, the social and legal order is subsumed and largely constituted by capitalism, is constantly being dynamically shaped by it, and is always under pressure from the power of capital to further accommodate and enrich that power. Yves is certainly right that the power of capital isn’t monolithic, but marxists believe that the system constituting the political economy is the fundamental framework–within which other social and legal factors operate, and are often part of the means by which the less powerful (labor) contest the power held by the rulers (capital) of the system.

            As a socialist, I agree with Marx, of course.

            Why do European capitalist social democracies get better results (for the non-wealthy) than the U.S.? Because labor contests the power of capital more successfully in them–for a variety of reasons, varying from place to place and time to time. No socialists believe that capital holds so much power that capitalism can’t be changed–obviously, since we hope to eliminate it!

            The key issue is time: social democracies are temporarily better than U.S.-style capitalist societies, but still have far too much oppression and injustice in them, and are always under pressure from capital to regress backwards–like Britain under Thatcher. Resisting that incessant pressure diverts and wastes vast amounts of human effort that could instead go into making all our lives far better, under a democratic socialist system without private capital dominating it. And socialists believe that one can’t resist it forever–we see social democracy eroding over the next decades, particularly as ecological constraints cause people to fight (economically, politically, and/or physically) over scarce resources. Under any kind of capitalism, there will be no rational, equitable, just, sustainable solution to that problem. Instead, it will of course be the rich who win that fight, at the expense of the rest of planet…

            1. Left in Wisconsin

              I mostly agree with this but it is important not to presume Marx was clairvoyant and could accurately predict the future. While it is true that capitalism drove the development of the nation-state (though not single-handedly; nationalism is a real thing), it is also true, as you note, that national working classes have, a certain points in time and to a greater or lesser extent, have captured, or partially captured, important elements of the nation-state and used to government to improve the lot of working people against the interests of capital.

              Yves is right to point out that this was less so in the U.S. than in several other countries and the result is that there are different “styles” of capitalism in different countries, some of which are much more beneficial to working people than others. She is also right to note that the U.S. style, dominated by a financial outlook and reinforced by a neanderthalish commitment to “free markets” among leading intellectuals, has had a particularly malign impact on working people in the U.S. and, as it has spread around the world and forced other national styles to adapt to it, worldwide.

              If I understand your view correctly, the conclusion is that capitalism cannot be overcome by means of the nation-state and thus that nation-state must be overthrown first for a new economic order to be built. Time will of course tell but I think it is also possible to imagine scenarios in which democratic takeover of the nation-state leads to a significant taming, if not re-thinking, of capitalism.

              1. OpenThePodBayDoorsHAL

                You really can’t use the words “capitalism” and “USA” in the same sentence, this is the Big Lie a la Goebbels.

                What we have are hideously protected and coddled monopolies and oligopolies (banking, military contractors, pharma, energy, surveillance-industrial complex) who feed at the socialist public trough with absolute impunity. Their minions write the laws. The tax code gives them billions in gifts and lets them hide their profits offshore. They offshore production and re-import their goods for free. And when real capitalism threatens (2009 in banking for example), instead of richly deserved good ol’ capitalist insolvency we’re told all of a sudden they’re a public good and we must all sacrifice and look the other way.

                We need to recapture the terminology, “crony capitalism” isn’t accurate. It’s “corporation socialism”. That way when they start to smash guys like Bernie for wanting socialism for the 95% it’s a fair fight with equal and equivalent terminology. Lloyd Blankfein and Jeff Bezos are the biggest socialists in the country, not Joe Sixpack…Joe 6 lives with good ol’ raw hardcore capitalist consequences at every turn.

                1. reslez

                  > What we have are hideously protected and coddled monopolies and oligopolies (banking, military contractors, pharma, energy, surveillance-industrial complex) who feed at the socialist public trough with absolute impunity. Their minions write the laws.

                  You’ve described precisely what capitalism is in reality — everything else you may have heard is marketing. Capitalism as implemented by robots or angels might be something else; capitalism in a human world is exactly what you see around you. Cronyism isn’t a bug, it’s a feature.

          3. Scott

            Because for a lot of the supporters of Benito the good old days were the days of slavery & a romantic “lost cause” kept more alive than the Yankees appreciate. I mean appreciate in the grasp it sort of way. Maybe they drive through on their way to Miami and just think it is quaint, all those Confederate flags.
            What they want is for you to know your place.
            They never really live in the towns where the Monuments are to soldiers & heroes of the Confederacy.
            & Racism & Gender politics are what they are used to hearing about way more than any supposed real membership in the working classes.
            Unions are communist and they know that is evil.

        2. Clive

          Anecdotal, but my TBTF bank is a reasonably good example especially as I’ve worked there for just short of 30 years so know how it operated back in the Stone Age compared with today (and joking aside, we’re only talking about a change that happened in a single generation).

          When I started there, all employees were automatically enrolled in the final salary pension scheme. This was a “60’ths” scheme, where every year you worked entitled you to one sixtieth of your final salary. So if you put in 40 years, you got to retire on two-thirds of your final salary. If you died while a pensioner, your surviving spouse got a pension of, again, two-thirds what you were getting as a pension. The scheme was closed to new entrants in 2005 if I recall correctly. The company wanted to throw everyone onto a defined contribution alternative but a water-tight contract meant they couldn’t do this so there’s a rump of us legacy scheme members. I ran the numbers recently — to buy the equivalent benefit in a 401(k) type scheme would need £750,000 — I could not possibly afford that sort of sum. I simply do not understand how the next generation will be able to do that either. Then there was a generous severance scheme (if you got the push after 50, you got 2 years’ pay in compensation). Now you get 10 months and you have to be 55 to get that maximum — if you get fired in your early 40’s and have only 5 to 10 years service (remember, job tenures are much shorter now) you get 4 or 5 months’ pay at best.

          Then there’s the corporate social responsibility. Bank branch managers and loan officers came from the towns or boroughs they worked in. They knew the community. This meant their decisioning was informed by what was actually happening in the locality. And they had some latitude in credit policy — if a big employer had folded, they could extend credit to a store which had taken a revenue hit on the assumption that in a year or so that situation might improve as people found alternative work. Or that someone in stable employment but who had been hit with a big unexpected expense was a safer prospect than someone with an itinerant career history who had suddenly landed a big income that was in an unstable industry. Now, its FICO scores and that’s it.

          And as for sales policy and income mix, it was an anathema to sell bogus financial products, engage in fee gouging or offer the customer something blatantly unsuitable. Now, it is “buyer beware”.

          I am not going to look back with rose tinted glasses, racism, sexism and intolerance were pretty rampant and usually went unchallenged. This applied in both the workplace and in customer treatment. There was also nepotism and some corruption too. The “old boys club” held sway and if your face didn’t fit, too bad.

          But it would have been perfectly possible to implement social reform without the economic devastation on the working class. It was never an “either / or” choice. And better social mobility (plus people’s “wellbeing”) or financial security in the general population are not mutually exclusive.

        1. Clive

          Yes! Don’t even get me started on the despicable Mondelez. By a spooky coincidence I’ve just passed the former factory in Somerdale located in Keynsham near Bristol in south west England, closed by Kraft foods in 2011. It is being turned into a huge serviced retirement apartment complex. Which just about sums it all up nicely.

        2. broadsteve

          Bournville came to mind reading an earlier comment, as did Port Sunlight, and going further back, Saltaire and New Lanark. All of them built as company towns by capitalists (Owen of New Lanark might in fact have been a proto-socialist – and New Lanark is often referred to as a failed experiment), who believed they would profit if their workers were cared for, and not just as individuals, but as families and communities. Hence the building of libraries, parks, community halls and the like alongside good quality housing and sewerage. At the same time these communities were strictly governed by the company, via, for example, tenancy agreements with strict ‘moral’ codes in a way that the more individualistic attitudes of today would not tolerate.

          Also worth looking at in terms of different takes on Capitalism are the 17th century Quaker families and firms – Rowntree, Cadbury (of Bournville fame) and so on – who took the view that making money was an expression of their ‘ contract’ with (and ok by) God. They managed to be successful capitalists with brands and influence still recognised today whilst being enlightened employers, often providing a template (and company money) for social measures and standards which would only be adopted years later by the State.

      2. Dead Dog

        Not much paternalism now, as you would know, Yves. Called it Corporate Social Responsibility or some such sh.t in the more recent times, a concept that corporations needed to put back into the communities that allow them to operate and not just act in the interest of shareholders.

        My MBA, I would have been failed had I not outlined that corporations had duties to the shareholders, customers, suppliers, employees, in that order. If you are a manager in a company and not following this, then you are out.

        Some people cite Branson, who explains that his employees are first (and this seems to be truish anecdotally, even though he pays below market rates) and this translates into happier customers and, hence, shareholders. I’m not so sure though, but Branson’s ideal would be a more ethical business model for those with capital and business interests.

        1. Clive

          I’d add here that (Richard) Branson and the various companies he controls are amongst the worst abusers of their workers from what I can tell (and I’ve had reports from several people with direct experience). But Branson has apparently discovered the benefits — to the company — of instilling a cult-like devotion and a personal brand image in the minds of the workforce. Straight from the Obama playbook of “everything can be solved with better PR and messaging” (perhaps Branson invented it), the Branson empire ruthlessly exploits perception management, spin, bribing the mass media and packaging his image to pull the wool over the eyes of pretty much everyone.

          And all the “self-made” entrepreneur guff is a pile of hooey too — he, as with many squillionaires — was bankrolled by rich parents.

          1. paul

            Not just workers, ‘young people’ regularly polled, seem to think he is a wonderful role model.
            Tom bower pointed out his main successes have been in regulated industries such as the airline (which colluded in price fixing with his designated goliath BA, and then escaped prosecution by dobbing them in) and highly tax efficent branding franchises for other parties (virgin money/virgin media).
            When it comes to actual competition, virgin cola and vodka did not fare so well.
            Presently excavating what was once the english national health service.
            The founders of chrysalis records said:
            We were hippies pretending to be capitalists, Richard was the opposite.

            1. windsock

              Ugh… Virgin Care… In UK, probably among bids to take over a sexual health clinic I know of that has been put out to tender.

              Watch out for more STDs, courtesy of Virgin. How ironic.

              1. broadsteve

                Ah, but for a 13 year old, Virgin’s first record store above a shoe shop in Oxford St was bliss. Me and my mates would sit there all day on a Saturday listening to new stuff on headphones with absolutley no intention of buying a thing, and wondering what the pungent smell of burning leaves was all about.

                (Come to think of it – Branson may have been a true pioneer in the provision of medical marijuana).

                From time to time one of the Furry Freak Brothers behind the counter would gives us a, ‘C’mon guys, don’t you think you should, like, split and, y’know, give someone else a go?’

                I doubt Virgin Health operates along the same lines.

      3. John Wright

        I worked for Hewlett-Packard, starting in the late 1970’s.

        H-P had operations around the world, and was viewed as a good place for workers throughout the pay range.

        There was a sense of community involvement, and a feeling that “we are all in this together”.

        Sometimes when business was down, there was an across the board pay cut, 10% for senior executives, and 5% for hourly workers, as H-P believed the senior executives could afford the cut easier (and they had more say in how the company was run). This was accompanied by a cut in hours worked (such as every other Friday off) for hourly workers.

        I have suggested that Hewlett and Packard’s practices and beliefs were influenced by the difficult economy after they graduated from college, in the Great Depression, and they realized the economy does not always function well for everyone.

        Apparently Packard hesitated to quit his good job at General Electric to help Bill Hewlett produce his new improved audio oscillator that launched the company in the 1930’s.

        They specifically stated they did not want to run a “hire and fire company”.

        And at one time, General Motors was known as “Generous Motors” for how well they took care of their workers.

        One can suggest that relatively few of current corporate leaders remember very difficult economic times, when most people struggled to find work and support their families.

        Now, times are different, and I don’t see anything but “labor arbitrage” guiding corporations in the near term future.

      4. witters

        I was brought up in a paternalist company town. Free dental care, Christmas Party and gifts for all, 3 weeks casual shutdown work funded the year at university. Some company scholarship money too. Then neoliberalism hit. The company site is now bulldozed flat. The town is a mess, ice everywhere.

    2. Deadl E Cheese

      Most every societal success story of post-1864 capitalism involves either subverting its core aspects and/or making it the ‘lesser evil’ choice (i.e. the Meiji Restoration). The only times it is good on its own terms was when the competition was even more decrepit than it was.

      Capitalism is connected with the social good in the sense that it’s possible to sustain a lion with a vegetarian diet that consists of reconstituted and fortified protein patties in the shape of animal carcasses. You CAN do it if you’re that desperate to maintain the system. But… why?

    3. Katharine

      Somewhere I have a letter my father got from a friend who had somehow found his way to the Harvard Business School in the early 1930s, who said he was glad to find they did talk some about the moral obligations of business, that it was not all about profit. I don’t recall the exact phrasing, but it was sufficiently unambiguous to surprise me.

    4. Expat

      Adam Smith’s seminal work on capitalism is entitled “The Wealth of Nations”. These days books on capitalism are more likely titled “How to Get Rich in Real Estate,” “Bill Gates: Rich, Richer, Richest” or “”Doing God’s Work: How Jesus Taught Us to Lie, Cheat and Steal As Much as We Can”.

      “Liar’s Poker” was written as a warning to young graduates and was intended to dissuade them from becoming bankers. Instead, it had the opposite effect.

      Capitalism was usurped by the uber-wealthy over the past fifty years to describe a system in which everyone has the right and duty to become as rich as possible. Greed is good. Anyone who doesn’t get rich is lazy or stupid. And getting as rich as possible is what made America great!

      Bring on the Asteroid!

  2. Ignacio

    If the US stablishment is able to prevent the rising of people like Sanders as official candidates, both the US and democracy are doomed.

  3. David

    I don’t think that many people actually want a “strong leader” in the abstract or for the sake of it. When I was growing up in the 50s and 60s, you only heard this kind of talk from the political extremes (to save the country from Socialism in the 1960s for example) because on the whole governments were active, and did things, and had a reasonably firm grip on the economy. When I heard Jim Callaghan say in 1976 that “you can’t spend your way out of trouble” I knew we were stuffed, because it was the beginning off the abrogation of the responsibility of an elected government, and the beginning of the encroachment of forces like those described here, which governments don’t seem to be able to influence, much less control. So on the one hand people now feel themselves the helpless victims of forces they can’t understand, and on the other, the political leadership that they turn to for solutions is not only in the pocket of the same forces, it’s also made up of second-rate careerist apparatchicks who wouldn’t have the intellect or the guts to act even if they could.
    It’s hardly surprising then, that people are not attracted by weak leaders, and prefer strong ones. They want things done. So last year an opinion poll in France showed that 70% of those questioned would be prepared to accept an “authoritarian” leader. This produced a lot of outrage in the media, but the reality is that it’s mainly a reaction to the appalling decline in the quality of the political class in that country, and its absolute unwillingness and incapacity to do anything for ordinary people. I suspect the same is true in other countries. So as I have unsuccessfully tried to persuade various complacent upper middle-class individuals, people will only stand for so much, and if they themselves don’t allow democratic politicians to reform the system, undemocratic ones surely will. It’s not impossible, for example, to see future “strong” leaders arriving in power in different countries using existing laws to send the police into banks to close them down, or arresting senior bankers on treason charges. The UK definition of subversion, as I recall includes undermining the “economic wellbeing” of the country, and I imagine there are similar laws elsewhere.
    But, heretical thought, how long will it be before we arrive at a point where it’s either that, or chaos and disintegration? Are there things worse than having a strong leader? History suggests yes.

  4. Jim Haygood

    “An astonishing 35% of those earning less than $10,000 a year do not approve of increasing taxes on the rich. Does it get any richer than that?”

    Some of this 35% likely believe that the job of government is to provide essential services, not redistribute income. Others believe that taxing the rich won’t provide any more jobs for them, and might even result in capital flight.

    Jeremy Grantham (whose value-oriented fund is suffering crippling withdrawals, just as it did in Bubble I) can’t believe that others don’t share his redistributionist political sentiments, which seem not only logical but axiomatic to him. That’s his problem.

    1. Deadl E Cheese

      Redistributing income, even if it mostly consists of destroying the wealth of the upper class if you subscribe to post-Keynesianism, is a fundamental function of government. I’d say that it’s even more fundamental to the long-term health of a polity than a military or even police force.

      That there’s a division between the two concepts of ‘provide essential services’ and ‘redistribute income’ at all shows how sublimated and classist our view of human society is.

      1. slim_boom

        Amen! As a programmer, I relate to like so: If a computer program is hogging all the systems resources then the operating system needs to come in and balance that out. No single program needs 80% of my memory, no single person or corporation should have more than 8 zeros after their name.

    2. Vatch

      If the income weren’t maldistributed in the first place, there wouldn’t be much need for redistribution. What did the Walton siblings or Koch brothers do to deserve their money? In both cases, they were practitioners of strategic nativity. Two of the four Koch brothers were and continue to be quite kleptocratic.

  5. TomDority

    TAX FACTS published in the interest of sound ECONOMICS and AMERICAN Ideals
    Vol. III. Los Angeles, Calif., December, 1924 No. 8

    Laborers knowing that science and
    invention have increased enormously the
    power of labor, cannot understand why
    they do not receive more of the increased
    product, and accuse capital of withholding it.
    The employer, finding it increasingly
    difficult to make both ends meet,
    accuses labor of shirking. Thus suspicion
    is aroused, distrust follows, and soon
    both are angry and struggling for mastery.

    It is not the man who gives employment
    to labor that does harm. The mischief
    comes from the man who does not
    give employment. Every factory, every
    store, every building, every bit of wealth
    in any shape requires labor in its creation.
    The more wealth created the more
    labor employed, the higher wages and
    the lower prices.
    But while some men employ labor and
    produce wealth, others speculate in the
    lands and resources required for production,
    and without employing labor or
    producing wealth they secure a large
    part of the wealth others produce. What
    they get without producing, labor and
    capital produce without getting. That
    is why labor and capital quarrel. But
    the quarrel should not be between labor
    and capital, but between the non-producing
    speculator on the one hand and
    labor and capital on the other.

  6. cojo

    A war or some other catastrophe sweeps away the choking undergrowth of pressure groups,” as The Economist rather eloquently summarized his thinking in his obituary of March 1998.

    Jeremy sees the problem, unfortunately this runaway train is not easy to turn around. I liken it to the Warren Buffet realization that the system is completely unfair when he pays a lower effective tax rate than his secretary, and the response of his critics is “why don’t you just pay more taxes if you think it’s unfair.” As if this will put a serious dent in the problem. In the end, the only way out may have to be a global catharsis of war and resetting. Again, the innocent and most vulnerable will suffer the most.

  7. oho

    >> An astonishing 35% of those earning less than $10,000 a year do not approve of increasing taxes on the rich.

    There are lots of regressive taxes and ‘quasi-taxes’ on the working poor. See sales taxes/food taxes, gas taxes, parking tickets, court fines, vehicle registration fees, etc.

    It shouldn’t be surprising that they reflexively see taxes philosophically as an unwanted intrusion into their wallet.

  8. Doncastro

    Taking an historical perspective, it may actually make more sense to use the term tribalism as opposed to cronyism. If you dig deeply enough, almost everything comes back to tribalism.

  9. Doncastro

    The subject of redistribution for the common good must be discussed. But first we must discuss how the product of capitalism is to be distributed in the first place. The oligarchs and the senators and congressmen on their payrolls have stacked the deck. Reestablishing a distribution that optimizes our ability to achieve the priorities so clearly stated in the Preamble to the Constitution would be a good place to start. It might even save capitalism.

    1. Jeremy Grimm

      Wealth provides for a good life, and more money enables conspicuous consumption — up to a point — but wealth quickly morphs into prestige, privilege, power and control over the lives of others. A wealthy society should provide a good life for all and can afford tolerance of a certain amount of conspicuous consumption and of course a certain amount of the frivolous and fun. A wealthy society can afford to build great works and fund heroic efforts offering thereby work and community in achieving wonderful things.

      But aggregations of purely pecuniary prestige and privilege and the aggregation of arbitrary power and control over the lives of others is of benefit to no one. The fortunate few suffer a profound poverty of their souls as they compel the rest of us to suffer in our lives. The good society must tax away these excesses of wealth which pollute our common good. Redistribution of wealth — while it should foster more equitable sharing of pecuniary wealth — should also foster provision of societal goods for the common good of all. And more — the redistribution of wealth must include providing help to other societies that they too might enjoy the good life the riches of this world provides.

  10. JEHR

    Well, I sent a link to this article to President Trump and said that his presidential career would be fantastic if he tackled income inequality. One never knows what may happen when, and if, he reads it.

  11. Schofield

    Hey money let’s you vote in the private marketplace, democratic process lets you vote in the public marketplace and ideas let you sort out the mess caused by the first two.

  12. David

    I posted a quite lengthy comment this morning that was flagged for moderation and has since vanished. What it was saying in essence is that rather than worrying about the desire for strong leaders to take on the system, we should first worry about the incompetence and cowardice of the current political class that lives off the system. Don’t have time to write it again.

  13. Gman

    Supposedly harsh but fair Capitalism has always been sold to the masses as the fairest, most efficient and effective means of wealth distribution. It’s not always perfect, it might not always be fair and it might not always be pretty, but it’s the best we’ve got. Well, so far anyway.

    In theory it is a system that is both carrot and stick. Work hard and you’ll reap the rewards. Take it too easy or try and cheat the system and you’ll likely get found out and endure the consequences with little or no cause for complaint or sympathy from others for that matter.

    This unwritten, unspoken contract was by an large acceptable to and accepted by most people. You might never get rich, but nor would you ever go without the bare necessitates of living in a civilised society.

    Probably beginning 40 years ago slowly but surely the social contract was chiselled away at under false premise after false premise. In the UK what’s not to like disingenuous euphemisms like ‘open for business’ , ‘cost saving’ and ‘downsizing’ helped sell the idea of Christmas to credulous turkeys and simultaneously tipped the wink to the knowing vultures (sorry, ‘investors’) keen for rich and easy pickings from the carcasses of hard won, post war Western Social Democracies.

    The race to the bottom was on…

  14. Tom Skowronski

    What do you do with a populace of which a significant number will do nothing to better themselves, i.e., Boeing workers in South Carolina defeating a union vote 3 to 1? Capitalism loves the South!

    1. Mike G

      The whole reason Boeing built the South Carolina facility was to undermine the unions at their Puget Sound operations. SC is essentially their third-world cheap labor outsourcing location, and they’ve had significant quality issues due to the skills and training level of the workforce.

  15. RBHoughton

    Agree that the Citizen’s United decision was the death knell of democracy in the United States. Also agree that Trump has the capacity to effect change such as Obama only talked about.

    I think I can make the case for a strong man to run a democracy every century for a few years just to get the country back on course after the flip-floppery of factional politics – employers v employees.

    If we are ever to see a proper assessment of Napoleon (and losing a war always means your work is also lost) it will indicate that he put Europe back together even though a great many of his initiatives were instantly reversed by the Kings. We need a Napoleon from time to time. I have not yet detected Napoleon’s abilities in Trump but perhaps he is the man we have been waiting for.

    1. mtnwoman

      Extremely curious: what traits observed in Trump give any indication that he is interested in supporting democracy and in correcting wealth inequality? I see zero.

      He has just called the press “the enemy”. Are we to get all our news from his raving twitter or his incoherent press conferences? (Like N. Korea gets all their news from their guy with bad hair).

      He seems totally unaware of what is in the US Constitution by his remarks about the US Judicial system and his behaviors.

      The GOP has engaged in massive voter suppression and gerrymandering (pols select their voters). Trump only raves about his totally unevidenced “voter fraud”.

      His cabinet are billionaires who are often avowed enemies of the Dept they are heading (DeVos, Pruitt). His closest advisor dreams of a White Nation and tearing down all structures.

      I could go on (and on).

      1. susan the other

        Bannon claims to be an economic nationalist whose goal is to bring down the US establishment. That actually might help. Either that or they’ll have to do some serious contrition on their own which is doubtful. Trump himself is a little thin on what our American reality actually is. We can’t go back to the 50s. We have automation taking as many jobs as emerging economies do. We don’t understand our own economics or sovereignty. I could go on and on too.

      2. Mike G

        Trump has the capacity to effect change such as Obama only talked about.

        I see no evidence that he has either the political skills to implement positive Obama-rhetorical-style change, nor the desire to do so.

        I see a self-aggrandizing caudillo with authoritarian instincts and severely limited intellect, relevant knowledge and attention span. Pinning your hopes on cleaning up corruption on the human equivalent of a Macy’s parade balloon of ego and hot gas, is gullible in the extreme.

        His Secretary of State was the head of Exxon, his Secretary of the Treasury was the No. 2 at Goldman Sachs, and his most powerful advisor is at least fascist-adjacent if not an outright fascist. It’s pretty clear what his concerns are, and wealth inequality is not one of them.

  16. susan the other

    could corporations, going forward, be required to be designed into two parts: one for profit and one non profit. the non profit sector of the corporation would have a firewall to prevent being ransacked by the profit side. the non profit sector could be run by and for employees, wages and benefits, and community service. and only by integrating both sides in agreement would the corporation be able to do things like balance its books, plan for the future, eliminate graft and wasteful endeavors, etc. modern US corporations are the worst kind of creature – they are unilateral unchained hallucinating going-concerns, with no inner counterbalance. it’s amazing they have survived. not even extinct animals failed to respond to their own environment – even when all was lost. but corporations are so arrogant they won’t even consider anything is important except profit, absurd profit.

  17. Propertius

    I’m going to play advocatus diaboli here. I think Citizens United is the wrong target as is the doctrine of “corporate personhood” (which does not, by the way, assert that “corporations are human”).

    Here’s a pretty good discussion of “corporate personhood” and the consequences of doing away with it:

    I don’t think any of the individuals who rail against “corporate personhood” are seriously proposing to eliminate the right to, for example, sue corporations, yet that would in fact be one of the consequences of eliminating it.

    Similarly, I don’t think they’re seriously suggesting that newspapers, magazines, or blogs (such as NC itself) which are published by “corporations” (like Aurora Advisors, Inc.) should lose their First Amendment rights to free expression and be subject to potential government censorship – yet that is in fact what restricting the First Amendment rights of “corporations” would accomplish.

    What they’re objecting to is the money and the pernicious notion that “money is speech” and that there is somehow an unlimited right to buy influence from public officials under the guise of campaign contributions. I submit that reversing Citizens United would do little to help that and would have some truly dire side-effects.

    The Koch brothers are individuals. George Soros is an individual. So are Penny Pritzker, Warren Buffet, the Waltons, Sheldon Adelson, and all the rest of the modern robber barons who corrupt the political process. Even if you strip corporations of every legal right, they’ll still be quite capable of buying influence and corrupting the process. They’ll have to do it under their real names, of course, but I submit that that’s the classic example of a “distinction without a difference”.

    If you want to overturn something, overturn Buckley v. Valeo.

    1. Adam Eran

      I’m sure the folks at Move to Amend (an organization lobbying for a constitutional amendment to deny money is speech and corporations are people) would have sophisticated legal answers to the points you make. Personally, I think corporate ownership could be sidestepped in a variety of ways (people own the property, corporations have an option to buy it). Nevertheless, one attorney with Move to Amend told me part of the problem here is that these publicly sanctioned organizations claim the right to privacy…so we don’t know about Enron’s shenannigans until after the bankruptcy hearing.

      Meanwhile, a look at Power and Accountability by Monk & Minow should persuade you that any attempt at allowing shareholders to govern corporations is at least questionable.

    2. Kukulkan

      Corporate personhood is a legal fiction, used by the courts to facilitate commerce and make it easier to run a business. It means that a corporation can own property, enter into contracts, be sued, and so on. This means the same sort of contracts and arrangements that apply between individuals can also apply between individuals and companies or between companies. You don’t need to create a whole separate body of law just to deal with corporate relations. It makes things easier for all concerned.

      However, in US the courts have decided that if you can treat corporations as if they were people for some purposes, you have to treat them as if they were people for all purposes. So corporations are said to have assorted civil liberties, such as a right to free speech. This comes across as a thudding literalism — taking an assumption made to make some things easier and acting as if it were actually the case.

      An analogy would be adoption, another legal fiction, in which an adopted child is legally regarded as the adopting parents’ natural child, with all the rights and benefits that flow from that. Doing so just makes things easier; you don’t need a separate body of law for adopted children, you just use the same laws on inheritance and the like as apply to natural children.

      What the US courts have done with corporate personhood is like the same courts deciding that since an adopted child is the legally the same as natural child, then all the same considerations apply to them, so adopted children need to be tested for any genetic diseases their adopting parents may have because they may have “legally” inherited the condition. It’s the point where the fiction stops being useful and just becomes delusional.

      Corporate personhood does not need to be abolished; it just needs to reined in. Every decision based on corporate personhood needs to run through a test: does treating the corporation as a person facilitate commerce and business functioning narrowly defined? If yes, treat the corporation as if it were a person; if no, then don’t.

      1. Kukulkan

        Actually, a slightly better analogy occurred to me.

        It’s like insisting that if the adopting parents get a divorce, the non-custodial parent doesn’t owe child support because a paternity test shows no genetic relation between them and the child.

  18. Felix_47

    I wonder to what degree social cohesion is torn up with unlimited immigration from vastly different environments. I would guess that Bourneville in the past had no Asians or other minorities to speak of. Neither did England. It is a lot easier to be ones brother’s keeper when he looks, speaks and acts like your brother. The brown skinned guy in a turban… so easy to say. Germany has a long history of social progress and one wonders to what degree the unlimited immigration that is going on here is designed to break social cohesion so the elite can design society to their wants.

  19. Sound of the Suburbs

    Ross Perot in 1992, tried to warn the US public about a return to 19th Century capitalism.

    He was so far ahead, no one really knew what he meant.

    Small state, basic capitalism is the capitalism of the 18th and 19th centuries.

    The rich lived in luxury and the poor lived in squalor.

    Adam Smith observed it directly …..

    “The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

    “But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin.”

    Where does today’s nonsense of trickledown and maximising profit come from?

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