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economy, opinion, political

The End of Capitalism?

Because of the financial crisis the political left is obviously trying to make points by pointing fingers at the nasty and greedy capitalists who are responsible. They proclaim the end of Capitalism or at least Neo-Liberal Capitalism – whatver that is. It was however the governments – the American administration and Alan Greenspan as head of the Federal Reserve – who were responsible for the crisis because of micro-regulating businesses, markets and not regulating capital flows. Banks and all of us who benefited – and we all did – were just very willing accomplices.

Capitalism is not at an end now because it has ended quite some time ago. What we have is a strictly regulated economy. You think I must be wrong? Go and read it up please! Capitalism is commonly defined as a system in which wealth and the means of economic production are not only privately owned, but are considered rights protected by a LIMITED regulatory framework of laws – call it the rules of the game if you will.

We have no rights of ownership, but so many laws that the cost of compliance and legal will soon be a quarter of total business expense. Additionally these rules cover extremely detailed facets of operation that hurt the true carrier of free markets – the individuals and small businesses. Those are further restricted in free market execution by the financial power of government sanctioned monopolists (a.k.a. global enterprises) or government subsidized enterprises – which now includes banks. When then these huge businesses are not allowed to go bancrupt because they are ‘too big to fail’ then it is obvious that we do not have a free market anymore. Governments meddle like crazy with free markets all the time and on all levels.

They do however not regulate in areas that would ensure a balanced free market economy by for example RESTRICTING THE FREE FLOW OF CAPITAL (in terms of monetary instruments or money). Free flow of capital IS NOT a necessary part of a free market capitalist economy. Particularly when it has already been slanted by previous regulation. Capital (in terms of money supply) is not wealth per-se but it is a resource that simplifies business operations in comparison to barter.

The financial crisis was caused by access to too much cheap cash (Thank you Alan Greenspan) multiplied by leveraged real-estate loans. Consider the following: The 2008 US gross domestic product was $13.8 trillion. The AIG securitized bundles of consumer loans and home mortgages that were sold for more than $27 trillion since 2001 (Source: SIFMA) created the global fincancial crisis. Remember, that I am asking for LESS – NOT MORE regulation, but we need regulation of the right kind in terms of dealing with the taxation of monopolies and free flow of capital (including stock markets).

When individuals are higher and more progressively taxed than businesses that is also a distortion that meddles with free markets and creates the huge financial conglomerates who are too big to be sensibly managed or controlled. If an executive has to pay 50% income tax and his business just 25% in capital gains then don’t be surprised if he uses any means to push up revenue and thus his salary payments or share price. If he would just pay 25% and his business 50% then he would not see the benefit in pushing up revenue by any means. I am talking about large businesses, not SMBs.

So now the governments are claiming to save us from the greedy capitalists. I am sorry, Mr. Politician. But you are more or less just cleaning up your own mess. The illusionary share values used as collateral are simply no longer good enough and even banks don’t trust each other any longer. To avoid a collapse, governments are now taking control of the financial institutions and regulate them in even more detail. Consequently, any advance optimism on a recovery is an illusion. In a few years the US will be a worse government controlled state than the old USSR ever was. Actually, the same thing is happening in the EU. Yes, the economy will be fine (the governments will make sure that the numbers look good) but it will not be a free market economy.

There is the influence of the media who created the economic crisis by flogging people with the news of the ‘financial’ crisis – because the connection between the two is limited. Then there is electronic communication (Internet) that has in principle a positive balancing effect because people like me can go out and take part. Governments will however soon utilize social media also for political (mis)information (look at the Obama campaign) and do their magic there.

In terms of true free market capitalism – they way Milton Friedman defined it in 1968 – the (capitalist) world has ended some time ago. The markets are not malfunctioning because of a loss of confidence, but because government meddling allows the global players to be too big and influentual and because they can create havoc by shfting capital to any place they want. Global business bureaucracies are welcome by governments as an extension of their power and as a money supply for political activism. No wonder, they won’t let them fail. But to hope that the political left will do away with those monsters is an illusion too. If anyone will tackle them, it will be a center-right, liberal approach. I think … but I may be too optimistic.

Until that changes, free markets (and true democracy by the way) remain an illusion sold to us by the people holding the trigger and by governments that some might call fascist. I obviously will not!


About Max J. Pucher

I am the founder and Chief Technology Officer of Papyrus Software, a medium size software company offering solutions in communications and process management around the globe. I am also the owner and CEO of MJP Racing, a motorsports company focused on Rallycross or RX, a form of circuit racing on mixed surfaces that has been around for 40 years. I hold 8 national and international championship titles in RX. My team participates in the World Championship along Petter Solberg, Sebastian Loeb and Ken Block.


One thought on “The End of Capitalism?

  1. I have to agree that “capitalism” is not what I see operating the economy. In fact, governnments long ago rallied in support of two opposing themes that are rank with proximity to the economic crisis. These two contradictory themss are monopolization and commoditization. Everyone knows what a monopoly is, and it is evident that enterprise-scale monopolies such as government and healthcare are thriving in the new economy. The other winner in the new economy has been the rampage of commoditization in industries, whereby goods and services become undifferentiated resulting in loss of pricing advantage. Two industries that have been ravaged by commoditization are financial services and automobile manufacturing. That these industries would become the leading culprits of the expanding economic crisis is of little surprise.

    Hence, the global economic system has become a corrupt choice of either supporting “big government” or “big business,” making the real losers the people and society. This polarization of the political economy is untenable. Society’s only hope is that the electorate reframe the debate from “economic” to “political” reform, whereby we the people accept that elitism (which advocates extrreme commoditization of industries) and populism (with its relentless and expanding commitment to government sponsored monopolies, including national security and healthcare) must now yield to pluralism, and devote instead the energies and resources of government toward the broader needs of a more active and relevant citizenry, albeit at the expense of “enterprise” scale solutions. Indeed, it may be time to relook the notions of republicanism and federalism as the political systems upon which to ground a society. We, the people, have much work ahead of us in order to reinvent our world into pluralism in our time. Let’s hope it’s not too late.

    Posted by William J McKibbin | May 18, 2009, 1:24 pm

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