Male domination, white culture, and rigid capitalism have limited our individual power and freedom for so long that it is difficult to imagine anything else. As a nation, we are talking a lot about the first two items, but not so much capitalism. And yet, it is the driver of this system that perpetuates our systemic problems.
Capitalism is a system of largely private ownership that is open to new ideas, new firms, and new owners. Capitalism’s attractiveness has long been recognized to be its dynamism and innovations and its selectiveness in the innovations it tries out. At the same time, capitalism is also known for its tendency to generate instability, often associated with the existence of financial crises, job insecurity and failures to include the disadvantaged.
The argument in favor of capitalism differs from the classical case for a competitive or free market economy. Adam Smith’s thesis two centuries ago was that the presence of many buyers and many sellers competing with one another in the marketplace would weed out wasteful resource allocations. In equilibrium conditions, one person’s earnings could not be further increased except at the expense of another’s.
Capitalism is not a free market economy, but instead, relies on innovation as its primary growth mechanism, and this depends upon a host of entrepreneurs willing to risk capital on an idea. Bill Gates, Steve Jobs, Elon Musk, Jeff Bezos, Thomas Edison are examples of men willing to risk change and attract capital to put the idea into play. And many small business owners do the same thing but on a smaller scale.
Yet innovation is not the only aspect of capitalism on which there is not yet much fundamental understanding. The influence of capitalism on fluctuations is not addressed in standard monetary macroeconomics or in the “real business cycle” thinking. It is obvious that jobs are far more precarious in the capitalistic economies than in the state-run ones, where governments try to avoid any rocking of the boat and to backstop with assorted job protection laws.
Capitalism’s proponents respond that the right both to hire and to fire freely helps to embolden firms to take the risks of job creation and thereby raises the average level of wages and perhaps employment too. However, capitalism fosters long swings in economic activity, as measured by employment and unemployment rates, and of far greater amplitude than those detectable in the more controlled economies. Perhaps, when contractionary forces strike, the prompt restructuring that firms in a capitalist economy undertake does dampen the size of the slump that follows. The rigid posture maintained by firms in controlled economies, with their strictures against layoffs, entails a much deeper and longer slump. For the average person, losing a job is costly and provides a justification for blocking or moderating long slumps in a controlled environment.
The biggest problem with capitalism is that it is best only for the elite, more able, and advantaged participants, who can find rich rewards from its stimulation and challenges. There is much resistance to the integration of the less able and less advantaged into the economic sphere. This is the question of economic inclusion. Quite possibly, there is little cost from a failure of highly corporatized or highly socialized economies to include the less advantaged, in those economies. It is often deemed acceptable to have only a minority of the population in the labor force. Far more may be at stake in the inclusion of the less advantaged where the business sector is predominantly capitalism. If these capitalist business sectors offer relatively good job satisfaction and personal growth but offer relatively high wages in comparison with the pay in underground and domestic activities, then an appreciable deficiency in inclusion arises from the gap between low-end wage rates and the median wage. The resulting decline in employability will be deemed unacceptable and may impose high social costs on virtually everyone.
Even more difficult than the task of measuring these social effects of capitalism is the problem of finding solutions to them if solutions exist. And that problem is now more difficult since our country (USA) has grown aware of how fortunate we are to have had the capitalist engine driving its development over the past two centuries and how valuable this engine can be again. So, the West is faced with a conundrum: How does society respond to the social defects and deficiencies of capitalism without choking off capitalism’s potential dynamism? Among the issues are whether retraining can address job losses, how long-term booms are to be treated, and whether employment subsidies are cost-effective as a remedy for a deficiency in inclusion.
Why can’t the United States be more fair or equal. When Americans declare that “we live in a capitalist society” what they’re often defending is our nation’s peculiarly brutal economy.
Those searching for reasons the American economy is uniquely severe and unbridled can find many answers in religion, politics, and culture. But many are finding answers derived from our “cotton” economy of the 19th century. Long rows of cotton in need of picking, cotton houses for the sorting and selling, and slave auction blocks for labor provided the engine for the birthing of America’s low-road approach to capitalism.
Slavery was a source of phenomenal wealth. By the eve of the Civil War, the Mississippi Valley was home to more millionaires per capita than anywhere else in the United States. Cotton grown and picked by enslaved workers was the nation’s most valuable export. The combined value of enslaved people exceeded that of all the railroads and factories in the nation. New Orleans boasted a denser concentration of banking capital than New York City. What made the cotton economy boom in the United States, and not in all the other far-flung parts of the world with climates and soil suitable to the crop, was our nation’s unflinching willingness to use violence on nonwhite people and to exert its will on seemingly endless supplies of land and labor. Given the choice between modernity and barbarism, prosperity and poverty, lawfulness and cruelty, democracy and totalitarianism, America chose it all.
So, when there is concern for those marginalized by our brutal system, all conservatives begin to shout “socialism”. That is a key word that frightens all Americans even though most don’t understand the concept, nor do they recognize that we already have elements of Socialism in our economy. (Watch out for your Social Security!!)
But among our Senators and Congressmen, I believe they relish the idea of participating in the dynamism of capitalism but have not the entrepreneurial acumen or measure of invention to do it themselves. So, they ride on the coattails of the broad swath of Americans and participate in the largesse. Our government fosters the continuation of this barbaric system for its own growth and benefit. When will Americans wake up? The rest of the world recognizes our flawed practice, and we keep voting for more of the same.