January 27, 2023

The pitfalls of capitalism

I am an avowed believer in and supporter of capitalism. I wholeheartedly support the concept of the free market. My initial foray into the political sphere, as a young teenager mind you, was from that trajectory.  I was first a fiscal conservative before discovering my social conservatism a decade later.  The benefits of capitalism over socialism, communism, fascism, monarchies, dictatorships or any other form of governance are spectacular and incontrovertible.  Capitalism supports the Biblical principle of the work ethic. Capitalism supports the notion of individual liberty as well as individual responsibility.  Capitalism supports the idea of a meritocracy.  The other forms of government do not. In many regards they even reject or overtly oppose much of those ideas.

The pitfalls of capitalism I am about to discuss are not meant as an indictment of it, rather a warning that we cannot allow it's few but obvious weaknesses to derail it from succeeding.  To appropriate some William Shakespeare's Mark Anthony, I come to praise capitalism, not to bury it. Nevertheless, I come to gird capitalism by pointing out where it has failed.  Or rather, more aptly, those who profess to practice it, have failed.

Let me preface the below by saying that while I am talking about capitalism, which is an economic system, it is inherently entwined with democracy.  You cannot have a free market without a free people.  Other economic systems are more often than not a political and economic model combined. My commentary below reflects this mix of the economic side of freedom (capitalism) with the political side of freedom (democracy, a representative republic or similar means of governance).  My critiques of capitalism stem primarily from the shortcomings of governance rather than capitalism itself.

Capitalism has never existed in an unfettered state.  If it were so it would be seen to be more brutal than how we observe it. If indeed we existed in a truly laissez faire capitalist society, taxation would be for the creation of roads, the common defense and provide laws that protect commerce and individuals from unjustness (theft, fraud, murder for example).  But capitalism is managed by humans, and where it is practiced, it does more.  

There is a social safety net to help the most unfortunate and weakest among us in every capitalist nation.  When done properly this is a boon to individuals as well as to the system.  When done improperly it can result in bloat (too many recipients, including those not truly in need), or shortfall (not supportive enough or corruption leaching funds from those in need by government bureaucrats).  It should be pointed out that these are not pitfalls of capitalism, they are the pitfalls of improperly executed capitalism, or warping of it by those who seek to gain from unwarranted opportunity. 

But there are pitfalls nonetheless.  Perhaps the most egregious of these is the advent of a kleptocracy by both government and the techo-industrial elite.

In a kleptocracy, corrupt politicians enrich themselves secretly outside the rule of law, through kickbacks, bribes, and special favors from lobbyists and corporations, or they simply direct state funds to themselves and their associates.

This is not a the flaw of capitalism, this is a distortion of capitalism.  Capitalism's flaw, is to lend itself to such distortion.  A free market system, with insufficient guard rails put in place can easily be corrupted by those with the money and power to do so.  Therein lies capitalism's greatest weakness; the inability to sufficiently protect itself from deliberate disruption by the lazy-greedy.  This extends to deliberate disruption by the unwise. Government in seeking to prevent disruption of the economy often inadvertently distorts the economy it creates bubbles.  The proper way to handle a recession is to endure it, not print money and artificially avoid it until the next election cycle.  This creates bubbles, and it creates incentive to expand the bubble and avoid the pain.  This makes the inevitable bubble-burst far worse.  Capitalism does not provide a way to prevent that.

The solution, good government, is not mandated by capitalism.  The smarter way to prepare for inevitable occasional economic weakness is to provide a sufficient safety net in those times and even more critically, provide the incentive and enable the populace the opportunity to prepare for it themselves. Does anyone save for a rainy day anymore?  Why bother when the government does not set the example and instead is willing to throw trillions of dollars they don't really have at the problem?  This is what is often referred to as generational theft.  The government borrows money that following generations will have to pay back. Lazy-greedy in a different way.

In defense of capitalism, no other form of government protects from this any better.  In fact they all serve a concentration of power that enables fewer and fewer to decide more and more and ultimately that power not only serves their corruption and enables it, it encourages it.  The imperfection of capitalism in this regard is far worse in other forms of system but capitalism is nonetheless not excused.

Capitalism requires a higher bar of protection against these weaknesses.  Not just legal protections are needed, as those can be rewritten or avoided through loopholes government has proven itself all-too-willing to use.   It requires a belief, strongly-held among the people, that government is a servant of the people and must be held to account for every action and decision.  This is a lot to ask of a population in terms of time and effort and even awareness.  The problem is that the awareness has been deliberately eroded over generations and even good intentions fail when awareness prevents their use. 

Coupled with the lazy-greedy issue, is the developed sense of entitlement.  Modern Caligulas across government and the wealthy elite and even the famous, feel entitled to their wealth and do not concern themselves that it comes at the expense of the middle class and poorer classes.  They are entitled after all.  They have lived it and been told it all their lives. They Marie Antoinette their way through life unconcerned that the price of eggs has dramatically increased and life has become significantly more straining on everyone else.

This oligopoly of wealth and power make decisions on governance outside of the purview of everyday citizens but in a way that affects everyday citizens (most often negatively).  Think COVID mask mandates "for thee but not for me" as one example. Think Jeffery Epstein's private island for a more direct and dramatic use of people as objects for another example.  All the while they tell you what you observe isn't real.  Inflation isn't bad, it's just you.  

This concentration of power and wealth builds upon itself.  Those inside the inner circle grow bigger and bigger feeding of the rest of society, and make rules to ensure competition to their aristocracy is fettered and hobbled and can never truly get to the top.  Again this is not capitalism, it is a distortion of capitalism.  But capitalism here is not snow-white and sin free.

Capitalism's inherent risk here, comes from it's strength.  one of the underpinning concepts of capitalism is competition. If there is a need going unfilled, capitalism rewards those who seek to fill that need by providing them with a growth in their wealth.  But competition inevitably means there will be more than one person or business entity that tries to fill that need with a solution.   Not all will do equally well and the best (based quality, price and other factors) will slowly grow market share at the expense of the less ideal solutions.  In a truly free market there is a potential that the one best idea ends up becoming the only idea, obtaining 100% market share (or perhaps 90% say). The competition has destroyed itself.  Capitalism has led to a market monopoly.  Perhaps this is inevitable in efficient capitalism.  But the strength of the best winning out, doing the best for consumers in the end, sews the seeds for its own demise.  Monopolies are not healthy in capitalism.  Maybe in the short term they are fine, but extended monopolies become like government.  They seek to exist for their own existence.  They serve themselves and only themselves. People be damned. This is a further recipe for corruption and perhaps collusion with government; you protect my market from other players and I donate to your election campaign. It doesn't matter if a newer and better option has been devised, it must be destroyed before it can grow and replace my monopoly.

It's a sick twisting of capitalism but capitalism itself has done nothing to prevent this twisting from occurring.  Or rather we have not done anything to prevent capitalism from being perverted. Again, laws exist to prevent these distortions but they happen anyway, because people are corrupt. Not just the elite, people in general look out for their own interests.  It's human nature, or in fact, just nature. What capitalism requires is an institutional way of preventing the corruption.  It requires it at a foundational level and it does not have it. More important than laws are two things; awareness and transparency.

Those unfortunately require complete openness about financial transactions at those levels (and in the interest of fairness the, at every level), and media coverage of anything that has been flagged as suspicious transactions. Yikes. While we are probably at a point where that may be technically possible, there are three things that are wrong with that solution.

  1. The obvious one we rail over already as conservatives; the media is large enough and corrupt enough to become part of the problem already.  They will have no interest in exposing the problems.
  2. There is no appetite to create a financially fully open society; not at the top level, not at any level.  Do you want everyone having the option to know or see everywhere you spend your money? Probably not. Very probably not.
  3. This does not cover every possible transaction because not all transactions are financial. "Write a negative story about x, and I will make sure you have free access to y." That will still go undetected.

Capitalism also demands equality of opportunity (NOT outcome - I will never play basketball well enough to deserve an NBA level salary at the job. I do not have the physical traits such as height, to compete at that level).  Democracy as it has existed so far, does not ensure this is the case.  This requires equality of education, equality of access to opportunities, and a removal of unjust barriers to entry.

All is not lost for capitalism.  These problems also exist in every other form of government in some form or another, despite what utopian socialists or communist would have you believe. The strength of capitalism is invention and reinvention.  If those who believe in capitalism can come to grips with it's pitfalls, they can work more diligently to expunge them.  That can not be said to be true of most other systems of governance. Capitalism is redeemable but it requires constant vigilance and it does not have that, which is our own fault. 

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