I don’t usually touch on economics at this blog, unless there is a clear science link, because it is not something I know much about. But I was so pleased to read the following piece by Adam Creighton this morning at On Line Opinion. It clearly articulates what I perceive to be right about the ‘occupy protests’, what is right about capitalism, and what is wrong with ‘the economic system’ at the moment.
I’ve been particularly disappointed to see many so-called right wing commentators so dismissive of the efforts of the protestors. People on the right too readily equate their ideology with the financial sector making lots of money, which is wrong.
Adam Creighton writes:
“AS the public squares of Western capitals fill with angry crowds – self-appointed representatives of the ‘the 99%’ – it is easy to poke fun. Railing against greed and inequality is akin to complaining about human nature. And far from being 21st century sans-culottes, these are mostly avec-ipods: relatively well-off, educated, and accessorised with the clothes and gadgets of the corporate culture they damn.
But their inchoate chants give vent to an increasingly widespread disgust with the economic status quo. Across the OECD the global financial crisis has thrown 15 million people out of work. Massive bank bailouts have triggered public debt crises in the United States and Europe that presage penal inflation and tax hikes. In Britain, whose public debt has surged £1 trillion, GDP per person is now 13% lower than its pre-crisis trajectory.
Ordinary taxpayers and voters are bearing these colossal costs, while those that abetted the crisis – bank staff, economic bureaucrats and politicians – remain and even prosper. If this is not galling enough, the steady drip of obscene ‘bonuses’ and gargantuan pay cheques in the wider corporate world is Chinese water torture for disillusioned taxpayers and reluctant shareholders.
They struggle to articulate it. But the public is not angry about inequality per se, they are concerned by an economic system that appears to be allocating rewards arbitrarily and unfairly. They are gobsmacked that the system’s shortcomings, starkly revealed, are being papered over, even exacerbated.
It is a public relations disaster for the intellectual ‘Right’ that vast swathes of voters worldwide are blaming capitalism for this offensive economic bog, and calling for greater government intervention. Even conservative writers like Charles Moore, former editor of The Spectator, are openly pondering whether the ‘Left’ was correct all along.
It is not surprising, though. The International Monetary Fund, self-anointed ringmaster of ‘free markets’, repeatedly endorsed our economic system before 2008. Countless books about globalisation over the past 30 years lauded how ‘capitalism’ was lifting millions out of poverty in the third world. Fukuyama’s end of history pinpointed something, but it wasn’t the triumph of capitalism as many imagined.
That people blame capitalism will be an economic disaster too, laying the groundwork for yet further shifts away from the ideals of a free society.
Indeed, the ‘occupying’ protestors should be agitating for more capitalism and less government. Capitalism rewards talent and effort, and leaves the biggest rewards for those that risk their own money and time to bring goods or services to market that consumers can voluntarily buy – think Henry Ford or Lang Hancock; the late Steve Jobs or John Symonds in our own lifetime.
Capitalism is not about giant corporations being able to dump their losses on taxpayers. It is not about allowing senior employees to feast with impunity on the profits of capital supplied by others simply because they can. Nor is it about armies of bureaucrats, corporate welfare, implicit guarantees for banks, or welfare states so pervasive and meddling they have sucked the appetite for individual responsibility out of their citizens.
Government has systematically shielded the biggest companies and their staff from the bracing but vivifying winds of ‘creative destruction’, what Joseph Schumpeter considered the hallmark of genuine capitalism.
Through direct spending and subtle regulations western governments have permeated almost every facet of the economy. In banking, governments and economic bureaucrats have acted as Dr Frankenstein, unwittingly facilitating monstrous growth in banks’ size, short-term profits and risk-taking with their implicit guarantees and feckless ‘Basel’ regulations.
Finally, despite patchy evidence at best, most economists agitate for Keynesian pump priming and artificially low interests rates to resuscitate economic growth. Yet their underlying models are often no less naive than the Leontief input-output tables that tried to animate the Soviet Union. Keynes’ quip about economics being most useful as a form of employment for economists was far more apt.
In short, Adam Smith and Frederick Hayek would recoil at the economic status quo. Indeed, the ‘left’ claim to be ‘progressive’ when much of its social democratic agenda is already fulfilled.
If genuine liberals want to maintain credibility, they need to distance themselves from corporatist and managerial rent-seeking as much as they do from the labour and bureaucratic kind.
The targets for reform are endless. Arguing for a greater role for owners of capital in our economy – shareholders – is one important way to encourage enduring support for capitalism. Adam Smith railed against the avarice and waste of the managers of the British East India Company. Indeed, economists have long recognised the gross inefficiencies that can arise when the link between ownership and control is severed, whether in government or private enterprise.
Limited liability companies are a gift and construction of the state. They came about to promote risky ventures whose success could bring wide benefits but the costs of whose failure would be borne by the owners. They have been a boon for western civilisation, but they require managers to exercise prudence and restraint, especially in the banking sector where limited liability for owners and no liability for bankers can have harmful social outcomes.
It is possible in some cases sufficient restraint is not being exercised, overseas or in Australia.
It is even more important that corporate governance is accepted and effective in Australia, where the fruits of workers’ labours are coercively siphoned off into superannuation accounts. On the bright side, this Australian model of dispersed share ownership offers a platform for ordinary people to have more say over the running of companies. Superannuation funds need to give vent to the views of their members when voting.
Even if the distribution of incomes and wealth is of no concern, how it comes to manifest itself is. If the current trend continues, whereby ever greater rent-seeking, bureaucratic and corporate parasitism contributes to ever greater disparities of wealth, our western democracies leave ourselves open to extreme elements that could remove the freedoms and liberties we still have.
As the Remuneration Tribunal is about to recommend massive pay increases to politicians and senior public servant – justified with reference to ‘market’ rates – it is worth considering whether corporate largesse is contributing to a creeping venalisation of the public service as well, which will only accelerate the erosion of public support for our economic system.
Adam Creighton is a Research Fellow at the Centre for Independent Studies. This article was first published by the Australian Financial Review on October 21, 2011. I first read it at On Line Opinion and it is republished here with permission from the author.