What is Wrong with Capitalism

Finally some data is coalescing around a real problem that is hindering capitalism and specifically that part known as creative destruction. For without creative distruction we end up with a pilloried version of capitalism that undoes itself via a painful transition (in our future) rather than peaceful adaptation (what we really want).

You have to connect several dots here in order to discover the twisted position of capitalism today. The data points are these:

– The vast and growing majority of profits are created by fewer and fewer firms (see ‘Tech ‘superstars’ risk a populist backlash‘)

– There are fewer and fewer publicly listed organizations (see ‘Why America should worry about the shrinking number of listed firms‘)

– Start-ups are starting up at record low levels (see ‘Where are all the start-ups?‘)

– Competitive sprit is running at all time lows (see ‘Bright Minds in Chicago worry about the state of competition in America‘)

It seems the success of capitalism, the ability to create wealth, has been twisted into a beast that seems out of control and likely to garrote itself out of spite. The populist movement will put this into sharp focus when it notices the situation and then takes aggressive political action to counter it.  This will cause more pain than the current monster we call capitalism.

However this is not capitalism run riot. The issue is that socialist policies have twisted the capitalist model into a hybrid and it’s now a grotesque mess.

In some economic circles there is talk of a ‘winner takes all’ mentality. This is another way to capture what is happening. As firms got larger and more successful, perhaps enabled by globalization, they created the environment that helped protect them. This environment has evolved over a number of years and was partly enabled by lobbying politicians in order preserve change and limit impact of any rules that would undermine their firms’ position. This led to ‘crony capitalism’ and spending on lobbying is at record levels.  This form of capitalism has been transforming for over 20 years.

As an adjunct to this various polices driven from a left-of-center belief have gouged the economies natural ability to re-create itself from the waste of want and failure. Start-ups are running at near all time lows. Regulation, taxes and even social stigma has all but weeded out the individuals’ desire to better oneself and create something for oneself. Socialist policy embedded in every thing we do, now commonplace and taken for granted, suggests we simply reallocate money through taxes rather than seek to grow the size of the pie first.

And finally new data shows that the number of privately listed firms continues to decline and this suggests that the chances for expansion of the investor class is limited, even declining. This just accentuates the ‘winner take all’ body that we now see before our eyes.

If you overlay this with the situation of inequality and the declining level of home ownership (record levels in the US again) and the hollowing out of the middle class, you can see what is happening and it’s not good. But the problem is not easy to fix. For twenty years socialist policies have been adopted and due to the lack of any real capitalist alternative, these left-leaning policies have become standard and even accepted as normal:

  • Higher taxes
  • Larger and larger government (and) spending (with leads to increased regulation)
  • Which leads to emphasis and ability to focus on redistribution over growth

These polices lead socialist and the average less-well educated voter to assume that capitalism is broken and it needs extra help. This all stemmed from the ‘Third Way’ that was promulgated by Tony Blair and his ‘market-based socialism’ that was concocted as a populist message to beat Thatcherism in the 90s. It has now come full circle, feeding a monster that even the socialists cannot control. 

So now we have an odd situation. Left wing populism of the 90s gave way to cronyism in the 00s and now have a neo-right wing populist uprising. What a pickle. What we need is a down to earth shop-keeper or house- keeper to run for office with solid, no-nonsense ‘do unto others’ centered polices. A return to a real capitalist system will rebalance much of what has gone wrong. Too big to fail? Yes. Let’s let the failures start. It is through failure we learn (sometimes). This crony-based maladroit system of today is killing the golden goose.

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