Is Capitalism Over?

Richard D. Wolff is U.S. economist born the same year as myself who has credentials all over the place; B.A. from Harvard, M.A. from Stanford, M.A. from Yale, and a PhD from Yale. I think I saw his video of Bill Moyers website; the video was entitled, Capitalism Hits the Fan. I will try summarize his views here for you to consider. He certainly gave me a lot to consider and though I don’t agree with everything he says, he makes some very important points. But then my credentials are a bit different.

Wolff says the economic crisis is not financial, meaning that is too limiting of a concept to show what is wrong. He also believes this is not a temporary but terminal crisis. Finally, the crisis is not easily or quickly fixable; nothing has worked so far and we need major reforms.

Wolff tells us from 1820 to 1970 in every decade the working person in this country had a continually rising standard of living, even through the depression (wages down but also costs). He says we have this incredibly rich country with this constant 150 years of rising standard of living. Workers became more productive each decade and were rewarded for their productivity. This led, he states, in a belief of American Exceptionalism, each generation will have it better than the last; it’s just who we are.

Then comes of pivotal year of 1970 when it all changed. A major reason was the use of the computer who took away many workers replaced by this technology giving us too many workers. Also, American business to this point didn’t really have any competition from other countries. But other countries set their sights on the U.S. realizing they had to beat us in order to compete with us and they did. Thus no TVs made in this country or autos etc. Japan and Europe did what we did better. He goes on the say that the U.S. business then adopted an attitude of “if you can’t beat them, join them,” and began exporting jobs with more and more production taking place outside our borders. Add to this, women entering the job market in greater numbers, waves of immigration, and resulting lower wages.

As a result wages stopped rising so people to work more. Workers had to work on average 20% more hours for the same pay, while in Europe workers worked 20% less hours. All this resulted in binge borrowing. First we used our collateral (houses) to borrow to maintain our standard of living. Next comes the beloved credit card, easy to obtain but commanding 18% interest. Thus we accumulated huge individual debt resulting in national anxiety.

On the business side things were great. Workers kept producing more and more but they the corporations, didn’t pay them anymore because there were too many workers. Thus, companies accumulated huge profits, biggest ever in our history. It was an employers dream. Out of these profits they began to pay themselves huge salaries and benefits. They merged their companies and made more profits. They put those profits in banks so banks are very happy. Banks and corporations then began to lend money to workers. This is not new for banks but was new for corporations. So, now corporations not only get to pay lower wages they get to lend money to their workers along with interest. Wow! An example Wolff uses is GM, which created GMAC their lending institution, and they found they could make more money lending than building cars resulting in lousy cars. At that point they get into mortgages along with banks.

Now we have a problem when corporations and banks lent money to people who couldn’t pay it back. Oops big problem and as Wolff says capitalism hit the fan.

Then came dumb ideas. One being that the Internet would revolutionize the universe; big investments in companies that didn’t make any money ending in the Silicon Valley burst bubble. Then the stock market takes a dive from which it never recovered. The government lowers interest rates so folk can buy houses, which they did until, that bubble burst as well.

Wolff believes things will continue to fail.

Here is what he believes needs to happen.  But first he points out what won’t work. Regulation (Keynesian economics) won’t work as it did up until Reagan and deregulation. This is where he sees Obama trying to recreate a past the won’t work again. He believes that even after the great depression Hoover’s and FDR’s programs didn’t work (I find that a wee bit hard to buy, and two very different approaches.) He says it won’t work because corporations are just too adept at avoiding regulations and have boards of directors that defeat them too easily and with their huge profits have no incentive to change. Even American workers don’t want it (not sure why he says this.)

Wolff believes we must change the structure of society. At this point Wolff becomes Jane Fonda (if you remember her thoughts several years ago) advocating economic democracy. In other words, the workers need to own the corporations and become their own boards of directors thus their vested interests become good for both. The models for this Wolff sees in events in Silicon Valley where individuals left the big companies and set up shops in their garages with a few friends. They come to work in the Bermuda shorts and take Fridays to think about how they want their company develop; they are the workers and the board of directors. He sees them as Marxists in Bermuda shorts.

Now note Wolff’s field is Marxian economics, Political economy and International affairs. He opposes Neoclassical economics (Keynes/demand side), Neoliberalism (economic liberalization, free and open markets, privatization, deregulation and increasing the private sector in society), and Chicago School (neoclassical views sometimes seen as the new Keynesians), and the Austrian School (weird). They way I picture it Wolff rejects both demand side economics and supply side economics (Reaganomics.)

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I rather like the model Wolff presents of workers owning corporations and we have some examples. But how you get from point A (now) to point B (that model) is beyond me. Why would corporate American let go? It is like going to the Walton’s and asking them to give up their yearly millions and give the Wal-Marts and Sam’s Club to the workers. I don’t think they would go for it.

More realistically in my mind’s eye is moving to demand side economics and regulations and stimulus to programs such as Wolff describes. The big problem remains with the economic imbalance and its resulting political power that needs to brought to bay. Populists groups that work actively towards election reform and the ousting of lobbyists seem essential for needed change if we are to capture the American Dream where workers are rewarded appropriately for their work. Even though Europe and Japan and now China have their own economic problems, the models remain better than ours.