Tag: crony

The Socialist Myth that is Late Stage Capitalism

By Sean Calvert | Canada

Late stage capitalism, or late capitalism, is an idea that has re-emerged in recent years to explain the purported failures of contemporary capitalism. According to this notion, absurdities and failures in the economy are symptomatic of capitalism’s death throes. These perceived failures, however, are not inherent to the system, as many Marxist economists believe, but are rather due to intervention by the state. As for the absurdities, none provide evidence that capitalism is failing.

While Marx himself never used the term late stage capitalism, he did describe what the final stages of capitalism would look like. In volume three of Das Kapital, Marx described how in capitalism’s last stage, market competition would decline as capital centralized in fewer hands. Marxist economists, such as Michał Kalecki, believed that capitalism was inherently monopolistic and that its fate was to move towards a system that would eventually devour itself.

The term “Late Capitalism” can be traced back to Marxist economist Werner Sombart’s work Der moderne Kapitalismus, published in the early 1900s. In this work, Sombart explains that Capitalism developed in three stages: early (pre-industrial revolution), high (the industrial revolution), and late stage capitalism (World War I and beyond).

The term was popularized seventy years later by another Marxist economist, Ernest Mandel. For Mandel, Late Capitalism is characterized by the rise of multinational corporations, consumerism, and globalization. He argued that the last expansionary wave began with the birth of fascism in Europe and the advent of the US and UK command economies during the Second World War. This expansion lasted until 1972 when it reached its limit. Economic stagnation and class struggle followed.

When Mandel was writing, he was witnessing the very end of the post-WWII boom. He believed that the working class would soon rise in a mass, revolutionary movement.  Obviously, this did not happen. The slump did not create anything resembling the conditions that sparked the revolutions in Tsarist Russia.

Contemporary understandings of Late Capitalism have broadened out from the original definition to include all the deficiencies and absurdities of the current economy. These include the destruction of the middle class, the growing gap between the rich and poor, and popular focus on useless goods, such as wifi-enabled kettles.

The “late” in “late capitalism” implies that capitalism is at the end of its age.  Just as Late Antiquity marked the end of the Classical era and the transition to the Middle Ages, so too does late stage capitalism herald both an end and a beginning. Marx believed that the final stages of capitalism would be marked by the rise of the proletariat and the diminishment of the middle class as wealth was concentrated into fewer hands. These three factors, according to Marx, would result in the emergence of a proletarian revolution. Yet history proved otherwise. Crises, such as the Great Depression, came and went, yet there was no revolution.     

Marx predicted that the advent of monopolies would signal the collapse of capitalism. While it is true that large corporations came to control the economic landscape, their dominion is not natural. Economist Horace Gray found that aspiring monopolies would petition governments to designate them as public utilities to protect them from competition. AT&T enjoyed monopoly status until its government supplied patents expired in 1893. By 1907, AT&T’s competitors controlled 51% of the market.

Income inequality is touted as one of the elements of late stage capitalism. Inequality is not necessarily a bad thing – it exemplifies the choice of the individual in a capitalist society. One person may choose to be a schoolteacher and another become a doctor. The income gap between the two is no doubt large, but the two individuals made different choices, leading to different outcomes.

On the other hand, the wealth gap between the rich and poor in the U.S. is growing at an alarming rate. A Bloomberg article found that between 2010 and 2015 the average annual income between the top 20% and the bottom 20% increased by more than $29,000 to $189,000. New York Times columnist David Brooks reports that wealth inequality is greater in the United States than it is in Iran or Russia. Surely this must be a sign that capitalism is in its final stages.

While this is true, the major reason for the channeling of wealth to the super rich is due to collusion among the state, large corporations, and special interest groups. It is called cronyism, and it is inherently against the precepts of free-market capitalism. Corporations lobby the government to create policies, which range from subsidies to protective regulations, which in turn create barriers for new competitors, effectively killing most competition and funneling wealth up the rungs of the socioeconomic ladder. It is not capitalism per se that has funneled the wealth to the top, but the state and its regressive regulations.

It must not be forgotten that capitalism allows more upward social mobility than alternative economic systems. “Oh, but the middle class is shrinking! Marx predicted this!” No doubt this is true in the United States. A Pew Research study showed that between 1991 and 2010 middle-income households fell to 59% from 62%.

Yet acording to the U.S. Census Bureau, since 1967, the number of households which have an income of more than $100,000 has increased from 8.1% to 27.7%. In addition, the number of low-income households, defined as those that make less than $35,000, has decreased from 38.7% to 30.2% since 1967. From these statistics, we can conclude that most households are moving up rather than down the income ladder, contrary to what Marx predicted.

Some who believe that we are in late stage capitalism point towards absurdities and irregularities within our socio-economic system. A $1200 margarita is touted as evidence of decadence. Yet a $1200 margarita undeniably targets the exceedingly rich, and should be regarded as a non-issue because consumers have the choice to pursue lower priced margaritas.

Critics of capitalism fail to recognize is that most of capitalism’s perceived shortcomings are, in fact, not intrinsic the economic system. Rather, they are consequences of the anti-capitalist policies of the state that constrict the free market, and in doing so, give rise to the perception that capitalism is on its deathbed.

Mandel waited from 1973 until his death in 1995 for the proletariat to revolt. Yet his wait was in vain.  If capitalism is as unsustainable and as exploitative as many Marxists make it out to be, we would have already seen a revolution akin to the overthrow of Tsarist Russia. For now, and the foreseeable future, free-market capitalism remains the best economic system we have.


To support 71 Republic, please donate to our Patreon, which you can find here.

Featured Image Source.

Advertisements

Cronyism, not the Free Market, Causes Unfair Wealth Distribution

By Joshua D. Glawson | United States

Cause and Consequence:

The world consists of income inequality, and some nations even greater disparity between the rich and the poor than others. In the United States, it is suggested that the wealthy have a far more significant amount of money and capital than that of the lower socioeconomic classes. For some, this is a moral issue, for others it is a legalistic issue that deserves to be addressed. I find it to be neither of these, if the contracts between the working classes and those of the wealthy were voluntary and free.

Despite this, there should be major moral and legal concern when this wealth difference is acquired through unjust cronyism. Conducted between governments and businesses or individuals, this is a way to redistribute wealth from one class to give to another through coercive means. There are many instances where we are well aware of cronyism taking place. This includes governments privileging particular companies, preventing competition, or creating strong barriers to enter the market place. This leads to coercive monopolies, which can only legally be produced with government threats.

Without a doubt, these companies should be stripped of their privileges. The restrictive governmental barriers for others to enter the market should be erased. Cronyism and other barriers restrict a market from flourishing to its fullest potential, and the outcome is greater disparity between the poor and the rich.

Thusly, the strong arm of government restriction on the market is causing unjust income inequality. On the contrary, the marketplace does not need restrictions and more regulations. As stated previously, the market, and capitalism in general, has done more to save people from poverty than any king, army, or government could possibly dream of.

Responsibility:

When governments utilize acts of cronyism, rent-seeking, labor unions, coercive monopolies, etc., the politicians, as well as they business owners, are behaving immorally. This is an act of ‘theft and threat’ by creating wealth solely for a particular group, while threatening punishment to those that dare challenge such restrictions. Additionally, it subsidizes these groups through coercive taxation on the public. An optimally flourishing market consists more of unrestricted, legally speaking, free trade, as in a laissez-faire capitalist economy.

There is a great deal of difficulty in approaching this issue of cronyism and addressing it in the US. Doing so relies on the people of the economy and politicians in Congress to act in unison to correct the relation between government and the market. For the same reasons Church and State are separate, so too should Market and State. They corrupt one another absolutely.

Without a cultural change, any violent measure to force governments and businesses to cease their cronyism would jeopardize the newly established government to subjective force by others later. A democratic republic requires peaceful engagement in civil acts within society to establish justice and equality under the law, which also ensures a large degree of freedom exists. A government, in order to maintain justice, not only needs clear and objective laws for protecting Life, Liberty, and Property. It also needs to be able to correct and prevent overreach such as cronyism.

This leaves only perspective shifts within government as a reflection of the people’s motivation through a new Enlightenment to actively make positive change towards ending cronyism. The power lies in the people’s hands to change those in power, or become those in power, and the initial resources will be up to the market to decide. If it is possible to convince Congress to abide by the Constitution, then there would not be cronyism, so this could potentially be changed immediately by Congress but it is highly unlikely they will act since many of them currently benefit from the corruption of the system.

Policies:

The first policy to propose is maintaining a unilateral form of justice and equality under the law within the US. It is an ongoing issue seen in the news and online that certain people and businesses are pardoned or exonerated of their crimes against others because of their status in society or state. The pro of this policy is that it would create more confidence in the US market, and nation as a whole, for investors and entrepreneurs around the world. When policies threaten the incentive of success, i.e. unjust high taxes for the wealthy over a certain income or even high taxes for everyone, it forces production to go to places that will benefit them the most.

The second policy to propose is to end all forms of favoritism and cronyism in the US. This would require a system overhaul of eliminating privileges, subsidies, class related protections, many business regulations and license requirements, etc. This often scares people into thinking chaos would emerge, but it can be demonstrated through the market that the market would begin to regulate itself as varying organizations and businesses that keep a watchful eye on the market will naturally sprout.

As Dr. Steve Horwitz points out, since Adam Smith and forward, “We do not need ‘regulation’ in the sense of State intervention for markets to generate socially beneficial outcomes.  And when we do attempt to ‘regulate’ them through the State, the result is a variety of undesirable unintended consequences.” The pro of such a policy is that it creates an equal platform for everyone to compete in and benefit from a free market.

The con of such a policy is that some major companies will leave or fail because they will no longer be granted favoritism or cronyism. This could have a negative impact on the economy upon the immediacy of such an act, therefore it would require a strictly scheduled progression. Without a transitional period, many people in protected industries would lose jobs and money until they find work elsewhere. Due to the precarious nature of such a drastic and positive turn towards equality under the law and preventing favoritism, and for the mistakes made by those of the past, people will understandably need a transition into a freer market.

Conclusion:

The rich are not getting richer, the poor are not getting poorer. Capitalism has helped not only those at the top, but it has surely helped most people escape abject poverty. Those that say otherwise and complain how capitalism has made the rich wealthier, should now consider how ending the greatest human social mechanism, i.e. capitalism, will help the poor.

If the wealthy have benefited drastically better than the poor, then it would behoove everyone to be a part of such a system. Viz., ending cronyism, rent-seeking, political power and regulations of labor unions, coercive monopolies, and various other regulations and license requirements in the market, etc. would benefit everyone in the long run, as tendencies towards free trade has already proven. This would also alleviate any of the governmental coercive means of income inequality, allowing for people to live and trade more freely. This is not faith in a system. Rather, this is allowing people to live and trade as they see fit, with a government that will protect those that are infringed upon, instead of favoring and benefiting a few.


To support 71 Republic, please donate to our Patreon, which you can find here.

Featured Image Source.

How The Government Ruined Elon Musk

By Mason Mohon | @mohonofficial

Elon Musk is a brilliant man. His work ethic, entrepreneurial spirit, and idealism make him a major role model in my life. He looks at things differently than anyone else and builds things other people fear to even imagine building.

Continue reading “How The Government Ruined Elon Musk”

Don’t Like High Drug Prices? Blame the FDA

By Indri Schaelicke | United States

A common talking point in many political debates is the extreme prices of many medical drugs. Left wingers like to blame “greedy capitalism” for the high prices, and advocate for some sort of government program that will increase the size of government in an attempt to cap drug prices. In reality, capitalism is the tool that must be used to bring medical drug prices back down to affordable levels.

The truth is, the US is not a true capitalist free market. Rather, it operates under a system of crony capitalism. Crony capitalism is a system in which representatives agree to give benefits to certain corporations in exchange for campaign contributions. These benefits may take the form of purchases by the government, limiting the corporation’s competition in the market through regulation, and creating loopholes in regulation or taxation. These benefits are paid for using taxpayer money, while the representatives receive financial backing for their campaigns or votes in their next election. Bureaucratic agencies like the FDA create regulations and policies which further cronyism.

A major source of cronyism exists in the FDA’s requirements of extensive research and testing to be done on products it approves to be sold. These studies cost thousands of dollars to companies, which must be covered by increasing the prices of the drugs sold. However, Congress has created “Priority Review Vouchers”, which reviews certain drugs at an expedited pace. These vouchers are incredibly valuable, because the development process for drugs takes many years.

The vouchers can be sold to corporations at a high prices due to their scarcity and the incredible benefit of having the review process sped up. If a company had their new drug approved before any others, they will have no competition in the marketplace for several years and are free to raise their price as high as they like. The FDA has the power to create monopolies, a power that no agency or branch of government should have.

So what’s the solution? Open up the markets. Competition is what drives prices down to affordable levels, and there is no competition in a crony capitalist system. Before the Airline Deregulation Act of 1978, the U.S. federal government had control over airline fares, routes and market entry of new airlines. This severely limited the competition in the marketplace to just a few airlines, but soon after the Act was signed, several new ones entered the market. Without the Civil Aeronautics Board to protect them from competition, airlines were forced to set their prices through supply and demand, with competition lowering the equilibrium price of airfare. By deregulating the airfare markets and preventing special interests from lobbying an airline regulatory agency, airfare has become cheaper for consumers.

The same must happen with the way that the market for medical drugs is regulated. The FDA must be abolished, and competition in the market will flourish. Prices will drop due to the influx of competition and life saving drugs will become more affordable to consumers.

A concern of supporters of the FDA is that without it, unsafe and potentially dangerous drugs could slip into the market. However, this can be refuted on the basis that no business has an incentive to create a harmful drug. If harm is done to a consumer, they can sue the business and claim compensation for the damages.

The abolition of the FDA would unleash the power of markets to create and develop new, revolutionary drugs at affordable prices. An effect similar to those seen after the Airline Deregulation Act of 1978 would be seen, and bring an end to the crony capitalism enabled by the FDA.


Featured Image Source