The radical nature of austerity
We live in an era of unrivaled technological capacity. We’ve mastered the art of satisfying material human wants. Be it food, drink, clothing, housing, medicine, or any other important need, we as a species have arrived! All these needs and many more can easily be satisfied within the limits of our technology and manpower. Better yet, it should only improve given the promises of robotics and other labor saving technologies that are in sight today.
When we begin with this basic premise, the unbelievably radical nature of what’s being asked of us becomes more clear. Despite our ability to satisfy all important material wants, we’re somehow being asked to accept ever rising austerity and reduced living standards! We must accept widespread poverty, homelessness, degradation, uncertainty, and, in the process, prepare ourselves to be modern day gladiators in a 21st century world of unending global competition! Something is very wrong here!
Capitalism may have played a positive role in earlier centuries when it overthrew feudalism and channeled early industrial technological progress, but it’s always been a highly problematic system of concentrated power. It’s become increasingly clear, however, that today’s capitalism no longer has a positive role to play and it’s in fact a very present danger to humanity. Any system that enforces needless pain on populations and fails to allow societies to live reasonably close to their full potential is immoral and deserves to be overthrown.
I’ll address in this post two key premises of today’s capitalism that act diametrically against human welfare. The first is the ideology that we’re inescapably in a global competition. In today’s world of massive transnational corporations, each of which sits in an oligopolistic position of power, the elevation of competition to a primary principle benefits only the owners of these goliaths along with others of great wealth. Representatives of these concentrated centers of power trot the globe threatening governments with relocation if they fail to compete in meeting their demands for ever lower taxes, flexible and low cost labor, and reduced regulation. Who are the owners? They’re passive stockholders, rentiers, who lack any real knowledge of the business and perform absolutely no management function. Their contribution is not only useless but widely seen as hurtful in that they foster a short term culture directed at nothing other than immediate profit. Their right to profits and influence isn’t based on any rational principle, only tradition. The 500 largest global corporations, the “Global 500” control nearly 40% of total global revenue. Why shouldn’t these production bureaucracies be managed in the interests of everyone rather than a tiny elite of passive stockholders? Since ownership and control of these companies are separate, there’s no particular reason their efficiency should drop if the absentee stockholders were removed from the equation. What a beginning if these companies could be operated globally in the interests of society.
The second premise is that purchasing power, i.e. money, can only be created by those who succeed in global competition. In this view, the living standards of society must be held subservient to the whims of those with wealth. Should corporations decide to limit their activities in a particular state or if living standards decline for other causes, society has no option other than borrowing from holders of wealth. And, should these lords decide not to lend, misery and austerity are the only natural result. This premise, like competition, is basic to capitalism but it’s critical to know there’s no law of nature that decrees purchasing power must be limited to the dictates of wealth. All currencies today are fiat and the currency issuer has complete freedom to assure living standards are maintained. The Functional Finance views of Abba Lerner and today’s Modern Monetary Theory are key monetary insights that every progressive needs to know.
Of course these two premises – that the world must be centered around competition and that purchasing power must be controlled by the wealthy – are hegemonic and therefore very difficult to overcome. But they must be attacked if we’re ever to advance to a better world.
Comments on Inequality 
very true and very well stated. couldn’t agree more.
I’m only unclear about what you mean specifically in regards to changing ownership hands of the major companies of the world.
Hi Mario,
I should have been more explicit but I’m thinking some form of nationalization. I’d favor a reasonable payment to smaller stockholders to assure they don’t get real hurt but it seems to me that the benefits would be huge if we could turn these powerful production organizations around to public purposes.
Jim
Mario,
Come to think of it, internationalization is far more appropriate than “nationalization”, the idea being that these global companies should be working for the global benefit.
hmmm I see. Like an extra dividend payment or something. I don’t think that nationalization or internationalization idea will go over too well. LOL
No, it wouldn’t go over very well at all. No way around it: power rests today with the owners of mega corporations. To change the system will require a pretty big confrontation.
Mario, you think that way because of your “neoliberal tendencies,” as Bill Mitchell would say. 🙂
We all have them since they have been imbibed culturally. We tend to think that this is the natural order of things when modern industrial capitalism is only a little over a century old and it is already evolving from industrial capitalism toward financial capitalism, a transition which Marx never envisioned in his wildest dreams.
This means that rent-seeking is the preferred as the chief means of increasing wealth over productive activity. This implies a corresponding culture of debt peonage, as well as forfeiting national sovereignty to international financiers controlling international institutions in order to ensure debt service.
If we were starting to build an economic system from scratch, never in a million years would we choose a system like this. There is no reason to stick with it in the face of the enormous challenges that the world is facing.
As a species struggling for survival on one hand and working toward progress on the other, we have to start thinking of the global economy as a closed system in which the choices of anyone affect everyone. These choices are not rational choices of individual with perfect knowledge operating in perfect markets, as neoliberalism assumes. We are rational social actors whose preferences and choices are largely determined by culture and social relations operating through institutions. As Warren Mosler like to say, in effect, Our problems are institutional and institutions can be changed.
rings true to me Tom and it does make sense as well based on what the figures show too. I personally feel that my contribution to the “big confrontation” is simply through ideas and discussion. I don’t go much further than that.
Some of this could be changed without reinventing the entire system, easing transition. Here are some still-radical ideas:
– Force corporations to pay all profits (beyond necessary working capital) as dividends and sufficiently tax individuals (not for revenue, mind you, but for wealth redistribution purposes).
– Set a maximum wage and include all forms of compensation in the maximum wage.
– Force corporations that grow over a certain size to break themselves up – mythical efficiencies be damned.
– Mandate cooperative board structure – provide employees with a voice in operations.
– Eliminate corporate lobbying or campaign financing and in general eliminate corporate personhood.