60. Towards a New Economics

Economists of different political persuasions keep on warning us that we are on the edge of global disaster. Exactly how this might happen is never made clear: A meltdown of the Euro, a collapse of the Chinese economy, a global Ebola pandemic, the breakout of war in the Middle East, a computer generated stock-market crash, are but a handful of possibilities. What is abundantly evident is that economists have not come up with a viable alternative to a not-fit-for-purpose global economy.

If a global system like the environment or the economy is in peril, we should look at: l) what steps must be taken to prevent a collapse from taking place and 2) what could we do if it did happen. There is no “Plan B” in case of collapse. There is not even a discussion about one. The only acceptable plan right now appears to be the continuation of our chaotic economic state tempered by minor corrections.

We don’t even recognize that there are major groups on which we must focus in our fractally globalized economy. Let’s face it: The weakened work force, the educational system and the public sector are not likely to be responsible for any forthcoming economic disaster. The banks may become convenient scapegoats. I believe the real villain in the scenario is the entire corporate structure which now dominates capitalism’s crisis prone market system. I am disconcerted that no one is focusing on the corporations as being a key players in our distressed state of economic affairs.

As I stated most clearly a decade ago in my book, Dollars of Democracy, our corporations are at the heart of current economic problems ranging from taxation to jobs. Perhaps, because of their ever increasing power, corporations have become able to prevent any effective challenge to their collective interests. Not much has changed for corporations since I wrote about them, except that for tax reasons they have been moving out of America. This has been part of what has become known as “domestic earnings stripping” in which corporations move their taxable profits from their home base in the US to a foreign affiliate, thereby evading a 35% American tax rate.* Jack Lew, the U.S treasury secretary questioned the patriotism of such corporate “inversion perversion.”1

That father of modern economics, that brilliant Scot, Adam Smith, warned two centuries ago against the dangerously selfish power of corporations and did not accept that they had a proper role in the market. He held that if corporations encouraged selfishness, they risked undermining our moral foundations. People had to try to put themselves “in the situation of the other” and become aware of the distress and suffering they could cause. Smith recognized that corporations had no such sensibilities. Corporate managers are shielded from accountability to stockholders who are protected in turn from personal liability for what the corporation does to others. However, today’s corporation can turn itself into a citizen of some offshore island, like the Caymans or Bermuda, for the purpose of avoiding American or British taxes without losing any of the protections or benefits of being a US or British corporation. Over the past five decades corporations have expanded their influence through the creation of new laws that restrict what governments can and cannot do in terms of interfering with transnational corporate interests.

The proposition that the modern corporation — which now holds many of the legal rights and privileges that individuals enjoy — resembles the psychopath was at the basis of the award winning documentary film, “The Corporation,” (2004). It contended that the corporation, like the average psychopath, is single-minded and irresponsible in its pursuit of one objective: profit for its shareholders. It need not be worried about the consequences its activities may have on its employees, the environment, or society at large. Like a psychopath, the corporation never admits responsibility of any kind, is incapable of remorse, and has pretensions which are fed by its own marketing and PR staff. In brief, the film entertainingly portrays the corporation as being clinically insane.

But do we really want to leave the economy in the hands of the anomalous corporate structures that tend to work against both the public and national interests and are guided by the greed and vanity of powerful CEOs? “Living wills” for banks were mandated by the US Congress in 2010 with the Dodd-Frank reform act but there is an unwillingness in the US to openly examine the possibility of assisted economic deaths or even euthanasia for certain corporations!1 [Personally, I would be most pleased to help by putting a number of global corporations, such as RioTinto, out of their misery. Actually, since it is responsible for multiple deaths and carries the same responsibilities as living beings, RioTinto should be convicted of murder and sent to oblivion! This truly would be a challenge to the legal profession, the courts and ultimately the legislatures.]

Adam Smith in the eighteenth century created the highly successful economic myth of a market determined by self-interest. His “invisible hand” promised relative freedom and prosperity without any accompanying burdens of responsibility. As a theory, this seemed to overcome the traditional Christian conflict between virtue and acquisitiveness.** In the twentieth century, we managed to distort that myth to the point where Adam Smith would have rejected it outright as being amoral, if not immoral. Adam Smith was a strong moralist and believer in charity and compassion. He would have said of laissez-faire capitalism that “the invisible hand is in the till.” The kind of capitalism that Adam Smith envisioned was based on such virtues as hard work, frugality and personal responsibility. He would have found it ironic that the consequences of these virtues would have resulted in a hedonistic consumer culture that had undermined those same virtues. Smith, however, recognized that many of the world’s troubles came from those who did not know when to stop and be content. Today we see the overextended all around us, particularly in multinational corporations. The basic contradiction of a virtuous society as proposed by Adam Smith, and the capitalist market in which rapacious and self-seeking competitors operate, is self-evident. Collective greed cannot be virtuous.3

Economists have presented an idealized vision of the free market operating in a globalized economy. This is proving itself dangerous to the environment, unstable for society, and doomed by its dependence on self-destructive growth. I attempted in 2004 to provide an alternative idealized vision of a stable economic world run by cooperatives rather than corporations, and focused on cooperation rather than competition. John Nash, whose Nobel prize in economics was popularized in the film, A Beautiful Mind, decided that the optimum solution was neither out-and-out competition nor totally selfless cooperation, but in what he termed “equilibrium.” This certainly is absent today.

“Cooperation” and “cooperatives,” two words which were much abused during the years of Bolshevik-style “socialism,” should be at the center of any alternative economy. Cooperation, as opposed to the unbridled self-interest advocated by capitalism, must regain its rightful place in the world. Cooperation leads to success in sports such as football and baseball; it is absolutely essential in raising and educating children; it is crucial in fire-fighting and policing; we couldn’t think of safe driving without it; it’s at the core of any military operation; it leads to harmony in dancing and making love; it is invaluable in hospital care and in looking after the aged. So why is this word so unpopular today? Democracy itself is unthinkable without cooperation. Even villainous multinational corporations resort to private and secretive collaboration in establishing markets and setting prices. But in restoring the cooperative concept to its rightful place, we must remember the words of wisdom of Eleanor Roosevelt: “We must be willing to learn the lesson that cooperation may imply compromise.” This is a lesson followers of the “Tea Party,” will not readily accept. Cooperation often means that we must sacrifice some of our narrower personal interests for those of others or for the sake of the larger community.

What such a change involves is truly dramatic. The large scale economic experiment tried out by the Russian Bolsheviks was disastrous. However, that was not really the place, the time, nor the people to carry this out. It ended before the entrance of the world wide web and the internet, which have greatly enlarged the possibilities of communication and global trade. The Chinese have tried to take over where the Russians left by introducing some of the more successful aspects of capitalism into their brand of undemocratic socialism. No one can predict how their makeshift economics will turn out. But then, who knows how western style capitalism will evolve. Since the economic crisis of 2008 the economies of the United States and the UK have been kept afloat in part by the QE (Quantitative Easing) printing of hundreds of billions of unaccountable dollars and pounds. What also keeps this patchwork of an economic system going is the compelling fear of change as well as fears of the untried and the unknown. Smaller scale efforts of the past fifty years have been crushed by the corporate world which fears any competitive form which might encroach on its economic domination. This is like a veto on the kind of economic experimentation with cooperation, co-operatives, and the democratic acceptance of “the public interest” which our unstable economics now urgently demand. Yes, there are possible alternatives, like I detailed in Dollars or Democracy, but these have not been seriously examined. It is high time that the economic profession, as well as think-tanks, national institutions and even smaller states like those of Scandinavia start examining the possibilities and then trying them out.


 

1“Rise of the distorporation,” The Economist, October 26, 2013
2See Blog 58 Euthanasia
3Yorick Blumenfeld, Dollars or Democracy, (2004) p.157

*A simple solution to this problem would be to impose a tax on the consolidated profits of all multinational corporations. These companies regularly report their consolidated earnings to shareholders and could be taxed on that basis. Of course, the lobbyists and big tax avoidance firms would make certain to set up new ownership structures (like the Master Limited Partnership or MLP) to minimize tax payments to the government.

**The invisible hand is a beguiling myth: it suggests that liberty and the pursuit of self-interest, unencumbered by any comprehensive rational planning or any moral prohibitions, could boost the welfare of all of humanity. In part, this hand is invisible because it is simply not there. Those with great wealth and other advantages, in their pursuit of self-interest, do not further the interests of society as a whole; the free market price mechanism fails to include environmental externalities (such as pollution, resource depletion, and congestion) in its scope; and the invisible hand fails to make a connection between distributive justice and market efficiency.

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2 thoughts on “60. Towards a New Economics

  1. A wonderful piece, one that deserves the widest readership. Not least among governments. And oppositions.
    Yours, Ronald Higgins

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