By Mubarak Sooltangos
Numerous economists have said that the juxtaposition of democracy and capitalism is the best combination the world has had so far because of its capacity to generate growth and produce wealth. Yes, wealth has undeniably been created, but why is this contemporary world in such a mess, and why has this holy alliance created overwhelmingly more poverty in the masses than it has created wealth in the hands of a few?
These same economists cannot lay the blame of such poverty, discontent, oppression and corruption on any other previous system as these two saviours, democracy and capitalism, have been ruling over the world undividedly, as a total monopoly since the fall of the communist Soviet Union in 1991. In this short span of 30 years, the world has witnessed total anarchy like never seen before, resulting, like never before, in a combination of all economic and social ills which have existed on their own, separately and disparately, over the last five centuries.
The demise of democracy
In reality, democracy passed away long ago, defeated by capitalism, which has realized the feat of making the poor vote for the rich, with, in between, puppet heads of state on the payroll of multinationals and big corporates, voted into power with the vote of a majority and the money of an affluent minority. For a start, I will analyse what capitalism is, in reality, and in the next issue of Conjoncture, I will attempt to explain how democracy has been defeated by capitalism, and replaced by a new system which I will call “democratism”. There are fundamental differences between the two, as there are equally fundamental differences between Islam and “Islamism”.
Free enterprise
Capitalism, coined as an economic system in itself, has been so much confused with “free enterprise” that even encyclopedias describing capitalism in fact make an essay on what free enterprise is, oblivious of the fact that they are different phenomena, having different rules and aspirations. My starting point is, like Stephen Covey said, that highly successful people “begin with the end in mind”. This is an axiom which has proved its worth, and which allows people to have a goal, which creates a focus and an outcome which satisfies the intellect, if the plan materializes as forecasted. This allows people to “manage by objectives” as opposed to “managing by reaction” or “managing by trial and error”.
Capitalists have no such philosophy, and in fact they have no set goal. They continue incessantly to move the goalpost further and further as long as there is the possibility of making money. This is so because money has the faculty of generating greed, and, to satisfy this greed, exploiting people, repressing consciences and promoting ruthlessness regardless of whether these are within or outside the law.
From this mixture of perverted democracy and perverted free enterprise, we have seen the worst of this world for the last 30 years. Consequently, I would ask economists who sing the praise of democracy and capitalism to revisit their understanding of the two systems, lest they are using words which do not at all depict the reality underlying them.
There is no need for me to explain at length what free enterprise is. We all know what it stands for. It is the freedom of ownership of land and means of production, the liberty to produce what the entrepreneur wants, excluding harmful goods and strategic products like weapons, and in many countries, basic necessities like water, gas, electricity and public utility goods and services which, in the eyes of governments, should not be driven by the propensity to make profits. Free enterprise also places no taboo on the generation of as much profits as possible for the entrepreneur, because this is a powerful vector of hard work, risk taking and innovation. The underlying principle is to work as hard as possible for growth and progress, provided all stakeholders get their fair due. By these stakeholders are meant suppliers of raw materials and support services, employees, customers and the community at large, through the payment of taxes and participation in the provision of a reasonable amount of facilities for the public in the immediate working environment of the producer on a complimentary basis.
Capitalism is a state of mind rather than an economic system
Modern capitalism is a state of mind, that of making maximum profits by whatever means, the means justifying the end. It takes its foundation in free enterprise, but is in fact a perversion of free enterprise, helped by deregulation to allow markets to operate freely and unbridled, and the use of whatever means, legal or outside the boundaries of legality to earn money.
Free enterprise crosses the line into capitalism when the accumulation of capital due to retention of past profits becomes so big that money becomes the determining and most important element of the business. It is used to increase the size of the business to the extent that it dominates everything that is peripheral to its activity, by sheer size, increased purchasing power, increased job security, increased monetary power to sell on better credit terms than competitors. The victims are smaller competitors, suppliers, customers and workers. As big and powerful as banks may be, some very large businesses are in a position to dictate their terms to them as well.
When accumulated profit is insufficient for a business to increase to such a size which permits this sort of exploitation, there are often mergers of businesses engaged in the same line of activity which allow this critical mass to be attained immediately, to exert even more domination as above on essential stakeholders. There are few big businesses in the world which are split into smaller components. This only occurs in family concerns, where those who inherit the business either want to have their autonomy of action in a smaller business, or when heirs fail to agree on a strategy or a vision. Otherwise, things always happen in the opposite direction, namely concentration to have bigger bargaining power.
This is what Karl Marx said almost two centuries ago: “Capital has the tendency for concentration and centralization in the hands of the wealthy. It operates by concentration of capitals already formed, destruction of individual independence, expropriation of smaller capitalists by bigger capitalists, and hence, transformation of many small capitals into few large capitals. Capital grows in one place to a huge mass in a single big hand, because it has in another place been lost by many smaller hands. The battle of competition is fought by causing the cheapening of commodities. The cheapness of commodities demands, “ceteris paribus”, more on the productivity of labor. Therefore, the larger capitals beat the smaller capitals by productivity gains due to economies of scale and financial power to sell cheaper for longer periods. The smaller capitals, therefore have no choice but to crowd into other sectors of activity”.
It means therefore that the seeds of invasive and dominating capitalism are not new. This perverse business model has been in existence for a long time, except that it has now become almost a mode of business life, ruthlessly practiced in all parts of the world with both a conservation instinct and greed for more returns. Worse still, with globalization, centralization of capital in a few hands can be achieved between corporations originating from far off countries, but united in a common desire to grow big to have critical mass which makes domination of everyone in the periphery of, or in competition with these giants, easier.
In periods of stagnation, the natural instinct of capitalists is to adopt a conservative attitude.
The new battle ground of capitalism
Of course, in his time, Marx was talking of commodities, where the selling argument was low price for reasonable and acceptable quality because the notion of brands was non-existent. Today, with the existence of brands, focus of producers have changed from price to other types of competitive edges like quality, durability, performance, security, image, customer service and customer loyalty. The new battle strategy is creation of competitive edges, image building and communicating with the customer base by advertising, with the objective of building customer loyalty and selling at a higher price capable of leaving interesting profits after all the marketing expenses have been met. The fact remains, however, that the race to grow bigger, to swallow competition and to earn the maximum profits is still very much present, with an added element called corruption which, unfortunately, has become an integral part of capitalist business.
Capitalistic behaviour in periods of boom
In periods of boom, accumulation of capital becomes almost exponential, either by the growth of the market propelled by rapid rise in demand, or concentration of business enterprises, by mergers or acquisitions. These periods are characterized by higher risk taking and higher borrowing to be financially prepared to cope with the investment needed in equipment and in working capital to gain market share, i.e. to grow at a faster rate than the market actually does.
Capitalist behaviour in periods of stagnation
There is no harm in the generation of profits, even when they are huge, because they can be ploughed back into business to create GDP growth, wealth, taxes for the exchequer and employment, provided the essential stakeholders are taken care of. Profits accumulated become toxic when they are removed from the nest where they are created, i.e. in production, and made to migrate towards financial speculation on a number of outside markets: commodities, oil, gold, stocks, shares and currencies. Short term speculation can disrupt whole markets irrespective of their fundamentals, and does not create any GDP.
In periods of stagnation, the natural instinct of capitalists is to adopt a conservative attitude by directing capital towards less risky investments like real estate, monetary activities and speculative acquisitions, none of which create GDP. There is a tendency to take on board additional bank borrowings to finance real estate investments and speculative placements. There are, in periods of stagnation, higher possibilities of a decrease in permanent employment. The focus of capitalism changes from value added production to earning interest, rent and speculative gains. All this serve to illustrate the fact that no capitalist has any consideration for his national economy and will not protect employment by accepting a temporary downturn in his profits or take the risk of diversifying his activities in periods where markets and prices are not guaranteed.
To know the destructive power of capitalism better, think of George Soros, the speculator who has been coined “the man who broke the Bank of England” a few decades ago by short selling 10 billion pounds sterling, provoking a devaluation of that currency by 10%, and buying the same number of pounds in 24 hours at a 10% discount which earned him a profit of one billion pounds in a day. If 10 billion pounds can cause such havoc on a financially powerful market, think of the disastrous effect it can have on a weaker economy.
Capitalists are ruthless destroyers of the environment
Needless to say that capitalists do not even have an eye or even a thought for the protection of the environment or for people’s health. Think of the enormous pollution caused on land and at sea by plastic, primarily introduced by capitalists because it is a much cheaper alternative than wood, steel and glass. Think of harmful agricultural chemicals used by producers, like fertilizers that seep in underground water reserves, pesticides that produce mass killing of insects of which our essential honey bee population, growth promoters and fruit and vegetable ripeners used in agriculture without any study having been made on their toxicity for humans. Think of the massive destruction of water reserves caused by cotton fields, and finally the OGM’s of this world, and you will realize the ruthlessness involved in making money well beyond what is required for a normal living.
If only these criminal ways of production benefited the poorer classes of people financially by allowing them to have basic food and amenities like medicine, their perpetrators could have in a way been absolved, but this is far from being the case. Excess wheat production in America is dumped in open air until it rots, for the reason that giving them in charity would depress prices because of the increased supply to the market. In the meantime, Africa, Gaza and Yemen are starving without food, and Yemenites are forced to eat boiled leaves while filthy rich neighbours Saudi Arabia and United Arab Emirates are making war with this wrecked country with white phosphorous bombs made in America.
Demand, both from the volume and price points of view, is more and more driven by supply.
Has anybody seen any concern shown for the environment by producers of bottled water, carbonated drinks which by far are the biggest users of single use plastic? Any sensible person would expect governments to ban this sort of quick rotating single use plastic or at least compel the producers to come up with plastic recycling projects to save the environment from the pollution they are creating. But the reason why authorities remain silent on this issue is a million-dollar question with an obvious answer. Just think about it, why those who are the most ecologically minded are individuals, and why those who are the least concerned are these sorts of criminal producers and those who hold political power?
The law of supply and demand vitiated
In capitalist regimes where there is a totally free market, it is said that the price mechanism operates by the forces of supply and demand. We can hardly find fault with this known paradigm which exists almost everywhere in the world in free economies. However, when market forces are subject to outside influence by huge corporations to manipulate prices by subterfuges, the whole paradigm shifts. Subterfuges would be things like creating artificial shortages of supply as in the gold and oil markets by organized cartels, or alternatively, flooding the market by oversupply to eliminate competitors having weaker financial muscles by causing prices to crumble for the time needed to push the competitor out of the market or make it the object of a predatory buy-out. The catalyst would be that the competitor’s net worth would have considerably been reduced by prolonged loss making.
In such circumstances, the whole rationale behind the law of supply and demand falls to pieces. Under such regimes, can we say that the law of supply and demand is still a good appellation, or the “dictatorship of supply” would be a more appropriate word? The silence of regulators in such cases would legitimately suggest to any sane mind that there is protection or even connivance coming from somewhere higher up. Greed is not a monopoly of capitalists, and it can seep into other minds which have powers of decision and gives a new mindset to both the capitalist and the regulator. The bigger a business grows, the more likely it is that they will indulge in such practices. Capital accumulation and using it to have dominating and predatory instincts form the basis of modern capitalism. To this we can add the power which money has to buy protection, privileges and the rights of others in this new world culture where “money buys all”. There is an incestuous relationship between capitalism and corruption all over the world.
The power of supply revisited
All business people will tell their employees and their public that “the customer is king”. Do not be lured by this rhetoric into thinking that demand drives supply. In actual fact, demand, both from the volume and price points of view, is more and more driven by supply. Some mass market products like carbonated drinks have long ago moved away from the carbonated drinks market after they have totally cornered it to a more global market called the drinks market. They are now in a third market called the thirst market, creating additional demand for their products by very clever marketing and manipulation of consumption habits. The smartest among them no longer sell drinks. They sell a “drinking sensation” and the genius in this is that the producer and every single of its customers will never agree on what this sensation is, simply because it is virtual and it cannot be described. There are as many different sensations as there are consumers of the product. If demand can be manipulated in such a way, think about the liberty that this gives to the supplier to impose its price.
Creation of demand by suppliers
Demand is thus created and influenced in many sectors. What computer user can live without Windows Operating System and Microsoft Office? This is a clear creation of demand by an alliance between software and hardware producers. And who dictates the price of this software? If tomorrow Bill Gates had his way through the imposition of compulsory vaccine for lung diseases, demand would have been created for around four billion vaccination doses per year, and pharmaceutical manufacturers, who are among the most ruthless capitalists in the world, would have a bonanza.
Economic and political power have never been so intimately connected.
Can anybody vouch that the panic created by the media around coronavirus is not voluntary? And who owns the media in the capitalist world? Can anybody from the working class do without buying household appliances without hire purchase? Who is behind the phenomenal progress of credit buying and hire purchase fund providers? Credit cards have been invented decades ago, but why have banks introduced monthly repayments as low as 5% of the outstanding balance? This liberal credit policy without collateral has created a huge demand for credit at 20% interest per annum. We can extend the list ad infinitum and everybody will at last realize what is the magnitude of the dictatorship of supply over demand.
Axis of evil
I have come across this extract from Wikipedia: “Milton Freedman, one of the biggest supporters of the idea that capitalism promotes political freedom, argued that competitive capitalism allows economic and political power to be separate, ensuring that they do not clash with one another”.
I can hardly believe this, coming from an economic Guru having lived up to the 21st century. It is a complete misreading of blatant facts. There are fallacies in this statement which are obvious to every political observer. First, modern capitalism allows anything but political freedom. It totally alienates political freedom by making the poor vote for the rich with money power used to bring its puppets to power.
Second, economic and political power have never been so intimately connected as allies in the hands of capitalists in our present days. Capitalists enjoy both economic power by having made demand a tributary of supply, which is under its control, and political power by manipulating elections in a number of ways in modern democracy, as will be shown in my next article in Conjoncture. There is an axis of evil grouping capitalists, politicians, law makers and western media which they also control.
This is the hideous face of capitalism which has the power to create wealth for a few to the detriment of the poor masses. Those who swear by the virtues of capitalism are invited to review their appreciation in the light of what is written above. To be able to thrive unhampered, capitalists need to conclude an alliance with law makers, regulators and deciders, and this is where the “money buys all” syndrome comes on the scene with all its weight. Democracy has to be manipulated so that their vassals accede to power. This will be proved beyond discussion in my next article on the perversion of democracy. The notion that the world has seen nothing better than the alliance of democracy with capitalism is an absolute fallacy that nobody with a sense of fairness can uphold.
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