I tend to see the economy as something I’m on the outside of looking in. I know that is not the reality, like everyone I’m part of the economy, but it is governed by factors, forces and a logic that are beyond my understanding. I feel the same way about the universe in general which leads me to believe there is a God – there is some kind of logic at work, I just can’t explain, describe or control it. With the economy however I tend to lower my view of what governs it – it is far more humanly determined than divinely ordained.
Right now the world’s economy (or economies) seems to be under the sway of the gods of capitalism. My rather limited understanding of capitalism is that its goal and purpose is to increase capital (money, wealth). Capitalism is not naturally egalitarian – the distribution of this capital is not its main concern, and so it can happen that a few can gain disproportionate control of the vast majority of the capital (the wealthiest 1% of Americans owns 38.3% of the stock market, the wealthiest 10% owns 81.2% of the stock market according to the Motley Fool.).
The U.S. in general has supported capitalism, and American leaders of all kinds (business, political, economic) believe that America controls capitalism or at least that America can harness capitalism for the good of America or that capitalism and America have the same goals, vision and purpose. Recently, some very conservative political people have commented on how capitalism actually works for and serves its own purposes: it is most influenced and controlled by international bankers, financiers, and investors, not by American political (or perhaps even economic) interests. The captains of capitalism may have at times an interest in America, but ultimately their real interest is in increasing capital: if that parallels American interests OK, but if not they will pursue their goal anyway. This is the effect of globalization on capitalism; investors, wherever they come from and whatever their interests, now push the worldwide capitalism.
Globalization has challenged the notion that capitalism and America are coterminous with each other. Though many outside of America refer to globalization as “Americanization”, globalization is showing that it has a life and mind of its own. Capitalism continues to pursue increasing capital and is quite willing to focus its attention on any part of the world where that can happen best or fastest. Thus the rise of China, India or Brazil in world economics.
Rana Foroohar in the 20 June 2011 issue of TIME, What U.S. Economic Recovery? Five Destructive Myths, wrote some ideas that caught my attention.
There is a fundamental disconnect between the fortunes of American companies, which are doing quite well, and American workers, most of whom are earning a lower hourly wage now than they did during the recession. The thing is, companies make plenty of money; they just don’t spend it on workers here.
Half of Americans say they couldn’t come up with $2,000 in 30 days without selling some of their possessions. Meanwhile, companies are flush: American firms generated $1.68 trillion in profit in the last quarter of 2010 alone. But many firms would think twice before putting their next factory or R&D center in the U.S. when they could put it in Brazil, China or India. These emerging-market nations are churning out 70 million new middle-class workers and consumers every year. That’s one reason unemployment is high and wages are constrained here at home. This was true well before the recession and even before Obama arrived in office. From 2000 to 2007, the U.S. saw its weakest period of job creation since the Great Depression.
Nobel laureate Michael Spence, author of The Next Convergence, has looked at which American companies created jobs at home from 1990 to 2008, a period of extreme globalization. The results are startling. The companies that did business in global markets, including manufacturers, banks, exporters, energy firms and financial services, contributed almost nothing to overall American job growth. The firms that did contribute were those operating mostly in the U.S. market, immune to global competition — health care companies, government agencies, retailers and hotels. Sadly, jobs in these sectors are lower paid and lower skilled than those that were outsourced.
In some ways what may be happening in world economics is that America has viewed Capitalism as its adoring child, but as Dr. Frankenstein discovered, his “demon” (a term he uses for his “invention”) had a mind of its own. Dr. Frankenstein’s invention goes off into the world with the poor doctor pursuing his invention rather than controlling it. It may be that the US is actually in pursuit of capitalism rather than controlling it. Capitalism is turning its attention to emerging markets where there is more capital to be grown rather than focusing on America, where growth may be possible, but it will be limited growth as compared to these emerging markets.
This of course means that politicians who think they can revive the US economy to the growth levels of the late 20th Century by tax cuts which will lure capitalist interests back to the US may far underestimate what the real situation of the world economy is. It is possible that America is just not able to produce the kind of capital growth which emerging markets can. Capitalism’s interest is in growing capital: where its treasure is, so its heart will follow. That is going to happen no matter how pro-business American politics become. Investors want ever greater returns, and those are apparently found in emerging markets/economies. It is not a matter that America’s tax structure are anti-business, the real issue is capitalism will go where it can increase capital the most quickly.
For those who feel that “big government” is the real problem for the American economy, distributist economist John Medaille (TOWARD A TRULY FREE MARKET) points out that between 1853 and 1940, the pre-Big Government era, the US economy was in recession or depression 40% of the time. Since the age of big government, the US economy has been in recession 15% of the time. He says for those who fantasize that there was some golden age before big government where the economy just hummed along without impediment, they had better study history and live in reality rather than in some fictional legend.
I have no solutions for the American economy, as I said at the beginning this is not my area of expertise, and so I’m much more the spectator. I am also naturally skeptical, and am not at all convinced that politicians of any stripe have the fix for what ails our economy (though I did think The National Commission of Fiscal Responsibility and Reform took the problem seriously and recommends some of the hard decisions which most politicians want to avoid) . I think some politicians simply underestimate the role globalization has had on capitalist interests, and some overestimate how much their policies can determine capitalism’s interest in the US. Or maybe politicians just don’t like to acknowledge that there are forces in the world over which they have no control. More hard realities voters don’t want to face.