In recent days, the debate over whether capitalism is dead (or dying) has become a favorite topic. For the longest time, I had been on the side that it is on life support, but after giving this a randumb thawt, I see a contrarian viewpoint to both sides. Capitalism, with all its faults has served the people more than any other economic system in history. After the great war, capitalism combined with the power of collective bargaining created the strongest economy in history of man. It was a model to the rest of the world. So, what happened and what is the current state of capitalism?
Capitalism is more alive today than ever. So, why all the debate? Maybe it’s because the markers we have used for the last 100 years or so, no longer apply. The goal posts have changed. For the first three decades after World War II, the US was the only game in town. Europe was decimated, Japan was a broken nation, China was hiding behind a bamboo wall and the Soviet Union built an Iron curtain around it and it’s satellites from the rest of the world. The war never truly reached our continent and capitalism here was business as usual. As the marketplace expanded past our borders, the U.S. had no competition. We made the best of everything and many cases we were the only game in town. In those days, it was Chevy vs Ford, Levi vs Wrangler and Coke vs Pepsi. Competition was centered between the Pacific and Atlantic oceans.
Then the rest of the world began to produce and compete. Western Europe and Japan were first. Then Korea began entered the marketplace and when the wall came down in Berlin, the Eastern block jumped into the game. These countries took the US model of capitalism and found they could compete better by subsidizing their own industries, while regulating competition from the outside. Japan jumped into the auto industry, Europe’s Airbus began producing commercial planes competing with Boeing and almost every sector of manufacturing was being invaded by the rest of the world. The straw that broke the camel’s back was when China opened its doors for business. As products more and more came from other countries, the competition expanded out around the world. Suddenly, it was GM, Ford and Chrysler competing with Toyota, Honda, BMW and Mercedes. As this expansion in competition became more and more common, American manufacturing found themselves on their knees. Even the American consumer found the cheaper products of other countries a better bang for their buck and providers like Walmart grew (70-80% of their products come from outside the US). This forced American manufacturers to take drastic action. They blamed the cost of labor and made drastic cuts in wages and compensations in the name of survival. Unions became the scapegoat and began to fade into the sunset. Meanwhile, governments of other countries were rewarding their labor with perks like extended paid vacations, healthcare, and even housing, cutting costs for the manufacturers. Other nations ignored the labor laws that had brought America to its greatness in order to level the playing field. For better or worse, a hybrid of capitalism was created.
The U.S. manufacturing industry found themselves against a wall, wondering how they could regain their competitive edge and stay in business? The obvious answer was to broaden their market place and compete worldwide, but why would the rest of the world pay more for U.S. products, when even Americans were buying foreign goods. In order to compete on the world market, the US had to find a way to brand their products and cut cost without lowering quality. One way was to use the same labor force that was beating them down and they began to outsource their labor and manufacturing locations. Second was to swallow up their competition, so they could continue to grow with lower profit margins, So sector consolidation became the soup de jour. The rest of the world countered with currency manipulation and tariffs and created regulations that would drive the U.S. prices back up.
Competition is the primary fundamental of successful capitalism. When we were the only game in town, everyone was playing by the same rules, but today, everyone is playing by their own rules. If we try to play by their rules, we might be able to compete. The question is what are their rules?
The current administration believes we can force them to play by our rules by implementing tariffs, but the problem is, that tariffs don’t make our products cheaper, they just make their them more expensive to the consumer and with the consumer purchasing power limited by the wage stagnation, this will only lead to less consumption. Less consumption leads to less demand. Less demand leads to less need for labor and less need for labor, leads to even less consumption. A vicious cycle that becomes a growing snowball. So, what can we do?
The solutions start with the understanding that capitalism is alive and well, but it is based on a world economy, not a national one, and there’s no going back. Can we compete with the likes of China? The answer is surprisingly, yes. But, it requires a commitment by both the government and the people. First, the government must create incentives in robotics. As technology replaces the labor force, the cost of production levels off. Over time, it will allow the US manufacturing industry to produce cheaper than the lowest paid foreign labor force. Of course, that leaves millions of Americans without a job. The solution to that is where the people must step up to the plate. They must be willing to be train to do something other than manufacturing. There are two types of labor that fall into this category. One is labor that serves by locality and the other is entrepreneurship.
The first is labor that is needed in a specific area like infrastructure, healthcare, education and energy. The latter is creating products that no one else imagined and create a need for those products. Things like information, software that fills the needs for specific actions, games and other entertainment portals like Netflix, Youtube, and Spotify. Sadly, the second type will require a less, but better trained labor force.
So, where is the role of government in all this. Its primary job is as a conductor, but it also must recognize needs and incentivize and in some cases like infrastructure and education, finance. And then there are those in the labor force that must be recognized to be too old or mentally unequipped to participate in the new economy. That must be approached with compassion, understanding that we need those consumers too if we want capitalism to thrive. Also, since it is now a world economy, it will be necessary to have a world court that determines if one nation is taking advantage of another, especially in intellectual properties and the exploitation of labor. Of course, whenever courts are involved, there is the risk of unfair judgements, but we must learn to accept the sour with the sweet. That could be lessened by using a computer (AI) as a member of the judicial committee and giving it the power of first opinion with the human judges the power to overrule its decision by a super majority. Now, I don’t proclaim to have all the answers. You can call this the “Theses” of the new capitalism, but most important is the understanding that capitalism, like the universe, never stands still. As the needs change, so must capitalism. What we can’t do, is throw the baby out with the bath water.