Sunday, October 22, 2006

Is Business A Solution To Anything?

In the last 400 years that capitalism and markets have been used to determine how goods and services are allocated among the people we have seen drastic changes in wealth and it’s accumulation. I think it’s high time that we ask ourselves what has been the fruits of that very system itself.

In order to do this, we should examine if capitalism does what its advocates say it does. Without trying to be overly presumptuous, I think we can safely say that its advocates suggest that capitalism:

1. Encourages competition
2. Makes our society more efficient
3. Produces what consumers demand
4. Creates wealth
5. Creates economic liberty

Well, does it?

Additionally, capitalists suggest that the “free market” performs better without outside influence from other forces, such as government. So, logically, we can examine if regulations upon markets are lifted if competition increases or is eviscerated.

If we were to examine the media market a striking juxtaposition appears between what Capitalists suggest and what history demonstrates. Nothing shows this more clearly than the 1996 Telecommunications Act, passed by the GOP Congress and signed into law by Democratic President Bill Clinton.

The 1996 Telecommunications Act deregulated media ownership rules, and the GOP’s advocates for that provision suggested that it would foster competition. However, quite the opposite occurred. Ten years prior to the Telecommunication Act being passed the number of major media companies in the United States was about 80. Ten years after the Act was passed that number has dwindled down to just 5, creating a semi-monopoly.

But perhaps the media market is an anomaly. If that could be the case, then it makes sense to examine other industries that were once highly regulated and have since been de-regulated. One of those such industries is the airline industry.

Pushed by theories coming out of the University of Chicago in the 1970’s by conservative economist Milton Friedman and Ludwig von Mises, Congress passed the Airline Deregulation Act and was signed into law by President Jimmy Carter on October 28th, 1978. Prior to the passage of the ADA there were over 50 airline companies in the United States. They included such big names as Pan American, TWA, Eastern, Braniff, Republic, Western, AirCal, Aspen, Capitol, Hughes Airwest, National, North Central, Pacific Southwest, Southern Airways, Transamerica, and Western. All of those companies have since seen bankruptcy or mergers and no longer exist. Today the airline industry is dominated by “The Big Six”, American, Continental, Delta, Northwest, United, and US Airways.

As deregulated capitalism is a more “pure” or laissez-faire form of capitalism, we can see that competition is eviscerated under a capitalist economic system. We in fact see that the inverse happens, that highly regulated capital markets are more likely to be more prone to competition.

Next we must ask, does capitalism make our society more efficient? Going back to our previous example of the media industry, how has deregulated media markets increased efficiency? Consumers of media don’t think so. According to Robert McChesney in The Problem of the Media, “cable industry rates for consumers have…shot up, increasing some 50 percent between 1996 and 2003.” That’s not all. Complaints about cables services have also hit all-time highs. And according to the Colorado Attorney General, of the top 10 complaints his office receives from Coloradoans, cable and satellite television companies and telephone companies rank as number 1 and number 2 on the list, respectively, even beating out the number of complaints on debt collection agencies.

To venture into the question of the efficiency of the airline industry seems to be a exercise in redundancy, as the long lines, repeated government bailouts, and cancelled or delayed flights are as frequent an occurrence as the flights themselves. The cost of airline tickets have gone down 9% since the tragedy of 9/11, but this cut in costs has only occurred with flights between major metropolitan areas such as flights from New York City to Los Angeles. However, a flight from Washington, D.C. to Tampa, Florida costs considerably more, despite that it’s a shorter distance, marking a stark contrast to universally affordable airline tickets anywhere in the country prior to the passage of the ADA in 1978. Despite the high cost of gasoline, it is still cheaper to rent a car and drive from Washington, D.C. to Winston-Salem, North Carolina than it is to fly there.

Thirdly, we must ask, does capital markets produce what consumers demand? This is a tough question to answer, as how can we prove that consumers want something that the market has not produced, and thus, does not exist? Bearing in mind this difficulty, I approach this question carefully. Despite this, I am reminded of a humorous anecdote I once had with a friend of mine. His telephone had become something to ignore as 99% of the calls made on it came from telemarketers. I noted to my friend that you can now buy a product called “the Zapper” that blocks calls from telemarketers. My friend shook his head in disgust saying, “I hate capitalism. First they make you buy a telephone so you can use the public telephone lines. Then they make you pay to use the publicly-owned telephone lines so they can make a profit off of it. Then they use those lines that they’re making a profit off of in order to sell you more of their junk. And the only way to stop them from doing so is to buy another piece of junk just to keep them from selling you their junk.” This occurred before the government created the federal do-not-call list, a service that market never created despite the overwhelming demand for it by the public.

Additionally, public opinion polls indicate that the public desires a verity of things that the market does not produce. One of those things are commercial-free public television. Virtually 100% of the public agrees that it dislikes commercials, and does not want them, however the market continues to produce media riddled with advertising, sometimes even putting product placement in the television shows themselves.

When one closely examines this question, there are a variety of products that it only seems logical that the public wants and demands that the market does not produce. Demand for automobiles running on alternative and cheaper fuels have existed for decades, and yet the market does not produce electric-powered, solar-powered, water-powered (splitting oxygen from hydrogen and burning the hydrogen), and for the most part bio-diesel powered automobiles. Only recently has US markets made hybrid automobiles available, and that only came when Japanese imports forced US manufacturers to follow suit. Despite that the demand for Japanese hybrid autos are so high that one has to be put on a waiting list just to buy one, US manufacturers are still producing massive gas guzzling SUVs even though GM’s sales have fallen dramatically.

And with the US taxpayer increasingly having to flip an ever larger bill for that nation’s transportation infrastructure, such as the construction of ever wider roads, more Americans are having to commute farther to work, and spending more of their time sitting in traffic. If there was anything that 100% of the American public wanted to market to produce, it would be a solution to our nation’s traffic congestion. To date, the market has not produced any such solution, however there is a market, known as the oil and automobile industry, for making the problem worse. Meanwhile, the US railway system continues to crumble, and our European counterparts can go wherever they like on the entire continent on high-speed bullet trains. Similarly, this highly efficient transportation system is utilized by the Japanese as well with an amazing degree of success and affordability in one of the most densely populated regions in the world. Both the Japanese and European bullet train systems was a product not of the market, but of government innovation.

Which leads us to our next question, does capitalism create wealth? Capitalists will nearly universally say yes. And their argument on the surface may seem to be correct. There are more millionaires and billionaires today than there has ever been in US history. The top 1% of households are wealthier today than they have ever been. But does that mean that more wealth has been created? Despite, the wealthy being richer than they have ever been, it now takes two incomes to keep the average US family above the poverty line when one income sufficed just a generation ago. And according to the Federal Reserve, debt held by US consumers has increased by an astounding 1,101% since 1983. The poor and debt-ridden in the US aren’t alone. Inequality around the globe has drastically increased in the past 50 years. According to the UN Development Program, in 1950 the gap between the average income in the richest and poorest country was about 35 to one, while by 1992 it had widened to 72 to one. And per capita incomes fell in 50 countries in the last decade, most of them the poorest countries. Despite this, many of those very same poor countries have increased their exports to the west and to industrialized nations generally, varying from oil and minerals, to fruits and vegetables. So why hasn’t the poorest nations in the world who are exporting to the richest nations in the world seen their own wealth creation? The answer is quite obvious. Markets do not create wealth. Wealth, just like all others, is a finite resource. If wealth was not a finite resource then it would not have any value. Rather markets are a system of wealth usurpation, by which the wealth of the many is re-distributed to the few.

Which leads us to the final question, of does capitalism create economic liberty? One needs look no further than the Nike sweat shops in Indonesia where children as young as 14 work 12 hours a day behind armed guards and barbed-wire, sometimes facing rape and molestation from their supervisors, in order to earn a few pennies to feed their hungry families. It is an economic system that Simon Lunguet declared to be “even worse than slavery”, writing as far back in 1767 that “it is the impossibility of living by any other means that compels our farm labourers to till the soil, whose fruits they will not eat, and our masons to construct buildings in which they will not live. It is want that drags them to those markets where they await masters, who will do them the kindness of buying them. It is want that compels them to go down on their knees to the rich man in order to get from him permission to enrich him. What effective gain has the suppression of slavery brought him? ‘He is free,’ you say. That is his misfortune. These men, it is said, have no master. They have one, and the most terrible, the most imperious of masters: that is, need. It is this that that reduces them to the most cruel dependence.”

“Property is theft!“ -Pierre-Joseph Proudhon


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