What Caused Capitalism?Once upon a time, smart people thought the world was flat. As globalization took off, economists pointed to spreading market forces that allowed consumers to buy similar things for the same prices around the world. Others invoked the expansion of liberalism and democracy after the Cold War. For a while, it seemed as if the West’s political and economic ways really had won out.
But the euphoric days of flat talk now seem like a bygone era, replaced by gloom and anxiety.
The economic shock of
2008,
the United States’ political paralysis, Europe’s financial quagmires, the dashed dreams of
the Arab Spring, and the specter of competition from illiberal capitalist countries such as
China have doused enthusiasm about the West’s destiny. Once seen as a model for “
the rest,”
the West is now in question. Even the erstwhile booster
Francis Fukuyama has seen the dark, warning in his recent two-volume history of political order that the future may not lie with the places that brought the world liberalism and democracy in the past.
Yoshihiro Francis Fukuyama (born October 27, 1952) is an American political scientist, political economist, and author. Fukuyama is known for his book The End of History and the Last Man (1992), which argued that the worldwide spread of liberal democracies and free market capitalism of the West and its lifestyle may signal the end point of humanity's sociocultural evolution and become the final form of human government. However, his subsequent book Trust: Social Virtues and Creation of Prosperity (1995) modified his earlier position to acknowledge that culture cannot be cleanly separated from economics. Fukuyama is also associated with the rise of the neoconservative movement, from which he has since distanced himself.A collary to all of that is
the principle of competition. If a company starts mining coal, for example, the company puts up the money to hire workers, buy equipment and dig the mine, and they can then charge whatever they want for the coal. Since coal is a necessary resource in many societies, they can charge much more than it costs them to mine it and people will still have to pay. But if another company starts mining coal, then they can start lowering their prices to get more customers, which means the first company will have to lower their prices to compete, and eventually the price of coal will be driven to a minimum. At least in theory.
What distinguishes
capitalism from a state-run system (which is the other major school of thought) is that all of these companies are run with the primary goal of making money for the owners of the company. They will hire and fire people, raise and lower prices, change or not change their methods entirely based on what they think will make them money.
By contrast,
a state-run system is intended to run all of the enterprises with the good of society in general in mind. All enterprises are run by the state, which puts up the money to do things and receives any profits that the enterprise makes. If they can help the country by reducing profits, they're supposed to do so. If people need cheap coal, for example, they can lower their prices, even though they could make more money by charging more.
In real life, neither system works exactly the way it's supposed to. In
capitalism, companies will often manipulate the system to reduce competition and convince people to spend more money than is necessary.
State-run economies, on the other hand,
foster corruption (
because they put the entire economy in the hands of bureaucrats) and tend to stifle innovation and economic growth (because no one benefits from taking risks and no one has incentive to create something new).
capitalism has historically been the most successful system for growing an economy, producing goods and services at a faster rate and increasing a nation's productivity. However, there are many metrics of social health which it does not excel at improving.
Capitalism under firecapitalism lacks defenders these days, while protests against it have fresh vigour. A vocal coalition of critics, from
Occupy Wall Street to
Pope Francis, castigate
global trade as being exploitative and people’s fixation on money as the “
dung of the devil”.
Worries about the impact of
economic inequality on
social cohesion lend new urgency to
moral questions about markets. But, as
John Plender points out in his new book, “
Capitalism”, discontents about its effects are as old as
the world’s most powerful -ism itself. The pursuit of profit has been “
unloved” since
Socrates declared that “
The more [men] think of making a fortune, the less they think of virtue.” Anti-business sentiment characterises the lampooning of Trimalchio’s feast in Petronius’s “
Satyricon”, and persists through
Molière’s miserly 17th-century lucre-seekers to the portrayals by
Charles Dickens and
Emile Zola of
dreadful 19th-century bosses and
the modern incarnation of greed on the screen,
Gordon Gekko in “
Wall Street”.
Mr Plender, who once worked for
The Economist, is a columnist with
the Financial Times. He has written incisively for decades on the excitements, oddities and disasters of financial markets. He approaches
the quandaries of capitalism with a shrewd eye for detail. The reader discovers, for example, that
Voltaire turned up at the court of
Frederick the Great as a pet
Enlightenment intellectual, only to run a bond-market scam that could have bankrupted the Prussian exchequer. In the mid-1980s Japanese fund managers visited the shrine of
Madame Nui, a restaurateur whose porcelain toad delivered tips on stocks—for a while successfully, acquiring its own portfolio worth $10 billion—until they collapsed when the Japanese bubble burst in 1990. If free markets emerge from this survey as dynamic, their claim to be rational is suspect indeed.
But Mr Plender is wise enough to realise that for all its faults,
capitalism has raised
the living standards of billions of people since
the 18th century and
improved their life expectancy. The rapid improvement in the growth rates of
China and
India in recent decades as they headed (albeit not entirely) in a capitalist direction are further signs of the system’s vitality, as is the contrast between
capitalist South Korea and
the communist North.
The revival of
anti-capitalist rhetoric owes much to
the financial crisis of 2008 and its aftermath. The crisis was merely the latest example of the inherent stability of
capitalism, a process that, while allowing the economy to benefit from “
creative destruction”, causes
a lot of collateral damage along the way. The real problem is that b]
capitalism[/b] has become associated with
high finance, rather than
the heroic entrepreneurship of Thomas Edison, whose inventions still surround us. It is not just that few people can see
the benefits of complex financial products like
credit default swaps. He adds that “
bankers have undoubtedly done their best to give capitalism a bad name. The extraordinary scale on which big banks have been rigging interest rates and foreign-exchange markets and ripping off their customers is almost beyond comprehension.”
Mr Plender fears that
another great financial crisis is inevitable—
international banks are
bigger and
more interconnected than ever. But he also thinks that the world will muddle through;
capitalismwill adapt as it has so often in the past. In conclusion, he echoes
Churchill’s words on democracy “
capitalism is the worst form of economic management, except for all those other forms that have been tried from time to time.”

OPINION
REICH: WHY SOCIALISM FOR THE RICH, CAPITALISM FOR THE POOR?Because the rules of the game – including labor laws, pension laws, corporate laws and tax laws – have been crafted by those at the top.
BY ROBERT REICH ON 5/3/16 AT 3:53 PM
Marissa Mayer tells us a lot about why Americans are so angry, and why anti-establishment fury has become the biggest single force in American politics today.
Mayer is CEO of Yahoo. Yahoo’s stock lost about a third of its value last year, as the company went from making $7.5 billion in 2014 to losing $4.4 billion in 2015. Yet Mayer raked in $36 million in compensation.
Even if Yahoo’s board fires her, her contract stipulates she gets $54.9 million in severance. The severance package was disclosed in a regulatory filing last Friday with the Securities and Exchange Commission.
In other words, Mayer can’t lose.
It’s another example of no-lose socialism for the rich—winning big regardless of what you do.
Why do Yahoo’s shareholders put up with it? Mostly because they don’t know about it.
Most of their shares are held by big pension funds, mutual funds and insurance funds whose managers don’t want to rock the boat because they skim the cream regardless of what happens to Yahoo.
In other words, more no-lose socialism for the rich.
I don’t want to pick on Ms. Mayer or the managers of the funds that invest in Yahoo. They’re typical of the no-lose system in which America’s corporate and financial elite now operate.
But the rest of America works in a different system.
Theirs is cutthroat hyper-capitalism—in which wages are shrinking, median household income continues to drop, workers are fired without warning, two-thirds are living paycheck to paycheck and employees are being classified as “independent contractors” without any labor protections at all.
Why is there no-lose socialism for the rich and cutthroat hyper-capitalism for everyone else?
Because the rules of the game—including labor laws, pension laws, corporate laws and tax laws—have been crafted by those at the top, and the lawyers and lobbyists who work for them.
Does that mean we have to await Bernie Sanders’s “political revolution” (or, perish the thought, Donald Trump’s authoritarian populism) before any of this is likely to change?
Before we go to the barricades, you should know about another CEO named Hamdi Ulukaya, who’s developing a third model—neither no-lose socialism for the rich nor hyper-capitalism for everyone else.
Ulukaya is the Turkish-born founder and CEO of Chobani, the upstart Greek yogurt maker recently valued at as much as $5 billion.
Last Tuesday Ulukaya announced he’s giving all his 2,000 full-time workers shares of stock worth up to 10 percent of the privately held company’s value when it’s sold or goes public, based on each employee’s tenure and role at the company.
If the company ends up being valued at $3 billion, for example, the average employee payout could be $150,000. Some long-tenured employees will get more than $1 million.
Ulukaya’s announcement raised eyebrows all over corporate America. Many are viewing it an act of charity (Forbes magazine calls it one of “the most selfless corporate acts of the year.”)
In reality, Ulukaya’s decision is just good business. Employees who are partners become even more dedicated to increasing a company’s value.
Which is why research shows that employee-owned companies—even those with workers holding only a minority stake—tend to outperform the competition.
Ulukaya just increased the odds that Chobani will be valued at more than $5 billion when it’s sold or its shares of stock are available to the public. Which will make him, as well as his employees, far wealthier.
As Ulukaya wrote to his workers, the award isn’t a gift but “a mutual promise to work together with a shared purpose and responsibility.”
A handful of other companies are inching their way in a similar direction.
Apple decided last October it would award shares not just to executives or engineers but to hourly paid workers as well. Twitter CEO Jack Dorsey is giving a third of his Twitter stock (about 1 percent of the company) “to our employee equity pool to reinvest directly in our people.”
Employee stock ownership plans, which have been around for years, are lately seeing a bit of a comeback.
But the vast majority of American companies are still locked in the old hyper-capitalist model that views workers as costs to be cut rather than as partners to share in success.
That’s largely because Wall Street still looks unfavorably on such collaboration (remember, Chobani is still privately held).
The Street remains obsessed with short-term stock performance, and its analysts don’t believe hourly workers have much to contribute to the bottom line.
But they’re prepared to lavish unprecedented rewards on CEOs who don’t deserve squat.
Let them compare Yahoo with Chobani in a few years, and see which model works best.
If I were a betting man, I’d put my money on Greek yogurt.
And I’d bet on a model of capitalism that’s neither no-lose socialism for the rich nor cruel hyper-capitalism for the rest, but share-the-gains capitalism for everyone.
Ever since the emergence of mass democracy after World War II, an inherent tension has existed between capitalism and democratic politics; capitalism allocates resources through markets, whereas democracy allocates power through votes. Economists, in particular, have been slow to accept that this tension exists. Instead, they have tended to view markets as a realm beyond the political sphere and to see politics as something that gets in the way of an otherwise self-adjusting system. Yet how democratic politics and capitalism fit together determines today’s world. Politics is not a mistake that gets in the way of markets.
The conflict between capitalism and democracy, and the compromises the two systems have struck with each other over time, has shaped our contemporary political and economic world. In the three decades that followed World War II, democracy set the rules, taming markets with the establishment of protective labor laws, restrictive financial regulations, and expanded welfare systems. But in the 1970s, a globalized, deregulated capitalism, unconstrained by national borders, began to push back. Today, capital markets and capitalists set the rules that democratic governments must follow.
But the dominance of capital has now provoked a backlash. As inequality has widened and real wages for the majority of people have stagnated—all while governments have bailed out wealthy institutions at the first sign of trouble—populations have become less willing to accept the so-called costs of adjustment as their lot.
Sources: The economist, Financial Times, Newsweek and Foreign Affairs.