Capitalism fails. Political influence of the rich will lead to recession

Transcription

1 Capitalism fails That capitalism fails is not wishful thinking but logical deduction. In the next few pages it will be explained why the current capitalist system is a time bomb as quasi exponential processes are going on that will lead to the failure of the capitalist system with a high likelihood of catastrophic outcomes, if no measures are taken to stop these processes. Political influence of the rich will lead to recession Automation Globalization Political Influence of wealthy Return from capital higher than economic growth Unemployment Income/wealth inequality State debt Recession Automation leads to more inequality and unemployment Automation is only rational, if more money can be saved on the workforce then is spend on machines, robots and computers. Every automation leads therefore to less jobs. Some jobs for highly qualified people are created because of automation but much more jobs will disappear. The argument, that many jobs will be created to compensate for the gradual disappearing of jobs by automation, is not supported by any fact. Innovations will not stop this process but accelerate it, as the majority of innovations will destroy more jobs than are created, for example will the self driving car make millions of truck-, taxi- and busdrivers unemployed and will only create jobs for a few programmers and engineers during the development. What is visible, are huge government programs to create jobs. For example is China massively investing in its real estate sector, despite the fact, that there are already huge amounts of empty new buildings. Also in developed countries are huge infrastructural projects and other investments done, some with questionable reasons, except artificial creation of jobs for a short time span. Globalization leads to more inequality and unemployment The main reason for trade, comparative cost advantages, lead to less effort needed to get the same output. (Or to create more output with the same input). This rationalization leads to less workers needed and more unemployment as well as more inequality for two reasons: Huge companies can profit more from international trade and smaller companies can not cope, so they will be out of business. States compete for production facilities of companies, so they will provide companies with favorable conditions, like low wages which increases inequality. (This was the short explanation. For the economists here a more detailed explanation: A country opens its markets. The country has a competitive cost advantage for the production of, for instance, bananas, means, they can in this example produce bananas cheaper than any other country in the world. By using its competitive cost advantage the country specializes in bananas and exports most of it. The economy grows as they earn more by using its advantage. However, the country has disadvantages in all other products and services, this means that in the long run the local business that are not producing bananas are getting forced out of the market. In that way, the profits of most sectors get transferred to multinationals and most of the money gets out of the

2 economic cycle of the country. So, more money comes into the country because of the high prices they receive for bananas but where does the money go? A part is spent in the country, a huge portion of that will go to huge foreign cooperation that took over from local companies. Another part (the profits) will go to the owners of the banana plantations and it is very likely that these will only be a few. Why? Companies tend to take over little competitors or compete them out of the market, so in a given sector there will be mostly only a few big players. This is in nearby every business sector the case, if you look to car producers, computer producers, retailers, media conglomerations, banks, insurance companies and most other areas in the business world. One reason is, that a company is very inclined to take over competitors to create a monopoly or oligopoly in a certain sector. (To take over companies from other sectors is less useful and more complicated as there is a shortage of knowledge of totally different business sectors.) Another reason is, that if more companies producing the same or providing the same service, the market will only let the more competitive company in a given sector survive. The conclusion is, that globalization (and related comparative cost advantages) lead to the elimination of many small and medium sized companies in a country while one or a few sectors are growing enormously, this leads to the concentration of wealth to a few companies and with that, mostly to a few individuals. This inequality leads to less money in the hands of the majority of people, therefore to less consumption, economic recession and related unemployment.) Automation and Globalization are self-energizing processes If one company starts to use the advantages of automation and globalization it will be able to cut costs. The competitors have to follow, or they will be no longer competitive and will go bankrupt on the long run. If a country allows more international trade and more automation, the wealth gain for the upper class will make them to lobby for even more automation and globalization. Political influence of the wealthy (Plutocracy) leads to inequality The top 1% have certain political influence. It is likely, that they will influence politics in a way, that they are better off. This means, that the richest persons will establish and/or keep a political and economic system, that is favorable to them. This can be clearly seen in the hesitations of politicians to act against loop holes in the tax system. In this way, they create more inequality within a country. There are several ways in which the upper class can excerpt political influence: -Donations to favorable parties/politicians. -Manipulation of media coverage. This can be done in several ways. One way is ownership of (mass) media. The owners decide which journalists will get the key positions and they will pick journalists, who match their political views. In this way, the owners of the media cooperation do not have to tell the journalists what and how to report - by picking the ones for the job that share their opinion already, they will report according to the political believes of the owners anyway. The journalists in key positions will promote other journalists who match their opinion. In this way, the owners of media cooperations can be sure, that they will not read anything in their own newspaper, magazin, tv-station... that does not reflect their opinion. Another way for huge companies is, to advertise only in media, which share their political views. (For example, a computer producer will not book ads in magazines, that criticize the bad working conditions of their workers). In this way, media that are less critical, will be rewarded with income from advertisers. The distribution of media is also critical. Big retailer chains are unlikely to sell media, that report critical about them or that are against the capitalist system, that the companies want and need to make profits. -Manipulation of social media. Social media can be (and are) manipulated by democratic governments and private companies as well as individuals. See: ( and (

3 emotional-contagion/) as well as ( Socia;search%3Aweninger) -Lobbying. Many cooperations employ people, who try to contact politicians with the intention to convince them to implement political changes that are favorable for the cooperation. It is not unlikely, that this is not only done by good arguments... politicians that get high paid positions in the business world after or during their time in parliament are an indication, that certain things in a democracy do not go like it should be. -Organization of conferences/parties. There are several regular events in which political and business leader meet each other (often in an informal atmosphere). These events can be used for networking which is beneficial for the business leaders and the politicians. Cooperations need favorable policies and politicians need positive media coverage, donations and a good network to succeed. So it is a win-win situation for politicians and businesses only the citizens loose... Plutocracy leads to increase in automation and globalization and therefore more inequality Mostly the highest class profits from automation and globalization as it is more likely that huge companies can use the advantages of a globalized economy (by producing in cheap labor countries...) and profit from automation by investing in technical equipment, like robots, that will make many workers redundant and save costs on the long run. It is clear, that the rich class might lobby for more automation and globalization. This is shown in the case of automation in direct and indirect subsidies for innovations that lead to more unemployment (like the driverless car, call center software that answers customer questions, robots that put and pick items from warehouses...) Universities develop technologies with tax payers money that can be used by big cooperations to automatize. Investments in automation technology (and its development) is, for example in the USA, more tax deductible compared to costs for employees ( Globalization is useful for the rich class by allowing international investments, speculation, choosing countries with the cheapest wages, lowest labor protection, lowest environmental and safety standards... to produce. Huge cooperations can also use their financial power to compete local companies out of the market. High capital return rates lead to inequality Rich people can get on average higher capital returns for their investment while the middle class receives only moderate pay rise. This means that the wealth of the rich class increases faster compared to that of the middle class. This leads to more inequality. If the rich become richer, they will have increasing political influence, which might increase the inequality even more. High state debt levels lead to recession and unemployment Most states invest an steadily increasing amount of their tax income for the payment of interest rates. To be able to pay this increasing sum, taxes have to be increased or/and spending (often social spending) has to be decreased. Both have negative consequences on employment and the economy. The system of interest and compound interest rates is exponential, so the amount of interest rates is continuously rising, as long as there is no state default or hyperinflation. State default or hyperinflation become more difficult in a globalized economy as holders of state obligations are increasingly private banks and funds who will disinvest if signs of a state bankruptcy might emerge. In former times (and still in some countries) the citizens are the primary creditors. They are less likely to disinvest in their own country. It also has to be asked, why independent countries do not finance their budget deficits by money creation and instead lend it from banks against interest. The inflationary consequences are the same, as in both cases the money is created out of nothing. (See:

4 Inequality will lead to recession Unemployment Income/wealth inequality Recession Capital flows to safety/profitability Rising prices for nutrition Lack of food security Rising inequality leads to a shrinking economy As more unequal the income distribution in a society is, as less money get spent. The reason is that wealthy people use a much smaller proportion of their income on consumption while poorer people use nearby all their income to consume (Also a millionaire doesn t buy 100 TV-sets...). It follows that rising inequality leads to a shrinking economy. A shrinking economy leads to unemployment When the demand in an economy is declining, less people are needed to fulfil this demand. So workers from production facilities get laid off. The unemployment rate is rising. Unemployment leads to recession Unemployment causes incomes of the unemployed to shrink, therefore less money can get spent. Together with the structural income inequality, this reduces the demand in an economic system and causes the economy to shrink further. The shrinking economy causes even more unemployment. This vicious circle leads to even more economic decline. Investors remove their money Investors are not very keen to invest their money in an shrinking economy. Therefore they might disinvest and put their money in more profitable and/or safer investment opportunities. If a certain proportions of investors disinvest, other investors might follow them. The reason is, that they might be afraid, that more and more investors might disinvest and they will not be able to get their money out of the country before the companies (or state obligations) loose value. Investors might speculate in food Investors might be inclined to invest their money in areas which are safe in times of crisis. A product, for which the demand is relatively stable (and might even rise) is food (and related things like land, water...). When more and more investors go into the food market, speculators will follow. This might lead to rising prices for food. Examples of speculative bubbles in food prices are the food price rise in the years (Other reasons for rising food prices are discussed below). Unemployment and rising food prices lead to hunger

5 Unemployment (and other declines in income) might lead to a lack of food security for an increasing part of the world s population. This situation will get worse, if the costs to fulfil the basic nutritional needs are rising. Food prices will be rising Climate change (less harvest) Rising prices for nutrition Overfishing Population grow Investment/Speculation in food/land/water/oil Hoarding of food Higher demand because of biofuel/meat Climate change will decrease food availability Global warming is expected to decrease harvest (and/or increases the volatility of the agricultural output, so that the predictability is lower, which might lead to hoarding of (and speculation with) food and years with less harvest). Population growth will lead to more demand for food and this will lead to more population growth Population grow will lead to more food demand. Rising prices for nutrition will follow. These will create a lack of food security. Paradoxically, there will be more children born when the conditions are bad, like under a shortage of food. (This correlation is clearly visible by looking at population growth in the different countries the poorest countries have the most population growth, the richest countries have the least children per family. When the economic conditions in a country improve, the number of children a family has declines. Also within a society do have the poorer families relatively more children compared to more affluent families. The reasons are of biological and practical nature: As less survival chance the offspring has, as more children must be made to make sure, that the genes get spread into the future. The practical consideration for some parents is, that children can work and provide the family with income.) Overfishing / Waste in the Oceans lead to higher food prices There are continuously less fish in the oceans. It is expected that by around 2050 the oceans will be more or less empty. If food prices are rising, fishing will increase and the oceans will be empty much earlier. The waste in the oceans, especially plastic, has already led to conditions, which make it much harder for animals to survive. Biofuel / meat consumption leads to higher food prices As a subsidiary for diesel, biofuel leads to higher demand for agricultural land, which increases its prices and with it the prices for food. The rising consumption of meat leads also to a sharp increase in demand for land and agricultural products because for every kg of meat around 3-16 kg of plants have to be consumed by the animal. Rising food prices will lead to conflict Lack of food security Rising food prices Dissatisfaction / hunger Conflict / war Inequality

6 Higher prices for food lead to more hunger and inequality Rising food prices lead to more inequality as poor people need a considerable amount of their income to fulfil their basic needs (like nutrition), they are getting hit much harder when food prices are rising. Rising food prices lead to a lack of food security (or simply hunger) as poor people will have trouble to fulfil their nutritional needs. Hunger and inequality lead to conflict Many conflicts (for example the Arab Spring) have rising food prices and inequality as main causes. Conflicts lead to a rise in food prices Conflict leads to a less functioning economic system (including less production, trade, investment) and therefore less production or import of food. This declining supply (while the demand for food remains mostly stable) leads to rising food prices and more food insecurity (hunger). Social conflicts are diverted into ethnic conflicts Hungry / dissatisfied population The top 1% fear a social revolution Media propaganda against ethnic/religious minorities Ethnic conflicts Divide and rule - principle When lack of food security and dissatisfaction of a critical mass is reached, the more wealthy persons might fear social conflicts. To prevent a social revolution (by the means of violence or elections), the upper class might be inclined to try to avoid this by changing the problem-perception of the masses. This might be done by media propaganda against ethnic/religious minorities. The media propaganda might lead to the perception, that minorities are the main threat to the society, instead of the social inequality. Racial sentiments will be used by nationalist politicians to gain votes. The ethnic majority and ethnic minorities might divide further apart. This can happen within or between countries, which could lead to internal conflicts or wars between states. Ethnic conflict is a self-energizing process When ethnic discrimination takes place in a society, the minority has less opportunities. The rejection from parts of the majority leads the minority to stick more together. This leads to more alienation and stereotypes. In these situations, little incidents between a person from the majority culture and a person from the minority culture can lead to huge outrages (from one or the other side). These outrages divide the groups even further. The vicious circle continues. A real world example are the problems of Sinti and Roma in most South- and East-European countries after the transformation to capitalism and the related worsening conditions for the lower class in most of these countries. Conflict in the 21. century In opposite to former economic (and food) crisis the world changed: There is a higher degree of urbanization. ( A lack of food supply hits urban populations harder than rural population.) The networking capabilities are much more developed nowadays than they had been in the past. (The Arab Spring is also called the Facebook Revolution).

7 Societies are increasingly consisting of various ethnic groups. (Moderate levels of ethnic diversity increase the likelihood of conflict within a country). Solutions for the capitalist system Capitalism leads to inequality and with that to the non-functioning of the system - if this process is not stopped and returned. There are only two options: Reforming capitalism or a non-capitalist system. I favor a capitalist system, in which hard work pays off and people have incentives to be innovative, risk-taking, smart and hard working but they need to have the chance for that. In the current capitalist system, young startups do not have a fair chance against huge cooperations. As incomes and life standards of the middle- and underclass are under thread, they do not have the chance to become wealthy. I will propose a combination of measurements that will not change the nature of the system but make sure, that people have equal chances. Rich and poor will exist, but not super-rich and not extremely poor humans. Job creation by the state One option might be the artificial creation of jobs by the state, for example by state enterprises or subsidies for organizations that provide many employment opportunities. These organizations should work for the public, for example by providing care, safety, nutrition... and should be organized slightly inefficient to be able to create as many employment possibilities as necessary. Suggesting to establish (or keep) inefficient working organizations seems to be strange in practice, this is done in most countries in the world, for example by a huge bureaucratic apparatus, extensive safety measures (for example workers standing at the entrance of construction sides... like in Japan)... What is inefficient from a business point of view is useful from a state s point of view because the inefficiency will create more jobs, less stress at work, less social problems, less individual mental problems, a better society by providing decent services for the citizens,... Stopping the processes of automation and globalization Turning back the process of automation by making laws against will only work if done in combination with turning back the process of globalization by introducing trade barriers. In this way, countries that do not use automation to a high extend, will not suffer the consequences of competitive disadvantages. Trade will be still possible (and useful) with countries that have similar policies with respect of automation, workers rights, welfare, environmental standards... In brief: Trade should only take place between countries that place humans above profits, in this way, countries with poor conditions for their workers, citizens, and the environment, should not be able to compete on a cost base. Only goods that can not be obtained from countries that fulfil these conditions (like some raw materials) should be an exception. If the most important markets will shut down their borders for trade, most countries in the world will adapt their way of capitalism towards less automation, more workers rights... to be able to engage in trade with their major markets again. This will lead to a higher income of the low and middle class worldwide and therefore to less inequality. Rich by hard work not by birth Taxing heritage in a (more) progressive way will reduce inequality caused by the luck of born to rich parents and could reduce unjustified richness and with the money gained, also unjustified poverty. Active integration policies instead of color blind perspective As most countries are multiethnic, this can, under certain circumstances (like described above), lead to ethnic conflicts. An active integration policy is necessary to transfer societies in which the ethnicities live next to each

8 other to a society in which people live together. By looking at friendship networks in most societies, it shows, that ethnicity is a strong predictor on who someone s friends are. This means that integration did not happen in most cases. Policy makers should stop the color blind perspective and make sure, that people with different ethnic / cultural / religious backgrounds have to deal with each other in a meaningful way. This could mean to have quotas for schools, sportsclubs... for people with migration background in a way that not more and not less people with migration background are allowed in a school, sportsclub... Furthermore immigration should happen in a way, to ensure that the majority of the migrants will be good citizens and therefore reduce negative stereotypes. There should be therefore a focus on every individuals history of crime, education and job experience. Taxes should encourage consumption Poor people need nearby all their income for their living, rich people spend only a tiny bit of their large income. Spending extends the economic circle and makes the pie bigger so that also the tiny slices of the poor become bigger. When rich people save money, the economic circle becomes smaller savings are unnecessary for an economy as central banks can provide the economy (indirectly) with as many loans as needed. Savings make only sense on an individual base (and to a certain extend) to be prepared for unforeseeable, costly events. Taxing income, that is not used for spending will have the effect that poor people, who use all their income for consumption, will have to pay no tax at all. Rich people and the middle class will be encouraged to consume more, which is beneficial to the economy. Of course this tax on income that is not spend on consumption should be progressive and there should be a tax exempt amount. In brief: For private persons similar tax conditions should be established than for companies, just in a more simple and broader way. Banks should be state owned Right now, a state s central bank creates money out of nothing (private banks to this also to a certain extend), lend it for nearby no interest rates to private banks and the private banks lend it for much higher interest rates to the states and to private companies or people. This system creates a vicious circle of debt. As the money is created by central banks (quantitative easing) instead of taken out of the economic circle, the inflationary consequences are exactly the same. There is no logical necessity to let private banks profit from states, companies and private persons need for lendings, therefore banks should by owned by the public. The private ownership of banks contributes to the increasing inequality between the top 1% and the rest of the world. The combination of these (and maybe) other measures will stop or reverse some of the above described quasiexponential processes that will otherwise lead to a failure of the capitalist system with civil or inter-state wars as likely consequence. Contact information: Stefan Krempl, Siemensstr.43, Nuernberg, Germany, phone: , lanterfant(at)live.nl Questions are welcome per . Any use of these personal data for marketing or other abusive purposes will be prosecuted.

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