Economics Financial Crisis Politics

Tear down our capitalist system and replace it with a free market.

[digg-reddit-me]It’s Friday morning, finally finished with a week while living for the weekend, so I’m feeling loose.

My modest proposal for the day: Tear down our capitalist system and replace it with a free market.

The two terms are usually used synonymously – and I’m sure I am guilty of this myself. But after a long night of fevered dreams about politics and policy (yes, I really do dream about such things) I woke up realizing there is an important difference between the two ideas. (Perhaps as my unconscious mind dredged up some forgotten piece of writing from years ago.)

The free market is a commonsensical idea – as it is based on the values of competition, individual opportunity, and liberty. Adam Smith (from what I know of him) was only a proponent of this system – which he called “the system of natural liberty” – rather than a proponent of “capitalism” – a term he never actually used. Smith – arguing for this system – argued against government being used to prop up industries or to direct them. What he did not argue for though was “capitalism” as it has been understood for the past century. In many ways, the idea of capitalism evolved to defend our system from Marxist ideas – so it evolved to preserve the status quo rather than to describe an ideal system.

In this way, America’s economic system is different from its political system. The political system was created by men who held certain agreed-upon ideals and who attempted to write a governing document incorporating and protecting these ideals. This allowed later generations to try to better follow these ideas – to constantly seek “a more perfect union.” Rather than merely defending the status quo, it created an ideal to strive for. Our economic system though was created in an ad-hoc manner – and the ideology which grew up to defend it lacked any clear ideals. So, this ideology was defined then by what it opposed rather than a positive protection of certain principles. Capitalism then means less government interference, less centralized control of the means of production, less regulation. What this capitalism has created though is a rather unfree market – in which a small number of individuals own most of the capital – in which competition is thwarted by monopolistic practices, by bigger and bigger mega-corporations, by regulations proposed by the mega-corporations to keep out competitors, by bailouts.

Our capitalist system is based on valuing capital over labor, of seperating mangament and labor from ownership, of limiting the liability of individuals for their actions in corporate environments, of externalizing as much cost as possible to the public commons, of profit over all things. It is hard to see what most of these principles contribute to the creation of a free market. Indeed, many of them undermine it – creating a closed market, profitable only for a princely few who have the capital. This new feudalism is called freedom – but it is only free to an elite class of “ultracitizens” while the overwhelming majority of people get by in a “Sharecropper’s society” (to use terms introduced by David Rothkopf and Warren Buffett respectively.)

What we need is a founding economic document – that will describe the free market as it should be. A free market based on competition instead of capital; in which the government’s role is clear, predetermined, and predictable – rather than arbitrary and constantly contested; where regulation is seen as a protector of the free market rather than an encroachment upon it – as it forces externalized costs which are imposed on the society at large to be taken into account by the market; where the government’s role is in protecting and enhancing the opportunity of its citizens – rather than protecting the status quo and mega-corporations.

The fact is – capitalism as it is currently practiced has undermined the free market at every turn. While our current capitalist system has proved more productive than many other systems in the past, it has clearly fallen short of those implicit promises of what a free market should be. This economic crisis we are still going through – even as the financial crisis has passed – will offer up an opportunity to redefine the social bargain underlying our economic system if we are bold. So, we must be bold then – as soon as we figure out how to approach this.

[Image by me.]

7 replies on “Tear down our capitalist system and replace it with a free market.”

My question for you for the day: If you’re right, and there is a form of feudalism taking place in the market, but on the other hand, it was proven that the majority of people participating in the ‘sharecropper’ class are financially better off today than they were before this period of deregulation-induced economic expansion, then would you still be in favor of a reform that brought us back to a ‘one-class’ / one set of rules market?

First of all – I’m not saying we need to eliminate differences in income – or to create one-class, etc. I’m saying we need a system that values individual opportunity rather than the accumulation of capital.

Even if this feudalism led to the peasants and serfs having a better quality of life, I would still be opposed to it. Because it is unsustainable.

But the successes of our system have come – mainly – from those areas that are most free. Google and Microsoft and other web companies innovated and became successes because their field was new – and they were able to escape the feudal structure of other industries.

I believe that democracy and free markets work because decision-making and power are usually best when they are decentralized and left to individuals. This isn’t always the case. But the fact that most of our economy is run by monarchic institutions is quite disturbing.

Doesn’t that bother you?

Well what bothers me is more the ‘incestuous’ relationship between the private sector elite and public sector elite. As you know, it’s basically a game of musical chairs, especially in the financial sector, which is clearly not doing any good for the country.

It seems to me though that the tech companies you mentioned, in that infant industry, are merely jockeying for feudal position. Microsoft helped innovate personal computing with Windows, and now Google seems to be tugging the industry towards web-based solutions (witness their new OS which will compete with windows and likely be free to consumers). Apple, on the other hand, seems to be tugging the industry away from Google’s web-based stronghold, and towards customizeable app-based interfaces. We’ll see how ‘free’ the industry looks in the future when some of these issues get sorted out.

My plan would be: break up some of these supercorporations and promote top regulatory officials from within the government so you hopefully get decision-makers with a real committment to reform.

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