Tikkun Magazine, November/December 2009
THE CONTRARIAN
Capitalism: Change It or Tame It?
by George Vradenburg
Go see Michael Moore's new movie, Capitalism: A Love Story. This movie's string of anecdotes, albeit highly selective, dramatically questions whether our political and economic system is working as it should. Intriguingly, a parallel vein of deep discontent finds expression in the recent Town Hall/Tea Party/9-12 Movement and other criticisms of increased government intrusions in our daily lives. A common theme from the Left and the Right: the American system is out of control and in the hands of corporate managers and politicians out of touch with ordinary Americans.
The Left calls for a political system less subservient to corporate interests, a corporate system more responsive to workers, and a cultural system not driven by greed.
The Right calls for a less intrusive political system, a corporate system more responsive to investors, and a cultural system imbued with religious values.
As the resident Contrarian, I believe that our democratic capitalist system is fundamentally sound and that confidence in this system can, with reforms, be restored. Common calls for political, economic, and cultural reform in the criticisms from the Left and from the Right paint the way.
As Detroit's example shows, citizen consumers and citizen investors drive the capitalist system. They vote their preferences by what they buy and by whom they elect to corporate boards. Contrast K-12 education, where capitalism is not present: kids have no choice (absent wealth) but to go to schools that, by most measures, are failing. Recognizing the control mechanisms inside capitalism is important in understanding where reforms can best function.
Moore argues that, in a capitalist system, the workers (as opposed to consumers, investors, or managers) exercise no control. Over time, however, through personal choice and improved education, the workforce has grown in size, productivity, and aggregate income. Employees in declining manufacturing sectors (e.g., steel, tobacco, and consumer electronics) have used education and job training to drive employment in growing knowledge industries (e.g., technology, financial and business services, and health care).
Even with aggregate growth in the economy, however, there has been an increasingly inequitable distribution of personal wealth and income. A weak consumer base and shrinking middle class are a drag on capitalist performance. So, reforms are needed. Income mobility must be strengthened through improved performance in education and job/entrepreneurial training systems so that employees can better compete in a global labor marketplace. Corporate shareholder election systems should be strengthened to better control manager compensation systems. Moore argues that worker-controlled cooperatives should substitute for investor-controlled companies to assure more income equity, but it is difficult to see how a worker cooperative without investors or finance-oriented incentives would succeed. The fact that this form of corporate organization is not widely employed suggests its weakness.
Moore also contends that the financial crisis was the result of politicians protecting the corporate managers who bankroll political campaigns. The Right simply blames government intervention and mismanagement. The explanation is more complex. An interventionist Congress and the Federal Reserve sought to keep money cheap and to extend home ownership to minorities and low-income people unable to afford home mortgages; and companies used that cheap money to create new mortgage products without an adequate understanding of the systemic risk being created. Reforms to regulate financial system risk and to reduce the influence of money by shortening election cycles and using public financing can address both financial and political system weaknesses.
One additional reform step not being discussed would be to require companies to report the actions they are taking on social issues to investors. For example, company disclosures might report efforts to achieve reduced greenhouse gas emissions, energy conservation, or improved workforce satisfaction. Such disclosures would create incentives for corporate managers to take steps to mitigate injuries of a social or environmental nature related to their corporate activities.
It is no doubt true that capitalism, by its very nature, responds to the financial interests of those with ownership stakes (including us, through our own 401k plans, pensions, and other investments). It is that financial accountability that has created corporate incentives to respond to consumers. But investors' interests increasingly require that companies exercise social responsibility as well, since addressing climate change and energy costs, and having an educated and motivated workforce are essential to sustainable financial success.
Democratic capitalism, using an appropriate regulatory system, is the engine that best responds to our preferences and drives overall prosperity. For that reason, increasing numbers of countries are embracing different flavors of democratic capitalism and enjoying political stability and unprecedented reductions in poverty as a consequence. We should seek to repair our system, not abandon it.
George Vradenburg is the publisher of Tikkun, and he often disagrees with our editorial opinions.
