Thursday, August 19, 2010

Blame Capitalism, not the Capitalists

  Blame Capitalism, not the Capitalists.
Our economy is in the doldrums. Unemployment is very high--if you count the underemployed, 20% of the work force are working less than they would like. The unemployed have no money to spend. Those who are still working spend cautiously. But consumer spending is the engine of growth in our economy. As long as consumers do not spend, employers will not hire new workers and unemployment will remain high. As long as unemployment remains high, consumer demand will be weak.
We face a tough Catch-22.
The matter is, actually even more serious than that: many businesses have become very “lean.” That means that when business was really bad, in 2007, they laid off a lot of workers. When business recovered a bit they bought new and bigger machines. So now they can produce more with fewer workers. The jobs that many people lost have gone for good.
Some of these lean companies are making lots of money. There a big profits in the financial sector, in the banks, as well as in manufacturing. The auto companies are making a profit; so does Alcoa, for instance. Why don’t these companies hire more workers? Is that not what they owe us, the American public, after we lent them huge sums of money to bail them out?
This question, raised by various commentators misrepresents our economic system. It suggests that the present crisis is not a crisis of the economic system but the fault of some bad people in positions of economic leadership. But that is no more than propaganda to confuse the ordinary citizen.
Suppose you own a business. The government helped you over a bad patch in the economy and now you are doing ok again. Your line of business is thriving and your competitors are also doing well but there exists serious competition. Now someone tells you that you owe it to all of us to hire more people. But that’s not what the competition is doing; they bought some new machines that do the job of several workers faster and more cheaply. They have a higher margin of profit as a consequence. What you really need to do is buy some of those marvelous machines yourself. If instead, you hire more workers, your costs of production will rise, your margin of profit will go down and so will your business the next time the economy slows down.
Telling businesses that are doing well that they should hire more workers as a public-spirited gesture forgets that ours is a competitive system. Whatever you do in your business, you need to keep looking over your shoulder at the competitors to see whether they produce more cheaply than you and whether they make more money. Giving jobs to the unemployed may get you a lot of credit in the hereafter, but in this world it may lead you into bankruptcy.
This shows up a feature of our economic system that over and over again leads us into trouble. Every business is privately owned and each owner must make decisions that will provide an advantage over the competition. In the present case, they may have to buy bigger and better machines and lay off employees, instead of giving jobs to the unemployed.
That’s a good policy for the individual business--large or small. But if everyone does it it leads into precisely the impasse we face now: where business is sluggish because many people have no money to spend. Because business is sluggish there is serious unemployment, therefore many people are forced to cut down on their purchases and business remains sluggish and unemployment persists.
The problem is not with the individual capitalist, but with the economic system resting on individual ownership and competition between those owners. It is the economic system that is in crisis once again.
Unless we manage to change that economic system, we will continue to lumber from crisis to crisis.