Understanding Capitalism: An Essay - Tilted Forum Project Discussion Community

Halx · 10-03-2009, 09:20 AM

This is an essay I have written. I am interested in reactions.

Don't Feed the Animals: Understanding Capitalism

Quote:

When considering a system of government or economy, we often start by wondering how we fit into the picture. When we consider democracy, we might imagine our voice contributing to a positive change. When we consider capitalism, we might imagine our ambition paying off with wealth and comfort. This is how we decide what is best; we choose the option with the greatest potential. What we usually fail to consider is how these systems will be utilized by the whole of our community and what their long-term effects will be when assayed through changing times. When a country's constitution is drafted, or a religion's holy book is written, there are no clauses included that restrict interpretation. Rather, individual meaning is gleaned from the documents as viewed within the context of the situation of the interpreter. That is to say; though we may utilize the same system, we all have our own definition of how we fit inside it and how it applies to us. When we combine our divergent views into the practice of a single system, weaknesses in that system begin to show.

Capitalism is a system like any other; built on rigid ideals, defined by exact language, accepted for its merits and interpreted in a million different ways. As far as positives go, most everyone sees capitalism as a shuttle toward prosperity. No other economic system provides the promise of as much wealth to such a broad public, asking only for vigilance and ambition to get there. It is easy to get swept up in the gospel of a free market, where you see yourself as responsible for your own fortune and nobody else's (unless you decide to be). However, outsiders tend to make different observations about capitalism. It is seen as a class-based kill-or-be-killed proposition where the excess of a few at the top translates to staggering financial casualties of many at the bottom. The difference is perspective and one must admit that it is difficult to see the big picture when you're a part of the scenery. The personal bonds that people create with their choices can blind them to flaws in their reasoning, so we must offer these choices up for evaluation every once in a while to be assured. This is an evaluation of capitalism.

When we make the judgment that capitalism is the best system in the world, do we consider it with or without regulations? This rhetorical question can be answered if you like, but it is meant to draw attention to a very important reality regarding capitalism: it must be regulated. Without regulation, the flaws of free enterprise rip wide open, becoming deep wounds from which pours the blood of the mass's financial investments into the maw of a hungry upper class of bankers. To understand this point, we must accept the reality that the party with the largest share of a market can influence the rest of the market's participants. If no precautions are in place to prevent manipulation, and if there are no negative consequences for doing so, it is understood that an entity interested in self-preservation will take the most ensured route to survival: domination.

We should be assured that regulations do exist; we would be foolish not to have them. If free enterprise requires competition, and monopolies are anti-competitive, then we know they must be prevented from forming. There are more intricate dangers to be wary of, though. Consider the importance of consumer trust. Because all participants in a market are interested in protecting their own assets while increasing their worth, firms that offer assistance with managing or acquiring worth are the atlases whose shoulders support the dreams of millions of small-time investors. Regulations (or their perceived existence) help consumers to trust larger and more powerful institutions. Though these companies are entitled to a profit for their role, protections must be in place to prevent them from tightening the screws on their investors once they have their money committed. The dramatic deregulation of the market that took place in the late 90's created an opening for lenders to provide inappropriate loans to many individuals and increase interest rates to an unfair degree. What the average consumer sees as following is a market crash and an economic downturn, but the banks who provided the irresponsible lending saw something else; a bailout proposed by the same governing body that initiated the deregulation in the first place. By now we're quite aware that capitalism is a dangerous game.

With all this focus at the top of the pile, we're left to wonder if those at the bottom actually have any of the freedom that a "free" market would purport. Even worse, we seem to have let our market values take over our political values. After all, in a democratic republic, it is the people who give power to representatives and ideas. Why, then, are actions taken, by those we've elected, to reinforce a staggered industry instead of a staggered populace? Following the bailout, the banks have covered their losses while the consumers remain in debt. The answer to this is a bleak reality that needs to be faced; capitalism is not democracy. As explained earlier, in capitalism, those with a larger piece of the pie have more influence. One man, one vote; it can outlaw gay marriage, but it can't protect you from foreclosure. I have to ask, hypothetically, which is more important to prevent?

Debt is already a dirty word, but most people see it as a result of personal irresponsibility. There is little sympathy for those who are in debt because they got themselves into that mess. This is one example of how market-enforced individualism can cloud us from seeing the bigger picture. Debt is more than just owing money; it is indentured servitude. It is a life-crippling quicksand pit that can turn an errant charge into thousands of dollars owed beyond what was originally needed. When you consider the lifestyle changes that come with debt (tightening a budget, foregoing simple pleasures, an increase in anxiety), you may realize how destructive usury can be. Then consider that debt is not always a choice. 62% of all bankruptcies filed in 2007 were a result of medical bills. These are thousands of families thrust into the servitude of banks simply because a member got sick. While this also reflects poorly on the US health care situation, it is none other than capitalism that drives the health insurance industry toward profit through rejection of coverage.

Beyond the ugly side of capitalism that we've seen for ourselves, there is more that remains hidden, working deep within our minds. Capitalism is more than just an economic system, it is a mindset. The tension that a competitive free market creates amongst its participants erodes cordiality and replaces social considerations with calculated evaluations of risk. An off-hand example of this can be observed in reality TV, where contestants are placed into social situations with the very opponents they are trying to defeat. Their interactions seem decent enough, but once they get on the confessional camera, their plotting comes to the surface. Think it doesn't affect you? Consider an experiment done with the parents of children who utilized after-school teacher supervision in Israel. Before the experiment, parents were only occasionally late to pick up their children and when they were, social norms made them rather ashamed of doing so. The experiment involved enacting a monetary penalty on parents who were late, hoping to curb the tardiness that existed. This actually had the opposite effect. Parents were more late more often because now they could decide exactly how much their time was worth to them. It turned time into a market and the parents made calculated decisions about it. The kicker? When the penalties were revoked, the tardiness continued anyway. Why? Because once you switch a situation from social norms to market norms, it is very hard to revert back to proper cordial behavior. Capitalism turns any thing it can into a market.

A society based on constant treading for economic footholds is exhaustive and deceptive. After all, while we're working hard to stay above the surface, we remain at the mercy of those with more money and power. Additionally, the competition that everyone claims is healthy for innovation and quality can also be destructive. Let's address both of those points by looking at executive salaries at publicly held companies. In 1993, regulators forced these companies to reveal the salaries of their high level executives, hoping to bring a sense of shame to those who already took more than their fair share. As you can expect with hindsight, all this did was create another level of competition amongst those executives. Their salaries launched into the stratosphere, fueled by the increases that their peers received. Now executives make about three times as much as they did before their compensation was made public. This is money that would be better used to improve the processes of the company or to better compensate the employees that make it hum along smoothly, but instead it goes toward yachts, helicopters and mansions. Meanwhile, these are the same executives that pull the trigger on massive layoffs that dramatically increase company profits because its biggest liabilities are its employees. The only people who really enjoy a dog-eat-dog world are the ones that can't get eaten.

As a capitalist, you are an individual. You look out for number 1. You build your nest-egg and you protect your own. Of course, if you acted any other way, you'd be a damned socialist or even a god-forsaken communist. But this individualism that capitalism promotes can lead to isolation. As you play the game and work your way through the rat race, its not hard to feel a sense of pride for all the work that you put in. You believe that everyone else should work as hard and if they don't, they deserve any misfortune that society shoulders them with. This is isolation; a man as an economic island. There are no mechanisms in capitalism beyond paying taxes (which are actually more socialist if you think about it) that really encourage communal empathy or result, through induction, in sharing. Thus, if the opportunity arose, you might find it easier to take advantage of your neighbor or a stranger for economic gain because you do not depend on them and damn it, you earned it. A lack of obligation to the rest of society can easily beget corruption.

But you're not dishonest. You might argue that the sanctity of capitalism only suffers where the rules are bent, but that the world is largely an honest place. You would be very very wrong. We're all a little dishonest and it adds up in a big way. In fact, white collar theft accounts for more monetary loss than all other crimes combined. Furthermore, you probably can't say with a straight face that you've never embellished a little or rounded up to the nearest hundred when calculating your tax deductibles. We all cheat to a small degree. Not too much; not so much that we feel like criminals, but just enough to the point where we feel we deserve our gains. Worse yet, there are ways for us to completely lose sight of all ethics by simply obscuring the monetary effects of our actions by a degree or two. To explore this, we will use two example experiments humbly borrowed from Dan Ariely's brilliant book, Predictably Irrational:

Initially, we want to establish whether cheating is common or not. As a control condition in our first experiment, there was a 50-question multiple choice quiz taken by a large and random selection of students. They were paid 10 cents per correct answer. The average score with no possibility of cheating was 32.6. The second condition, tested on a different selection of students, allowed them to cheat a little by having the answers revealed during the quiz. Understandably, scores rose by an average of 3.6. As you see, people will cheat when given the opportunity, but only by a little. What if the cheating is only low because the chance of getting caught is high? Let's see what happened when the possibility of being caught was removed. The third condition allowed students the same level of cheating, but they were also instructed to shred their answer sheet and verbally report their score to the proctor. The result? The cheating remained constant: an increase of 3.5 correct answers from the control. Even with the opportunity to laugh all the way to the bank, people will stop themselves for their own sense of decency. The fourth and final condition of the experiment removed the stigma of a watchful proctor. Maybe that's what was keeping them "honest." In addition to all the conditions set before, students were now able to simply withdraw their earnings from a jar without any verification. The level of cheating remained the same, though. Dishonesty exists, but it doesn't get out of hand because nobody wants to be the bad guy. That is, until we're able to obscure the effects of our actions from our conscience.

We've established that people will cheat when given the opportunity, but only by a small amount. This doesn't explain the corruption that we see in capitalism today, so the experiment has to be modified a little to bring it more in line with the conditions of the market. More to the point, people don't trade cash for cash; they trade for stocks, for futures, for derivatives. They talk in another language, using words like "points" to obfuscate the actual money behind the trades. You might be wrinkling your nose at how ridiculous the notion is that by calling one thing by a different name, we hide its value, but the second experiment was designed to prove just that. In it, the same conditions of our first experiment were set to establish a control, with cheating at a minimum but still existent. For the real twist, one vital change was made to the reward collection process: students declared their score in exchange for simple tokens, which were then brought to a cashier where they were cashed out for actual money. Suddenly, our students became geniuses because not only were they scoring higher than the control, nearly all of them were hitting above 90%. Obfuscating cash by a single degree of separation opens the dam and suddenly taking a little extra turns into taking as much as possible.

The implications of these findings are staggering when you realize that everyone has the capacity for compartmentalizing their honesty in such a dramatic fashion. Fueled by one realization, let's take it a step further and apply this "theory of dispassionate separation" to the social realm. We all share a common bond under the umbrella of a capitalist society, but the size and diversity of our population can work against us. As established, capitalism creates a class system, but it is important for all but the highest class to realize that we're all in this together. If you were to line up everyone in the US in order from richest to poorest, you would find that the front 1% of the line has more wealth than the last 95% combined. That is a whole lot of people and a whole lot of votes that can potentially be rendered ineffective, if capitalism continues to convert democracy into a market. One thing that stands in the way of those 95% realizing that they need to work together is the fact that they are, in fact, very divided amongst unrelated social boundaries. From the liberals to the conservatives, from the blacks to the whites, from the atheists to the believers; it's easy to feel culturally separated and thus unrelated and unaffected. Like a token to a dollar, this degree of separation is a cognitive void through which corruption can slip and take over. Worse than letting bad things happen is actually becoming a vessel through which the status quo is enforced simply because of social prejudices or obligations. Do not let capitalism take you for such a ride that you're waving its dollar-stamped flag in the face of your own financial independence.

Even if we pull together, our status amongst the lower classes renders us potentially helpless in the face of major economic distress. Without substantial wealth to rely upon, lower classes are affected the most during periods of downturn while the upper classes not only stay afloat, but also profit further from the flailing of the poor. Money gets tight, loans are issued, bills don't get paid, houses get foreclosed, banks own more land. This being the case, there is actually very little incentive for the upper class to put in effort to avoid recessions. You could even argue that recessions and depressions are looked forward to. They economically subjugate the lower classes, with banks feeding off of misfortune and enslaving into debt most future wages earned by these people. And you thought we were all in it together.

Maybe all these warnings are a bit too cautious. Let's daydream for a moment and imagine capitalism as a wild mustang, galloping across the countryside with no fences and no wranglers in sight. Let's dream: capitalism unfettered and untamed. Capitalism Gone Wild. Though we keep referring to competition in the free market as a component to capitalism, there is an endgame to every competition; one victor, the last man standing. This goes for all instances of capitalism. Without restrictions to keep things in check, every component of a capitalist society will be overtaken by a single dominant entity. Along the way, these entities will amalgamate into a conglomerate. You've seen examples of this before in futuristic fiction where seemingly all aspects of life are provided for by a single brand. Continuing on, individual markets will merge until there is a single world market and during its rise, countries will also merge into a single world government. This is not good. This is the opposite of competition and beyond the justification of any conspiracy theory, there is a sound explanation of why we should avoid this at all costs.

It starts with a simple observation: small, isolated societies develop and evolve faster than large integrated ones. Why? Because bureaucratic agility is easier to obtain with smaller populations. An example of this would be the comparison of a small committee in making a decision versus bringing a discussion up to a congregation of 250 civil representatives. The fate of a fully integrated society is stagnation. Furthermore, comparison is a necessary utility for decision-making. If there are no alternative choices (eg. brands, governments, religions) then there is no progression, no intelligence, and no freedom. Any economic system with this hypothetical (and albeit extreme) logical endgame is inherently flawed. If we want to continue using capitalism as our main economic theory, we must treat it as a flawed system and enact several broad-sweeping measures to keep it from fulfilling its own destiny. Anything that falls short of change at this point is a victory for greed and brings us one step closer to the tipping point, past which we will no longer be able to wrest control of our society from this dangerous ideology.

Sources can be found at the link above.