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After the overthrow of communist governments in Eastern Europe, capitalism was paraded as the indomitable system that brought prosperity and democracy, the system that would prevail unto the end of history. For the Russian born American theoretician, Ayn Rand and other prominent American businessmen and financial analysts, it is not capitalism per se, but laissez-faire capitalism which they call the real capitalism.
Ayn Rand, in her Objectivist theoretical school of thought stated that laissez-faire capitalism is the system in which individuals produce goods and services that they trade with one another based on mutual consent, not through the use of force or fraud. Laissez-faire capitalism is a moral system based on respect for the equal rights of individuals to pursue their own rational self-interest, and it rewards people for their achievements. The present economic crisis, however, has convinced even some prominent free-market proponents that something is gravely amiss. World renowned economist such as Nobel laureate Josef Stiglitz and Danni Roderick recently well explained that, truth be told; capitalism has yet to come to terms with several historical forces that cause it endless trouble: democracy, prosperity, and capitalism itself, the very entities that capitalist rulers claim to be fostering.
The capitalist state has two roles long recognized by political thinkers. First, like any state it must provide services that cannot be reliably developed through private means, such as public safety and orderly traffic. Second, the capitalist state protects the haves from the have-nots, securing the process of capital accumulation to benefit the moneyed interests, while heavily circumscribing the demands of the working populace.
There is also a third function of the capitalist state seldom mentioned. It consists of preventing the capitalist system from devouring itself. Consider the core contradiction Karl Marx pointed to: the tendency toward overproduction and market crisis. An economy dedicated to speedups and wage cuts, to making workers produce more and more for less and less, is always in danger of a crash. To maximize profits, wages must be kept down.
But someone has to buy the goods and services being produced. For that, wages must be kept up. As it is observed today, there is a chronic tendency toward overproduction of private sector goods and services and under consumption of necessities by the working populace. In addition, there is the frequently overlooked self-destruction created by the moneyed players themselves. If left completely unsupervised, the more active command component of the financial system begins to devour less organized sources of wealth.
Instead of trying to make money by the arduous task of producing and marketing goods and services, the marauders tap directly into the money streams of the economy itself. During the 1990s the world witnessed the collapse of an entire economy in Argentina when unchecked free marketers stripped enterprises, pocketed vast sums, and left the country’s productive capacity in shambles. The Argentine state, gorged on a heavy diet of free-market ideology, faltered in its function of saving capitalism from the capitalists.
Some years later, in the United States, came the multi-billion-dollar plunder perpetrated by corporate conspirators at Enron, World.Com, Harkin, Adelphia, and a dozen other major companies. Some individual inside players turned successful corporate enterprises into sheer wreckage, wiping out the jobs and life savings of thousands of employees in order to pocket billions.
Although, these individuals were caught and convicted, it does not demonstrate capitalism’s self-correcting capacity. The prosecution of such malfeasance was a product of democracy’s accountability and transparency, not capitalism’s. Of itself the free market is an amoral system, with no strictures save pocket emptor.
In the 2008-2009 economic and financial meltdown happened in America, the mounting financial surplus created a problem for the moneyed class or the people of haves. For them there were not enough opportunities to invest their huge amount of money they hoarded. With more money than they knew what to do with, big investors poured immense sums into nonexistent housing markets and other dodgy ventures in which economists and financial analysts called them as a legerdemain of hedge funds, derivatives, high leveraging, credit default swaps, predatory lending, and whatever else.
As openly observed, among the victims were other capitalists, small investors, and the many workers who lost billions of dollars in savings and pensions. Perhaps the premiere brigand was Bernard Madoff. Described as “a longstanding leader in the financial services industry,” Madoff ran a fraudulent fund that raked in $50 billion from wealthy investors, paying them back “with money that wasn’t there,” as he himself put it. The plutocracy devours its own children.
As it is indicated on the November 2008 issue of Foreign Affairs Magazine, in the midst of the financial meltdown, at the October 2008 congressional hearing, Alan Greenspan, former chair of the Federal Reserve, an ardent follower of Ayn Rand and orthodox free-market devotee confessed that he had been mistaken to expect the interests of the mega-wealthy, groaning under an immense accumulation of capital that needs to be invested somewhere, to suddenly exercise self-restraint.
The classic laissez-faire theory is even more preposterous than Alan Greenspan made it. In fact, the theory claims that everyone should pursue their own selfish interests without restraint. This unbridled competition supposedly will produce maximum benefits for all because the free market is governed by a miraculously benign “invisible hand” that optimizes collective outputs. In other words, it is the principle of “Greed is good.”
At this particular point, the most important questions are is the 2008-2009 financial crisis caused by a chronic tendency toward overproduction and hyper-financial accumulation, as Marx would have it? Or is it the outcome of the personal avarice of people like Bernard Madoff? In other words, is the problem systemic or individual? In fact, the two are not mutually exclusive. Capitalism breeds the venal perpetrators, and rewards the most unscrupulous among them.
The crimes and crises are not irrational departures from a rational system, rather the converse. They are the rational outcomes of a basically irrational and amoral system. Worse still, the ensuing multi-billion dollar government bailouts were themselves being turned into an opportunity for pillage. Not only does the state fail to regulate, it becomes itself a source of plunder, pulling vast sums from the federal money machine, leaving the taxpayers to bleed.
Those who scold others for “running to the government for a handout” were themselves running to the government for a handout. As Josef Stiglitz usually said it, Corporate America has always enjoyed grants-in-aid, loan guarantees, and other state and federal subventions. But as Danni Roderick noted, the 2008-09 “rescue operation” offered a record feed at the public trough. He explained that more than “USD 350 billion was dished out by a right-wing lame-duck Secretary of the Treasury to the biggest banks and financial houses without oversight, not to mention the more than USD four trillion that has come from the Federal Reserve”.
Most of the banks, including JPMorgan Chase and Bank of New York Mellon, stated that they had no intention of letting anyone know where the money was going. As well explained on the February 2009 issue of The Economist, the big bankers used some of the bailout to buy up smaller banks and prop up banks overseas. CEOs and other top banking executives are spending bailout funds on fabulous bonuses and lavish corporate spa retreats.
Meanwhile, big bailout beneficiaries like Citigroup and Bank of America laid off tens of thousands of employees, inviting the question: why were they given all that money in the first place? While hundreds of billions were being doled out to the very people who had caused the catastrophe, the housing market continued to wilt, credit remained paralyzed, unemployment worsened, and consumer spending sank to record lows.
Based on the above explanation, it is possible to sum up that, free-market corporate capitalism is by its nature a disaster waiting to happen. Its essence is the transformation of living nature into mountains of commodities and commodities into heaps of dead capital. When left entirely to its own devices, capitalism foists its diseconomies and toxicity upon the general public and upon the natural environment, and eventually begins to devour itself. The immense inequality in economic power that exists in the global capitalist society translates into a formidable inequality of political power, which makes it all the more difficult to impose democratic regulations.