Top positive review
10+ (In a whisper) Follow the money!
Reviewed in the United States on April 12, 2018
In what is the most non-partisan, insightful, and exhaustive analysis of our current global economic, political, and social malaise of the last three decades, economist Robert Kuttner explains that the problem is neither globalization nor technology. The problem is laissez-faire capitalism and the asymmetric power it allocates to bankers, investors, and speculators.
While Kuttner doesn’t cover the first one in much detail, there have been three periods of aggressive financial deregulation in the industrial era. And each was ultimately empowered, indirectly, by the need to finance war debt. The first was the war debt of the Civil War, which was ultimately financed by crushing debtors and rewarding creditors, an asymmetric victory that gave rise to both the gilded age and the cooperative movement, ultimately called the populist movement, of the late 19th Century. The second occurred between the world wars and ultimately gave rise to the Fascists, Hitler and Mussolini.
The third was different and followed World War II. It was different because the US and European powers, for reasons Kuttner explains in detail, decided to regulate their financial markets. What followed was a period of unprecedented economic growth and income equality.
There are two primary constituents of all modern economic activity. One is labor, which I broadly define to include everyone who actually contributes directly to the manufacture of products or the provision of services. The second are the capitalists themselves—the bankers, investors, and speculators that trade in the capital that every business needs to operate and expand.
Kuttner’s ultimate message, I believe, is that the interests of these two groups is in natural conflict. But when their interests are balanced, as they were following World War II, growth and prosperity is optimized. When one or the other group is favored, growth is compromised, inequality is accelerated, and ultimately, heated divisions boil to the surface. Left unaddressed, totalitarianism steps in to fill the void.
We are currently in a period of unfettered capitalism in which banks, investors, and speculators are both operating with no oversight and no regulatory controls and reaping an increasing percent of economic growth and wealth. For the US it is a process that began in the 1970s (For Kuttner, 1973 was the watershed year.) and has accelerated ever since.
Aggravating the excesses, the CEO suites of our corporations today (I once counted myself among them.) are no longer occupied by businesspeople. They are occupied by capitalists, who through their actions, value their shareholders far more than their employees and the communities in which they operate. That, of course, is what we incentivize them to do, but it is the reality nonetheless. And it is a big change from the corporate world I entered in the 1970s.
Kuttner correctly points out that technology is not the culprit. I believe, however, that technology has empowered the excesses of laissez-faire capitalism for a couple of reasons. The first is a by-product of technology that is often over-looked: Among the great powers of technology is its ability to dumb itself down. In my four decades in international business I was involved with building overseas plants from the 1970s on. Early in that period, while it is always dangerous to generalize, it often took decades to bring a greenfield plant up to the efficiency levels of established plants in the US. One plant I was involved with in Mexico in the 80s never actually got there in my time with the company. Another plant I helped to open in China in the 00s, on the other hand, got there in just a few years. And the difference had nothing to do with the laborers themselves. The difference was the technology of production. (Obviously differences in the complexity of the production process plays a role, but the two plants I reference were very comparable on that front.)
The second impact of technology has to do with its impact on overall health and longevity. People are living longer, by a lot. And that’s a very good thing, indeed, but we have not adapted our social and economic expectations (when to retire, on the one hand, and business’ infatuation with youth, on the other) to that new reality.
The point is not to reject technology. That is not a practical choice anyway. Technology will flourish whether we want it to or not. (And we should want it to.) The only choice we have is whether to manage it or not and, to date, the libertarians of Silicon Valley and their allies in the venture capital world have convinced us not to.
In the end, capitalism comes in a variety of shades and flavors. At the moment it would be hard to find a way to favor the bankers, investors, and speculators any more than we are, both here in the US and in Europe. And we’re paying the price in terms of extreme exclusion, income inequality, stagnant economic growth, and social injustice.
And, of course, those developments have put democracy itself at risk. As Kuttner points out, Donald Trump is a byproduct of the factors that put democracy at risk, not the spark. And removing him will change nothing if we don’t, at the same time, put the bridle back on our capitalism. Government regulators are not the enemy if, and it’s a big if, we put the right people in that role.
Contrary to myth, the US has never been a free market economy when it comes to capital. Jefferson himself warned us about the tyranny of the corporation unhinged from society and the real economy. The bankers, however, won on three occasions: the first led to the market crash of 1929, the second led to the Great Depression, and we are living in the third. In each case, the rich did fine; they got richer. It is we, the rest of us, who suffered.
Kuttner sums it up best: “Democracy is more fragile than we would like it to be. It is particularly vulnerable when the economy deserts the common people.” He cautions, moreover, that liberalism is not, by itself, enough. “…liberalism and democracy do not necessarily go together. It is possible to be nondemocratic, but relatively liberal in accepting core values of the rule of law and respect for the individual.” Meaning, of course, we should evaluate other nations not by the extent to which their political system mirrors our own, which our foreign policy makers often do, but on the democratic outcome achieved.
The problem is not political party affiliation. The challenge facing every form of government is its ability to accommodate and integrate large minorities of marginalized people, either economically or politically. Both political parties in the US have failed different groups of marginalized people, but they have failed nonetheless.
In different senses, both the Republicans and the Democrats are right and wrong. “This will require much stronger democratic institutions and a radical transformation of capitalism into a far more social economy.” We don’t just need to “drain the swamp” in Washington. We need to fundamentally transform the status quo on Wall Street and in Silicon Valley, too.
In the end, Kuttner is guardedly optimistic: “This is no basis for complacency, but reason to resist despair.”
I can’t recommend this book strongly enough. Thank you, Mr. Kuttner.