It's clear capitalism doesn't work very well at the moment
but most of us feel there isn't anything to be done
we're stuck with it because there's just no alternative
That's nonsense
there are plenty of good workable suggestion for reform
and here are four of them
We have to bear in mind that capitalism isn't just one thing
There are almost as many varieties of capitalism as there are capitalist countries
There are american, german, singaporean, swedish, danish, korean versions of the thing
The differences include the sizes of the welfare state
from around 10% of GDP in Korea to over 30% in Finland
The importance of state-owned enterprises
producing less than 1% of GDP in the US
But 22% of GDP in Singapore
And the power of trade unions,
with nearly 70% of workers unionized in Norway
and only about 10% in the US.
Capitalism has got dials
and we can adjust them
Think that Sweden, that supposedly high-tax-addicted country
only introduced income tax in 1932
two decades after the U.S.
and nearly a century after Britain
Or remember that the US, that pro-the-rich place today
had a top income tax rate of 91% between 1915 and 1963
and it didn't do them much harm at all
so we don't have to chug capitalism in a bin
the trick is to tweak and reform it in intelligent ways
When people hear of options to adjust capitalism
for the benefit of all
they tend to think
that sounds beautiful
but in the end the 'free-est' variety
that you find in the US
will ultimately outcompete the others because it's just superior
the argument goes like this:
the US variety maximizes growth by minimizing the constraints on wealth creation
which creates higher inequality
but in the end makes everyone better-off in absolute terms
than under a more equal but less dynamic system
but if you look at facts
it's overwhelmingly not true
that the freer varieties of capitalism grow faster
From 1955 to 1980, the time when regulations were much stricter,
The world economy grew 2.6% per year
For the next 30 years, the heyday of neoliberal economics
it grew at only 1.3%
In its miracle growth periods between 1958 and 1982
Japan, Korea and Taiwan
had governments hell-bent on dictating business activities
and it worked rather well for them.
Contrary to the popular belief,
that a large welfare state is bad for economic growth,
Finland, with the welfare state 1.5 times bigger than that of the US,
30% of GDP as against of 20%
has grown faster than the US
with an average annual per-capita income growth rate of 2.7% for the last 40 years
against 2% in the US
A well designed welfare state
with integral retraining and redeployment programs
promotes, rather than deters growth
Importantly, when people feel secure
they take risks
which is the life part of capitalism
"Secured people dare"
as the old slogan of the swedish social democratic party used to go
Unlike what some economists like to tell us
it doesn't have to be a hard choice between security and stagnation on the one hand
and perilous insecurity and economic dynamism on the other
It isn't some inevitable natural phenomenon
You sometimes hear that CEOs
need to have huge paybacks or they won't deliver the goods
but data consistently shows no relationship
between a rising executive pay
and executive performance
Then there is the claim that we redistributing wealth impoverishes everyone
but some of the most productive and wealthy countries in the world
redistribute avidly
Before redistribution throught the tax system
Germany in 2011 was a far more unequal country than the US
Germany's G.I.N.I.'s coefficient, an indicator of income inequality
in which zero means absolute equality
and 1 means absolute inequality
was at 0.51, higher than in the US, where it was 0.50
But after redistributive taxes
Germany's G.I.N.I. coefficient fell to 0.29
while the US, with a far more elite-friendly tax system
saw its G.I.N.I coefficient fall to only 0.38
Moreover, countries can limit the very ability of the market to generate inequality
through formal regulations or informal business practices
South Korea, for example,
has by far the lowest rate of inequality in the developed world
with a G.I.N.I. coefficient of just 0.34
But this didn't come about by magic
rather because the country has lots of regulations
protecting some pretty nice things
like organics farms, and small shops, especially bakeries and bookshops
And it has laws that keep CEO compensation low by international standards
All this preventing the full manifestation
of the inequalizing tendencies of an unfettered market
In other words, inequality is not the result of uncontrollable forces,
like technology or international trade
There are lots of tools that a society can use
in order to reduce it
and a lot of the wealthiest and most dynamic countries
are using them very wisely indeed already
The rise of the financial industry is a blight on capitalism
making it unstable, unequal and very short-termist
For example, in the 1960s
if an investor bought a share on a company in the UK
they held on to it for an average of 5 years
By the mid-2000s
the number had fallen to a mere 7 months
Faced with the radically diminishing patience of their investors
companies have done a host of nasty things
to make investors happy right now
at the expense of the long term
They suppress wages
squeeze suppliers
and chug back profit at shareholders, rather than reinvesting
Between 1950 and 1970, the hundred largest US corporations retained 65% of their profits every year
But by the 200s, they were retaining a mere 6%
vastly diminishing their own abilities to invest
for a properly succesful future
It's actually rather easy to encourage long-term-oriented investment
you just need to give greater voting rights and tax advantages to long-term shareholders
and you need to have sovereign wealth funds and national pension funds
representatives of the long term collective interests
using their considerable financial power
to back long-term-oriented corporate behavior
Above all, mergers and acquisitions need to be made more difficult
as is the threat of these that typically pushes managers
towards actions that please fecal short term investors
All these schemes may seem like pipe dreams
but they're far more tantalizing than this
They're real possibilities, alive in certain favored enlightened corners of the globe right now
There is no need to give up on capitalism
We just need to understand it a little better
and stand up to arguments that bully us into accepting its worst versions.