Cover Photo: The Hong Kong Island skyline, viewed from the Victoria Harbour waterfront (cropped from public domain photo). Hong Kong often ranks at the top of lists of the most capitalist countries.
Volume 1, Number 4: October 2018 | Editorial
I casually follow a number of podcasts, often on YouTube. Not too long ago I came across a channel that goes by the name The Asian Capitalists. Being an economist and someone who lives in Asia, I was naturally interested to hear some of the youth perspectives, even though I expected to disagree with them on a number of ideological points. I enjoy listening to perspectives that differ from my own and, in fact, many of the podcasts I listen to are opposing views as I appreciate the intellectual challenge. However, after listening to over a dozen of their discussions, it became clear to me that, when it comes to their fundamental understanding of capitalism, these guys are missing many critical elements. I have also engaged in a number of online discussions with friends of friends who also seem to be missing a fundamental understanding of capitalism, yet are ardent, unquestioning supporters, who clearly buy into the anti-socialist propaganda. I believe that if we are going to have any constructive discussion about the economic system and possible institutional changes for a better future, we need to at least come to a mutual understanding of the system we currently have. Unfortunately, even economics education does not specifically, or clearly, deal with this topic. Therefore, my objective in writing this piece is primarily educational, however, I will interject my own perspective throughout.
First, allow me to explain one of the first misunderstandings of the Asian Capitalists. They are self-described as libertarian and, of course, “capitalists,” yet they do not seem to understand that the problems they are often describing in their podcasts are specifically related to an unregulated global capitalist system – one in which capital is free to move around the globe, but labor is quite restricted. They claim to want to see the system burn; while the system, as it is right now, is benefiting capitalists the most. They advocate globally disconnected communities, however, in that situation, growth [for investors] would be much slower. In some of their videos they describe corporatism and capitalism as somehow different, not understanding that corporatism is a natural evolution of capitalism. Free markets are not the same as capitalism, they are one of the key features of capitalism, but they should not be used interchangeably.
There is more to capitalism than simply free markets – specifically, the social separation of ownership and work, which is where corporatism becomes relevant, when you bring investors into the discussion. Most investors have no idea what is going on in the day-to-day operations of the business, nor do they care, as long as the returns are what they expect. They are protected by limited liability, so the risk-taking argument is valid only up to a point – the loss of the initial amount used to purchase shares. They will not be jailed for malfeasance nor be on the hook for paying outstanding debts a company may incur. Fiduciary responsibility to shareholders is what ties the hands of upper management, even socially conscious ones.
There are many examples of once-great, small companies that have gone in directions that – from a consumer’s perspective – have gone downhill after going public – GoPro, Sierra, and even Facebook. The problem is once going public, the companies hands are tied to responding to shareholder interests, even at the expense of consumer interests and the environment. The key is to keep consumers hooked, but have them continue to put up with more and more nonsense, such as expensive add-ons.
An important point that seems to be missing from all of their discussions is an institutional analysis. Concentrated economic power clearly translates into political power, i.e. government concessions and further protections from competition, which benefits investors in those companies. Government and big business, together, are key to securing investor interests, which is what a capitalist system is, by its very nature, designed to do. It does not mean more government or less. It is about what kind of legal protections are granted. A corporate charter determines the legal responsibility of the company. Why are corporate charters which place investors’ interests above others granted? That is the question that must be addressed. When someone argues for less regulation, carefully try to infer what the intent is behind that statement. Capitalists will fight against regulations that impede profits, not necessarily regulations that impede competition.
Capitalism, as a political-economic system, is designed to benefit investors or owners, not necessarily for wealth creators – although the true wealth creators benefit to the degree that they provide benefits for investors and owners, but not necessarily what society wants or needs. In order to provide benefits to investors, the system requires growth. When you can no longer find growth opportunities, the system has to expand outward and bring more people in. This is one reason why capitalism does actually bring people out of poverty, but not necessarily by much. Growth in the system depends on a growing and productive middle class. The current concern related to capitalism, I believe, has more to do with the hollowing out of the middle class when the system has reached it growth potential. In order for investors to still get returns, it has to be extracted. This is what the 2008 financial crisis was – a wealth extraction from the middle class through the real estate markets. Financial capitalism is the way the system appears to be growing, but in fact it is a rentier form of extraction. The next crisis will likely be the final straw. Capitalism is sowing the seeds of its own destruction. I could go into the real-estate side of capitalism, but I think this is enough for the time being.
If I had to speculate why there is such ambiguity surrounding the system itself, I would suggest it is because most people who function within this system are not capitalists. Instead they serve the system, while the system serves the capitalist. The more non-capitalists understand about the system, the less fair and sustainable it seems and the more likely those who serve the system will oppose it. Most often it is a capitalist who is worried that people won’t work hard enough and are quick to call people lazy and entitled; yet they see nothing wrong with earning rents while producing nothing of value, but rather simply by owning and limiting competition.
Perhaps the reason why the Asian Capitalists are frustrated with the system today is because they are not, in fact, capitalists.
Critics of capitalism can still support markets, entrepreneurship, and small to medium-sized businesses, even worker-owned cooperatives, because all of these can provide benefits to society. Do not confuse capitalism with entrepreneurship, as I believe these two guys are doing, because they are not the same thing. Sadly, I believe not too many out there actually understand this either, which is why I felt compelled to clarify. Hopefully, readers will find this useful.
Feel free to send me your thoughts. I encourage discussion.
