Dr. Tom P. Abeles, exec. Director
Navigating Futures
“When I use a word,” Humpty Dumpty said, in a rather scornful tone, “it means just what I choose it to mean-neither more nor less.” Lewis Carroll
Whether one goes back to Adam Smith’s volumes, the ideology promulgated by the members of The Mont Pelerin Society and the institutes that they have founded, or the arguments put forth in negotiations, there are several key elements used to define “capitalism”. These include, among others: private property rights, capital accumulation, wage labor and voluntary exchange within competitive, free, markets.
The relationships in such a society are money-based with a capitalist class that owns the means of production and a working class dependent on wage-work. The function of government is seen as providing the framework for the capitalist system to function. That includes protection for private property and providing externalities that support the civil society.
Perhaps the starkest reduction of this relationship is provided by Andrew McAfee, in his book, More From Less, a volume that suggests that the entrepreneurial class and the capitalists provide the crucial path to solve the current planetary crisis, arising from “climate change”, resource depletion and environmental degradation. McAfee defines four “horsemen”, the entrepreneur or creative, the owners of capital to underwrite the technology development, government that provides the supportive frame and the general population that provides the labor. William Janeway, a veteran of the investment banking community that financed much of the recent technology expansion, supports the basic idea and, in fact rationalizes the boom/bust financial crises which has allowed the concentration of capital to underwrite what has been termed “moonshots” or singular technical breakthroughs that have contributed to the financialization of the investment marketplace.
Alternative models such as that in the Scandinavian countries and the recent rise of an entrepreneurial spirit within mainland China point to alternative economic models that are emergent but which still bear the imprint of the traditional capitalist patina. The role of government as a venture capitalist has been around since charters were granted for ideas to explore across oceans as well as the use of public capital to actively develop products and services of value to the State and the populous. On the other hand, Federal Reserve, the United States’ central bank is privately held and, with the government, determines the use of capital to keep the economy functioning.
Adam Smith wrote “The Theory of Moral Sentiments” prior to his seminal, The Wealth of Nations. It served as the philosophical or moral underpinnings for what, today, is labeled as capitalism. Unfortunately, the weight of these ideas has been inverted, where the economics of commerce has become dominant and much of the social/cultural elements of society have been largely relegated as a function of government. Often the funding, through taxes and regulation, are seen as restricting the idea of growth and progress under the ideals of capitalism.
Efforts to bring balance raise the idea of socialism (or at the extreme communism). Yet, as noted above, globally, capitalism functions in the ideal along side of governments providing societal needs such as health care, public infrastructure and fiscal support to their citizens. Today, globally, there is active interest and efforts to extend these benefits through a universal basic income. This idea shows that within the spectrum of governmental forms, capitalism in its ideal is able to thrive. The major “rub” in the criteria is “ownership” where the far left of the ideological spectrum, socialism, raises the specter of government ownership or control.
In the 1980’s the Thatcher administration and, in parallel, the Regan administration removed many of the regulations that restricted capital accumulation and began to privatize government managed enterprises such as railroads. The deregulation of capital markets has resulted today, on a global scale, in the concentration of capital among a small segment of society. While this increased imbalance is recognized, the attempt to rebalance has become problematic due to the vested interests among nations to reach reproachment.
This has amplified the problem of the idea of a free and unfettered market. The issue of ownership is conflated with control and the idea of profit. At one time, the value of the stock in a publicly traded enterprise was based on the company’s valuation. On the other hand, current stock prices, with the financialization of the markets, have been decoupled and significantly inflated, rationalized against some concept of future value.
Regardless of how capitalism has been defined, as well as how capitalism functioned within the social frame of a country, the “financialization” and the ability of capital to move between countries for it’s own advantage changes the relationship within a country as imagined by the ideals of Adam Smith. “Free market” capitalism such as that put forth by neoclassical economics and the representations made by various policy organizations, evokes these principles, but operates outside of them changing the relationships.
Particularly in the United States and England, there is increasing pressure not only to correct the problems created by financialization, but also to change how society can participate, not as labor but also by access to and return from capital. The growing concern regarding climate change and related impacts of humans on the social and natural environment has turned an increasing number of corporations from resisting investment in change to seeing, through “capitalist” eyes that there are economic opportunities. But, technological “moonshots” prevalent in the investment community will not automatically correct the increasing disparity of the fiscal divide between the concentrated capital in the hands of a few.
Capitalism is based on the private ownership of the means of production. As such it could be construed as an enterprise working within a social/political model of which there are a spectrum from “Democracy” to “Socialism”. Neither end of this spectrum, today, provides a matrix as we see in a number of governments from the United States to China. As mentioned above, the US government’s central bank is private and China “allows” entrepreneurial ownership of enterprises such as Ali Baba, a parallel enterprise similar to Amazon, but, currently, larger, globally. The Thatcher government was lobbied by capital interests to privatize what had been public enterprises and failed. On the other hand governments such as Canada and the Scandinavian countries have successfully socialized health care and other services with greater reach and efficiency than the private sector in the United States.
Since the start of global exploration and trading, government has underwritten enterprises similar to the current venture funds. Much, of what Silicon Valley has incorporated in its technology, has been underwritten by government. And government has financed the private sector when it has collapsed as we have seen in the crisis of 2007/08. Today, as CO2 is causing climate change, the US government is developing a program to rescue the fossil fuel companies’ soon to be stranded resources, similar to the bank “bailouts” during the 07/08 crises or the rescue of the US automobile industry. The 1980 Bayh-Dole act allowed recipients of federal funding to retain ownership of intellectual property.
Basically, the Adam Smith “ideal” of capitalism has become an “academic” straw man in a globalized world dominated by a financialized system that is increasingly concerned by the growing fiscal disparity between the “10%” and the rest of the population, from a United States perspective. Additionally, the focus on material growth on a finite resourced planet currently endangered by “climate change” will see accelerated shifts in Smith’s ideal or that promulgated by others such as the Mont Pelerin Society. The Wealth of Nations was written in “times past” and a “western” frame. Given a global perspective, From China to the United States, it is apparent that the spirit of Smith’s capitalist ideal holds across the social/cultural spectrum. It will evolve from the “ideal” as seen today. Many of these changes are in transition:
- There will be increasing direction from both the public sector and the venture community with: increasing consideration on what have been externalities, both ecological and sociological elements,
- Given the increase in a variety of financial channels such as “screened” funds, the enterprises will be more responsive to a more diverse community of investors rather than the traditional venture capital and banking sources,
- While traditional wage work will exist, it will be complemented by a growing precarity. But, both traditional employment and precarity will exist where compensation options will result in a greater voice at the corporate boards and on “the floor”.
- Stockholder returns, given the changes, will require different modes of compensation.
- Given the increase in artificial intelligence, new measures of “productivity” and profitability will impact on such factors as public/private compensation including issues such as a Universal Basic Income, UBI, and reduced workweek.
- Whether the giant fleet of ships once launched in China to current and historic government funding across the spectrum from space exploration and medical research, there will be increasing variances on public/private partnerships from the perspective of a financial return.
- While corporate profits have risen from 10% to 30% and stock evaluations into the realm of speculative, governments will “trust bust” discarding the argument for the need of the disparity to underwrite what has been termed “moonshots”. Modern Monetary Theory gives the citizens, thru the government, the fiscal resources to balance a return to all individuals. This is seen in one of the proposals to securitize the stranded reserves of the fossil fuel industry to recapitalize and shift the business to renewables. As an aside, globally, the need for higher energy density, nuclear will be back on the table.