Free Market Capitalism

Over recent years we have all been led to believe that Capitalism is the only viable economic model, and anyone who disagrees is at best deluded, and at worst a ‘Red’ who wants to drag us back to an era of old-style Socialism, or worse still Communism. This is the philosophy of TINA (There Is No Alternative) and the belief that even if Capitalism isn’t perfect, we must stick with it because everything else is worse.

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Belief in the power of ‘The Market’ dominates current political thinking.
Picture © Katrina Tuliao

This is however a lie put about by those who are benefiting from the current system. Capitalism can take many forms, and the one we are living under now is the ‘Free Market’ unregulated model (also called neo-Liberalism) which basically states that if governments interfere as little as possible, and the ‘markets’ are allowed free-reign to control everything, then the quest for profit will drive economic growth, while competition will ensure that prices are low, service is good, and the consumer will be the beneficiary. Also, although inevitably those at the top will get very rich, the theory is that the wealth will filter down to everyone through job creation and spending.

Unfortunately this theory is flawed, because what has actually happened, over time, is that an insidious form of corruption has taken hold, where those clever or lucky enough to work their way to the top are able to play the system to enrich themselves, while those at the bottom are left stranded and forced to live in ever greater levels of poverty – or as the government now likes to call it, Austerity.

What has gone wrong?

Simply this. The people who run society, whether the government or the captains of industry, are able to make all the rules, both for themselves and for everyone else. Far from being in competition with each other they are actually all compatriots who operate as a sort of cartel, where with nudges and winks they help each other to get richer at society’s expense.

Inequality

The way capitalism is currently working has lead to ever greater levels of inequality, and the financial disparity between rich and poor has grown ever wider:

Housing graph
Graph produced by Birmingham University. See link to full report below.*
  • Currently in the UK the top 30% of the country own 75% of the wealth, while the bottom 30% of the country own 1% of the wealth.
  • In the last 30 years top bosses pay has increased 4000% while average pay has gone up a mere 300%.
  • Last year, when supposedly we were ‘all in it together’ undergoing austerity, average pay was up a mere 0.7%, while top exec pay still managed to go up 14%.
  • 13 million people in this country (20% of the population) live in poverty.

The detail of how this inequality manifests is perfectly demonstrated by the issue of Pay Ratios and Executive Pay, for more details of which click here.

Crony Capitalism

We also now have the situation of so-called ‘Crony Capitalism’ where the people in charge don’t even have to be good at what they do. Even when they fail, or in some cases do nothing at all, they still get huge pay-offs – the so-called ‘payments for failure’ – along with many other corrupt practices. For example, at the peak of the Financial crisis Fred Goodwin was forced to step down as head of the Royal Bank of Scotland, having pretty much single handedly destroyed the bank. The government was forced to bail RBS out at a cost to the taxpayer of £45bn, and yet Fred Goodwin was still able to leave with a £17m pay-off, because ‘that’s what his contract entitled him to’. To read more examples of Crony Capitalism click here.

Privatisation

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Margaret Thatcher – Initiated the great wave of UK Privatisations.
Picture © Chris Collins/Margaret Thatcher Foundation

Alongside the theory of Free Market Capitalism has come the philosophy of Privatisation, or the selling off of state owned industries and public services. We have been persuaded that this is a good thing because, the theory goes, not only does the state get a windfall from the proceeds of privatisation, but private industry is so much more efficient, and can run things so much more cheaply, that the consumer will benefit from cheaper prices too. Unfortunately recent issues over energy costs have revealed this to be a sham, and the ultimate winners of privatisations are the private owners who make vast profits, and the ultimate losers are the consumers who have to foot the final bill. For a more detailed analysis of the failure of Privatisation click here.

Short Termism

A further problem with Free Market Capitalism is that if the interests of society are placed in the hands of people whose only concern is profit, it will lead them to make decisions which in the short term make lots of money for them, but in the long term could be disastrous for the country. We saw this with the banking crisis where banks were lending out money left right and centre, creating unsustainable debt, because in the short term that increased their profits, without any concern that it was storing up a massive debt crisis for the country as a whole. The point is they simply didn’t care about the debt crisis when it came, because by then they’d already collected their bonuses and were left sitting pretty (and very rich). For more on the Banking System and how it caused the Financial Crisis click here.

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A stream polluted by acid drainage from surface coal mining.
Picture © US Geological Survey

The Environment

Similarly, few companies are particularly concerned about damage to the environment in a system where all that matters is profit; and even when there are potential widespread effects (eg climate change from carbon emissions) those effects are either a long way off or don’t directly affect them anyway. The only thing of concern to them is to make as much money as they can now, in order to maximize this year’s profits and so collect their bonuses. For a more detailed account of the devastating impact of corporations on the environment click here.

Housing

There is one final aspect of the Free Market Capitalist model which has to be mentioned – Housing. The current Housing Crisis, with a shortage of affordable homes and widespread homelessness is an inevitable consequence of applying Free Market Economic theories to something as basic as where people live. For a fuller description of what has gone wrong in this area click here.

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Austerity or not, the prices of luxury goods soar ever-higher as the wealthy search for places to put their money. Picture © Agne27

It is difficult to actually comprehend just how vast has become the gap between rich and poor in our society. At the moment top executive pay has soared to an average level of £4.7m/year, and yet at the same time 500,000 people are visiting foodbanks each year because they don’t have enough money to feed themselves. While we are all urged to make cut-backs, the prices of luxury items such as paintings, fine wines, stamps, jewellery, yachts, vintage cars and other collectables soar to ever greater levels. A new record has just been set for a painting sold at auction of £115m, for a Picasso; Britain has recently overtaken Germany as the biggest European export market for Ferrraris; a new record has also been set for a rare pink diamond of £46m; and, incredibly, there is even a new record for the price of a single bottle of whisky – £380,000! To demonstrate the rate at which these prices are increasing, Eric Clapton, the guitarist, bought a Gerhard Richter painting for £2m in 2001, and sold it 11 years later in 2012 for £21m.

The very rich, quite simply, have so much money they don’t even know what to do with it, so pump it into things like this. Meanwhile the government urges ever greater cutbacks on ordinary people, saying there is no alternative, and laughably claims that ‘we’re all in this together.’ Nothing could be further from the truth in this rotten corrupt system we call Free Market Capitalism.

* Birmingham University Paper on the Distribution of Wealth: http://www.birmingham.ac.uk/Documents/research/SocialSciences/Key-Facts-Background-Paper-BPCIV.pdf

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