by PHILIP KOTLER and CHRISTIAN SARKAR – For some time now we’ve been saying that the wheels have fallen off our democracy.
Things aren’t looking good around the world. The Guardian reports the world’s 26 richest billionaires own as many assets as half the planet. 26 plutocrats own as much wealth as 3.8 billion people. Welcome to serfdom.
And when billionaires like Ray Dalio and Nick Hanauer question capitalism, it’s time for a gut check.
How did we get to this place?
American CEOs are, apparently, also questioning the road we’re on. How did the gap between the rich and the poor get so wide?
Democracy and capitalism can’t co-exist. Everywhere we look, democracy is in decline. We have to confront capitalism.
And now, in the upcoming 2020 elections, more of the same isn’t going to work. In fact, it’s the definition of madness.
The Flywheel of Corruption
The question we have to ask is: why aren’t our politicians working for us?
We borrowed and adapted a business concept from Jim Collins to explain what’s going on: the flywheel of corruption.
The answer is, that for far too long, our politicians work for their donors, not for us, the people.
Small wonder that we feel like our politicians have been bought, that the system is rigged.
Corporations are people. And
bribes contributions are free speech. In every case, we find that private, for-profit interests win over the people’s interests:
- Healthcare – for profit
- Drugs – for profit
- Education – for profit
- Infrastructure – for profit
- War – for profit
- Guns – for profit
- Water – for profit
- Environment – for profit
- Infrastructure – for profit
- Green New Deal – sorry, no can do; let’s stick with fossil-fuel profits.
Just name the issue, and you’ll find a donor, or perhaps group of donors, that are benefiting while the citizen’s needs are neglected. The common good is sacrificed on the altar of private profit.
Our politicians don’t work for us. They work for their donor/masters. The system is built on corruption, the flywheel of corruption.
Is American Capitalism working for You?
The answer to the question depends on who you ask.
With a few notable exceptions, if you ask America’s corporate executives, their answer is that American Capitalism is working well and would even work better if there were fewer government regulations and if taxes were lowered.
If you ask America’s middle class, their answer is that American Capitalism worked better in the past but now it is harder to finance a middle class life style given the high costs of sending students to college and taking care of their parents who failed to save enough money for their retirement. Healthcare and drug costs are out of control. In fact, healthcare emergencies are a leading cause of individual bankruptcy.
If you ask working–class Americans, their answer is that they haven’t improved their earnings since the 1980s but their expenses have risen dramatically and they can only survive with a credit card and rising indebtedness.
If you ask the 15% of our population living in poverty, their answer is that they can’t find a decent job and they barely survive on food stamps, food kitchens, clothing handouts, and cheap housing or even homelessness.
Markets, left to themselves, do not always lead to efficient or equitable outcomes. Free-market capitalism can lead to monopolistic or oligopolistic industry domination–witness Google, Facebook, Amazon, and Apple. It inevitably leads to a growing concentration of income and wealth. The average income for the top 0.01 percent of households grew 322 percent, to $6.7 million, between 1980 and 2015. As of 2015, the data shows that half of all US income went straight into the pockets of the top 10 percent of earners. Thomas Piketty, the economist, predicts that eventually 60 percent of income will go to the top 10 percent of earners.
American Capitalism is largely Free-Market Capitalism where businesses are in private hands and companies are relatively free to make decisions on what to produce, where to produce, what to pay employees, where to sell, and what intermediaries to use in distributing their products and services. Businesses are subject to some regulations to ensure product quality and safety and no harm to the environment.
Capitalism takes on different forms in different countries.
Let’s consider two other forms of Capitalism – State Capitalism and Social Capitalism.
Let’s ask: would they work better for the majority of Americans?
Two examples of state capitalism are Russia and China. Both are capitalist systems without democracy – led by autocratic rulers. On can make the argument that President Trump is also an example of this type of leader.
But let’s focus on Russia here.
Since the Russian Revolution in 1917, the Russian economy operated as a complete Communist economy until recently. The State owned all the land and businesses, decided on the industries to build and operate, and managed the macroeconomic instruments of taxes, credit and the money supply. The State produced most of the jobs, determined the pay, and set quotas for the annual outputs in most product areas. The Communist economy, instead of producing growing income for the proletariat, ended up producing a wider sharing of misery.
The Cold War ended in 1985 when Mikhail Gorbachev assumed the reins of power in the Soviet Union. Gorbachev introduced the policies of glasnost and perestroika to the USSR. GLASNOST, or openness, meant a greater willingness on the part of Soviet officials to allow Western ideas and goods into the USSR. PERESTROIKA was an initiative that allowed limited market incentives to Soviet citizens.
This started a period of Russian Capitalism culminating today in Putin’s Russia. The Russian government controls about 65% of the Russian economy through state-owned enterprises and state owned banks. The Russian government’s role in other industries vary from 50% in oil production, 27% in electronic hardware, 15% in telecommunications, down to 0% in steel production. Putin has promised to reduce the government’s role in the economy by privatizing state-owned enterprises. But paradoxically, Russia is currently consolidating other industries and buying back some privatized companies.
Private business companies in Russia are monitored by numerous federal, regional and local bodies for tax-collecting and law enforcement. Bribery is extensive. There is very low business confidence, especially among small entrepreneurs. Russia now has 96 billionaires. Russian businessmen keep their money abroad even as Russia desperately needs private investment for upgrading industries and infrastructure. The owners of Russian oligopolies keep top state officials on their payroll or make them confidential beneficiaries of their businesses.
This system has not led to producing better lives for most Russians. The flywheel of corruption is very much in evidence here as well. A few gained extreme riches and the many live with low pay and great uncertainty.
Sound familiar? That’s pretty much where the US may be headed at this point.
The Nordic community – Sweden, Norway, Denmark and Finland – practice a form of capitalism known as Social Capitalism. This includes a combination of free market capitalism with a comprehensive welfare state and collective bargaining at the national level. The four characteristics of Nordic Capitalism are:
- A commitment to widespread private ownership, free markets and free trade. Most of the production and distribution system is in private hands.
- The government supports individual autonomy and social mobility. It support its citizens in developing a healthy lifestyle free of hard drugs and alcohol and positive on exercise and nutritious eating.
- The government greatly supports preserving the environment and clean air and water.
- The Nordic model involves a tripartite arrangement where representatives of labor and employers negotiate wages and labor market policy mediated by the government.
This type of Capitalism leads to a more educated and satisfied citizens but it comes at the price of slightly higher taxes, especially for the rich.
A common misconception is that the rate of economic growth in the Nordic economies is lower than it would be with American-styled Capitalism. So when you hear people talking about socialism and Venezuela, simply point them to the Nordic countries.
The irony is that Sweden was ranked #1 in 2017 as the best country for business. In 2019, it ranked #2. The USA is a dismal #17. What gives?
Apparently in the US, the flywheel of corruption doesn’t even work for business. It rewards a handful of corrupt actors, and is harmful to the rest.
What Model of Capitalism Will We Choose?
Robert Reich reminds us that “we can make the economy work for us, rather than for only a few at the top.” Unfortunately, the American economy is rigged “by those with the power and resources to buy the politicians, regulatory heads, and even the courts.”
Obviously, most Americans would not want American Capitalism to drift into the State Capitalism model in Russia or China. It would lead to a great reduction of freedom and worsen the economic life of most Americans.
Should the American economy move closer to the Nordic model of Social Capitalism? Opinions would vary greatly among American groups. The wealthy class would curse this development, especially because it would involve significantly higher taxes and require paying higher wages to American workers. Is that a bad thing?
The middle class might be divided. Their taxes would be higher but their benefits would also be higher. Those who aim to start businesses or achieve high management positions might be happier leaving things the way they are. The American Dream is to acquire wealth. Those middle-class Americans who would prefer a better health care system, a better educational system, free college education and cleaner air and water would lean toward Social Capitalism.
The working class would largely favor Social Capitalism where the government will strive to provide enough jobs for everyone and a living wage. The poor would favor Social Capitalism because the objective is to eliminate the condition of living in poverty.
Stopping the Flywheel of Corruption
The “democratic socialism” espoused by Bernie Sanders takes on the flywheel of corruption.
If we are going to pass Medicare for All, we are going to have to take on the insurance companies.
If we are going to lower drug prices, we’re going to have to take on the pharmaceutical industry.
If we are going to pass universal background checks and an assault weapons ban, we’re going to have to take on the NRA.
If we’re going to pass a Green New Deal and fight climate change, we’re going to have to take on the fossil fuel industry.
If we’re going to shut down private prisons, we are going to have to take on and defeat a very powerful private prison industry.
If we are going to have a foreign policy that focuses on democracy, human rights, diplomacy and world peace, we are going to have to take on the military industrial complex.
If we are going to create trade policies that reflect the interests of working people, we are going to have to take on very large and powerful multi-national corporations.
If we are going to create an economy that works for all of us and not just the wealthy few, then we are going to have to take on Wall Street and the billionaire class in this country.
Elizabeth Warren says the same thing:
“Every issue that we face — gun safety, environmental disaster, student loan debt, Social Security — they all intersect at this problem of corruption, they all intersect at a Washington that is working for the wealthy and well connected, and not for you.”
The first step to stopping the flywheel of corruption in the US is to ban corporate contributions to politicians.
This is not impossible. Canada bans the practice, why can’t we? The same applies to Sweden and Norway.
It’s time to end Citizen’s United.
Move To Amend is working on this. It’s time we all stood up and fought for our democracy.
It’s time for an open, fair, and accountable market essential to real democracy.