Robert Reich has a very insightful piece The Biggest Risk to the Economy in 2012, and What’s the Economy For Anyway?.
The crisis of American capitalism marks the triumph of consumers and investors over workers and citizens. And since most of us occupy all four roles – even though the lion’s share of consuming and investing is done by the wealthy – the real crisis centers on the increasing efficiency by which all of us as consumers and investors can get great deals, and our declining capacity to be heard as workers and citizens.
Yet these great deals increasingly come at the expense of our own and our compatriots’ jobs and wages, and widening inequality. The goods we want or the returns we seek can often be produced more efficiently elsewhere around the world by companies offering lower pay, fewer benefits, and inferior working conditions.
I look at this as another example of the paradox of our ability to do harm from our individual actions, but our inability to correct the problem unless we take action as a group.
No individual’s refusal to forgo a deal is going to help bring back jobs to this country or improve the working conditions of people in another country. Thus, there is no incentive for the individuals to refuse the deal in sufficient numbers to change the situation.
Rules can be changed so that such great deals that depend on the disadvantage of others are no longer allowed. However, changing the rules is not something an individual can do. This is something that society must organize to do.
If we take a look at the macro view, getting rid of the “great deal” could raise our costs and our incomes by equal amounts so that there was no actual change in our living standards. There would be no change in the amount of goods and services bought and sold. There would be no increase in employment. So where would an improvement in our living standards and employment levels actually come from?
I think the change has to come in the fraction that the middle-man sucks out of the process without providing a commensurate societal benefit. This middle-man is management particularly at the very top end. It is not that they provide no service. It is that the rewards are outsized compared to the service provided. This comes about by concentrations of wealth and power that allows these people to get the rules changed to skew the market into providing these people with outsized rewards.
Some of the rules changes allow vulture capitalists to use a company’s own cash to finance a leveraged buy-out. Then the vultures suck that cash out of the company for their own benefit. Even worse, they cause the company to go deep in debt to further enhance the vulture’s rewards. The company goes bankrupt leaving the workers and the investors in the lurch while the vultures walk away fat and happy.
Other rules changes allow banks to fraudulently create mortgages that are then sold to investors with lies about their safety. When the bubble bursts, the mortgage borrowers lose their homes, the investors lose their money, the homes go to waste, and the bankers go away fat and happy.
So both kinds of behavior problems, racing to the bottom as workers and earners, and deregulating to allow fraud must be fixed by an organized society. Frequently we call that government.
There is no use crying about government growing so large. The non-government forces, international businesses, have grown large. We cannot expect those players to be controlled by tiny, disorganized governments. Governments have to work across international borders to put controls on businesses that work across international borders.