These Capitalist shoes were made for walking

By Drew Lesserpawn

 

Broadly speaking, capitalism starts with two simple principles – risk and reward and competition. Hard work and good decisions are rewarded financially; poor decisions mean that your competitors will succeed instead. This approach uses the invisible hand of the market to ensure efficiency and thus creates a sustainable and effective economy. In other words, people vote with their wallets and everyone gets what they want.

 

Let’s take shoes as an example. Company ‘A ltd’ starts making shoes. They don’t fit very well and are pretty expensive, but, as they are a necessity, they are bought. This makes ‘A ltd’ a lot of money and makes other people interested in making shoes too. 

 

Three new companies, ‘B ltd’, ‘C ltd’ and the imaginatively entitled ‘D ltd’ also start making shoes. ‘B ltd’ focuses on making the most comfortable shoes, ‘C ltd’ updated their manufacturing techniques to reduce costs and thus offer lower prices, whilst ‘D ltd’ adds new colours to make theirs the most stylish. All 3 gain ground on ‘A ltd’, which will need to change if it wants to survive.

 

So far, so good. The competition facing ‘A ltd’ is forcing it to innovate. They may decide to compete on comfort, price, style, or something else. Regardless, it will be giving customers more options. Capitalism is clearly the way to go.

  

But the story isn’t finished. ‘A ltd’ has another option. They started first and made a lot of money before ‘B’, ‘C’ or ‘D’ got involved, so they can look to limit their competition. They can approach suppliers and give them better rates on the condition that they don’t sell to anyone else. They can put up legal challenges to delay the opening of rival shoe stores. They can artificially lower prices, knowing that they can make losses for a longer period of time than ‘B’, ‘C’ or ‘D’.

 

It might seem unfair, but some would argue that these tactics are perfectly legitimate. Competition is about exploiting advantages and disadvantages and thus it is up to ‘B’, ‘C’ or ‘D’ to up their game. In this instance, none of them can, and ‘A ltd’ dominates the market. ‘B ltd’ goes bankrupt.

  

Knowing that they aren’t big enough to compete with ‘A’, ‘C ltd’ and ‘D ltd’ decide that they will work together. Pulling their resources, ‘CD ltd’ is now big enough to approach the suppliers with better offers. It has the funds to struggle through legal battles, and to launch a few of its own against ‘A ltd’, and, because the collective turnover is higher than before, it can get better rates of interest on their bank loans, making losses more acceptable.

 

During this time, customers and suppliers have a great deal. Prices for shoes are low with ‘A ltd’ and the new ‘CD ltd’. But things start to change. ‘A ltd’ and ‘CD ltd’ begin to realise that they can’t beat the other on size, and because all the people in their organisations who focused on innovation have been marginalised in the rush for growth, they don’t have many other ideas.

  

But because there are just 2 of them left, the best way to make money is no longer to compete against one another; it is to squeeze more money from customers and suppliers.

 

Both of them, separately, come to the conclusion that the suppliers of materials have fewer options and start to demand more materials for less money. They also start to raise their prices, because there are fewer options for customers. As long as they don’t go too far, both ‘A ltd’ and ‘CD ltd’ can make bigger profits. And big profits give them other advantages, such as having their shares purchased by pension funds and speculators, giving them even more power than before.

  

   

When ‘E ltd’ attempts to enter the market, both ‘A’ and ‘CD’ see it as a threat and, separately, they attack it. They know that they can’t be defeated by the other, since they are fundamentally the same, but someone new might. They purchase copyrights and claim infringements, ‘short’ shares in ‘E’ and, if all that fails, they will approach the directors of E, offer vast sums of money or easy jobs, and organise a merger.

  

During all this time, ‘A ltd’ and ‘CD ltd’ have still competed against one another, but, for various reasons, the easiest approach has usually been to grow in other ways.

 

‘A ltd’ and ‘CD ltd’ now dominate the market and can’t charge customers or suppliers any more. But they want more. They, separately, come to the conclusion that a change in legislation is required. This can be in the form of reducing the strength of workers unions, changing contract law to weaken the bargaining positions of suppliers, or just a tax break for their industry. One decides to give ‘donations’ to the party in power, the other funds the opposition. This ensures that, whoever wins the election, policies will be introduced to favour their industry (and more specifically, them).

 

Politicians won’t mind, since their party needs funding from private sources, whilst the extra profits these companies are looking to gain will ultimately come from voters, who have no alternative due to both sides intending to do the same thing.

 

Because they are now titans of industry and important job creators (at least, that’s how politicians who are receiving their donations will describe them), the two companies may even receive bailouts should they get themselves in financial difficulty. They are too big to fail after all, especially when pensions would be hit if they were to go under.

  

Finally, ‘A ltd’ and ‘CD ltd’ look for one last bit of security. They know that rival companies cannot compete with them, they know that the other won’t risk its own future to destroy them, and they know that politicians won’t act against their interests. The only risk is if the public become upset.

  

Political parties are fantastically efficient with campaign spending. They can work out how many votes they will gain with a set amount of money. However, negative coverage can cost votes, so political parties will only back a ltd company until the number of votes gained through campaign expenditure fails to exceed the number lost through association.

 

To ensure that they aren’t viewed negatively, ‘A ltd’ and ‘CD ltd’ decide, separately, to place large adverts in various media outlets. If one of the media outlets attacks them, then funding is withdrawn and given to rivals. This ensures that only positive stories are written.

  

So let’s review. ‘A ltd’ was the only company until they faced 3 rivals. ‘A ltd’ used its superior wealth to bankrupt 1 of its competitors and to force the remaining 2 to merge. ‘A ltd’ and ‘CD ltd’ soon realised that there was more profit to be found squeezing suppliers and customers than each other. They both acted to prevent any rivals from competing with them before looking for political support by funding both sides. Finally, they ensured positive press coverage by funding media outlets.

 

Nothing above is illegal, nothing is in writing. ‘A ltd’ and ‘CD ltd’ still compete against each other but that hasn’t been their main focus for a long time. If they do something unethical it will be ignored by the papers, if they want the law changed they can speak to the politicians and if they mess up they can just ask for easy money. The interests of customers and the wider economy just aren’t important.

 

The above system is a corrupted version of Capitalism called ‘Corporatism’. It is the merger of big business and government. Adam Smith, in his famous work The Wealth of Nations, warned against this system in 1776. Later, in 1848, Karl Marx and Friedrich Engels concluded in ‘The Communist Manifesto’ that Corporatism was the inevitable conclusion of Capitalism.

 

Today, we have this Corporatist system. We know this because banks no longer face ‘risk and reward’ (just look at the bailouts they have received – where is the risk if you will always be bailed out regardless of what you do?). Some regard this as the best way to run a country, but it inevitably leads to poverty and destitution. That isn’t a price worth paying in my opinion.
 

If we want to prevent corporations acting in the same way as ‘A ltd’ and ‘CD ltd’, then we need to look at a few principles:

 

1 – Money isn’t always the best motivator in every market

2 – Competition needs to exist when there are open markets

3 – The legal system needs to be simplified and based on principles

4 – Copyright legislation needs to be reformed with a cap on how long a copyright can be held

5 – Shares can no longer be ‘shorted’

6 – No bailouts

7 – Political parties need to be funded through membership and taxation, not donations

8 – Proportional representation needs to replace FPTP to ensure no party is guaranteed power

9 – The media needs to highlight where its funding comes from, ideally with a cap on how much an individual advertiser can pay

 

In some areas, Capitalism is the sensible approach. The free market allows for changes in technology and circumstances. For example, average shoe sizes have increased 2 sizes in 40 years which manufactures have been able to adjust to without any difficulty. But there are times when squeezing the maximum amount of profits goes against the common good, with health and the military being the most obvious examples. This is especially true when the easiest way to achieve greater profits isn’t through competition but through the corporatist methods described above.

 

Capitalist boots may be made for walking, but Corporatist ones lack soul.

Drew
  
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