Free-market capitalism employs a variety of strategies to turn individuals to its agents. The incentive mechanisms are such that we voluntarily tie our interests to the interest of the economy as a whole and therefore become a part of its perpetuating power. Many of us may in fact be aware of our contributions to this system, but the incentive structure encourages us not to bring this knowledge to a conscious level. Elaborating on how this voluntary recruitment process takes place may help us reverse the tide at one point. These are some of the ways in which we consciously or unconsciously tie ourselves up with the system.
1. Voluntary contribution of information:
The financial structure—which is the power generator of free market capitalism—is a system based on efficient data collection and information processing. What I mean by this is that the financial market functions as a system of collecting and processing data from the population (from producers, consumers and investors). One of the major components of the financial market and probably the most fundamental knowledge aggregator is pricing. Pricing, as Hayek has famously argued, works as an incredible system of information gathering. The financial market and pricing are set to extract the right information about how to make the most profit in the market. Without knowing it, by purchasing an apple at $X and not buying it at $X+1, we are informing the market about our true value for that item. Also, the decision of a capital holder to purchase shares at a company at $Y and not buying the same share at $Y+10, the capital holder is informing the financial market about the true value of the share in question. Feriedrich Hayek and many of his disciples argue that no other man-made mechanism can ever work so efficiently in aggregating popular knowledge. The accumulation of such information within the financial market is what makes it extremely powerful. It helps the capital owner maximize profit and minimize cost at a level never possible before.
“The financial sector’s most important job,” argues James Surowiecki in the May 11 issue of the New Yorker, “is channeling money from investors to businesses that need capital for worthwhile investment.” To be able to accomplish this task, the financial sector has developed a sophisticated set of tools to process the data it aggregates. Financial innovations—the ones that drove the economy into crisis in 2008—evolved out of these tools when some “smart” financiers realized the monetary gain that they could reap out of such data. They set to decode and sell the information that gets exchanged in the financial sector in a timely fashion and thus created a virtual economy of non-production. They also added new ways of extracting information out of the populace through the banking system and other financial institutions. They started incentivizing disclosure of personal preferences, shopping patterns and monetary behavior of individuals.
So the first and probably the most important way that individuals help perpetuate the current structure is by maintaining their ties with financial institutions and disclosing significant amounts of their information to them. We voluntarily provide the financial sector with the information that ultimately is used to extract the last extractable dollar from our bank account. We even sign up for membership cards at chain store (for the sake of a small discount) through which we give them all the information they need about our socio-economic status, gender, age, and ultimately shopping habits. Today’s life is so dependant on all of such financial interactions that one hardly has any other choice.
2. Reduction of knowledge to direct tools of marketability:
Manipulation of knowledge into a mere tool for profit making is another major achievement of the free market capitalism in the realm of recruiting individuals. Lets look at where the essence of knowledge stands today. The more education has been dealt with as a market function, the more knowledge has lost its essential value. Not only there is shrinking incentives for individuals to acquire knowledge for the sake of knowledge but also academic institutions have lost incentives to continue nurturing their less-marketable sciences such as philosophy, sociology, history and sociology. Graduate programs in such areas are dwindling in size not only because of less interest on the part of the students but also because their funding options are limited to funding from the tuition received from the undergraduate students, a majority of whom would not have taken such courses if they were not general education requirements. This is while management, engineering and medical sciences, among others, receive so much research funding that they have obtained the luxury of refusing funding if they wish so.
In March 2009, Peter Singer, a renowned professor of bioethics at Princeton University, wrote an article entitled America’s Shame, which was published in the Chronicle of Higher Education. In this article he was suggesting that we should find a way to encourage Americans to give more to the poor as a solution to world poverty. Singer says: “I suggest a progressive scale, starting at 1 percent of annual income for those who are middle class and earn less than $105,000 a year, and rising to 33.3 percent for those earning more than $10-million.” It was shocking to see that Singer, as a Professor of ethics, can talk about people who earn $10m a year and merely suggest a band-aid solution to such an inequality in the world. But a point that really surprised me in his piece was his suggestion that as long as “we live in a world in which 27,000 children die every day from preventable causes,” we should “give a lower priority to areas of study that have no obvious connection with world poverty or with, say, climate change or avoiding war or, indeed, with any similarly large and pressing problem.” It surprised me because professor Singer is missing a huge point here. The very fact that we can talk about the income difference of $200 versus $10m per year and instead of suggesting an overhaul of the foundations of this inequality merely suggest a voluntary re-distribution of a part of this wealth, is the result of our narrow base of knowledge. If one has been trained strictly on business management or economics instead of history, philosophy and sociology, s/he cannot conceivably see the fundamental problem with the current level of inequality.
In a market economy, one has nearly no incentive to learn things that make one pause and ponder. As described elsewhere the state of constant emergency, advocated by the science of economics, discourages pondering upon any thing except for ways of increasing efficiency and productivity. The term “smart” has been appropriated to mean someone who finds more innovative ways to make money and not someone who can formulate fundamental questions. Therefore, one has no reason and often no capability to think about the inequality. Thinking about inequality critically requires a decent level of knowledge in many social and human sciences (that is now being largely ignored as useless and old fashion).
Lets take a quick look at academic institutions that are meant to operate as the engines of knowledge production. Major funding sources for academic institutions are: governments, private sector and alumni of those institutions. The government looks at colleges and universities as its arms to increase growth and productivity as well as a way to reduce unemployment (both by keeping people in school for longer and by producing globally “useful” market subjects). Therefore, an institution that can create marketable graduates will always be on top of governments list for funding. Private sector’s incentives are too obvious to require much elaboration. They fund the education system to ensure a sustainable flow of trained workforce. They also are in need of technological innovations as they often lead to new opportunities for profit making. Hence, it should not be surprising that they would also fund institutions and/or department that serve this these purposes.
Alumni’s contribution to this process may be the least apparent. It may be plausible to think that a 90 years old alumnus, who decides to donate millions of dollars of his life earnings to his/her alma mater, would not consider market issues as much. However, the financial advisor/manager of the university certainly does think about it. The advisor would know that the university needs to produces marketable graduate who can earn enough to have saved millions of dollars of disposable savings by the time they are 90 years old. Otherwise there will not be millions of dollars in contribution coming from alumni. Another examples of this is the elite circles that are developed around certain schools. Many people know that if they go to Harvard business school, they will be guaranteed great business connections and therefore great job opportunities. And as they earn fortunes, they return some of the favor to the same school, creating a circle of success. Our schools, therefore, have many incentives to train and indoctrinate us to become one-dimensional means of efficient money making.
Transformation of knowledge to a market tool has trapped us in a vicious cycle. We have little incentive to broaden our knowledge base and therefore we are increasingly loosing the means to become aware of the fundamental problems of this system. This is another way through which free market capitalism ensures self-sustainability.
3. Objective malfeasances of capitalism:
Wrongdoings and harmful aspects of free-market capitalism is known to a great many capitalist subjects (those who are benefiting along with those who are suffering from capitalism). However, we have lost the propensity to look at these ills as being perpetrated by an “other.” In other words, the subjectivity of these malfeasances has turned into objectivity by turning capitalist subjects into complicits. It is morally taxing to accuse Chevron of destroying millions of lives in Niger Delta when we are more than happy to buy Nigerian oil if the Chevron pump sells it for 10 cents less than another gas station. By not taking any moral stance in our economic and financial behavior, we are losing ground to those who are making money out of us with no regard for the common good.
Pick a random person around you (given that the person you pick has basic ideas about what capitalism is) and start explaining how free-market capitalism is brining harm to many more than those who are benefiting from it. You have a considerable chance that your guinea pig will tell you that s/he is already aware of what you are telling her/him. However, we observe an interesting inaction in this regard. The two types of individual entanglement that I will explain below may partly explain such inaction.
a) In capital-heavy economies (such as the U.S.) corporations have the luxury of moving their capital outside of the borders and make cheaper products. What happens in this process is that labor market gets more competitive (wages down) which decreases the aggregate income of the working class. It often (as in the case of the U.S.) leads to massive lay-off of workers. One of the consequences of this process is a decreasing share for individuals as compared to corporations when it comes to the tax money. Corporations sometimes pay taxes that amounts to more than the sum paid by the entire 50% of the lower income population in the country. This shifts the real power from the population to corporations. The phenomenon of lobbyists in the U.S. is a direct result of such a shift.
In an advanced capitalist society this process leads to an unhealthy dependency of the population as well as the government on corporations. If a corporation fails, the entire economy will suffer greatly which is an unwanted scenario for both the government and the population. Therefore, even a laid off worker who is struggling to support his family’s healthcare and education will not benefit from the failure of major corporations.
This dependence has not only created a political dynamic that gives large businesses control over the policies of the nation in question, but also brings about what economists call moral hazard. To clarify this, I will use an example related to the current financial crises. When banks started ignoring their own regulations in terms of minimum requirements for acquisition of mortgages, many of them knew what they were doing. It is far from plausible to think that large financial institutions (such as the Citi group or JP Morgan) were unaware of the massive risk they were undertaking by issuing or insuring sub-prime mortgages. Many smaller financial institutions also had to follow suit just to remain afloat in the competitive market. The moral hazard in this anecdote is the fact that Citi group has been fully aware of how the economy and political stability of the United States is dependant on Citi group’s survival. They need not have necessarily checked with politicians to make sure that they will be bailed out if they get into trouble due to their high-risk financial adventures. They knew that the government cannot afford allowing the economy to collapse. Therefore, they took high risks and of course made way more money than they would if they were not taking risks (which is a rule of the game in finance). And in fact they were right. Only a few financial institutions went under and the rest survived with tax-payers money.
But what makes us not rebel against the Bush and then Obama’s bailout plans is the very argument of this section. Although we may be poor, we are fully chained to the market. And just as the big guys was earning disproportionately higher than the rest of us during the good times, they will also lose disproportionately less when bad times hit. So we end up bailing them out to save ourselves.
b) The promise of the free market capitalism:
Free market capitalism deceives us into the belief that everyone can be rich. This, however, is only a myth. I am not saying that individuals are blocked from moving up the rungs of income and wealth, but rather arguing that every person upward move, guarantees other people’s downward move. The pie can only get bigger so much.
We all have turned into secret admirers of the capitalist promise. Research shows that a majority of poor and working poor believe that the rich deserves what s/he has gotten. We tend not to fiercely object to the inequality with the hope that we may end up at the top of the pyramid of inequality. This makes inequality much easier to take. Ask people around you if they will take up a job that wins them $10m a year. I guarantee you that 99.9% of people will accept such an offer. They may however qualify their acceptance of the offer with a declaration of willingness to share that $10m with other people. But they will not reject it based on the fact that nothing can justify an earning of $10m per year for one person while there are over a billion individuals surviving with under $1 a day.
Turning millionaire life style to everyone’s fantasy is another strategy that free market capitalism has been using to employ the populace to voluntarily support the system. Through this secret capitalist in us, we become complicit in the ill that is being caused by free market capitalism. Therefore, we have an incentive not to talk about the malfeasances of free-market capitalism, let alone addressing them.
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