The economic logic of Late Capitalism and the inevitable triumph of Socialism

While the immediate cause of the Great Recession of 2008 may have been predatory mortgage and other lax lending and excessive leveraging, which is to say the over extension of credit, this was, in turn, a reaction to free market (laissez-faire) Capitalist competition. For in putting downward pressure on wages and benefits and upward pressure on production, such competition inevitably results in the general public being unable to afford to buy what they produce. A crisis of overproduction, which although temporarily assuaged by credit will, given the downward pressure on wages, inevitably results in default on the concomitant debt. The economic logic of capitalist competition inevitably results in its ultimate demise therefore inviting both a pragmatic and moral comparison of (US) capitalism to (Chinese) socialism.

While the immediate cause of the Great Recession of 2008 may have been predatory mortgage and other lax lending and excessive leveraging, which is to say the over extension of credit, this was, in turn, a reaction to free market (laissez-faire) Capitalist competition. For in putting downward pressure on wages and benefits and upward pressure on production, such competition inevitably results in the general public being unable to afford to buy what they produce. A crisis of overproduction, which although temporarily assuaged by credit will, given the downward pressure on wages, inevitably results in default on the concomitant debt. The economic logic of capitalist competition inevitably results in its ultimate demise therefore inviting both a pragmatic and moral comparison of (US) capitalism to (Chinese) socialism.

The economic elite, confident in light of their 2008 economic collapse and subsequent bailout that the political class will underwrite their reckless and exploitative financial behavior, vehemently oppose regulatory reform. While in light of lackluster demand from the general public, left all the more impecunious from largely financing this bailout, financial institutions did not invest the bailout money in the real economy, but mainly in the financial economy (themselves). Lucrative in that the government taxes on the general public that helped finance the bailout thereby contributed both the general public’s need for the money and the financial institutions money to satisfy that need, as they then lent the general public back what was/had been their own money at vastly inflated rates. Moreover, largely eschewing the bailing out of underwater mortgage borrowers, economic elites further profited enormously from buying up foreclosed housing at rock bottom prices!

In socializing, via bailouts, downside costs and allowing the privatization of upside profits, not only does government underwrite capitalist’s risking of their capital, but militates against the optimal deployment of resources to the most efficient, who would otherwise be victors of the neo-Darwinian struggle for survival. Furthermore, it is labor, whether intellectual (i.e. managerial, executive, design, creative, etc.) or/and physical, which turns resources into valuable goods and services. All of which raises the question as to why capitalism per se, should derive profit (at the expense of wages) from wealth production at all? While government complicity in this, and in entering into delayed or non-prosecution agreements even when the financial elite engage in the most egregious criminal behavior, raises questions of democratic accountability.

Instead of government bailout money being used to rescue those “underwater” with their mortgages and otherwise buoy up consumer demand, much was invested by the finance industry in itself, while much of the cost of the bailout ultimately fell upon the general public, further depressing demand. This resulted in the bankruptcy of many small businesses, further mortgage foreclosures, and further dampening of demand, accompanied by reduction in property taxes and so on, the reduction in spending by, and in some cases bankruptcy of, local government, further unemployment, and so on. While tellingly post 2009 the financial bubble, boosted by the supply of bailout money to the finance industry, and the return of inadequately collateralized financial instruments, resulted in an enormous stock market boom.

While the US was able to delay reducing its deficit, and even to increase its debt, the ECB and the IMF demanded Eurozone economies suffering significantly from the Great Recession immediately reduce government spending and begin paying down their debt. Demand killing austerity which caused further economic contraction, often resulting in the decline in GDP being greater than the reduction in government spending. Their national debts, therefore becoming an ever-greater percentage of their shrinking GDP, made it increasingly difficult for these economies to pay them off, occasioning the replacing of democratically elected leaders in countries such as Italy and Greece, by financial technocrats. This in contrast to the US, where the political class, having long subordinated the national interest to those of the corporate oligarchs, faced no such challenge from their owners.

Instead of allowing financial corporations to benefit further from a crisis that they precipitated and profited from for so long by providing them with taxpayer funded bailouts, a truly representative, democratic government would have surely bailed out those underwater in their mortgages, and small businesses bankrupted by the recession, and facilitated the renegotiation or refinancing, at lower interest rates, of home equity loans, credit card and student debt, and so on. This would have stabilized house prices, maintained property tax revenues to local government, enabled businesses to continue employing, and providing taxable pay and so on to, their employees, and generally contributed to demand side stimulus that would have limited the recession and speeded recovery. A solution which as well as being pragmatically efficacious would have been morally equitable.

If capitalists are to survive in a truly competitive free market they must maximize productivity or efficiency, which is to say the ratio of output to input. Consequently, wages must be minimized, while any health care, education, housing, and other social benefits, insofar as they do not substantially boost productivity, being therefore at the expense of efficiency, are necessarily precluded. Furthermore, turning from capitalism’s moral dilemma to its ontological dilemma, increased efficiency or productivity, necessary if it is to remain competitive, in driving down wages and benefits, and driving up production, inevitably precipitates a crisis of overproduction in that the economic demand for goods and services is overwhelmed by the supply, thereby threatening profitability. A dialectical contradiction between competitiveness and profitability portending capitalism’s inevitable collapse.

Mortgage companies sold on the mortgages or debt obligations they held, to other financial institutions, which provided them with more money to finance further mortgages which could be likewise securitized, and so on. A leveraging which when housing prices collapsed left these financial institutions with inadequate collateral to cover their extensively overleveraged loans, resulting in a cascading debt crisis and implosion of financial markets. This left them, and those who had extended credit via credit cards and student loans and so on, unable to extend further credit when it was most needed by indebted borrowers to meet basic living costs, which resulted in a general economic depression and recession. A recession resulting from the overextension of credit which, as previously noted, was invoked by a crisis of overproduction ultimately rooted in an intranscendable contradiction at the heart of capitalism.

Despite engagement of the developed economies with the less developed appearing to be a win/win “rising tide (of capitalism) which lifts all boats,” competition between developing economies, and with potential competitors further down the pyramid of production, puts downward pressure on wages and resource prices. And so too with developed economies, which, in addition to peer group competition, will experience competition from developing economies, as attested to by stagnating and even decreasing wages resulting from outsourcing for instance. This results in a lose/lose “race to the bottom” as economies at every level try to become more competitive by cutting cost, and therefore wages and, concomitantly, demand, both precipitating and exacerbating crises of overproduction and the collapse of what thus stands revealed as the “Ponzi Scheme” or pyramid of exploitative laissez-faire capitalism.

Given the crises of overproduction inherent in free market competition, and mindful of the power of colonialization and economic neo-colonialization to forestall such crises, many capitalist economies, led by the US, have resorted to strategic interventions in supposedly free market competition. These include, collusion with asset stripping Russian oligarchs, militaristic resource grabs, and sanctions targeting regimes resistant to neo-colonialization. Additionally there has been massive government financial intervention in the market, taking the form of tariffs, bailouts, subsidies, financial guarantees, and the like, not only rendering the insistence that Chinese competitors have an unfair advantage on account of their governments support derisory, but which, resulting in substantial increases to national debt, has consequently diminished government’s capacity to invest in infrastructural and technological innovation that might otherwise boost competitive production.

Mainly protective and reactive, current government financial intervention is contrasted with its more immediately post-war investment in technology boosting Research and Development. Investment that ushered in a technological revolution which, absent effective competition from other, recently war-torn, advanced economies enabled the financing of The Great Society program of enhanced welfare benefits, and from which R&D many major private corporations still benefit enormously. Government investment more usually characteristic, especially in the absence of competition, of socialist economies, which was largely scaled back by economic neo-liberals. Particularly unfortunate timing, coinciding as it did with the recovery of previously war-torn, largely government funded, competitors. Facts which invite comparison between the potential benefits of non-competitive government funded, and therefore essentially socialist, and privately funded and competitive, essentially capitalist, economies.

Survival in a truly competitive environment requires maximizing efficiency, which is to say the ratio of outputs over inputs, or profitability, which entails taking the most possible from, while contributing the least possible to, labor and the physical and socio-cultural environment, and also externalizing as many costs as possible. This, in addition to maximizing the exploitation of labor, thereby resulting in a crisis of overproduction, results in environmental degradation. While conversely, any contribution made by capitalist enterprises, as opposed to technology, to general welfare, which they survive, must be indicative of a lack of competition. Moreover, absent government investment, the preponderance of the benefits of the increased productivity generally characteristic of ever more complex, and expensive, technologies, will increasingly accrue, uncontested, to the wealthy, thereby, as per Thomas Piketty, leading to ever-greater economic inequality.

Previously, investment in R&D resulted in increasingly productive technologies, and/or in the ability to make goods of a quality and/or sort others could not, which enabled advanced economies to pay wages sufficient to defer or ameliorate crises of overproduction. However, technological development also facilitated the free flow of technological information and expertise, rendering such advantages increasingly problematic and transient. Consequently, capitalists have increasingly abandoned free market competition, which they formerly asserted was a spur to investment in R&D, in favor of ever more stringent patent and copyright restrictions, tariffs, and opposition to others’ international mergers and acquisitions of expertise and so on, and even deferred some investment in technology and advanced education, in favor of their investment in mergers and “brain draining” acquisition of others’ technology and expertise. A “free rider” contradiction of Adam Smith’s assertion that the pursuit of each of their self-interest is to the mutual advantage of all.

Socialist economies, rejecting competitive profitability in favor of cooperation by which all benefit from the progress of each, consequently eschew “free rider,” development inhibiting, strategies. Furthermore, unlike competitive economies’ wasteful duplication and dispersion of R&D expertise, socialisms’ cooperative ethos pools it to great synergistic effect. Moreover, unconstrained by competition and profit maximization, as soon as the most basic material needs are met socialism moves to enhance worker, and general social and environmental, welfare; remaining surpluses being reinvested in economic growth. Thus, notwithstanding the introduction of profit taking to motivate production in some non-essential economic areas, the direct reinvestment of surplus in the other areas further contributes to the dynamic growth of the Chinese economy; development in the USSR falling victim to an arms race.

China’s “Belt and Road” international cooperation in building transportation, health, education, and trading infrastructure, which develops local expertise in furtherance of future productive trading relationships, is contrasted with the US and other capitalist economies’ military support of foreign elites complicit in neo-colonializing exploitation of resources and labor to their own benefit. This, together with its “China 2025” investment in advanced energy, transportation, production, pharmaceutical, medical, communication, computing, and other high tech capacities, is enabling China to increasingly challenge many sectors of the previously technologically leading capitalist nations’ economies. While its financing of the debt incurred by capitalist economies by their extension of credit to ameliorate crises of overproduction, and their (capitalist economies’) concomitant corporate bailouts, has enabled China to acquire interests in much foreign real estate including ports, and many capitalist corporations and so on.

Competing with socialist economies that derive benefits from internal cooperation, capitalism’s ostensibly anti-government intervention elites turn to government for economic rescue and political protection. And this because government—allegedly incapable of running anything efficiently—ownership and/or control of Chinese industries supposedly gives them an unfair advantage! Furthermore, tariffs, patent and copyright, technological transfer restrictions, and so on, aimed at protecting profits, as per drug patents, inhibit the free flow of technology and ideas potentially beneficial to all humanity. And when all else fails, ostensibly “strategic interest,” “national security” or, unbelievably, “ecological” interests, are also invoked! Incredibly hypocritical in light of the externalization of the costs of toxic pollution, greenhouse gases, climate change, hurricanes, sea level rise, and environmental refugees, by domestic oil, coal, and gas industries; notwithstanding the astronomical cost in blood and treasure subsidizing the militaristic acquisition of oil assets.

Socialist cooperation is as morally preferable as it is pragmatically necessary. For example, given exponential population growth, modest annual growth rates result in comparatively rapidly doubling, which, even absent a modest increases in average global living standards, significantly strains resources and pollution levels, necessitating that capitalist interests in maintaining dependence on “sunken (oil, coal, and gas) assets” give way to the social utility of renewable and non-polluting energy, and the recycling it enables. Moreover, widespread adoption of socialist cooperation would ensure compensation of the workforce at levels adequate to overcoming any impending crisis of overproduction, also eliminating the “free rider” dynamic which holds back cooperatively enhanced R&D as well as the availability of the resulting technological development to all, and educational opportunities. This would result in both a reduction in poverty and an increase in self-actualization, which, in addition to arguably reducing conflict in its own right, would reduce conspicuous consumption which would benefit the environment and reduce conflict and wars over resources.

Capitalist elites who benefit enormously, at the general taxpayer’s expense, from government economic intervention while ostensibly deploring it, are then simply objecting to intervention on behalf of the general public that might benefit from it at their (the elite’s) expense. While to the objection that although laudable in theory, socialism is unworkable in practice, one may point to capitalism’s internal contradiction, and further observe that more than 1 in 4 of the population in the predominantly capitalist world live on under $2 a day, while 15 million die from malnutrition or malnutrition-related diseases every year; while overall increase in standard of living, as the Chinese reduction in poverty from 88% in 1981 to 0.7% by 2015 clearly demonstrates, is facilitated by socialistically deployed technology, the development and deployment of which is often slowed by capitalist competition, and even opposed by vested interests.