By Dr. Ian Clarke
There are many blue and white-collar workers who support the current President of the USA, because the economy is doing well and the stock market is high. They empathize with his slogan ‘Make America Great again’ because their wages have been gradually eroded over the past thirty years and they think that Trump will restore them.
If the wages of the average American worker had continued to grow as they did from the fifties to the seventies, the minimum wage would now be £25 per hour, and not $7.25 as it is. The change came during Ronald Regan’s presidency when Maynard Keynes sold the economic theory of a free market economy regulated only by the markets themselves. Now the effect of this rampant capitalism is being felt across the western world.
Markets value only shareholder returns, high share prices and dividends, and place little value on human labour. Hence America has become an economy of the very rich – the founders and owners of businesses, and the rest, struggling to live on survival wages.
The philosophy that drives the market works only to multiply capital at any cost, often at the expense of workers, and those workers who think that Donald Trump will reverse this trend are in fairyland. The current system is not self-correcting as was claimed, because the algorithms are set to make more money at any cost.
This was the reason for the 2008 financial collapse, in which complicated financial derivatives were cooked up, which banks actually sold against the interests of their own customers, to make vast amounts of money. This unregulated free market brought no benefit to society as a whole, but when the collapse came it was the ordinary taxpayer who had to pick up the tab.
The financial system is tilted in favour of short-term strategies, which will continuously push up share prices. A company in the United States announced that it was closing a factory and moving to Mexico, not because that factory was unprofitable, but because they could make more profit by moving to a country where the labour costs were lower. This company was under pressure to show increasing profits every quarter, so that the share price would not fall. Many CEOs are remunerated through share options, so if they push up the share price they make money for themselves.
Facebook just had twenty billion dollars wiped off its share price in one day, the largest fall in corporate history. Why? Is Facebook doing really badly? Was fraud discovered? Is the company in financial distress? None of the above, they simply produced a quarterly earnings report that showed earnings were not growing as fast as shareholders expected. All of this is about maximizing profits as fast as possible: there is only one indicator of success in the current economic model – the size of the profits. This way of looking at business does nothing to benefit the average worker, nor society as a whole, neither does it promote investment in research and development.
Capitalism is not wrong, it is the only system that has been shown to promote economic growth and reduce poverty. However, there is capitalism that puts a value only on capital and profits at any cost, and there is capitalism that values human beings. The aid industry in Africa has grown up as salve to the conscience of naked capitalism, supposed to represent the human face of the western world. Those who have benefited from the capitalist system show their humanitarianism by giving money to aid agencies, which support ‘heroic’ workers who help ‘the poor Africans’.
But after many years of aid, Africa is still poor, and one has to ask what all this aid has actually achieved.
Personally I don’t believe that hand-outs benefit anyone, whether they come from the government or from aid agencies, and a better model is capitalism, but capitalism that is measured not simply in how much money is made, but in terms of the social impact. Of course a business cannot be successful if it cannot pay its way, but it should also be improving the lives of our fellow human beings.
An example of a business based on naked capitalism, is sports betting, and more international companies have opened sports betting shops in poor countries like Uganda. But what do sports betting companies actually do? They take money out of the pockets of the poor and redistribute it to a few very rich people. This is a Frankenstein monster that capitalism has created, which should be outlawed in poor countries.
On the other hand, this week the Prime Minister of India came to Uganda and told the Indian business community to help Ugandans by sharing the skills, building capacity, and supplying the machinery to run successful businesses. This kind is the kind of capitalism that will develop Uganda.