Capitalism in Crisis – By Mark Blyth July/August 2016 Issue

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Ever since the emergence of mass democracy after World War II, an inherent tension has existed between capitalism and democratic politics; capitalism allocates resources through markets, whereas democracy allocates power through votes. Economists, in particular, have been slow to accept that this tension exists. Instead, they have tended to view markets as a realm beyond the political sphere and to see politics as something that gets in the way of an otherwise self-adjusting system. Yet how democratic politics and capitalism fit together determines today’s world. Politics is not a mistake that gets in the way of markets.

The conflict between capitalism and democracy, and the compromises the two systems have struck with each other over time, has shaped our contemporary political and economic world. In the three decades that followed World War II, democracy set the rules, taming markets with the establishment of protective labor laws, restrictive financial regulations, and expanded welfare systems. But in the 1970s, a globalized, deregulated capitalism, unconstrained by national borders, began to push back. Today, capital markets and capitalists set the rules that democratic governments must follow.

But the dominance of capital has now provoked a backlash. As inequality has widenedand real wages for the majority of people have stagnated—all while govern­ments have bailed out wealthy institutions at the first sign of trouble—populations have become less willing to accept the so-called costs of adjustment as their lot. A “double movement,” in the words of the Hungarian historian Karl Polanyi, occurs in such moments as these, when those who feel most victimized by markets reclaim the powers of the state to protect them. The rise of Bernie Sanders and Donald Trump in the United States is a product of this reaction, as is the strength­­ening of populist parties in Europe.

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Bartenders are winning Cuba’s embrace of capitalism — and doctors are losing – Henry Grabar, May 30, 2016

Cuba bartender

Joe Raedle/Getty Images — A bar tender prepares drinks for customers at the El Cocinero a bar/restaurant on February 25, 2015 in Havana, Cuba.

Cuban state employees are abandoning their jobs for high-paying, private-sector gigs—in Cuba. As bartenders, bellhops, and taxi drivers.

The growth of the Cuban private sector over the past two decades has created some serious imbalances between skills and pay: A bartender with some generous foreign customers could make more in tips in a weekend than a doctor, each of whom is employed by the Cuban government, does in a month.

A new reform could exacerbate that issue. Cuba will soon legalize small- and medium-size private businesses, according to an economic development plan approved by the Cuban Communist Party Congress last month. The 32-page document hit newsstands in Havana on Tuesday, according to the Associated Press, and offers the first glimpse of the reforms approved at April’s five-year CCP meeting. It comes on the heels of President Obama’s historic trip to Cuba in March, and the relaxing of the U.S. embargo.

The CCP hasn’t released many details, but the plans have been the works for some time, says Richard Feinberg, a professor at the University of California–San Diego and the author of Open for Business: Building the New Cuban Economy. It will soon be possible for Cuba’s self-employed, known as cuentapropistas, to incorporate their operations, easing the way toward working with Cuban banks, foreign investors, and state-owned companies. Small businesses will be the vanguard of the market economy in Cuba, while bigger industries remain under state control.

Why Stephen Hawking is more afraid of capitalism than robots – Updated by Brian Resnick on February 27, 2016, 10:10 a.m. ET

Professor Stephen Hawking speaks during the opening ceremony of the London 2012 Paralympics at the Olympic Stadium on August 29, 2012, in London, England. — Dan Kitwood/Getty Images

In October, a Reddit user asked Stephen Hawking if he thinks robots are coming to take all of our jobs.

“In particular, do you foresee a world where people work less because so much work is automated?” the user asked the renowned physicist on an Ask Me Anything thread.

The question isn’t crazy. Computers are getting smarter and more efficient all the time. It’s conceivable that we one day will reach a point where machines’ output is simply much more valuable than humans’.

Hawking didn’t discount the notion that machines may replace us. But he said whether this is good or bad depends on how the wealth produced by machines is distributed. That is, Hawking is more concerned about capitalism than he is about robots. He wrote:

…Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.

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Yanis Varoufakis: Capitalism will eat democracy — unless we speak up – Filmed December 2015 at TEDGlobal>Geneva

Have you wondered why politicians aren’t what they used to be, why governments seem unable to solve real problems? Economist Yanis Varoufakis, the former Minister of Finance for Greece, says that it’s because you can be in politics today but not be in power — because real power now belongs to those who control the economy. He believes that the mega-rich and corporations are cannibalizing the political sphere, causing financial crisis. In this talk, hear his dream for a world in which capital and labor no longer struggle against each other, “one that is simultaneously libertarian, Marxist and Keynesian.”

I quizzed dozens of Silicon Valley elites about inequality. Here’s what they told me. – Updated by Gregory Ferenstein on January 9, 2016, 11:00 a.m. ET

Inequality is perhaps my favorite interview topic in Silicon Valley: It’s fascinating to watch ordinarily confident titans of industry squirm in their seats before offering a conspicuously measured response. But occasionally a leader in the community breaks an unspoken rule against being brutally honest in public.

The tech world encountered one of these deliciously informative moments earlier this week, when a well-known startup investor and mentor, Paul Graham, admitted that he was personally (and unabashedly) responsible for rising inequality.

“I’ve become an expert on how to increase economic inequality, and I’ve spent the past decade working hard to do it,” Graham wrote. “Eliminating great variations in wealth would mean eliminating startups.”

In response, friends carefully avoided denouncing Graham or his core beliefs, but disagreed with his approach.

“Yes, income inequality exists and yes it’s a natural consequence of capitalism and other forms of government are decidedly worse than capitalism because they inefficiently create and allocate resources,” wrote fellow investor Mark Suster. “But the celebratory nature of today’s conversation felt tone deaf.”

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Thomas Piketty and Millennial Marxists on the Scourge of Inequality – Timothy Shenk April 14, 2014

Thomas Piketty (Photo: Emmanuelle Marchadour)

Socialism and capitalism seem like natural antagonists, but their rivalry is Oedipal. To many, the relationship appears straightforward. Capitalism, they would argue, created the modern industrial working class, which supplied the socialist movement with its staunchest recruits. This story, variations of which reach back to Karl Marx, has been repeated so often that it seems intuitive. But it gets the lines of paternity backward. Capitalism did not create socialism; socialists invented capitalism.

The origins of capitalism could be dated to when someone first traded for profit, though most historians prefer a shorter time line. Even so, scholars tend to agree that something usefully described as capitalism had materialized in parts of the world by 1800, at the latest. But the idea of capitalism took longer to emerge. The word wasn’t coined until the middle of the nineteenth century, and it didn’t enter general usage until decades later.

By that point, socialists had been a familiar force in politics for almost a century. Yet socialism’s founders—figures like Henri de Saint-Simon and Charles Fourier—did not intend to overthrow capitalism. Their aspirations were, if anything, grander. They planned to launch a new religion grounded in principles revealed by another recent discovery: social science. Each half of the formulation—the social and the scientific—mattered equally. For most of the nineteenth century, socialism’s chief opponent was individualism, not capitalism. According to socialism’s pioneering theorists, society was more than a collection of individuals. It was an organism, and it had a distinctive logic of its own—a singular object that could be understood, and controlled, by a singular science. Socialists claimed to have mastered this science, which entitled them to act in society’s name. One of their first tasks would be to replace Christianity, liberating humanity from antiquated prejudices that had undermined revolution in France and could jeopardize future rebellions in Europe.

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The new age of crony capitalism – Mar 15th 2014

Political connections have made many people hugely rich in recent years. But crony capitalism may be waning

AS THE regime of Viktor Yanukovych collapsed in Ukraine, protesters against it could be found outside One Hyde Park, a luxury development in west London. Their target was Rinat Akhmetov, Ukraine’s richest man and a backer of the old regime. “Discipline your pet”, they chanted.

Ukraine’s troubled state has long been dominated by its oligarchs. But across the emerging world the relationship between politics and business has become fraught. India’s election in April and May will in part be a plebiscite on a decade of crony capitalism. Turkey’s prime minister is engulfed by scandals involving construction firms—millions of Turks have clicked on YouTube recordings that purport to incriminate him. On March 5th China’s president, Xi Jinping, vowed to act “without mercy” against corruption in an effort to placate public anger. Last year 182,000 officials were punished for disciplinary violations, an increase of 40,000 over 2011.

As in America at the turn of the 20th century, a new middle class is flexing its muscles, this time on a global scale. People want politicians who don’t line their pockets, and tycoons who compete without favours. A revolution to save capitalism from the capitalists is under way.

The kind of rents estate agents can only dream of

“Rent-seeking” is what economists call a special type of money-making: the sort made possible by political connections. This can range from outright graft to a lack of competition, poor regulation and the transfer of public assets to firms at bargain prices. Well-placed people have made their fortunes this way ever since rulers had enough power to issue profitable licences, permits and contracts to their cronies. In America, this system reached its apogee in the late 19th century, and a long and partially successful struggle against robber barons ensued. Antitrust rules broke monopolies such as John D. Rockefeller’s Standard Oil. The flow of bribes to senators shrank.

In the emerging world, the past quarter-century has been great for rent-seekers. Soaring property prices have enriched developers who rely on approvals for projects. The commodities boom has inflated the value of oilfields and mines, which are invariably intertwined with the state. Some privatisations have let tycoons milk monopolies or get assets cheaply. The links between politics and wealth are plainly visible in China, where a third of billionaires are party members.

Capitalism based on rent-seeking is not just unfair, but also bad for long-term growth. As our briefing on India explains (see article), resources are misallocated: crummy roads are often the work of crony firms. Competition is repressed: Mexicans pay too much for their phones. Dynamic new firms are stifled by better-connected incumbents. And if linked to the financing of politics, rent-heavy capitalism sets a tone at the top that can let petty graft flourish. When ministers are on the take, why shouldn’t underpaid junior officials be?

The Economist has built an index to gauge the extent of crony capitalism across countries and over time (see article). It identifies sectors which are particularly dependent on government—such as mining, oil and gas, banking and casinos—and tracks the wealth of billionaires (based on a ranking byForbes) in those sectors relative to the size of the economy. It does not purport to establish that particular countries are particularly corrupt, but shows the scale of fortunes being created in economic sectors that are most susceptible to cronyism.

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