The End of Capitalism?

This was written as a commentary on a NY Times Article (the quoted portion) but goes much further.

““So many times, I went to the bank and said, ‘What did I do wrong?’ ” said Mr. Moreno, who recently had to lay off almost all of his employees, including a childhood friend. “But they just said they wanted their money back.”
Experts say that what happened to Mr. Moreno is happening to small companies all over Spain, as many of the regional savings banks that such businesses once relied on are being eliminated or swallowed up, in a series of steps intended to deal with the hundreds of billions of dollars in bad loans from the real estate meltdown.
Whether the strategy is working remains an open question. Moody’s recently downgraded more than a dozen Spanish banks, including the two largest, and on Friday, a major bank warned that it would need an additional $23.9 billion in aid, far beyond what the government estimated when it seized the bank this month.
But experts say there is little doubt that the loss of credit is hurting smaller businesses, contributing to Spain’s troubles by raising unemployment and cutting tax revenues, making it harder to bring its budget deficit down to manageable levels. The credit loss hits particularly hard in Spain, where more than 60 percent of the economy, and 80 percent of the jobs, come from small and medium-size companies. More than 500,000 small businesses have shut down in the last few years. “

As Spain goes now, so perhaps go we in the future.

This is all part of a global system of financialization, where money and how it’s managed and applied becomes more important than any of the other subsystems we use in modern society to organize ourselves. Money is seen as more important than the production of goods and services, and managing money is more important than managing production, and people who do this are therefore more important than others who keep society going.

Something like this, where one subsystem of the whole came to be considered more important than the others, resulted in destruction of past social systems that were once considered the best. It happened to earlier systems of organization, feudalism for example, it happened to communism, and this may be the process which will in turn destroy capitalism, the idea that only capital matters among the several subsystems that are a part of our society.

So what brought this on? I was thinking about an exchange between son Patrick and myself regarding Romney’s record. I thought about Bain Capital and what they did to gain money (I won’t call it earned; they were exploiters, not earners) and their role in the economy.

Consider a company. They may be half-a-century old, organized in the late 1900’s. An entrepreneur may have started small when he realized that he couldn’t buy widgets of the type he wanted, so he began to make them and sell them. After a time, he hired others, taught them to do what he’d done, and began managing. His business grew; perhaps widgets went out of fashion and he began making something else. At some point he came to realize that to expand further, he needed money now. Enter capital. Borrow, pay back principal plus interest from increased economic activity. Hire more workers. Make more money. Repeat as necessary.

But there has now been a change. That early entrepreneur knew all the people who worked for him. He talked to them, they talked to him. He understood that management can only manage if there are assets, including people. As the company grew, this changed. Perhaps the workers unionized. Now the manager only talked to union reps. It was all very dehumanizing; workers could be laid off for any reason. Their work had built the company, as that first manager knew; but now they were assets only. Investors came in and put money into the company in return for part ownership. Stock was bought and sold by people who knew nothing about the company and didn’t really care so long as investments were profitable. If they lost confidence in the investment, they sold.

For Romney and Bain Capital, this was an opportunity. They acquired control of the company. They could then lay off people, sell off assets of the company, take the profits, leave. If they laid off a worker who had been at the company 30 years, from the age of 20 perhaps, too bad. Only capital mattered, only finance, only profit. The 50-year-old worker, too old to find another career but too young to retire…that was his problem.

What does an employer owe to a worker?  If you agree to employ someone for a day, or for a week, and pay them an agreed upon sum, then the agreement can end at that time.  The agreement is not exploitative on either side.

But what if you employ someone for 20 or 30 years?  Such employment is always exploitative, because the employer plans on making a profit from the labor of the employee.  There is a tradeoff in salary and benefits for this; but at the same time, over long periods of a relationship, of more.  The employer has now taken most of an employee’s productive life, frequently the best and most productive part of it.  What responsibility does the employer have to the employee now?  

Under unrestrained capitalism, under financialization, the employer recognizes no responsibility at all. People aren’t people now, they’re only corporate assets, to be discarded when they’re presumed to be less profitable.

How could Bain profit? They might, for example, lay off the design section. Design is only necessary if you’re planning to manufacture new products. If you’re going to gut the business, you don’t need designers. Or you could begin importing goods and close down production entirely. The company now is a hollow shell, no longer manufacturing, only buying, marking up, and selling at a higher profit with the same old brand name. And profits soared, and Bain could now sell out at a profit and move on. And pocket millions.

Capitalism, and financialization. All good; all driven by greed. Perhaps a greedy union had even contributed to all this by demanding more and thereby weakening the company (prices of products were forced up and the products became less competitive) so that it became a target for Bain. Investor greed caused them to sell off in search of more profitable investments. The target company might even have been somewhat profitable before Bain acquired it; but in search of money, and driven by greed, Bain and the others like Bain bought in and through capital management gutted the company.

But the greater tragedy played out as this happened across the economy. All those laid off people; no longer producing, earning, spending; now they’re collecting unemployment. The economy began to collapse. People couldn’t pay mortgages, couldn’t finance new cars.

And it’s happening world wide. Spain, and in the US.

Are we seeing the collapse of capitalism as a system for organizing ourselves economically?

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One Response to “The End of Capitalism?”

  1. James Cooper Says:

    Here’s how I think of it: money is not a thing, it is just a gigantic numbering system used to allocate resources — unfortunately the allocation is often extremely unfair.

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