The Economist’s editorial stance is clearly pro-capitalism. However, the magazine recently made an overt admission about capitalism’s biggest flaw.
Band-Aid Solutions Ignore Fundamental Inequality of Capitalism
In a July 12th article in the magazine’s print edition, entitled “Back to basic liberalism,” (“Capitalism needs a welfare state to survive” in the online version) The Economist made the argument for welfare reform, stating that when accounting for healthcare and education spending, as well as pensions, unemployment assistance and other assistance for the needy, welfare spending as a percentage of Gross Domestic Product (GDP) is at 40 percent for wealthy countries.
The Economist argued that for capitalism to continue, governments should simultaneously provide a safety net for the poor as well as be mindful of the trend that the radio of workers to retirees is dwindling, suggesting that the retirement age should be steadily increased over time in order to avoid “intergenerational inequality.”
But perhaps the most important section of the piece is the admission from the magazine that everyone deserves enough to live on, and that the current capitalist economy is not capable of meeting workers’ needs on its own without a welfare system:
“Many of those who drop out of the job market, or who work in the gig economy, struggle to get by. And too often, help for the poor comes in ways that are cruel, inefficient, paternalistic or complex. In some rich countries, the unemployed face marginal tax rates of over 80% when they begin a job, because of the loss of benefits,” The Economist wrote.
One policy proposal suggested in the article was that countries implement a combination of a negative income tax (which subsidizes workers below a certain income) and a universal basic income — both funded by higher taxes on the wealthy — in order to allow workers to have the opportunity to make their own choices while struggling to survive in a volatile job market and economic climate.
“[Basic income] is a relatively simple, efficient way of targeting poverty while maintaining incentives to work, so long as the tax rate is not too high,” the magazine wrote.
However good the intentions behind those policies are, it still doesn’t solve the problem of an economic system that is dependent on infinite growth in a world with finite resources. While these policy proposals are good band-aid solutions, the inherent problem of capitalism — that there needs to be a permanent underclass of poor people to allow the system to continue — persists. The Economist even begrudgingly admits this at the very end of the article.
“[T]he best way to secure support for free markets is to give more people a stake in them,” the article states. “The welfare state must be seen as more than providing shoes and soup for the poor, and security in old age. In a democratic society it is also crucial to the case for capitalism.”
Is Having an Owner Class Totally Useless?
While The Economist would likely never admit this, the only reason there needs to be a massive welfare state in the first place is because the owner class has accumulated the bulk of the world’s wealth. A November 2017 report by Institute for Policy Studies scholar (and Grit Post contributor) Chuck Collins found that America’s three wealthiest men — Amazon’s Jeff Bezos, Microsoft’s Bill Gates, and Berkshire Hathaway’s Warren Buffett — have more wealth than the poorest 178 million Americans combined.
This stark inequality is the end product of a system in which the meager wealth controlled by the world’s underclass is being radically redistributed upward to the very wealthy. In his bestselling book Capital in the Twenty-First Century, economist Thomas Piketty, along with economist Emmanuel Saez, suggested that the wealth gap needs to be corrected through deliberate taxation of both typical earnings and inherited wealth:
“We develop a model where inequality is fundamentally two-dimensional: individuals differ both in their labor earning potential and in their inherited wealth,” Piketty wrote. “Optimal tax policy is also two-dimensional: it involves a progressive tax on labor income and a progressive tax on inherited wealth.”
“If top wealth holders are rising at 6-7% per year in real terms (as compared to 1-2% per year for average wealth)… and if one aims to stabilize the level of wealth concentration, then one might need to apply top wealth tax rates as large as 5% per year,” Piketty continued.
Given these solutions toward the failings of capitalism, would we still be a capitalist society if we had to go to the lengths described to maintain an orderly society where everyone’s needs are met? Proponents of full socialism would argue that it would be much simpler to simply abolish the owner class and allow workers to have direct control over the industries in which they work.
What Comes After Capitalism?
This system is already playing out in earnest in some parts of the world with great success. A 2013 article in The Guardian profiled the Mondragon co-op in Spain, which posted global sales of €15 billion ($17.5 billion USD) that year. Mondragon is a system of worker-owned co-ops employing approximately 84,000 people in Spain and around the world. The system allows workers to create and maintain their own wealth, rather than generate wealth for a boss for the privilege of a paycheck.
And if one of the co-ops is in danger of going under in an economic crunch, the parent co-op helps it stay afloat with money lended from other co-ops in the network.
“Some of our most successful companies today are ones that needed help when things were going badly for them years ago,” Mondragon human resources chief Mikel Zabala told The Guardian. “Now they, in turn, are helping others in need.”
Imagine for a moment if Amazon — which is currently owned by a man whose $150 billion net worth is more than the combined GDP of over 100 countries and comes mostly from company shares — was instead a worker owned co-op with all workers as partial owners of the company.
If all of Jeff Bezos’ 78.89 million Amazon shares (each worth about $1,780 as of this writing) were split evenly amongst all 566,000 Amazon employees, that would amount to roughly 139 shares for each employee. This would mean those employees would each have $247,420 worth of investment in their company, liking making those employees that much more invested in the success of the company and resulting in greater profits. Most importantly, those workers would no longer have to depend on public assistance to make ends meet.
Regardless of the solution, it’s obvious given The Economist’s article that even capitalists know the system they depend on for their wealth is on its last legs. The only question that remains is what will come after its collapse.
Logan Espinoza is a freelance contributor specializing in economic issues. He lives in Phoenix, Arizona with his wife and daughter. Contact him at logan DOT espinoza AT yahoo DOT com.