The Soul of Capitalism

Opening Paths to a Moral Economy

William Greider 2003

Reporter for Washington Post and currently

National affairs correspondent for “The Nation”.

Although this book was written before the current financial crisis, it addresses a good number of the ills of the financial markets and corporations (It follows the ENRON, WorldCom, fiascos)

Main points:

Capitalism has had incredible success in generating wealth. The principle is that profit that is gained from one commodity or business is made available for another investment so that further wealth is generated. The profit from that is again made available for investing in another business and so on.

The principle is that this should make wealth available to all. But in fact, it has a tendency to focus wealth more and more with those that already have it.

Workers in corporations are just like the peasants in the fiefdom. They work for the owner of the land (or business) and get nothing from its success. The owner has complete power over them. If they think that what they get is unfair, they are removed.

Organized labor helped relieve the complete slavery of workers. The more enlightened companies also moved to worker ownership, so that they benefit from the work that they do. There are a number of examples of companies that were about to close, but the workers, in order to keep jobs, attempt to buy the company. Often the problem is that there is seldom enough capital for them to pay for it, so the venture often begins with considerable debt and has made it especially difficult to succeed.

The CEOs and managers of public corporations have as their main objective to maximize the profit and thus return the most they can to the coffers of the company or stockholders. This results in a number of serious problems for society:

1. Short term profits are always preferred. Seldom is long term sustainability the main concern.
2. The management is motivated to go for the greatest risk, since this will return the greatest amount (when it is successful).
3. Any costs to society – pollution, garbage, poverty wages, no health care, etc. do not have to be accounted for. So the motivation is to externalize these (make someone else pay for them) as much as possible. And the corporation does not take responsibility for these kinds of things.

Capitalism that we have in the US today is incredibly harsh on the environment and the earth simply cannot survive if there is no turn around.

Quotes from the book:

Who can be against more jobs, more income, more profit and plenty? Reformers see through the mask, however. And recognize that GDP is not neutral science, as advertised, but actually an opaque expression of capitalism’s amoral value system, posing as statistical evidence of progress. In the real world, where people live, the GDP numbers help to falsify the story of more. What economics reports as growth is often for society loss and decline.

Professor Herman E. Daly of the University of Maryland is a former World Bank economist who rebelled against the fictitious nature of economic orthodoxy and became a pioneer in exposing the intellectual fallacies. Daly, with true detachment, stepped back and asked of the Gross Domestic Product: more of what? He examined what economics counts as growth and what it ignores. It counts every activity and transaction that can be measured in dollars, but neglects the value of everything else—literally leaves it out. Nature adds nothing to growth until someone cuts down the trees. Or a river becomes the dump for factory wastes. Children are are worthless too, unless one estimates their lives as a stream of future income or calculates the economic demand when they need clothes and shelter. Commumty well-being and personal security do not show up anywhere in the accounting. Those goods are not counted, economists would say. Because how could you? They are unpriced assets, neither bought nor sold. Priceless, Daly would observe, does not mean worthless.

The distortions become more profound. Economics counts any and every economic activity or exchange as a positive contribution to GDP, regardless of the negative impact it may have for people and society. Crime is therefore understood as an important generator of economic growth; the more crime, the more market demand for hiring cops and security guards, for building more prisons. Disease and illness are positive factors for the same reason (and the health industry works hard to discover new ailments to heal). So are car crashes. Train wrecks, or other events society understands as major disasters. Less visible disasters like pollution, work stress, poverty, or family dissolution are not deducted from growth. However, the cost of cleaning up the social consequences afterward has a plus value for GDP. When society accepts statistical growth as its shared measure of progress, the society has effectively surrendered its own values to capitalism’s.

Highly recommended.