Friday, June 29, 2012

On the Other Side of Capitalism

Despite deep discounts, no one walks into a certain children's clothing store before noon.  The four-generation family that owns the shop survives on a government pension paid to the widowed grandmother.  Great-grandmother has a small plot for farming.  There the family scratches out furrows and plants potatoes with hand tools.  Maybe they can produce a little extra food, then barter it to other Greeks who are doing the same thing.  At that level of economic activity, it is hard to see when things will get better.
This is more than austerity.  This is the breakdown of capitalism in Europe.  The Greeks do not have enough euros to participate in the common market, and things are getting worse.  The crisis  is not really about Greece leaving the euro zone.  The crisis is that the euros are leaving Greece and the euro zone is leaving with them.  It is all happening according to the best principles of capitalism.  A common currency.  Free flow of capital.  Free trade.
  Capitalism always destroys itself because the winners eventually drive the losers out of the market.  It takes money to participate in the market, and the better capitalists eventually end up with all the money.  This is the basic structural problem with capitalism, and it is the reason that capitalism never survives for long without external intervention.
  Governments save capitalism by propping up the losers and getting them back into the market.  This is not a permanent solution, nor is it capitalist.  Capitalists find it acceptable anyway because most of the time, capitalist principles prevail and times are good.  Even the non-capitalist intervention periods are good for the "strong hands," because austerity (or poverty) policies force the weak hands to sell good assets for low prices.
  Growth, breakdown, intervention.  Growth, breakdown, intervention.  This cycle repeats because the rich have learned to finance the interventions.  This preserves the common currency, the free flow of capital, and free trade, but it does not fundamentally change anything.  The winners need the losers to stay in the game, and up to a point they are willing to pay for it.  On this side of capitalism there are no real solutions to economic breakdowns.  The solutions are on the other side of capitalism, where capitalists never look.
  Permanent improvements to economic stability require structural changes by government that will counteract capitalism's structural defects.  The basic requirement is this:  in any given market, the participants must be nearly equal to one another in economic strength.  That is, each market must be balanced.  Equals should compete against equals.  This requires the creation of new markets and currencies, enough so that each individual can participate in a suitable market.
  However, balancing the markets will not be a one-time event.  Since markets become unbalanced over time, as some participants gain and others lose, the government must monitor the markets and re-balance them as needed.  Those who prove themselves stronger will be moved to a stronger market.  Those who cannot keep up will be moved to a less-competitive market.
  Within any market, capitalist principles will prevail.  For interactions between markets, government oversight is necessary to prevent exploitation.  Common currency, free flow of capital, and free trade will not be allowed between markets, only within them.
  As a simple example, suppose Greece created an internal drachma-based market and moved its "troubled assets" and weaker capitalists into that market.  Strong Greek capitalists would remain in the euro zone and earn euros.  Perhaps then the Greek government and Greece's best capitalists could remain in the euro zone and deal with its euro debt from a stronger position.  With some flexibility regarding the euro zone agreements and the terms of the debt, this could be considered preserving the euro zone rather than breaking it up.
  Bringing back the drachma internally would give Greece the flexibility to prop up markets without any euros and get money to those in financial trouble.  The Greek government would manage exchanges between the euro zone and its internal market, including the exchange rate.  Capitalism and its advantages would be preserved in both markets.  At the same time, internal jobs and capital would be protected from the competition of the common market.  Without this protection, there is the danger that the strong hands will use these times of austerity to buy all the good Greek assets cheaply and leave the Greek people renting their own country from the Germans.
  Any result that leaves Germany owning Greece will not be a capitalist success.  Rather it will make a farce of European "unity" and show that "common markets" lead to economic oppression.  The only real solution is to put an economic "firewall" between the "strong hands" and the "weak hands" so that the poor are not hounded into destruction.
  Far from being strong and natural, capitalism is artificial, self-destructive, and ultimately weak.  It is a powerful economic machine, but only while it is working.  The capitalist euro zone is breaking down and needs help.  With real structural solutions, perhaps it can be preserved and stabilized.

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