Today’s youth pose burning questions about capitalism. For examples:
How is it that we live in a country of extraordinary wealth but have low ratings on many societal quality-of-life measures, like infant mortality, affordable housing, food insecurity, and maternal health?
How do we continue to abide by a system that generates untold wealth while risking natural calamities due to climate change?
Wasn’t the point of technology to let us work less and live more freely? Instead, technology has created increased productivity that benefited incomes for the few at the top while the rest of us can’t even afford health care and a roof over our heads as gig workers.
I studied economics after asking myself, “How is all this order – jobs, incomes, homes, and goods – created? What makes it all seemingly work?” I learned that capitalism is the mechanism that incentivizes production and allocates goods and services based on principles of private property (versus government ownership) and the profit motive. Prices, set by markets, create the invisible hand that drives what gets produced in a capitalist society.
Even a barter economy can be capitalistic, with trade making both parties better off. History has proven that capitalism generates more wealth than any other form of economic order. Indeed, the more recent rise in China’s wealth ties back to its unleashing of capitalistic forces.
But there is a price to be paid for these profits.
Prices rarely incorporate the societal benefits and costs of a product. The private sector, left to its own devices, spends too little on goods that help the masses (like education and safety) and spends too much on products with adverse impacts (like chemicals that, while cheaper, are more toxic). Government exists in part to correct these imbalances, through government spending and regulation.
Let’s look at the pandemic through the lens of capitalism’s weaknesses.
US manufacturers of personal protective equipment (PPE) are privately owned. To maximize profits, they, like many manufacturers, shifted production to China, where production costs were much lower (albeit climate impacts due to transportation costs were not incorporated into the price). The companies had to make the shift to stay in business once we opened trade with China; they also wanted to serve the Asian markets. Hospitals compete for insurance contracts, where the price for their services is crucial. It’s no surprise then that they purchase supplies based on price, subject to meeting a quality standard. This drive is so strong that healthcare organizations created large purchasing coalitions to lower supply costs.
Why are prices a critical factor in insurance contracting? Because insurers compete for both employer and individual business, in part based on price. A self-insured employer, for example, does not want to spend one extra penny on healthcare benefits than needed. Why? The employer also competes in its markets in part on price, and its owners expect managers to maximize profits.
Yes, it’s a vicious cycle. Without a federal policy for a PPE stockpile (which existed but the government did not follow) or a governmental-accreditation standard around hospital-specific inventories, we were left in the lurch on PPE. The same story unfolds for ventilators and the assays, swabs, and other supplies required for testing. Welcome to capitalism.
In this example and millions of others, capitalism’s ability to serve society is only as good as its government. And herein lies the root cause of problems that youth associate with capitalism.
I would argue it is not capitalism per se, but the failure of our government is at the root of the problems concerning youth and others. Our government acts for the interests of voices backed by political donations and lobbying efforts, not for society’s best interests. The one exception is a massive social movement, like the US Civil Rights and Gay Rights movements, which is why organizations like Momentum and Sunrise are steeped in mass-movement best practices.
We’ve ended up with a system called crony capitalism in which there is too close a relationship – a mutually beneficial relationship – between business, wealthy individuals, and government. For example, the public overwhelmingly wants better gun control and, instead, we have too many school shootings and legal fights against any restrictions. Our federal government subsidizes fossil fuels, and that’s before the defense costs of our Mideast presence. We’ve so slashed tax rates for those with higher incomes that Warren Buffet has a lower tax rate than his secretary. And we’ve under-built affordable housing while also ignoring massive infrastructure needs. The list is endless.
Our system is perfectly designed to create the outcomes we have. If we don’t like the consequences (and I, for one, do not), we need not remove the wealth-generating economic motives of capitalism. Rather, we can improve the government system so that it distributes excessive wealth, moves towards equality in economic opportunity, and corrects capitalism’s worst imbalances.
Put more simply, why is Trump trying to end Obamacare and reduce food stamps in the middle of a pandemic? Thirty million people have filed for unemployment. Many of them have lost their health insurance. Cars line up for half a mile in each direction for the Los Angeles food bank, a long wait common across America today.
Where is his mercy?