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  • It's clear capitalism doesn't work very well at the moment

  • but most of us feel there isn't anything to be done

  • we're stuck with it because there's just no alternative

  • That's nonsense

  • there are plenty of good workable suggestion for reform

  • and here are four of them

  • We have to bear in mind that capitalism isn't just one thing

  • There are almost as many varieties of capitalism as there are capitalist countries

  • There are american, german, singaporean, swedish, danish, korean versions of the thing

  • The differences include the sizes of the welfare state

  • from around 10% of GDP in Korea to over 30% in Finland

  • The importance of state-owned enterprises

  • producing less than 1% of GDP in the US

  • But 22% of GDP in Singapore

  • And the power of trade unions,

  • with nearly 70% of workers unionized in Norway

  • and only about 10% in the US.

  • Capitalism has got dials

  • and we can adjust them

  • Think that Sweden, that supposedly high-tax-addicted country

  • only introduced income tax in 1932

  • two decades after the U.S.

  • and nearly a century after Britain

  • Or remember that the US, that pro-the-rich place today

  • had a top income tax rate of 91% between 1915 and 1963

  • and it didn't do them much harm at all

  • so we don't have to chug capitalism in a bin

  • the trick is to tweak and reform it in intelligent ways

  • When people hear of options to adjust capitalism

  • for the benefit of all

  • they tend to think

  • that sounds beautiful

  • but in the end the 'free-est' variety

  • that you find in the US

  • will ultimately outcompete the others because it's just superior

  • the argument goes like this:

  • the US variety maximizes growth by minimizing the constraints on wealth creation

  • which creates higher inequality

  • but in the end makes everyone better-off in absolute terms

  • than under a more equal but less dynamic system

  • but if you look at facts

  • it's overwhelmingly not true

  • that the freer varieties of capitalism grow faster

  • From 1955 to 1980, the time when regulations were much stricter,

  • The world economy grew 2.6% per year

  • For the next 30 years, the heyday of neoliberal economics

  • it grew at only 1.3%

  • In its miracle growth periods between 1958 and 1982

  • Japan, Korea and Taiwan

  • had governments hell-bent on dictating business activities

  • and it worked rather well for them.

  • Contrary to the popular belief,

  • that a large welfare state is bad for economic growth,

  • Finland, with the welfare state 1.5 times bigger than that of the US,

  • 30% of GDP as against of 20%

  • has grown faster than the US

  • with an average annual per-capita income growth rate of 2.7% for the last 40 years

  • against 2% in the US

  • A well designed welfare state

  • with integral retraining and redeployment programs

  • promotes, rather than deters growth

  • Importantly, when people feel secure

  • they take risks

  • which is the life part of capitalism

  • "Secured people dare"

  • as the old slogan of the swedish social democratic party used to go

  • Unlike what some economists like to tell us

  • it doesn't have to be a hard choice between security and stagnation on the one hand

  • and perilous insecurity and economic dynamism on the other

  • It isn't some inevitable natural phenomenon

  • You sometimes hear that CEOs

  • need to have huge paybacks or they won't deliver the goods

  • but data consistently shows no relationship

  • between a rising executive pay

  • and executive performance

  • Then there is the claim that we redistributing wealth impoverishes everyone

  • but some of the most productive and wealthy countries in the world

  • redistribute avidly

  • Before redistribution throught the tax system

  • Germany in 2011 was a far more unequal country than the US

  • Germany's G.I.N.I.'s coefficient, an indicator of income inequality

  • in which zero means absolute equality

  • and 1 means absolute inequality

  • was at 0.51, higher than in the US, where it was 0.50

  • But after redistributive taxes

  • Germany's G.I.N.I. coefficient fell to 0.29

  • while the US, with a far more elite-friendly tax system

  • saw its G.I.N.I coefficient fall to only 0.38

  • Moreover, countries can limit the very ability of the market to generate inequality

  • through formal regulations or informal business practices

  • South Korea, for example,

  • has by far the lowest rate of inequality in the developed world

  • with a G.I.N.I. coefficient of just 0.34

  • But this didn't come about by magic

  • rather because the country has lots of regulations

  • protecting some pretty nice things

  • like organics farms, and small shops, especially bakeries and bookshops

  • And it has laws that keep CEO compensation low by international standards

  • All this preventing the full manifestation

  • of the inequalizing tendencies of an unfettered market

  • In other words, inequality is not the result of uncontrollable forces,

  • like technology or international trade

  • There are lots of tools that a society can use

  • in order to reduce it

  • and a lot of the wealthiest and most dynamic countries

  • are using them very wisely indeed already

  • The rise of the financial industry is a blight on capitalism

  • making it unstable, unequal and very short-termist

  • For example, in the 1960s

  • if an investor bought a share on a company in the UK

  • they held on to it for an average of 5 years

  • By the mid-2000s

  • the number had fallen to a mere 7 months

  • Faced with the radically diminishing patience of their investors

  • companies have done a host of nasty things

  • to make investors happy right now

  • at the expense of the long term

  • They suppress wages

  • squeeze suppliers

  • and chug back profit at shareholders, rather than reinvesting

  • Between 1950 and 1970, the hundred largest US corporations retained 65% of their profits every year

  • But by the 200s, they were retaining a mere 6%

  • vastly diminishing their own abilities to invest

  • for a properly succesful future

  • It's actually rather easy to encourage long-term-oriented investment

  • you just need to give greater voting rights and tax advantages to long-term shareholders

  • and you need to have sovereign wealth funds and national pension funds

  • representatives of the long term collective interests

  • using their considerable financial power

  • to back long-term-oriented corporate behavior

  • Above all, mergers and acquisitions need to be made more difficult

  • as is the threat of these that typically pushes managers

  • towards actions that please fecal short term investors

  • All these schemes may seem like pipe dreams

  • but they're far more tantalizing than this

  • They're real possibilities, alive in certain favored enlightened corners of the globe right now

  • There is no need to give up on capitalism

  • We just need to understand it a little better

  • and stand up to arguments that bully us into accepting its worst versions.

It's clear capitalism doesn't work very well at the moment

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B1 capitalism coefficient inequality tax gdp welfare

How to Improve Capitalism

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    Ben posted on 2017/05/27
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