Capitalism has been the prevalent economic system for most Western countries since the late 19th century. Yet an incorrect implementation of its ideals has led to revolution, protest, and popular unrest—paving the way for different economic ideologies to take over the stage. The time has come to give capitalism a hundred-year-old reform. But how? Reinvigorate competitive capitalism.
Most of capitalism’s issues arise from the creation of monopolies and oligopolies. These are created through a process known as corporate consolidation: large companies stifle competition by simply buying it out. Without competition, companies can set employee wages low and product prices as high as they want, allowing profits to rise sky high; they can also reduce the quality of their goods since the consumer has no other or limited alternatives. The best way to tackle the issues of capitalist society—that is, the impression that the rich are getting richer to the detriment of the middle-class—is through taking down and preventing the creation of oligopolies and monopolies: fostering competition, leading to better wages, higher quality goods, and more equitable prices. Although antitrust laws exist today, judging by the fact that a tenth of the American economy contains industries in which four or fewer firms control more than two-thirds of market share, and that market concentration has risen in two-thirds of the American economy, it seems that they are not working properly.
It is clear that reform is needed, yet how will it be carried through? Companies have no choice but to accept some popular or governmental demands. In the United States, as an example, employee wage growth is stagnant and the top 1% of the country generates twice the income of the bottom 50%. This situation is not restricted to economics: it has a significant impact on people’s opinions of capitalism. The Economist reports that, in a poll conducted in 2016, less than 40% of people aged 18-34 regarded capitalism positively.
Growing resentment for capitalism amongst young people—the future of the country—reflects that if companies do not change their policies, mass protestations and even complete rejections of corporate culture may take place. The United States and Europe have already witnessed this to a degree: during the 2016 US election, presidential candidate Bernie Sanders—who campaigned for socialist policies in government—gained sizable appreciation amongst young voters. (According to the Washington Post, over two million voters under 30 voted for him while only around 828,000 voted for Donald Trump and 766,000 voted for Hillary Clinton.) He finished with a significant 13 million votes in the Democratic Primary, only around 3 million short of the primary winner, Hillary Clinton. In fact, almost all democratic 2020 US presidential candidates support socialist reforms—at least reforms that are considered socialist in America. And in Europe, policies aimed at reducing intercontinental trade between European countries, such as Brexit, were eagerly accepted by the populace.
Sizable political opposition against capitalism will continually manifest itself, incentivizing companies to accept some rules imposed by the government instead of lobbying against them. Candidates with increasingly pro-corporation modules will not win the next elections, as support for capitalism is diminishing. The success of self-described socialist candidates in the USA such as Bernie Sanders should worry businesses, prompting them to opt for less lobbying against antitrust policies.
So corporations should recognize the need and desire for reform rather than resisting. But some in the government, too, must shift their current position toward capitalism and globalization. Instead of rebuking capitalism’s benefits, such as markets and innovation, by advocating central planning and more barriers to trade, they should aim to enforce competition law so commerce can continue to flourish. Unfortunately, many in the American left and the right do not seem to support the principles of capitalism, which hampers efforts to reform: the right backslides into mercantilist protectionism and the left is enamored with what it considers socialism. It is of utmost importance that America’s liberals fight for capitalism’s future and preserve its unique values—for both the right and the left are misguided. The U.K. presents a similar political atmosphere: bonkers brexiteers claiming Brexit is economically beneficial—despite evidence of the contrary—against a divided left led by crypto-communist Jeremy Corbyn. Start with the conservatives.
While once the parties of Ronald Reagan in the USA and Margaret Thatcher in the UK, today’s conservatives are radically different. Both Reagan and Thatcher supported economic liberalism, financial cooperation between nations, and antitrust policies to tune markets to their finest. Yet today’s right does not care for these policies—mainly because voters do not. In the US’s “flyover” country, voters are fed up with globalization and the economic and social changes it creates: the impending death of certain industries (e.g. coal) and fears of looming unemployment are much more important issues than preserving free international trade. The UK finds itself in the same boat: most of the right prefers Brexit to a second referendum (i.e., potentially staying in the EU).
It is important to note that while voters might be persuaded by promises of these policies—protectionism in the USA and Brexit in the UK—they are disadvantageous economically speaking and offer no advantages to the populace. In the case of the United States, while the Treasury has collected $7.1bn thanks to tariffs on foreign goods, the long term consequences are disastrous. Trade Partnership Worldwide, an economics government consulting firm, estimates a loss of around 400,000 American jobs due to tariffs; the US government even promised American farmers $12bn in compensation for financial damage caused by foreign duties on US Soybeans and Pork. (The foreign tariffs were instated after the US imposed tariffs of its own.) American industry is now automated—the market has shifted toward services rather than raw manufacturing; in fact, around 80% of Americans currently work in service sectors. There is thus limited demand for reinvigorating traditional manufacturing. Instead of looking to the past, the Trump administration must embrace globalization and use it for the benefit of the American people. If jobs are Mr. Trump’s concern, then he should know that Apple alone employs around 47,000 people in the US. Rising iPhone prices due to tariffs on Chinese manufacturing will not increase that figure.
As for the UK, while the majority of the population desired Brexit, its effects are potentially disastrous for the British economy and people. For starters, the UK’s GDP per capita may drop up to 8% in the event of a no-deal Brexit according to the Bank of England—an eventuality ever so likely as the exit date of March 29, 2019, encroaches on a Parliament with no deal (or plan for a second referendum). Plus, as world trade plummets going into 2019, trade-dependent economies like the UK (trade accounts for around 62% of British GDP) will take an enormous hit. The shock is only exacerbated by the possibly 40% drop in trade with the E.U—Britain’s principal trade partner—following Brexit. Unless Britain’s no-deal brexiteers wish to restructure Britain’s entire economy into a trade independent entity between now and the UK’s exit date, Brexit poses severely damaging consequences for the British economy and population.
The left is also mistaken when it comes to sound economics and political philosophy. In the United States, it has adopted a new type of socialism far more radical than the third-way politics of the Clinton and Blair governments of the 1990s and 2000s. While some of its policies are undoubtedly good and common in most rich countries—such as free healthcare and education—this new socialism does not provide an adequate diagnosis of the American economy. Consider their critic of American inequality. Certainly, inequality rose exponentially since the 1970s (the top 1%’ s wealth grew 242%, around six times more than that of the average middle-class individual), yet that does not mean it shall continue to do so. Between 2014 and 2017, the median household income in the United States rose by 10% adjusted for inflation. There are also more jobs for the middle class: in 2005 there were 89 conventional full-time jobs for every 100 Americans aged 25 to 54; in 2017 there were 97. A hasty analysis of today’s capitalist economies misguides policy-making and overlooks pragmatic solutions.
Yet the greatest threat this new socialism poses is not rooted in its identification of today’s capitalism’s flaws but in its so-called solutions. Take its fiscal and economic policy, for example. America’s politicians who identify as socialists, such as Ms. Ocasio-Cortez, claim that sky-high taxes on the rich will revitalize the economy and fund a welfare state. It does not quite seem that way: according to one estimate, her proposed 70% tax on the richest Americans will provide the government $12bn in extra revenue—just 0.3% of the total tax take. Furthermore, as populations age and more citizens need pensions, the tax money necessary for their welfare ambitions (e.g. a government job for every citizen wishing one) will only increase; taxes on the ultra-rich—no matter how enormous—are simply not enough to ensure funding. The tax burden will henceforth fall on the middle class. Other policy, like forcing companies to put workers on boards—supported by Britain’s Labour Party (who also wants to give them shares) and American socialists like Elizabeth Warren—will only empower workers to fight against innovative technologies that reduce the size of the workforce, thereby hurting competition and technological advancement. It also allows workers to unknowingly reduce the economic benefits of globalization—creating better-paying jobs and saving millions for consumers—through adopting protectionism. (They can coerce corporations into accepting protectionist government policy instead of fighting it.)
Most of all, this new socialism misuses markets and does not seize the vast opportunities they provide—causing economic slowdown or crisis. Ms. Ocasio Cortez’s Green New Deal, which earns the support of most current 2020 US democratic candidates, is a key example of this. The idea that the United States can convert all energy usage to renewable sources in only 10 years is preposterous, for it mistakes the functioning of markets. The Green New Deal’s success requires massive subsidizing of renewable energy in order to combat fossil-fuel, as demand for such fuel currently outshines that of renewable energy. (The demand is so great that ExxonMobil will increase its investment in fossil fuels by 25% in 2025 compared to 2017.) Such huge subsidizing is exactly what leads to economic downturn: fake demand is generated by massive spending, leading to an inflationary bubble, as demand for renewable energy is only from government spending—not real markets (i.e. consumers). The same goes for Britain’s Labour Party’s plan to nationalize the UK’s energy sectors. Some new socialists even support “modern monetary theory,” proposing the US to run enormous spending deficits while keeping interest rates low. This is economically dangerous for two main reasons. First, the government will not continue to receive loans if it does not pay them back. Second, low interest rates in times of economic upturn lead to unnecessary inflation—engendering fake demand, market collapse and eventual economic recession and depression. The government must not bind itself to the economy; it must assure the development of markets, paving the way for jobs, lower inequality and myriad economic and social opportunities.
Instead of relying on massive government enlargement and spending, today’s socialists should use the power of markets to push their ambitious policies. Ms. Ocasio Cortez should use markets to promote her environmental plans: instead of colossally subsidizing renewable energy to the point of it being economically dangerous, or simply planting more trees, she can give tax incentives to private corporations providing innovative energy solutions. She can also tax carbon emissions more. These policies allow for a “natural” market shift from fossil fuels to renewable energy; save governments from indebting themselves because of overwhelmingly large spending; and encourage innovation and competition. (Some spending on green energy is of course still beneficial and necessary, but using markets alongside spending reduces the latter’s strain on the economy.) In the UK Jeremy Corbyn’s Labour Party should do the same instead of central-planning energy. By regulating markets instead of ignoring them, both American and British socialists can boost competition, leading to better jobs, wages, and less inequality.
Capitalism has led to more opportunities and jobs than any other economic and political philosophy thus far. By properly ensuring its functioning—allowing free trade, reforming antitrust laws, and promoting markets—it will continue providing such benefits. The status quo must shift, yet adherence to a backward right and an overly ambitious and unrealistic left are not the solutions. It is the job of the liberals to guide both sides on the right track—the road to capitalism’s reforms.