Johan Norberg. Johan Norberg began the decade of 2000-2010 cheering the ability of capitalism to cure global inequality in his book In Defence of Global Capitalism (2003) and ended the decade trying to explain why capitalism had gone so terribly wrong in his book The Financial Fiasco (2009) . In the quote above he asserts that capitalism does not make people poor but makes people wealthy and this is the only cause of disparity in income inequality between people. It is the manifesto of laissez-faire capitalism that the ability to be able to earn money and keep it is fundamental to a human’s freedom. It is through the use of their own ingenuity and rationalism that human’s can thrive and buy property enabling them to establish wealth. Norberg argues that it is the regulation of this wealth through the state’s interference that causes financial crises, not the greed or ruthless fraud of a few who are wealthy and influentially connected. This essay will argue that Norberg is wrong in his reasoning. Although liberalism and its counterpart capitalism are great engines for human growth and civilization, it is the corruption of these systems through monopolies, subsidies and fraudulent trade practice that bring these systems down. With the collapse of these systems the wealth is concentrated in the hands of a few and it is taken from the effort of all those that supported or connected to those systems, leaving them poor. I will use the collapse of Enron Corporation and the growth of global agribusinesses as examples to argue my conclusion, and begin by attempting to establish what the ideals of liberal-capitalism are through looking at the work of one of its greatest advocates, Ayn Rand.
Ayn Rand, a precursor to neo-liberalists such as Johan Norberg and Milton Friedman, stated in her 1967 essay What is Capitalism? the essential characteristic of humans is rational thought. The human mind is the basic means of survival through the acquisition of knowledge . This enormously complex process of identification and integration is something only an individual brain can perform. The concept of a collective brain is a fallacy as humans can learn from one another and can cooperate to gain new knowledge but this process requires the independent exercise of each individual’s rational faculty . For Immanuel Kant, a liberal philosopher, humans are not only individualised and rationalised they are also ‘capable of appreciating the moral equality of all individuals as ends rather than means’ What binds all individuals is that all means of survival depend upon the degree to which rationality is able to be applied; in Rand’s words ‘men prosper or fail, survive or perish in proportion to their degree of rationality’ . For a rational mind to think, freedom is a fundamental requirement . A rational mind cannot work under compulsion, it cannot be controlled by others; it cannot give up its knowledge or its perception of the truth. That principle of rational action is what all humans, no matter their ability or achievement, owe for their survival. Irrational action will be to their self-destruction . It is the connection between reason and survival that gives us the concept of individual rights .
This liberal view of individual rights is important to the tenets of capitalism because it is only the system of capitalism that recognises individual rights, including the right to property . In capitalist societies human associations are free and voluntary . The objective theory of value underlies the structure of the capitalist system. What is implied by recognising the rights of the individual is that the concept of the good is not an ideal but a concept based in the reality of every human life, such as the right to pursue happiness. It also implies that the concept of what is good cannot be held separate from its beneficiaries. It cannot be that one human or group of humans can achieve good at the price of others . Most capitalism that is alleged to be practiced today is really that which can be defined as a mixed economy. True capitalism is not compatible with government control as its innovators do not rely upon government assistance or interference, or coercion .
Corporate capitalists seek to avoid the anarchy of the marketplace by managerial coordination within firms. It is based upon the rational of economic activity rather than reliance upon market coordination . For the economist Max Weber, economic organization holds together through a system of authority . For a complex organization such as a corporation this requires an impersonal set of rules of conduct . This is the process of rationalization according to rules and structures, and it is this corporate structure upon which I will base my argument that is susceptible to corrupting the liberal capitalist system.
The economic theorist Adam Smith provided an insight into the workings of capitalism through the integration and coordination of markets with the actions of millions of people manipulating the supply and demand system . It is markets that establish values of goods and services rather than them having any innate value .This assumes, however, that there is such a thing as market equilibrium . But this denies that market equilibrium can be brought about by distorted markets. Examples of this are when goods are produced by slaves or forced labour, when there are speculative bubbles brought about by excessive leverage which allows buyers to unsustainably distort the system of demand and supply or when depression or economic stagnation deflates demand more than the amount a country can produce . For market equilibrium to be a reality, values must reflect true social cost and demand must be sustainable without undue financial leverage . If not, an oligarchy develops where significant political power is vested in the economic system and is not held to account by anyone . One of the most classic examples of this process of distortion in capital markets is the manipulation of Californian energy supplies by Enron Corporation in the late 1990s as documented by the film Enron: The Smartest Guys on the Room (2005).
In fifteen years Enron Corporation grew from a small concept company of founder Kenneth Lay to be the seventh largest company in the USA with 21000 employees in 40 countries, a true example of the globalized economy . In the late 1990s California was hit by a rolling series of power cuts organised by the monopoly energy supplier, Enron. Although California had plenty of power to meet their demands the controllers of the power grid blacked-out the northern half of the state using a series of controlled outages which were implemented in order to enact pricing fluctuations from which Enron was able to profit . This was enabled by the deregulation of California’s electricity legislation in 1996 after pressure applied by energy companies such as Enron. California State Senator, Joseph Dunn, stated that California was selected by Enron as the place “to experiment with this new concept of deregulated electricity” . The CEO of Enron at the time, Jeffrey Skilling, stated: “Reducing electricity cost is only one benefit from choice and competition” . Enron used these new rules to profiteer and gain control of the California market. In the midst of California’s energy shortages Enron began to export energy out of the state and when prices soared they brought it back in . Soon Enron was shutting down power plants to create artificial shortages to push prices even higher . In short, it was a process of extortion perpetrated by a monopolised corporation.
Enron made about $2 billion from their manipulation of the Californian energy markets, even though energy is the lifeblood of an advanced society . Instead of the average price per kilowatt hour being $35-$45 it was $1000. Enron did not behave ethically, it did not behave in its best long-term interests thus it did not behave rationally. Eventually it collapsed in 2001 amidst allegations of fraud, insider trading and political scandal over its close associations with the US president George Bush and his family . However, although many of its top associates were able to abscond with their profits intact, the millions of Enron employees, investors and pension funds went for next to nothing, leaving those people vastly poorer for their efforts .
The actions of the executive of Enron were a threat to the liberal capitalist system through its arrogant greed, fraud, and political and market manipulation. Its advocacy of the ‘free market’ brought the financial system to its knees in 2001 . This contradicts the argument made by Johan Norberg and Ayn Rand , who argue that it is government regulation that causes speculative bubbles and financial crises. The economist Milton Friedman also posits the theory that liberal capitalism organized through private enterprise operating through the free market is a system of economic freedom and is essential for political freedom . He argues that concentrated power is a threat to freedom and political authority is a threat to economic power. However, Friedman assumes that only political power can act as a restraint on a free market. In that, he disregards the fact that large corporations can be a threat to the freedom of individuals, employees and smaller companies . For Friedman to disregard this power imbalance brought about by large and powerful corporations like Enron is disingenuous and an oversimplification . By oversimplifying economic power Friedman negates the meaning of freedom to those members of society with little economic power . It allows those with great wealth to grow even stronger and the weak to be left to pick up the pieces.
In his 2003 book In Defence of Global Capitalism Norberg contends that instead of the world becoming increasingly more unequal, that it is in fact becoming more equal . He argues that the wealthy have become wealthier and that absolute poverty has diminished in places like Asia, where most of the world’s population lived in abject poverty only a few decades ago . This may have been the case in 2003 but since the global financial crises of 2008-2010 the level of world hunger has increased beyond the levels seen forty years ago . This is because of the globalization and corporatization of the global food supply. In December 2010 the UN Food and Agricultural Organization announced that its Food Index had hit an all-time high. This spike in commodity prices has not been caused by weather events as in the past but by trends in the supply/demand ratios for food. There is demand caused by population growth, rising affluence and the use of grain to fuel cars. The supply is affected by the loss of cropland to non-farm uses . Other causes are the cumulative effect of three decades of neo-liberal free-trade agreements where the national food production systems in most countries around the world have been dismantled and replaced by a system of agroexports which are stimulated by government subsidies to agribusiness . By forcing governments to sell off their grain reserves, the World Bank and the IMF have created ‘the tightest margins in recent history between food reserves and demand’ . These countries are now dependent upon food imports which generate greater demand and results in skyrocketing food prices.
The most important cause of the global food crisis is the entry into the commodity market of speculative financial capital in the way of global hedge funds that have invested heavily in the food market on the proviso that food prices will rise . These hedge funds have also invested in the crop-fuel industry which results in governments being pressured to designate agricultural land being used for agrofuel crops . This seems much like the energy crisis developed by Enron in the late 1990s and results in those with investments in these hedge funds and agribusinesses becoming wealthier at the expense of the world’s poor.
The liberal concepts advocated by economists such as Norberg and Milton Friedman and philosophers like Ayn Rand are based upon the theories of philosophers as John Locke, Immanel Kant and Adam Smith. The concepts that these philosophers put forward were a belief in reason and the possibility of progress; that the individual was at the heart of moral value; that human beings are ends not means and that ethical principle be paramount over the pursuit of power . These corporations that have been mentioned above are not applying these principles at all. They are benefitting from the advocacy of free markets and manipulating the financial system so that ethical principles are no longer their concern and power and money are everything. The human beings affected by their greed and manipulation are used as the means to their ends. These corporations and their supporting international institutions advocate liberalism and demand that countries cede sovereignty so that they can increase the profits of a few at the terrible expense of hunger and poverty to the many. Therefore, although persuasive and personable, Norberg’s assertion that he makes in the quote above is a fallacy. The world’s inequality is due to corporate capitalism making many poor so that a few can be wealthy.
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