the trouble with capitalism

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the trouble with capitalism
by Niloufar Parsi
24-May-2010
 

once in a while the capitalist system requires a fire, a crisis, to shake it and get rid of the bad fruits, the reckless, and to reward the prudent. But when the crisis rewards the reckless bankers and punishes the rest of society, then a political crisis of legitimacy emanates, and there will be a face-off between economic and political elites, if such a distinction is indeed true.

the capitalist economic system has a central weakness in the concept of 'limited liability' for corporations. so anyone who buys into a corporation has no real responsibility toward the harm that the corporation might do. the profits and losses can be enjoyed by anyone who invests, but the non-financial harm caused is borne by others.

'limited liability' is therefore a political tool not an economic one. it distorts markets because it removes the natural link between 'cause' and 'effect' within economic, social, environmental and political relations.

the company that i manage may make many homeless, engage in slave labour, benefit from gender disparities, destroy the environment or profit from causing war, but this will have no implications for me. i will simply benefit or lose depending on how much profit the company makes.

doing away with the notion of limited liability would make economic activity far riskier, as it would make liability a natural part of the process. as it should be. but instead, the liability is pushed back on consumers, shareholders and taxpayers rather than those who make corporate decisions.

so the moral imperatives that inform and guide most human interactions are reduced to a single axiom in capitalist economic relations: making profit 'good', losses 'bad'. nothing else matters much, and
the state, its laws and its monopoly on coercive power will be designed to protect this limited liability for the sake of continued
and competitive economic growth; thus creating 'the Wealth of Nations'.

but when the wealth of a whole nation is put at risk for the benefit of individual managers of corporations, the system becomes subverted, and a political crisis ensues, as is the case in both usa and europe today. heads of corporations refuse to accept the principles of liability or accountability, will continue to enrich themselves through massive bonuses, betting on risks and dishonest marketing of derivatives etc. while shareholders will pay through losing their share value, and 'austerity measures' are paid for by ordinary citizens.

the wealth of the nation becomes second priority against the wealth of corporate management.

the global financial elite were the main cause of the recent crisis, but they seem to have escaped any consequences for themselves while millions of people have lost their homes, jobs, pensions and savings.

in both the us and europe there is a serious crisis of legitimacy that must be tackled or there may be consequences for the regimes in place. this explains for example obama's current efforts to confront Wall Street. it is a show of the political elite taking on the economic elite, and in the process trying to regain some legitimacy for the system.

in europe, a similar situation has gone as far as challenging the union's legitimacy.

regardless, we are at a historical crossroads with several possible scenarios.

markets essentially are political inventions. the lack of a political will to fix the challenge to the system coming from corporate greed at the expense of the wealth of nations (after almost two years since the current crisis broke) bodes ill for the West and it's geopolitical future.

while many have obsessed with 'regime change' in Iran for the past few decades, there is a real likelihood of a regime collapse in the west unless some serious measures are undertaken to resolve the current crisis of legitimacy.

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more from Niloufar Parsi
 
hamsade ghadimi

the audacity of ignorance

by hamsade ghadimi on Mon May 24, 2010 10:31 AM PDT

this is the most uninformed article i have read regarding economics on this site.  llc stands for limited liability company and not corporation.  one needs to know the difference between a corporation, company, and limited liability company before driveling this nonsense.  for one, an llc does not have stocks; hence, no shareholders.  however, corporations issue stocks and are not considered limited liability. the author should also read about evolution (and distinction between) of capitalism to a free market system.  i wonder if the author can figure out why capitalists don't like free market. 

note to author: when you mix in facts with garbage, the end result is garbage. :)


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Abarmard

Niloufar Parsi

by Abarmard on Mon May 24, 2010 09:29 AM PDT

The concept of good life has given to efficiency from competition. The entire argument for capitalism revolves around this concept (I am sure you know well). If you ask me, it's sad that human mind, that can reach as high as one can imagine, is settled in such a primitive governing ideology, based on money. However it is what it is. Although one can argue what it is ought not to be, yet there are no ways out of it. There are two ways to deal with life in this time and age. One is to hope little changes will take place that turn the world governing system to more human based rather than capital, and other is to categorically disagree and declare that you will not bow down to this philosophy. Perhaps the first position will bear fruit and yield more personal satisfaction.

While traveling around I have come to this conclusion that humanity has a long way to go. We might destroy our earth before realizing what's truly important. However no need to give up yet, as human are survivors.


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Genghis Khan

When a bolg renders ablution void!

by Genghis Khan on Mon May 24, 2010 09:27 AM PDT

The IRI's agents should be, instead, grateful to a dominant system of global capitalism which provides the corrupt, and broken regime in Iran with enough petrodollars, which pays for their university tuitions, and their residency on this site. 

If my body dies, let my body die, but do not let my country die.


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Niloufar Parsi

abarmard

by Niloufar Parsi on Mon May 24, 2010 09:14 AM PDT

thanks for your kind comment. yes it is true that capitalism adjusts itself. it is one of these adjustments that is needed right now or else there will be greater crises. where these incremental adjustments lead the system to is another question.

there is the issue of concentration of capital that i did not refer to in the article. this comes with a concentration of political power, and in time, it becomes more and more difficult to deal with. corporations will increasingly challenge the power of states. so it is a dynamic process of cycles that are not necessarily that similar to each other. the current one is some such crisis i would suggest.

Peace


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Ali P.

Capitalism...hummm..

by Ali P. on Mon May 24, 2010 09:05 AM PDT

I like it!


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Abarmard

Interesting points

by Abarmard on Mon May 24, 2010 08:52 AM PDT

Going back to history, if Capitalism was unable to adjust itself and mix more social flavor then it would have not survived. The best hope is for society to become more aware, hence more concerned about the environment (and unbelievable amount of toxic that these capitalist countries force into our earth).
Unfortunately there are no viable ways other than social awareness to fight against pro capitalistic decisions that are supported by most governments, and social awareness takes time. I believe in the long run, the system will adjust itself, for the sake of its own survivor, to care more about life that it creates from its actions.

We just hope that by the time we all are in line to care for our natural world, our world is still recoverable.
Thanks again for this thoughtful blog.


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Onlyiran

COP - Good one

by Onlyiran on Mon May 24, 2010 08:46 AM PDT

Thanks my friend.  That was great.  

On another note, is "she" quoting verbatim from the Manifesto? :-)))


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vildemose

COP: LOL

by vildemose on Mon May 24, 2010 08:26 AM PDT

COP: LOL


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Cost-of-Progress

NP, not to worry...

by Cost-of-Progress on Mon May 24, 2010 08:20 AM PDT

Need not worry about governments' incompetence, lack of regard for the greater public and a myriad of other factors that make or break a system. Know why? Beause the Islamic Regime in Iran is still in power after 31 years of the worst governance Iran had seen in a long long time.

I must say that your concern for the western governments' political situation as well as the people who live in those societies is not only heart-warming, but in a way......rather cute!  

____________

IRAN FIRST

____________


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