By Francis Lee for the Saker Blog
According to the economics textbooks, the market mechanism is the most effective method of ensuring technical and allocative efficiencies in a capitalist economy. Technical efficiencies being the method whereby goods and services are produced at the lowest costs and allocative efficiencies being a situation where the distribution of goods is such that there will be no surpluses or shortages of commodities produced. This is sometimes termed as Pareto optimality (after the Italian gentleman who coined the term). Demand and Supply will be in long-run equilibrium. Consumers through their money vote will be able determine what gets produced, for whom, and in what quantities.
This process of production and distribution will be mediated through the market mechanism where price signals tell the producers what the consumers are demanding and they respond accordingly. There are a further set of assumptions on which this market theory rests: firstly firms cannot influence the price of their output; products – trousers, apples, haircuts, TVs, – are homogeneous; the consumer has full market knowledge; there are no barriers to entry between difference sectors of the economy.
The above assumptions are of course light years away from actually existing capitalism. Contemporary capitalism consists of a number of market sectors: the competitive sector, best epitomised by street markets, the oligopolistic sector (oligopoly = few producers); for example in motor vehicles, retailing (supermarkets) pharmaceuticals, publishing, computers, banks and so forth. These markets operate under very different conditions from the classic textbook firm. More often than not they operate in flat opposition to the assumptions listed above: they are price makers, their products are differentiated, the consumer does not have perfect market knowledge, and there are formidable cost-barriers to entry. As Schumpeter pointed out price is dethroned as the principal selling mechanism; instead modern corporations actively manipulate the market in shaping consumer preferences through advertising. Now design, brand, and image exist alongside price as a consumer purchasing determinant.
In oligopolistic market structures wages and profits are administered rather than market determined; this means that wages and profits in this sector tend to be higher than in the competitive sector of the economy. This being the case it would be more realistic to say that producer sovereignty was as important as consumer sovereignty.
Finally there is monopoly where one firm dominates the market. The firm does not necessarily have to be big, but there does not exist any other real competition.
The textbook neo-classical view is that anything other than a perfect free market would not be conducive to technical and allocative efficiency. In the real world, however, productivity gains through ongoing research and development (R&D) programmes of large firms have scotched the notion that only a perfectly competitive market can deliver the goods. These productivity gains have been brought about by economies of scale (and scope) and financed by internally generated administered profits set against a financial situation of long term stability. Moreover, the size of some industries, steel-making, ship-building, oil-extraction and refining necessarily means that these enterprises can only be large scale. In the completely imaginary world of perfect competition there would be no cash for R&D since profit margins have been pared to the bone by cut-throat competition. In this ultra-competitive environment there would be no economic or social stability with wild gyrations in prices and wages.
It has been large scale oligopolistic capitalism which has been responsible for the dynamic economic growth of the last two centuries, not perfectly competitive markets which are little more than a metaphysical abstraction.
Joseph Schumpeter once remarked in this respect: ‘What we have to accept is that it has come to be the powerful engine of that progress and in particular of the long-run expansion of total output … In this respect perfect competition is not only impossible but inferior, and has no title as being set up as a model of ideal efficiency.’’ (Capitalism, Socialism and Democracy – 1943)
Moreover, the growth and development of capitalism has had as its corollary the active participation and intervention of the state in every sphere. From the supply side of providing transport, education and legal infrastructure, to export subsidies, protection of infant industries, procurement policies, industry and regional policy, as well as monetary and fiscal policy the influence and role of the state is pervasive. In addition, the state has provided public goods – police and armed forces, infrastructure including health and public education – as well as what are called ‘merit goods’ – art galleries, museums, parks, swimming baths, playing fields, higher education and so forth. It was broadly recognised that systemic market failures were endemic to the free-market capitalist system and that this had to be compensated for by active public involvement in the running of the economy.
This has been the reality of capitalism after the Second World War (and many would argue even long before this) and formed the basis of the post-war settlement and the long period of capital accumulation circa 1950-1973.
The counter-revolution which began in the closing decades of the 20th century and the ideological holy trinity of privatisation-deregulation-liberalisation supposedly signalled a return to free-market orthodoxy of the textbook variety. And in a certain (rhetorical) sense this was true.
Many regulations which were prevalent in labour, financial and product markets were scrapped or weakened. Controls on capital movements, ‘flexible’ labour markets, rules on borrowing and lending, distinctions between laws governing commercial banks and investment banks, and commercial banks and building societies and much more ‘red tape’ to boot. It was claimed that this was going to have an energising effect on the economy by ‘getting the government off the backs of business’ and letting the system flourish. It was argued by its proponents that if market forces were unleashed then growth and prosperity could be assured since only market forces could produce a positive outcome. And where it was not possible to free-up a market, in terms of the non-market sector – like the UK’s National Health Service (NHS) or civil service – then a quasi-market structure should be set up in these areas in order to maximise efficiency. In terms of outcomes, however, the less said about this latter policy the better after three successive blow-ups starting with the dot.com bubble of 2000.
Such was the rhetoric and to a degree the practise of governments since 1979. It was self-evident that these free-market nostrums became, and still are, with one or two exceptions, the ruling theology among the political, business and media elites throughout the world. However, sustaining such views gets a little problematic when the downturn of the capitalist cycle comes around.
Nothing could illustrate this better than the financial crisis of Summer and Autumn of 2008. The well-heeled captains of finance apparently see no inconsistency in their putative free-market beliefs and then asking for a bail-out when their misconceived lending policies end in a mess. Then the time begins to ‘get the government on the backs of business’. Interesting to note also that Adam Applegarth, CEO of Northern Rock, in the UK, basic salary £760,000.00 per annum was in charge. They don’t even have the decency to resign.
This surrender of the US and UK monetary authorities to Wall Street and the City of London has been well articulated below.
‘’After pretending an unwonted firmness for a few weeks, the central banks in both Britain and the United States caved in, accepting financial sector bailouts and in the Fed’s case lowering interest rates. Moral hazard has thus been made immoral certainty; financial market participants who indulge in grossly speculative activity can be … ‘highly confident’ (in the words of the old Drexel Burnham commitment letters) that they will be bailed out by the public sector, i.e. ultimately by the taxpayer. Rarely has there been such an obvious subsidy of the overpaid by the beleaguered. It raises the question: what if anything is the point of central banks in the new world we have entered?’’ (Martin Hutchinson – The Great Conservatives – www.prudentbear.com)
In 2008 the crisis across the world involved central banks who were bailing out markets by lowering interest rates attempting to thaw-out the liquidity freeze-up in the system. But, hey, wasn’t the whole crisis caused by too much debt and liquidity in the first place? Got it in one. The medium to long term implications of this re-inflation of the liquidity/credit bubble doesn’t bear thinking about, but the defining characteristic of markets is that they think strictly short term; and in the present climate they get what they want from both central banks and politicians: Liquidity, liquidity and more liquidity.
Such state intervention in contemporary markets has been a feature of the whole post 1979 period. From the Savings and Loans and Long-Term Capital Management debacles in the US to the contemporary crisis in world finance with more in the pipeline (that’s for sure) the taxpayers have been dragooned to indemnify the banks (markets) against their own greed and incompetence.
So the entire marketisation agenda has really been nothing more than an attempt to provide investment outlets for surplus capital – privatisation – and a thin ideological veneer to obscure the reality of allowing the predatory beasts of international finance and corporate power free rein to pursue their own ends. The reality also is of a business sector which is totally addicted to state support.
A pure free-market is therefore impossible and possibly even undesirable. It is incompatible with a modern economy and probably always was, except for perhaps early settlers in a huge virgin continent like North America. Markets of some type or other will always exist as part of any national economy. One does not necessarily have to take an ultra-Stalinist command economy as the only alternative. Precisely how a mixed economy would integrate markets into its general framework is another article.
However, what we are currently witnessing in 20/21 is the mother of all blow-outs. But this was always going to be the outcome given the myopic want-it-all-want-it-now of the cultural zeitgeist. We now seem to have reached the financial/economic/political and cultural inflexion point of the existing order. We can only guess at the eventual outcome – an outcome which has germinated in the mental landscape of Klaus Schwab and Bill Gates, and the Great Reset. But I suppose we could always try prayer.
The capitalist system was always going to collapse after Nixon moved off the gold standard.
Once fiat money took over then a dollar created from hard work, innovation or entrepreneurship was worth the same as a dollar created out of thin air.
Sooner or later the average smuck would cotton on to the fact of “Why work” if you could borrow and play the great Wall Street casino, if enough play the game then you make enough off the naive.
So the West has to import more and more people to do the basics because the native born have found that they are to important doing a meaningful job as day traders.
Now governments are into it, creating as much money as they want out of thin air , giving it worth by central bank purchases of bonds.
And the honest toiler sees his money devalue as interest is near zero, why work for nothing?
The West has killed itself, it happens with all empires when the idiot children take over from the builders, all empires die from within.
Now is the danger time where the dying empire looks to lash out at someone.
Sooner or later the average smuck would cotton on to the fact of “Why work” if you could borrow and play the great Wall Street casino, if enough play the game then you make enough off the naive.
I’m with you there other than for “the average schmuck.” It’s not the average guy that caught on, it’s the guys who designed and run the Wall St. Casino courtesy of the Federal Reserve. This has all been in the works since that fateful day in 1913 when the US Government officially sold out.
What’s left of “the state” here in the west and the international monetary gods are now one and the same. All the rest is kabuki theater for we plebes’ entertainment.
I commend Justin Welby’s “Dethroning Mammon” for a dissection of how the system fails everyone except those at the top of financial institutions. David Graeber’s “Bullshit Jobs” is almost a companion volume, and documents how the next 19.99% down from the top 0.01% lead worthless, fraught, unsatisfying lives. Oddly, Graeber, a Marxist of Jewish family background, laments the loss spirituality in work, whilst the Archbishop of Canterbury’s familiarity with “The City” makes for very clear exposition of the essentially fraudulent nature of “Con” and “Fin”, his terms for the Homo economicus model of humans, and Financialisation. Graeber died recently of an unexpected stomach complaint after eating at a restaurant in mafia-controlled Draghistan,
I am hoping this might make a difference
HomeBusiness News
Verona opens doors to Eurasian Economic Forum with the theme of new human-focused economy
28 Oct, 2021 06:11
Verona opens doors to Eurasian Economic Forum with the theme of new human-focused economy
Ponte Pietra bridge, Verona, Italy © Global Look Press / Frank Bienewald
Follow RT on
RT
The 14th Eurasian Economic Forum kicks off in the Italian city of Verona, bringing together politicians, businessmen and public figures from across Europe and Asia.
Participants of the two-day offline event are expected to discuss a wide range of issues concerning economy and finance, healthcare, environment, energy and technological innovations. The forum’s agenda is represented by the theme: “Eurasia on its path to a new geopolitical, social, and economic order: transition to a new, human-centered economy”.
The forum opens with the session “Structural changes in the economy and the future of energy”. The first day of the program is devoted to energy transition, circular economy and the green economy.
ALSO ON RT.COM
With its plan to unite Eurasia from sea to sea, Russia is betting the days of total US economic supremacy are now coming to an end
The second day is expected to feature discussions on the impact of the pandemic on the banking and financial sectors, technological innovation and the digital transition, as well as the role of the pharmaceutical industry in the modern economy and debates on overcoming the neoliberal model.
“For two days in Verona, persons of great international authority will discuss how East and West can work together to overcome the current geopolitical and economic situation,” President of the Conoscere Eurasia Association and Chairman of Banca Intesa, Antonio Fallico, said.
via rt com
Perhaps that Great Reset has already occured. Because, as I wrote under another post, not long ago, from my perspective, the current global situation looks quite bleak. With risk of repeating myself:
The sad truth is that the modern society is a very rigid class system. Forget about the autocracy vs democracy dichotomy, NATO vs axis of resistance, “Woke” left vs “Conservative” right. Forget about the upper, middle, lower division of the good old days. Today there are only two tiers – upper and lower – with three distinctive layers: dominating, intermediate and the dominated.
Ok, I may be exaggerating a bit – there is still a middle class, kinda, sort of, but it consists mostly of low-level corporate and state workers, and small private enterpreneurs, trying to run their own businesses (but, regrettably, doomed to fail in long term).
Nevertheless, the social stratification is at its peak everywhere in the world. At the top of our society you have the transnational megacorporations. These global companies *ARE* the real power in our world today – they have more money and yield more political influence than most of the governments today; they practically create their own culture, laws and social systems. Indeed, there are some cultural differences between them, result of their nation of origin, but ALL of them value the same things – conformity, observation of the hierarchy,
unyielding loyalty to the company and its policies, but above everything else – Power (with capital *”P”*).
In the global picture, nowadays you’re either working for a transnational, or you’re on your own – this means that either you’re struggling to run your own business, you’re freelancer, or you’re unemployed. Low- and middle-level corporation employees are expendable and replaced almost immediately – the large contingent of unemployed are used by the transnationals as readily available pool for replacements, and is a constant threat to the employed. If you’re ineffective – you get fired. If you’re disloyal – you get fired, or worse. And if a transnational considers you a threat – you’re most definitely worse.
Let’s first review our corporate lords and masters.
At the bottom of the corporation hierarcy you have the “dominated” – cleaners, drivers, janitors, security guards, low-level employees. For their work they receive a salary, usually bordering to subsistence level (I know it too well – currently I’m at this level). If they’re lucky, they may get a basic health-care insurance, paid by the corporation. Many of them are content with their dull jobs, carrying day by day their mediocre, drap existence. Some of them are dreaming about “promotion” and advancing into the ranks of the “intermediate” – the middle class of the corporate workers. In order to achieve this, they ofter work extended hours (in some cases up to 16 and more per day), they often resort to legal, and in many cases – illegal, stimulants just to keep up with the pressure. As result, they’re stick in a limbo, waking up every morning to do the same thing over and over
again, like hamsters in a wheel. They’re dreaming and waiting for their “big chance”, because, they think, if they’re persistent, clever and ruthless enough, eventually they’ll have their chance to step up the corporate ladder. They dream how they’ll probably get some nice apartment (paid by the company, of course), and, may be, a company car. They imagine that their salary could go up, and, probably, now they could go to eat out from time to time, and enjoy fresh – but still GMO – food. But most importantly – they’ll be eligible for promotion to the
upper levels. The sad truth is that such dreams are delusional – no matter if you get up there with your fists or knees, your connections, years of education or practical experience – at this level, is where the things get really serious. Here, you’re just one little shark among older, bigger sharks in a very crowded fish tank. To remain at the intermediate level one must be always few steps ahead of the competition, and be prepared to fight quick and dirty. Many, who’ve reached this level drop out soon after that, sometimes with very grave personal consequences. Very, very few have ever get the chance to progress beyond that.
At the very top of the corporate hierarchy sit the real son-of-bitches – board members, CEOs, corporate owners (don’t mistake them with shareholders – the shareholders are just the dupes left holding corporate debt instruments, which will never be repaid), their family relatives. The new oligarchy. The ruling families of the brave new world, which all of us are “enjoying” today. Most of them have inherited their positions, groomed from day one to take over, when their parents decide it’s time to change the faces. Some of them worked it out after
decades of scheming, back-stabbing, consolidating power and building alliances. Still, while their position is more stable than those of the low- and middle-level employees, it’s far from secured – there are always young and ambitious ascendants, waiting for even the slightest slip.
It should be noted, that coups at such high level are extremely rare – the stakes are so enormous and the possibility to weaken company’s strength (a sure way for a corporation downfall) in a badly timed overthrow is so high, that this is where those psychopaths draw the line – very few of them would risk internal power struggle. These are the things that high and mighty fear most – for them the company is literally their life, more important than their families. Pretty much every CEO would sacrifice everyone and everything to ensure that his (it’s rarely hers’, but these days you never know…) company will remain alive and profitable.
The main threat to a transnational company are their fellow transnationals. On their way to the top of the food chain every transnational have worked hardly to overcome every and all domestic and government opposition. In places without strong governments, the transnationals have established bitter rivalries and are their worst
enemies. Every imaginable sector of the economy is essentially a war zone, where only the strongest survive. On such battle field there are no rules of engagement and the transnational corporations aren’t beyond
using the most gruesome tactics imaginable – hostile take overs, assasinations of key management and research personnel (usually conveniently presented as accidents, incidents or result of worsened
health condition) and destroying and sabotaging of production facilities, transport lines and warehouses (presented in corporate-owned mass media as tragic accidents, of course) are just the tip of the
iceberg. Many transnationals are not beyond the use of para-military forces and commiting crimes against humanity in regions with weak and corrupt governments in order to increase their bottom line on the
balance sheet.
Speaking of the governments, the businesses of the government and the transnational corporations have always been interlinked, and nowadays, they don’t even try to hide it. Thou the power of the nation states is
just a fraction of the power yielded by the transnational corporations, they are still powerful regional players. Still, in the west, the governments these days are nothing more than front-office for the transnationals, which choose to set foot in the respective region. Of course, a lone government “crusader” may start “bashing” a coproration on the local media once and then, but it usually ends when the said government official receives his “fair share” of the bribe money – in the end, the government officials always seem to end up approving laws,
which benefit the transnationals first, and the ordinary people be damned – those politicos most definitely know who’s giving them their bread and butter.
In a world so influenced by corporate-owned mass media, with populace so addicted to cheap entertainment and omnipresent trash culture, the so called “celebrities” have their own place at the top of the social pyramid. Every branch of the show business has its own stars, whose works shape trends and opinions. Most of them are product of the entertainment industry itself, designed to feed the current fashion. Very few of them are natural born talents, discovered by a manager, who recognized their potential and helped them to develop it; these days
most of them are creation of the corporate-owned mass-media and aggresively promoted, usually to push forward some idiotic, “woke”, politically-correct agenda. Regardless of their origin, they’ll shine brightly for a (short) period of time, and then replaced by the next trendy face.
Apart from the low-level corporate employees, today’s middle class consists of those, who’ve failed to find their place in a transnational corporation. These people are trying to run their own business, usually a small-time store. Owners of these enterprises are ordinary, trying to be law-abiding citizens, who try to earn their living without selling their body and soul to a transnational. Some of them even succeed, even if for a brief time, because, despite the efforts of ever-expanding corporations, these business still provide a fair number of jobs for
their local communities. A small business owner’s situation is often challenging, as they are forced to rent homes in poor locations with (usually) non-existent security and, therefore, more exposed to criminal activity. They also have to cover the cost of all social and health insurance all by themselves. Usually, without the backing of local authorities, such owners are often forced to pay “protection fees” to local criminal gangs. In all fairness, in such locations, and if you pay your “fee”, the local criminal gangs actually provide better protection
from rivals than the authorities ever could. The lowest level of this tier, the “new middle class” of the 21st century, are the people on the verge of poverty. Poorly educated and mostly unemployed, they’re struggling to meet ends by running semi-legal (and in many cases – outright illegal) business, and trying to steer clear of authorities and organized criminals (actually, nowadays, there’s hardly a difference between them – everyone knows that “civil asset forfeiture” is just a fancy term for armed highway robbery). Ironically, in the cold reality of the 21st century, the fact that they have a job at all counts them among the lucky ones.
There is always a way down from the rock bottom, of course. Brutal changes in the structure’s society after the financial, health and geo-political crises during the first two decaded of the 21st century have dramatically increased the proporiton of the poorest part of the human population everywhere in the world. In every major city (especially those ranked as global) there are entire districts of shantytowns, tent cities and favelas where tens of housands of people live in outrageous conditions, trying to survive day-by-day. And despite the high mortality rate as result of disease, drug overuse, criminal activity, this army of outcasts grow bigger every day – people, who’ve lost their jobs after last “cost optimization” by their former corporate employers; people, who’ve lost their life savings as result of the latest government-approved financial scam, after which the big banks
bailed out their buddies with freshly printed (well, actually electronically created) money; people, who’ve lost their entire families in regions, where local wars, fueled by corporate interests run unchecked, or people, who simple gave up and stopped caring.
Once a few years, a local government tries to solve the problems of such slums and their inhabitants. All such attempts always end up with corruption scandals, with the poors often left worse than before.
In this brave new world we live today – there’s hardly place for optimism.
Thank you for your patience to read my rant in its entirety ;-)
Excellent summation! Your description or the corporate behemoths reminded me of the Python skit “The Crimson Permanent Assurance,” with its depiction of giant corporate behemoths depicted as pirate ships at war. As apt an analogy as any I’ve seen of what’s going on in the corporate world today. We’re all living in a corporate world these days, but alas, most of us are just unwelcome visitors.
https://www.youtube.com/watch?v=lNlYBNTCBG8
Bravo good sir! Keep it up!
I thought the article was brilliant and then I read your comment. Always some good stuff on the TheSaker. Part of the new elite are those who got the Rhodes scholarships, those guys just walk into the CEO positions.
A wise man commented the following on UNZ
“Bertrand Russell, in his book ‘The Impact of Science on Society’ (1953) gave a clear indication of the long term goals of the Satanic globalists: “Gradually, by selective breeding, the congenital differences between rulers and ruled will increase until they become almost different species. A revolt of the plebs would become as unthinkable as an organised insurrection of sheep against the practice of eating mutton.”
There is life after the Reset but not in the so called West.
There will be life in Russia,Africa, Asia, Latinamerica and certains parts of Eastern Europe.
I have seen lots of people from the West coming to our shores (Latinamerica) in the last couple of years.
The extraordinary, almost unknown truth of it is though that since 2008 and the GFC, credit growth has largely been for the purchase of very safe assets such as govt bonds and mortgages. Lending for productive purposes has barely grown in 13 years and the more the government spends to compensate for the lack of credit growth, the more it crowds out the risk takers (the productive kind).
The boom in equity values is partly due to increased retail margin debt but has more to do with the relentless inflows of superannuation (401k) savings, the buyback and cancellation of existing shares by corporations themselves and the mistaken belief by the market that the reserve banks “print money”.
The power to create money is in the private banking system. The Federal reserve is not much more than a Wizard of Oz kind of actor always reacting to the demands of the market while pretending to be leading the way.
This trickery can only be done with the complicity of the Government, the media and the corporate stakeholders or in other words, the usual suspects (you know who), and those citizens who are happy beneficiaries of the system (who are simultaneously ignorant of the cost of their good fortune to the rest of society).
My information is that despite the apparent sea of money in the system, it is being trapped within the banking system by QE and the next crisis is likely to be another liquidity crisis a la 2008.
That is of course unless another crisis is invented (like the one we don’t question here) or some other black swan event which forces governments to up the ante again and save the day (for the financial system).
For those who are unaware, the system almost blew up in September 2019 just before the virus came along by an amazing coincidence and again in March 2020 just as martial law was imposed around the world and fiscal responsibility was damned.
The right calls on 09/2019 and 03/2020.
An amazing coincidence. My own assumption is that the ‘market’ has blown up, continues to remain blown up and has not been ‘bailed out’.
The economic collapse is in progress and is about to enter the next wave.
The many agendas in play at the moment are astounding.
To quote Sun Tzu ‘ sweat more during peace, bleed less during war ‘
In line with the books of Piketty I believe that we are moving in the direction of a feudal society like in the late 19th century. In such a society property is concentrated in the hands of a few. And those who don’t belong to that group have very little chance to change that.
The motto of Klaus Schwab, that “you will own nothing and be happy” points also in that direction.
In an effective society there is an equilibrium: there will be new fortunes but the old fortunes will at the same speed decrease. In the Western societies things started to go wrong long before the 1970s. The first thing that went wrong was that the labour income ratio (company profits versus labour income) became lopsided in favor of labour. At the same time inequality remained the same. That meant that capital increasingly became in the hands of people who didn’t use it for productive investment.
This problem became acute in the 1970s when much money streamed to the oil sheikhs while at the same time extra investment was needed because many jobs were moving to the Far East.
Then came the Thatcher/Reagan revolution. Its “solution” was to give the rich a bigger share of the pie. That worked for some time. But all that extra money destabilizes society and resulted in the 2008 economic crisis.
As the rich by now dictate economic policy their solution was to once more do something that was good for their wallets. This time they came up with “quantative easing”: pumping more and more money in the economy. As the governments have stopped policies that recycle money from old fortunes towards new productive investment all this extra money sooner or later ends up in the bank accounts of the rich.
“In line with the books of Piketty I believe that we are moving in the direction of a feudal society like in the late 19th century. In such a society property is concentrated in the hands of a few. And those who don’t belong to that group have very little chance to change that. ”
Neo-Feudalism
It is a fools errand to attempt to attempt to discuss the “great reset” while avoiding discussion of the main tool being used to try to force it.
Ignoring the elephant in the room doesn’t make it cease to exist.