“We’ve created, what I consider, a mutant, viral form of capitalism. And this mutant form of capitalism; which I think is really a predatory form of capitalism has created an extremely unstable, unsustainable, unjust and very, very dangerous world.” -John Perkins
The dirty secret behind the crisis is that THERE IS NO ECONOMIC CRISIS. Over the past few years, we have been repeatedly told to endure austerity, when the truth is, the financial economy has never been richer. It is getting richer because it is exhausting the prosperity from the real economy, under the mask of a euphemism called neoliberalism.
If you want to learn where you stand in today’s failing system, then you’ve come to the right article. By reading this, you will realize your power to choose as a consumer, and give way to a new system (constructive capitalism) that can boost the real economy and bring back its balance.
For 30 years, we have been witnessing a deregulation of financial sectors, and thus the establishment of an aggressive anarchic capitalism, better known as neoliberalism. As Professor Jodi Dean (Dept. of Political Science in Hobart and William Smith College) puts it, neoliberalism is “that extreme capitalism wherein government pursues policies for the benefit of markets not people”. While the markets benefit, the people are being exploited, and contrary to its claimed intent, the implementation of neoliberalism has NOT fueled the economy. It has only caused rising debts and unemployment. Therefore, there is a strong need to apply a different set of principles in order to refuel the real economy in a mathematical and logical way.
An important factor in neoliberalism is deregulation, such as what is seen in the financial liberalization index for U.S., Canada, Switzerland, Australia and United Kingdom (see Table 1). The lift on regulations in the financial sectors (of each country shown) has largely increased where the following 7 parameters are concerned:
1. Credit controls and requirements
2. Interest rate controls
4. State ownership in the banking sector
5. Capital account restrictions
6. Prudential regulations and supervision of the banking sector
7. Securities market policy
This means that there is now hardly any control over these parameters, and that government intervention no longer or hardly exists in these countries’ financial sectors, due to the increasing liberalization of each country’s financial regulations. We observe how economic growth problems started at the same time as when neoliberalism seeped its way into these industrialized countries. As mentioned earlier, neoliberalism was supposed to be put in place in order to “fuel” the economy. Let us take a look at how it has rather failed the economy.
To start with, deregulation of the financial sectors is partly to blame for how the average salary is kept at minimum wage. Despite the unprecedented increase in productivity (due to automation and a number of other technological innovations), employees have been denied their entitlement to this wealth, while companies enjoy the liberty to feed it into the fictive economy in the form of stocks and shares (where it benefits mostly themselves), preventing it from naturally flowing into the real economy. Employee productivity has been substantially increasing, but without ever benefitting the hardworking people.
Table 2 displays a graph which shows the gap between productivity and real income. While productivity continues to increase, hourly wages and income have barely moved. Where has all this wealth gone to? Thanks to neoliberalism, shareholder’s remunerations continue to significantly rise, but at the cost of suppressing the average salary to the same level as the minimum wage, as seen in Table 3:
Shareholders’ high dividends, along with the excessive salaries of CEO’s, choke the growth of businesses and prevent any growth in the real economy. The emphasis on financial economy and thus the increase on shareholders’ percentages has allowed the wealth from productivity to be distributed in an irrational way, leaving the employees with minimum wages, while the CEO’s and shareholders amass big chunks of the profit.
Still, governments continue to tell people that there have been no growth and productivity gains that would justify or allow a raise in wages. However, Table 4 further proves that ever since the start of neoliberalism (70’s), the financial economy has been sucking up the productivity gains and growth in France, keeping its GDP low.
This information is representative of all countries with low minimum wages. We see how financial assets have spiked since the 70’s, while remuneration wages and GDP have stayed relatively low. Moreover, the next table shows us where the top 50 CEO’s in U.S.A. have been keeping their money:
More than half of remunerations are based in financial economy (stock options, shares).
In other words, all this wealth is kept in the financial, fictive economy without being invested back into the real economy. Furthermore, other methods, such as tax havens and tax exemptions, exist in order to pluck from the real economy, only to benefit the financial economy (fictitious economy) which by itself creates no real wealth. In a logical capitalist society, the financial economy drives the real economy to bring the investment it needs; it is supposed to serve the real economy. Neoliberalism has changed the very nature of capitalism. Today, we find ourselves in a completely reversed situation, in which the financial economy exploits the real economy. Ex-financial regulator William Black agrees with this statement, as he says, “Finance is supposed to simply be a middleman to help the real economy. It in fact now completely dominates and is a parasite on the real economy.”
We can further visualize what this means when we look at the pie chart (Table 6) that shows the repartition between real and financial economy (This table may be from 9 years ago, but the trend continues today):
Real economy : where the “real capital” is, capital that is actually invested in physical means of production and workers; where buying, selling produce, goods or services occurs
Financial Economy : The means used to finance the economy , whether by credit, stocks or bonds; where “fictitious capital” represents “accumulated claims, legal titles to future production”
With the real economy representing just a tiny fraction of the whole economy, we see how there is simply not enough money being invested in the physical means of production; this explains the minimum wages, high unemployment rates and high debts. From this information, we can conclude that the Financial Economy is not only failing to enrich the Real Economy, it is also killing it. This also explains why all industrialized countries have had very weak growth since the 70’s and thus experience troubles with debt.
The official news would have us believe that all indebted countries are uniquely due to poor management of the state. We would agree with this if there were only one or two countries in this troubling situation, but we remark that an alarming number of neo-liberalized countries around the globe are experiencing the same difficulties with debt, and for the same reasons, as seen in Table 7:
This table shows the percentages of debt belonging to public administration, non-financial corporations and household, in each of the above neo-liberalized countries. Although neoliberalism has used debt as an excuse to favour privatization and liberalization of economy, it has only worsened the problem that it was supposed to help solve. Privatization of public and social services take advantage of public wealth by making it private, while leaving the debt to the people. “What really happens is that public wealth and profit making opportunities get transferred to the private few.” For example, in Canada, “The sale of Highway 407 and the lease of the Bruce Nuclear plant both privatized the profits but kept the debt public.” This clearly shows how privatization of public services is preposterous and just plain abusive.
By looking at all the information above, along with supporting evidence of tables and graphs, one can conclude that neoliberalism has played a large role in the creation of debt, in order to create money that would only benefit the financial, or more fittingly, the fictive economy, which favours only the most fortunate. Living in this predatory form of capitalism means that emphasis is put on profit that benefits only a tiny percentage of the population. This emphasis on profits also means that large companies are willing to cheat you by selling you the lowest quality products for high prices, even if producing these items involve harming the environment and risking your health.
Neoliberalism has completely failed the economy and has even caused countries to go into deeper debts. A new system is thus imperative to be put in place; a new system with effective solutions. For starters, what you, as a consumer, can do is to stop purchasing from predator companies that keep neoliberalism intact; and start looking for more ethical companies that strive to establish a healthier, more constructive form of capitalism.
Co-written by Olivier & Jillian Fersancourt