How to Improve Capitalism

It's clear capitalism doesn't work very well at the moment but most of us feel there isn't anything to be done we're stuck with it because there's just no alternative That's nonsense there are plenty of good workable suggestion for reform and here are four of them We have to bear in mind that capitalism isn't just one thing There are almost as many varieties of capitalism as there are capitalist countries There are american, german, singaporean, swedish, danish, korean versions of the thing The differences include the sizes of the welfare state from around 10% of GDP in Korea to over 30% in Finland The importance of state-owned enterprises producing less than 1% of GDP in the US But 22% of GDP in Singapore And the power of trade unions, with nearly 70% of workers unionized in Norway and only about 10% in the US. Capitalism has got dials and we can adjust them Think that Sweden, that supposedly high-tax-addicted country only introduced income tax in 1932 two decades after the U. S.

and nearly a century after Britain Or remember that the US, that pro-the-rich place today had a top income tax rate of 91% between 1915 and 1963 and it didn't do them much harm at all so we don't have to chug capitalism in a bin the trick is to tweak and reform it in intelligent ways When people hear of options to adjust capitalism for the benefit of all they tend to think that sounds beautiful but in the end the 'free-est' variety that you find in the US will ultimately outcompete the others because it's just superior the argument goes like this: the US variety maximizes growth by minimizing the constraints on wealth creation which creates higher inequality but in the end makes everyone better-off in absolute terms than under a more equal but less dynamic system but if you look at facts it's overwhelmingly not true that the freer varieties of capitalism grow faster From 1955 to 1980, the time when regulations were much stricter, The world economy grew 2. 6% per year For the next 30 years, the heyday of neoliberal economics it grew at only 1. 3% In its miracle growth periods between 1958 and 1982 Japan, Korea and Taiwan had governments hell-bent on dictating business activities and it worked rather well for them.

Contrary to the popular belief, that a large welfare state is bad for economic growth, Finland, with the welfare state 1. 5 times bigger than that of the US, 30% of GDP as against of 20% has grown faster than the US with an average annual per-capita income growth rate of 2. 7% for the last 40 years against 2% in the US A well designed welfare state with integral retraining and redeployment programs promotes, rather than deters growth Importantly, when people feel secure they take risks which is the life part of capitalism "Secured people dare" as the old slogan of the swedish social democratic party used to go Unlike what some economists like to tell us it doesn't have to be a hard choice between security and stagnation on the one hand and perilous insecurity and economic dynamism on the other It isn't some inevitable natural phenomenon You sometimes hear that CEOs need to have huge paybacks or they won't deliver the goods but data consistently shows no relationship between a rising executive pay and executive performance Then there is the claim that we redistributing wealth impoverishes everyone but some of the most productive and wealthy countries in the world redistribute avidly Before redistribution throught the tax system Germany in 2011 was a far more unequal country than the US Germany's G.

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's coefficient, an indicator of income inequality in which zero means absolute equality and 1 means absolute inequality was at 0. 51, higher than in the US, where it was 0. 50 But after redistributive taxes Germany's G.

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coefficient fell to 0. 29 while the US, with a far more elite-friendly tax system saw its G. I.

N. I coefficient fall to only 0. 38 Moreover, countries can limit the very ability of the market to generate inequality through formal regulations or informal business practices South Korea, for example, has by far the lowest rate of inequality in the developed world with a G.

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coefficient of just 0. 34 But this didn't come about by magic rather because the country has lots of regulations protecting some pretty nice things like organics farms, and small shops, especially bakeries and bookshops And it has laws that keep CEO compensation low by international standards All this preventing the full manifestation of the inequalizing tendencies of an unfettered market In other words, inequality is not the result of uncontrollable forces, like technology or international trade There are lots of tools that a society can use in order to reduce it and a lot of the wealthiest and most dynamic countries are using them very wisely indeed already The rise of the financial industry is a blight on capitalism making it unstable, unequal and very short-termist For example, in the 1960s if an investor bought a share on a company in the UK they held on to it for an average of 5 years By the mid-2000s the number had fallen to a mere 7 months Faced with the radically diminishing patience of their investors companies have done a host of nasty things to make investors happy right now at the expense of the long term They suppress wages squeeze suppliers and chug back profit at shareholders, rather than reinvesting Between 1950 and 1970, the hundred largest US corporations retained 65% of their profits every year But by the 200s, they were retaining a mere 6% vastly diminishing their own abilities to invest for a properly succesful future It's actually rather easy to encourage long-term-oriented investment you just need to give greater voting rights and tax advantages to long-term shareholders and you need to have sovereign wealth funds and national pension funds representatives of the long term collective interests using their considerable financial power to back long-term-oriented corporate behavior Above all, mergers and acquisitions need to be made more difficult as is the threat of these that typically pushes managers towards actions that please fecal short term investors All these schemes may seem like pipe dreams but they're far more tantalizing than this They're real possibilities, alive in certain favored enlightened corners of the globe right now There is no need to give up on capitalism We just need to understand it a little better and stand up to arguments that bully us into accepting its worst versions.