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We are all capitalists now

19 Jul 2021 3 month(s) ago

There are many superannuants who are 'anti-capitalist'. But whether they like it or not, they are capitalists.

The thing about having superannuation is that it makes everyone a ‘capitalist’– quite literally. You own capital which is invested in the economy. It is worth considering the implications of that.

 In politics and political academia it is almost mandatory to have a position on ‘capitalism.’ Those on the left are against it; those on the right for it. The left thinks it leads to inequality, excessive materialism, and class oppression; the right thinks it leads to efficiency, greater wealth for all and greater economic and social freedom.

It is a familiar pantomime and it is almost meaningless. There really is no such thing as ‘capitalism’ — or rather there are so many capitalisms that the word is altogether too imprecise to be useful. A much better term to identify the problems, even evils, of modern developed economies is ‘corporatism’. This can be precisely identified and its transgressions and general harm are getting worse.

‘Capitalism’, in the study of history or politics, is usually defined in relation to the development of private property rights. What is rarely looked at is the ‘capital’ part of the equation because that requires looking at financial systems and how money formation works. When so-called capitalist countries are examined from that perspective, an extremely variegated picture emerges. The way that capital functions, and is created, reflects very different historical traditions and different cultures. There is not enough commonality to call capitalism an ‘ism’ in the way that one can with communism or socialism.

Capital, money, can only exist because of a substructure of trust, which allows people to transact with each other. If people do not trust that a $10 note is really a $10 note then they will not accept it. This in turn means it has to follow the laws applying to $10 notes; there is a requirement for regulations to exist for any type of monetary exchange to be sustainable (just look at a mortgage document to see how many laws apply to bank debt).

Those laws can be, and have been, made universal; that is how international transfers are possible. But, as the American political analyst Francis Fukuyama showed in his book Trust: The Social Virtues and The Creation of Prosperity, the way that the underlying trust operates varies greatly in different cultures. 

It results in very different capital structures in different countries. For example, big stock markets have mainly appeared in English speaking countries, despite the bourse being initially a French initiative. Why? In extremely rough outline it was because in the north of England in the nineteenth century new forms of mutual funds and provident societies were formed, mostly created by non-conformist religious groups such as the Odd Fellows. This capital formation, which was significant in funding the Industrial Revolution, focused heavily on equity capital (shares). That financial practice was exported to places like the United States and Australia and became a key element in the creation of large stock markets across the English-speaking world.

Europe, however, did not have that history. So it had, and has, comparatively small stock markets and relies more heavily on debt capital and the banks. That emergence of equity capital in Britain, it might be added, is where Marx’s predictions about capitalism’s inevitable collapse most went awry. Marx concentrated on debt capital and envisaged that the pressure of compound interest on the debt would inevitably result in a collapse, a not unreasonable conclusion. Equity capital, which was not part of Marx’s thinking, has a quite different effect; it is much more patient capital and is far less likely to lead to collapse.

In Australia, that nineteenth century tradition came to an end when the mutual funds were demutualised in the 1990s. Then it was reconstituted anew through the creation of compulsory superannuation. The super funds heavily invest in stock markets; indeed the pool is now so large about a quarter of the equity investment is sent offshore.

What most matters for this type of capital formation to exist is the underlying culture, the artifice of trust — something that Australia already had. Chile and Uruguay both tried to emulate, at least in outline, the same kind of initiative of superannuation savings, but they largely failed. Those countries have no history of large, transparent stock markets and the necessary trust did not exist. Accordingly, there was widespread misbehaviour and filching of the capital, very much to the detriment of the savers. The experiment was largely abandoned; those countries had the wrong culture for that type of capitalism to work.

Capitalism is thus not anything like a single thing. What is more homogenous is corporatism: big businesses and monopolies that manipulate customers, buy off governments, debauch legal systems, pay low taxes, destroy competitors and in some sectors look for the economies of scale that lead to the monocultures damaging the environment.

This is quite distinct from capitalism. Corporatism is an enemy of the free market. The aim of a monopolist is to eliminate competition, not embrace it — as has been demonstrated yet again by the recent behaviour of the tech monopolies. It is worrth remembering that when you invest in blue chip stocks, you are investing in corporatism.

It was the very thing that Adam Smith, the high priest of ‘capitalism’, was attacking. Those who want to reject capitalism would do far better if they shifted their attention to corporatism and what the corporations are doing. That is the source of many of the most harmful and intractable problems in post-industrial society.

 

 

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