John Menadue. Capitalism and the fall of communism

In this blog on 5 November I drew attention to an article by the Economics Editor of the Guardian Larry Elliott. In that article Elliott said “As the Berlin Wall fell, checks on capitalism crumbled.”  The principal thesis of that article was that with the end of communism capitalism became more aggressive and less inhibited. He said

The fear that workers would ‘go red’ meant that they had to be kept happy. The proceeds of growth were shared. Welfare benefits were generous. Investment in public infrastructure was high. But there was no need to be so generous once the Soviet Union was no more. What was known as neoliberal economics was born in the 1970s but it was not until the 1990s that market forces reigned supreme. The free market spread to poorer parts of the world where it has previously been off limits, expanding the global workforce. That meant cheaper goods, but it also put downward pressure on wages. What’s more, there was no longer any need to be inhibited. Those running companies could take a bigger slice of profits because there was nowhere else for workers to go. If its citizens did not like ‘reform’ of welfare states, they just had to lump it.”

This is not a new thesis, but it is becoming more and more urgent as a result of growing inequality.

And inequality is becoming more entrenched and apparent as we see the massive scale of tax avoidance by large multinational companies like Google, Westfields, Apple, Amazon, Ikea, News Corp, Glencore/Xstrada and hundreds of others. Taxes which we pay to maintain a civilised society are becoming optional for the wealthy and powerful.

In the next week or so I will be posting articles by Ian McAuley on this issue – capitalism, society and morality.

I think that there is widespread evidence that with the end of communism and the fall of the Berlin Wall 25 years ago, capitalism has become less restrained, and more aggressive. The neoliberal theorists told us that if the rich have more money through tax reductions and other benefits they will invest more and the poor would get the ‘trickle down’ benefits.  This has not happened.

  • There is growing concern across the world about the rise of inequality and the destructive social and economic consequences. Thomas Piketty in his book Capital in the Twenty First Century draws attention to the long term trend to greater inequality. This book is terrifying conservatives. Inequality has become a major issue in the US where the process began with Ronald Regan and his neoliberal supporters. Alan Kohler in the Business Spectator points out that “rising inequality began in the 1980s and was the direct result of Reganomics and its pursuit of tax breaks for the rich”. Regan also set about quite deliberately to cripple the trade unions. This crippling of the trade unions and the tax benefits for the rich in the US have bought enormous benefits for the wealthy and a major skewing of income with disastrous effects on the economy and political life where wealthy vested interests can, in effect, buy governments. Even Rupert Murdoch has shown his concern by hopping on the bandwagon about growing inequality. But his concern is not convincing when we know that in the last 16 years he has paid $US 600 million in salaries to himself, his children and a few senior executives.
  • Maggie Thatcher followed suit in the UK. She said there was no such thing as society, only individuals and markets. This has culminated in what the Governor of the Bank of England said in May this year that “capitalism is at risk of destroying itself and that bankers have an obligation to create a fairer society”. He added “the basic social contract at the heart of capitalism was breaking down with rising inequality.” He warned “my core point is just that as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential to the long term dynamism of capitalism itself…Capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith”.
  • The neoliberals present their case in terms of how they favour an open and competitive market when in practice a major objective is to favour capital against labour and reduced competition. In Australia, market based approaches to climate change through carbon taxes or an emissions trading scheme are rejected in favour of government handouts to polluters. Vested interests are able to bring influence or buy governments in a way not possible 25 years ago before communism collapsed.
  • We have seen rapacious banks with their obscene executive salaries bring the world economy to its knees in the global financial crisis.
  • In Australia we have a government that speaks about ending the age of entitlement but seems more determined to extend the benefits of the privileged. We have a Royal Commission that is allegedly about corruption but I suspect that the real agenda is to cripple the trade unions, the strongest countervailing force for justice in the Australian economy and society. The CFMEU and the HSU are fair game but not the much more culpable Commonwealth Bank.

In my blog of 20 September this year, What does Labor stand for?” I emphasised that only a strong society, including a strong and respected government can support a strong economy. There is no point in an economy that does not serve social ends.

There is a prevailing view by the present government, as the Liberal Party platform says “that only businesses and individuals are the creators of wealth and employment”.  As I said in that September blog this Liberal Party view sees government as a burden rather than a contributor to the common wealth. There is a danger that the increasingly unrestrained power of capital and big business legitimises destructive social divisions which encourages people to separate themselves from society in physical or metaphorical gated communities such as schools and hospitals. It allows the connection between contributions to be severed. It encourages rent-seeking, speculation and protection of privilege rather than productive investment. Increasingly, companies in Australia are paying large amounts out in dividends, buying back shares and sitting on idle cash rather than investing in the future of the Australian economy and Australian jobs. There are not many ’trickle down’ benefits in all of this.

The fall of communism has emboldened the exponents of capitalism. There is a continual assertion of the importance of business over and against society and the community.

Pope Francis is one clarion voice saying that business and the market must be underpinned by morality.  He has challenged market fundamentalists who hawk ‘trickle down’ theories as naive. He has denounced the new tyranny of unfettered capitalism and calls inequality ‘the root of social evil’. He is a lonely voice at the moment.

Ian McAuley will be discussing these issues in a series of articles starting later this week in this blog.

The fall of communism is proving to be a great boon for the powerful at the expense of the powerless. The restraints on the powerful are crumbling.

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3 Responses to John Menadue. Capitalism and the fall of communism

  1. David Williamson says:

    John, great piece and very convincing. What has happened is that Marx’s theory of surplus value, so derided by free market economists, has turned out to be prophetic. Surplus value was the profit margin a capitalist could make out of the labour of his employees. All he had to do was give them a wage that would keep them fed and housed to the minimum level needed to continue working, and the rest of the profit was his. Trouble was competition would keep cutting the profit margin and the amount paid to workers would necessarily become less and less to enable a profit to still be made, until the wage became so miserable it was finally intolerable to the workers and they rose up against the system. The Free market economists ridiculed this and said that the rise of unions ensured a living wage would always be paid and that Capitalism had adapted to the demands of unions. Now with the triumph of neo conservatism union power has all but been destroyed in the U.S. and the top item on the conservative agenda here is to do the same. And now we are getting Wal Mart paying eight dollars an hour and employees living at poverty levels that require food stamp supplements. The Taxpayer is supporting the grossly inadequate pay structure of Wal Mart. The classic surplus value theory of Marx has come to pass – minimum wages are no longer supplying a liveable income – the only difference is that the ideological power of the right is so massive that rebellion of any kind on the part of the workers has been made unthinkable. What a wonderful world we live in. Best and keep it up, David Williamson

  2. John Hermann says:

    So called obscene executive ‘salaries” are not salaries at all, they are theft.

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