Friday, July 31, 2009

American "Capitalism" (it 'ain't quite capitalism) and the Health Care Debate

The health care debate (more on that soon) got me thinking a little about the whole capitalism/socialism thing. And my conclusion is...I wish I was a full-time comedian (no, I'm not even a part-time comedian, but I should be - you know I got jokes!), because this debate has so much ridiculous material. The central thrust is that Obama and the advocates of health care reform, or I should say, reform of his kind, are threatening to take the U.S. health care system and paint it socialist. In general, the Know-Nothings (what I call the Republicans who pretty openly shun knowledge, which, sadly, is quite a few of them) use the socialist label pretty often anytime there is any sort of discussion about corporate responsibility, progressive tax reform, etc. Well, their argument is full of holes, anyway (not surprising from know-nothings), but they seem to gloss over a major issue - America has had a lot of socialism in it, and I argue, not in a good way, either.

Okay, lets try to keep this simple, and not turn into a long-ranging discussion on political economy, etc. (which I couldn't do, anyway). A basic selling point of capitalism is that a free market pushes innovation at a greater pace than a controlled market. By making firms compete against each other, you not only theoretically get better products, you also get lower prices - everybody wants to win in the marketplace, so they make better products than the next guy, and then sell it for less. On a theoretical level, I'll say that I personally tend to favor the incentives of a free market.

So, you're thinking to yourself, this is kind of what America is based on, right? Isn't this system the basis of our economy? Isn't this one of the main points of contrast between us and the Soviet Union in the Cold War? Well...sort of. See, the problem with all of this is, we're not exactly a capitalistic society. Not for the big boys, at least. And the health care debate reminded me of that.

What am I talking about here? Simple...if America was truly a capitalistic society, it would not protect its large firms, which are among the largest and most powerful in the world, anyway. We do not have infant industries in any stretch of the imagination. The US, if truly adherent to capitalism, would limit tariffs. We would not shield these companies in any way - the whole point is to use global competition to create better products, right? Well, that's where we fall short on a lot of levels. We do indeed protect a lot of our industries. Not all, of course, but there are quite a few corporate tax loopholes, corporate welfare, and other forms of financial protection for some of our biggest firms.

So, when Bill Maher laments that America doesn't make anything anymore, there's a reason for that...we cover our industries collective behinds to a point that they don't have to compete so hard in the global economy. This hurts innovation, competitive prices, etc. Hence, we no longer lead in producing "stuff". And some of this has other real consequences, too. For instance, our protection of the textile industry here really hurts Pakistan, which can't really penetrate US markets because of this fact. Now, if Pakistani textiles could get in, they would do pretty well and generate some wealth for Pakistan, no small thing considering the major economic issues the country is experiencing, which are undoubtedly playing a big role in larger security issues. This would also push our own textile industry to get their act together as well.

Now, on the other hand, when it comes to a massive comparative advantage, we are pure capitalism, baby! Iraq is the most obvious example of this, and we see this type of thing when US aid gets distributed to other countries. Part of the condition is to open their markets to the US/buy US products with the aid money. What happened in Iraq was one of the more disgusting examples of this. Iraq, post-war, was obviously a mess (and it still is). In terms of its economy, what it really needed was a more socialistic approach. There was no way its industries could compete with foreign firms. Of course, this kind of approach didn't fly with US capitalism promotion abroad. Bremer wrote in laws that opened Iraq for foreign business early in the occupation, and not surprisingly, foreign firms came in and wiped the floor with native industries. Hooray capitalism! This kind of thing has happened quite frequently, though maybe not to the degree of the CPA in Iraq. Andrew Bacevich, a noted military and US foreign policy historian, talked about the concept a bit, referring to it as economic imperialism, something a lot of people missed during the Clinton years. We made many across the world "liberalize" their economies, which isn't bad at all, but we often insisted that they open up their markets fully, as opposed to nurturing some of their own native industries, which ended up being a major win for us. I realize this kind of goes in between imperialism and foreign capitalism, but I'm just trying to illustrate the point of open markets here.

This has some similarities to the economics of European colonialism. It's not the same, but there's a lot of overlap. Europe, coming off its Industrial Revolution, needed markets to sell these goods in, as well as markets to buy cheap raw materials. Hello, Middle East and Africa. European powers came in, made deals with rulers to open the markets, and did a killing. But wait...didn't I say earlier that global competition is necessary to improve industries? If so, doesn't that make all this foreign capitalism okay? Well...not exactly. When I talk about keeping open markets, etc., I'm talking about cases where the countries have somewhat similar economies. So, the domestic country has a chance to compete with the foreign one. This is not quite so applicable for countries with true infant industries, which need time to grow to a point where they can compete with global firms. The US, for instance, obviously has a huge economy, and should be able to try and compete with European, Russian, and Gulf companies, whereas a war-torn Iraq, which had been depleted by years of sanctions, had no chance in hell of competing with US firms.

So, yes, we are all about capitalism when we have a massive advantage, but not quite so much when we don't have a massive advantage. That's not really pure capitalism, you know. That's more like capitalism for our companies when its convenient, and kind-of-socialism when it's not. Which is why the cry of socialism by the Know-Nothings cracks me up. It's like, morons, otherwise known as members of Congress, we're not exactly a capitalist society! What we have, I'd argue, is the worst of both worlds. On the one hand, we have an exploitative brand of capitalism abroad that is unlikely to win us many allies, and could come back and bite us pretty bad one day. Nothing says revolutionary overthrow of a regime like massive economic strife caused by domestic industries killed by large foreign multinational corporations! Now that's what I call a bumper sticker! At home, we allow some of our industries to become more and more noncompetitive in the global economy by sheltering them with socialism...this is the place where capitalism is the most important thing, of course. And, where socialism would actually help, like providing a social safety net for the market failures that inevitably occur in capitalism (namely, the poor), we back away from it like it was the plague.

I'm not necessarily advocating either system here - like I intimated earlier, I think the incentives of capitalism are good, but I understand that it will ultimately fail when it comes to the poor and marginalized, so I think we need a more socialistic response there. All I'm trying to point out here is the hypocrisy in the use of these terms, and particularly of socialism by people who support its worst aspects for our own firms in many cases. I understand that great powers have incentives to exploit the economic system, which is in theory what we're doing, but when you shelter your own corporations, not making them earn their keep globally, I think it will come back and bite you in the long-run. And, I mean, look at Britain in the 19th century. The colonial aspect is awful, obviously, but in terms of their economy, unlike other European powers, they did actually keep an open market at home, irrespective of whether other countries did or did not reciprocate. I'd argue this played no small role in their becoming the dominant power of the time - their industries were forced to compete as opposed to being sheltered. Of course, brutal British colonialism abroad helped, too, but at least domestically, I think the British empire got the capitalism/socialism thing better than others.

The health care debate made me think about all of this because some are going after the public option with a cry that it will kill insurance companies - even though a recent report from the Congressional Budget Office (CBO) said it would do no such thing. (For the entire report, click here). Hmmm....health insurance companies have been running inefficiently for years in the US. So providing a public option plan that might run better due to (presumably) lower administrative costs is bad - how? I mean, isn't that the point of capitalism? If you have a company that has been doing a crappy job, you want a company that is doing a better job to come in for a) production purposes; and b) to get the crappy company in line or out of the game. So, lets be very clear. The argument to protect the "poor insurance companies" at the behest of millions of Americans is, in a way, an argument for socialism.

Now, I realize a public option isn't exactly the same as another health insurance company coming in and competing, but the private health system is, in some ways, an oligopoly, and I can't fathom private insurance companies becoming more efficient without competition from a plan that limits administrative costs, return on equity for shareholders, and advertising. I agree with Howard Dean in that I don't really give a damn as to whether private insurance companies get hurt by a public option, because they are doing a terrible job. We spend more on health care than any nation, but rank, depending on what evaluation tool you're looking at, as somewhere between #30 and #60 in terms of how good our health care actually is. A major reason is the private insurance companies. The most efficient private health insurance companies spend over 20% of costs on administration...you can expect that number to be halved by a public option plan, if not more. They keep about half of your premium dollars for themselves, and sometimes deny payment on claims to make more profits. They could do business better, but have no incentive to do so, since they profit from taking additional money from their customers while not paying themselves. I mean, did you pay attention to Wendell Potter's testimony to Congress in late June? Dear god. (Click here for a transcript of the testimony). If you think the insurance companies are reforming without competition, albeit from the government to keep them honest, I have some prime real estate I'd like to sell you. You're not getting a well-functioning health care system with private health companies - we've seen the results, and they've been pretty awful. Hence, the need for some competition, albeit not exactly a private firm.

So, like I said, the argument to protect the insurance companies that have done such a (sarcasm alert) wonderful job up to this point amounts to an argument to protect inefficient and, ultimately, ineffective companies, which is pretty similar to other arguments to protect our "threatened" corporations, which smells more like socialism than capitalism. It's like pulling for King Kong Bundy as the "little guy" in a fight against Al Bundy. And...here's the best part...at the same time, Obama's health care reform itself is also socialism (it's not, but whatever) that must be defeated at all costs before it destroys America. Wow. So, basically, they're trying to win on both fronts. See, I told you, great stand-up material.

We hope to have more on the actual meat of health care reform up soon on the blog

Note: I want to clarify something here - the point of this point is not to debate whether capitalism or socialism are better systems, or what precisely comprises each. Rather, I want to highlight the problematic and hypocritical nature in which these terms are being used. Like I point out, America is not exactly the bastion of the free market, so I find the socialist argument against a greater US government role (even though it isn't remotely as big as many are making it out to be) in health care to be a ridiculous argument. The government is plenty involved in plenty of our big businesses in ways that I posit may not be all that good. In health care, the government needs to be more involved, given the many problems of private health insurance. Paul Krugman and I are clearly thinking on the same wavelength, as he published a pretty good article about this today. He must have read our blog first...ha. Anyway...so that it's clear, this isn't so much a detailed analysis of capitalism versus socialism as it is an exercise to illustrate the insanity of the way the health care debate is regressing thus far.

3 comments:

falcon said...

Wow... there's a lot going on here. I started writing a post, but it grew and grew and grew to the point that it was nearly a post in itself, so I want to hone it down a bit and get it back to the point (you can look out for that one this weekend), but in the mean time I'd say your notion of "pure capitalism" isn't fair. It ignores the context in which "capitalism" was founded, which is to say, pure capitalism sprouted within the walls of a single country--i.e. you'd have winner companies and losers, but in the end the whole country would win because of the reasons you already articulated, but also because given the founding rules those losing companies were able to file bankruptcy, go back to the drawing board, and start over--learning from their experiences and becoming a more formidable competitor. Suddenly, in the global economy that we have to day, its not about companies competing against each other within the confines of clearly delineated and agreed upon rules of engagement where the loser can file bankruptcy and simply start over. Participating companies (ahem), sorry countries, are starting off at different points and with different advantages. Its as if we were playing Monopoly, and we started off with 10 people with thousands of onlookers just watching. The playing is fun and everyone knows that even though some people will lose, its all a big learning experience. All the while the players are calling out to the audience--"wow, you've got no idea what your missing. This is so much more fun than being forced to split your earnings even though you're better at something than your compatriot...blah blah blah." After 3 hours 7 of the 10 players have gone bankrupt. And suddenly, the three remaining players, all in different financial positions, are confronted by the entire audience who decides oh, you're right, we do want to play and they want to enter the game NOW. The three players, feeling a bit foolish since it was their idea, say, "okay, but..." and before they get a chance to explain that they want to finish the current game, everyone starts pulling out their own class of mono-money. At first, the three players are reluctant, but eventually acquiesce, as they think to themselves, "well, we're pretty good at this, after all we are the last three standing, let's take these fellas on." Then, the bankrupt individuals say, "well heck, let us back in then."

My point, before it gets really crazy is that "pure capitalism" exists within a particular ideological context with a set of rules that everyone agrees on and only changes if "everyone" agrees they should be a la democracy. But when all of a sudden you quadruple the number of participants and let them have the same weighted vote as the original participants but don't make them convert their currency, your in for a disaster.

falcon said...

my post didn't fit some I'm finishing it in this second post:
I realize there are a hell of a lot of sparks in this post, and i'm formulating my metaphors on the fly, but you can see what i'm getting at i'm sure. If not, take a look at this original BBC post from 1999 just before Brazil defaulted on their debt: http://news.bbc.co.uk/2/hi/business/250948.stm

Fast-forward 10 years and the Brazilian real is one of the strongest currencies in the world and Brazil's debt is respected nearly as much as that of the US. How is that possible? What would happen if the United States defaults on IT'S debt? The pain and suffering that would ensue around the world would be mortifying for many countries (so we take on more debt). Global capitalism may be possible, but it's going to be very difficult if each country is using different currencies--hence the 15-35% swings in various currencies over the past 3 years. What does that mean? How are we able to value anything if we can't agree on the value of the value-unit? Meanwhile, Health Reform aint no small change. On the contrary it is in and of itself a game-changer.

In closing, what It seems we really have going on, are several separate games of Monopoly going on simultaneously (sort of like a Bingo player with three cards) but everyone is pretending that there is only one game and their mixing pieces and passing money from one game account to the next.

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