Posts Tagged ‘capitalism’

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Back in August, James Surowiecki observed that the lack of an Ebola treatment was disturbing but predictable—because it’s simply not profitable for corporations in the pharmaceutical industry.

When pharmaceutical companies are deciding where to direct their R. & D. money, they naturally assess the potential market for a drug candidate. That means that they have an incentive to target diseases that affect wealthier people (above all, people in the developed world), who can afford to pay a lot. They have an incentive to make drugs that many people will take. And they have an incentive to make drugs that people will take regularly for a long time—drugs like statins.

This system does a reasonable job of getting Westerners the drugs they want (albeit often at high prices). But it also leads to enormous underinvestment in certain kinds of diseases and certain categories of drugs. Diseases that mostly affect poor people in poor countries aren’t a research priority, because it’s unlikely that those markets will ever provide a decent return. So diseases like malaria and tuberculosis, which together kill two million people a year, have received less attention from pharmaceutical companies than high cholesterol. Then, there’s what the World Health Organization calls “neglected tropical diseases,” such as Chagas disease and dengue; they affect more than a billion people and kill as many as half a million a year. One study found that of the more than fifteen hundred drugs that came to market between 1975 and 2004 just ten were targeted at these maladies. And when a disease’s victims are both poor and not very numerous that’s a double whammy.

Unfortunately, the best solution Surowiecki could offer was to reward companies for creating substantial public-health benefits by offering prizes for new drugs.

Leigh Phillips offers much the same kind of analysis of the unwillingness of the pharmaceutical industry to invest in research to produce the necessary treatments and vaccines for unprofitable diseases. In an interview with Amy Goodman [ht: dw], he adds an additional dimension:

I think we need to look at the political and economic circumstances, particularly around this particular disease both in the United States and Western countries in terms of the funding for research, where that’s coming from, and in terms of austerity in Europe, but also austerity in West Africa, as well. There’s sort of two prongs to this. The first, of course, was that, you know, over the last few months we’ve seen over and over again people from the CDC, senior figures from the WHO, even John Ashton, the head of the U.K. Faculty of Health, who have said, basically, that the knowledge is there, the know-how is there—we have five candidate vaccines, there’s a number of other different treatments that, you know, are well in hand—but there just hasn’t been any buy-in from the major pharmaceutical companies. John Ashton, as I was saying, from the U.K. Faculty of Health, you know, sort of the doctor-in-chief, if you will, in the U.K., described this as “the moral bankruptcy of capitalism.” It sounds, you know, quite vituperative there, quite explosive language, but it really expresses the anger that a lot of the researchers feel about how, look, we know what to do here, but this is just an unprofitable disease.

As a result, Phillips offers a much more comprehensive solution:

Over these past few months, the worst Ebola outbreak in history has exposed the moral bankruptcy of our pharmaceutical development model. The fight for public health care in the United States and the allied fight against healthcare privatization elsewhere in the West has only ever been half the battle. The goal of such campaigns can only truly be met when a new campaign is mounted: to rebuild the international pharmaceutical industry as a public sector service as well as address wider neoliberal policies that indirectly undermine public health.

retailers

As in the classic Prisoner’s Dilemma, retailers could “cooperate” with one another—paying higher wages and enjoying higher sales—but they don’t. Instead, they “defect”—and, as a result, pay low wages and undermine consumer spending for all retailers, including themselves.*

That’s one way of interpreting the new report by the Center for American Progress [pdf]:

While many of these companies’ lobbyists and trade associations continue to pro- mote a low-wage agenda, their 10-K statements reveal how low consumer spend- ing levels undermine their stock prices. In fact, 88 percent of top retailers explicitly cite weak consumer spending as a risk factor.

That retailers depend on consumer spending is not a revelation, but that many retailers see flat or declining incomes as a risk factor is: 68 percent of companies point to flat or falling disposable incomes as a risk. Sixty-four percent of these companies that filed 10-Ks in 2006 cited incomes as a risk factor in their most recent 10-K, compared to just 32 percent in 2006.

Joan Robinson—who should have won the Nobel Prize in Economics but didn’t (because, of course, she was a non-neoclassical, woman economist) and can’t (because she’s dead)—understood this “essential paradox of capitalism”:

Each entrepreneur individually gains from a low real wage in terms of his own product, but all suffer from the limited market for commodities which a low real-wage rate entails.

And, of course, Old Nick before her:

Every capitalist knows this about his worker, that he does not relate to him as producer to consumer, and [he therefore] wishes to restrict his consumption, i.e. his ability to exchange, his wage, as much as possible. Of course he would like the workers of other capitalists to be the greatest consumers possible of his own commodity. But the relation of every capitalist to his own workers is the relation as such of capital and labour, the essential relation. But this is just how the illusion arises — true for the individual capitalist as distinct from all the others — that apart from his workers the whole remaining working class confronts him as consumer and participant in exchange, as money-spender, and not as worker.

 

*In the old days, when I taught Principles of Economics, I used to illustrate the Prisoner’s Dilemma with Puccini’s opera Tosca. You know: Scarpia kills Cavaradossi, Tosca in turn kills Scarpia, and then Tosca kills herself.

Slave-Auction-Poster

The Economist published, and then had to retract, its review of Edward Baptist’s new book, The Half Has Never Been Told.

The more appropriate reviewer of the book is, of course, Eric Foner, who fully understands the links between slavery and American capitalism.

For residents of the world’s pre-­eminent capitalist nation, American historians have produced remarkably few studies of capitalism in the United States. This situation was exacerbated in the 1970s, when economic history began to migrate from history to economics departments, where it too often became an exercise in scouring the past for numerical data to plug into computerized models of the economy. Recently, however, the history of American capitalism has emerged as a thriving cottage industry. This new work portrays capitalism not as a given (something that “came in the first ships,” as the historian Carl Degler once wrote) but as a system that developed over time, has been constantly evolving and penetrates all aspects of society.

Slavery plays a crucial role in this literature. For decades, historians depicted the institution as unprofitable and on its way to extinction before the Civil War (a conflict that was therefore unnecessary). Recently, historians like Sven Beckert, Robin Blackburn and Walter Johnson have emphasized that cotton, the raw material of the early Industrial Revolution, was by far the most important commodity in 19th-century international trade and that capital accumulated through slave labor flowed into the coffers of Northern and British bankers, merchants and manufacturers. And far from being economically backward, slave owners pioneered advances in modern accounting and finance.

inequality-recovery

source

That’s right: during the first three years of the current “recovery,” the top 10 percent captured 116 percent of all income gains. That’s because incomes actually fell for the bottom 90 percent, even as they rose nicely for those at the top.

1 percent gains

Even more striking is the fact that 95 percent of the income gains during the same period went to the top 1 percent, with only 5 percent left for everyone else.

In other words, the fruits of the current expansion have been captured almost exclusively by those at the very top—in contrast to every other period of economic recovery in the postwar period.

We have to face the fact that capitalism’s crises have become increasingly severe, and the solutions to those crises have increasingly involved redirecting the income gains to a tiny minority at the top. Everyone else is being left behind. Is it any wonder that the current economic system is facing a legitimation crisis?

 

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You know the story: Xi and his San tribe are “living well off the land.” They are happy because of their belief that the gods have provided plenty of everything, and no one among them has any wants. One day, a Coca-Cola bottle is thrown out of an airplane and falls to Earth unbroken. But the bottle eventually causes unhappiness within the tribe, leading the elders to believe it’s an “evil thing” which the gods were “absent-minded” to send them. Xi then travels to  the edge of the world and throws the bottle off the cliff. He then returns to his tribe and receives a warm welcome from his family.

I wonder if Paul Krugman expects to receive a warm welcome from the economics family after throwing the prediction bottle over the cliff.

Hardly anyone predicted the 2008 crisis, but that in itself is arguably excusable in a complicated world. More damning was the widespread conviction among economists that such a crisis couldn’t happen. Underlying this complacency was the dominance of an idealized vision of capitalism, in which individuals are always rational and markets always function perfectly.

I actually agree with Krugman on this point. Economic prediction is, in fact, impossible and the really crazy feature of mainstream economic models is the fact that endogenous crises simply can’t occur. Exogenous factors, sure, but nothing internal to the models can lead to a crash. Their idealized vision of capitalism, absent an external event (such as a credit crunch or an increase in the price of oil), simply leads to a full-employment, price-stable equilibrium.

But, wait, doesn’t the entire edifice fall when—on its own terms—the ability to correct predict is dispensed with? The whole rationale of giving up realistic assumptions about the economic system has been the ability to accurately and correctly predict the movements of the economy. That’s the mantle of predictive science that has been used, since at least the mid-1950s, to expunge all other economic theories and approaches from the discipline.

Mainstream economists can’t have it both ways: to celebrate their models for their predictive ability and then to dispense with prediction when, as in 2007-08 (just as in 1929), their models clearly failed. We need something better.

As for their track record since the crisis broke out, well, they haven’t fared much better—at least to judge by where we stand right now. Krugman, for his part, wants to stick with the hydraulic mechanisms of the textbook economic models, which “did a pretty good job of predicting how things would play out in the aftermath,” and declare that “too many influential” economists must be crazy.

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Special mention

10494557_10152674250669060_2797219256561015093_n Martin Rowson 07.09.14

 

Here’s a second video with Antonio Callari (the first is here)—this one on Marx’s intervention into the arena of philosophy and the idea of freedom as the basis of a Marxian project of transforming the world.