Posts Tagged ‘capitalism’

dollar-tree-store-random-jpeg famdollar

What does it mean that Dollar Tree is buying rival discount store Family Dollar in a cash-and-stock deal valued at about $8.5 billion?

It means, at a first cut, that Family Dollar stockholders will receive $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for each share they own—a transaction valued at $74.50 per share, which is an approximately 23 percent premium to Family Dollar’s Friday closing price of $60.66—and that Dollar Tree will now have more than 13,000 stores in the U.S. and Canada—nearly three times as many as Wal-Mart Stores Inc. (although Wal-Mart’s square footage is still greater).

More generally, it means there’s a lot of profit to be made in selling discount commodities to the low-income and falling-income American families whose numbers have grown over the course of the past three decades, and especially in the midst of the Second Great Depression.

As Sriya Shrestha explains in her recently published study of dollar stores,

US consumers experience a kind of “thirdworldization,” that marks them not as exceptional but rather increasingly on par with rest of world as they become yet another population of consumers marked by their lack of income. Hence, multinational corporations’ and discount retailers’ techniques aimed at incorporating what are known in marketing literature as the “bottom of the pyramid” (poorest populations in poorest countries) overlap with methods used at US dollar stores. For example, brand- name goods at the dollar store are often sold in packages substantially smaller than the standard sizes found at Target or CVS. This technique also surfaces in places like India where companies like Unilever and Proctor & Gamble sell single-serving sachets of laundry detergent, fairness cream, and shampoo for around 2 rupees. These methods rely upon a particular model of frugality aimed at those with extremely limited incomes that actually costs the consumer more in the long-run. This contrasts with other recently popularized methods of shopping, like purchasing in bulk from warehouse retailers and couponing that actually save money. These latter shopping styles require more money upfront, time, storage space, and membership fees ensuring its association with normative American middle-class, feminine “home-making” and smart budgeting rather than poverty.

Thus, the sense of loss of an American consumer identity and American dream emerges through the sense of a compromised American exceptionalism as people in the US find themselves unemployed, underemployed, facing compromised conditions of labor and consumption. Chinese Tide detergent and Indian Colgate toothpaste make their way to US dollar stores because major US and European multinationals are now targeting growth markets among the middle classes and poor in the former peripheries of the global economy as the centers have slowly begun to crumble.

Clearly, poor and working-class families are being forced to have the freedom to pinch their pennies, which turns out to be a profitable opportunity for the likes of dollar stores that feed at the bottom of American capitalism.


Special mention

sal0714-cartoon point-513x340


Clearly, U.S. capitalism continues to face a serious legitimation crisis.

According to new Pew survey [ht: db], 62 percent of Americans now think the existing economic system unfairly favors the powerful, and 78 percent think too much power is concentrated in the hands of a few large companies. The only group that thinks otherwise—on the Right or the Left—are “business conservatives.”

Here’s the breakdown according to the political categories devised by Pew:


Most Americans, then, believe current economic arrangements are unfair.

That should invite a robust discussion—in the academy, in the public sphere—of alternative ways of organizing the economy. We can and should be debating how to create more economic fairness and how to change the way corporations are organized so that, instead of wielding excessive power over the rest of the economy, their power might be democratically exercised by their employees and the communities in which they operate.

But we’re not there yet. Capitalism’s legitimacy continues to be called into question but alternatives to capitalism are still, for many people, hard to imagine. As Antonio Gramsci wrote during the last Great Depression, “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.”


Special mention

150068_600 sack


Off today to give a talk on “Culture Beyond Capitalism” in the opening session of the 18th International Conference on Cultural Economics, sponsored by the Association for Cultural Economics International, to be held at the University of Quebec in Montreal.

I plan to start my multimedia presentation on how “culture offers to us a series of images and stories—audio and visual, printed and painted—that point the way toward alternative ways of thinking about and organizing economic and social life” with the original 1928 version of Harry McClintock’s “Big Rock Candy Mountains.”

Where they hung the jerk
That invented work
In the Big Rock Candy Mountains.

capitalism kills by Metro Centri

Another study, published by the British Journal of Psychiatry [paywall], has confirmed that “there has been a substantial rise in ‘economic suicides’ in the Great Recessions afflicting Europe and North America.”*

What the authors found is that, suicide rates either increased (for most countries in Europe, where suicide rates had been falling, and Canada, where rates had been stable) or accelerated (for the United States and Poland, where suicide rates had already been rising) after the onset of the latest economic crisis. Their conclusion is that “there have been at least 10 000 more economic suicides than would have been expected in the European Union, Canada and the USA since the Great Recession began in 2007.”

Since “economic suicides” are preventable, the authors offer three options that “may increase mental health resilience during economic shocks”: access to secondary prevention, active labor market programs, and greater gender equality in the workplace. Their view is that “Recessions will continue to hurt, but need not cause self-harm.”

In my view, we can go one step further, by recognizing that the economic conditions that lead to “economic suicides” are themselves preventable. So, in addition to what the authors suggest, we need to consider creating alternative economic institutions—ways of organizing the economic system that make sure people are not forced to pay (because of unemployment, indebtedness, and so on) the ultimate price of severe downturns in economic activity and that undo the causes (including the way corporations are organized and macroeconomic policy formulated) of recessions and depressions in the first place.


*I discuss an earlier study, published by Lancet, here.


According to Jia Lynn Yang, Eric Cantor was defeated by Tea Party challenger David Brat because of his support for “crony capitalism.”

“If you’re in big business, Eric’s been very good to you, and he gets a lot of donations because of that, right?” Brat said at a local meeting of Republicans in Virginia, according to Politico. “Very powerful. Very good at fundraising because he favors big business. But when you’re favoring artificially big business, someone’s paying the tab for that. Someone’s paying the price for that, and guess who that is? You.”

While everyone is focused on Brat’s critique of Cantor’s immigration stance, that attack came in the broader context of the increasingly potent “crony capitalism” theme. Brat went after Cantor specifically for his support of strengthening the H1B visa program, a policy especially favored by tech companies such as Facebook since it allows them to hire more engineers from overseas. Critics have said that the program allows firms to seek cheaper labor to maximize profits and puts foreign workers ahead of Americans.


Capitalism, to be sure, comes in different—more or less unequal—forms.

For example, the less unequal form of U.S. capitalism in the three decades following World War II was different from the periods before the first and second Great Depressions, when capitalism in the United States became increasingly unequal. The same is true across countries—in the sense that the forms of capitalism in Scandinavia are less unequal that what we are living through in the United States.

But at the heart of all forms of capitalism is a fundamental inequality: between workers and owners, between those who produce the surplus and those who appropriate and receive distributed cuts of it. Those groups play different roles and engage in different kinds of economic behaviors. For example, workers sell their ability to work, most of their income takes the form of wages, and they’re able to save relatively little; owners and high-level corporate executives are able to capture what others produce, their incomes consist of both salaries and other returns on capital, and they can save and invest a large percentage of their incomes.

That basic inequality is mostly hidden or overlooked within mainstream economic theory. But, it seems, in the debate surrounding Thomas Piketty’s new book, at least some people are discovering or finding ways of articulating the fundamental links between capitalism and inequality.

As we saw yesterday, Seth Akerman gets it:

The statistical image that emerges from these numbers is neither Piketty’s vision of rising returns to “capital” as such, nor Krugman’s picture of an increase in returns to managerial “labor.” Rather, we see the burgeoning of a general surplus: an excess of national income over and above what’s needed to pay the nation’s non-managerial workers, appropriated broadly by all those who control capital — whether as shareholders, managers, or financiers.

So does Branko Milanovic, who, in challenging the latest attempt to undermine Piketty’s argument (by Debraj Ray), makes some rudimentary observations that most mainstream economists choose to ignore:

Let me now explain why I disagree with Debraj. While r>g (or r>=g) may be a feature of all growth models it is still a contradiction of capitalism for three reasons: because returns from capital are privately owned (appropriated), because they are more unequally distributed (meaning that the Gini coefficient of income from capital is greater than the Gini coefficient of income from labor), and finally and most importantly because recipients of capital incomes are generally higher up in the income pyramid that recipients of labor income. The last two conditions, translated in the language of inequality mean that the concentration curve of income from capital lies below (further from the 45 degree line) the concentration curve of income from labor, and also below the Lorenz curve. Less technically, it means that capital incomes are more unequally distributed and are positively correlated with overall income. Even less technically, it means that if share of capital incomes in total increases, inequality will go up. And this happens precisely when r exceeds g.

It is indeed a contradiction of capitalism because capitalism is not a system where both the poor and the rich have the same shares of capital and labor income. Indeed if that were the case, inequality would still exist, but r>g would not imply its increase. A poor guy with original capital income of $100 and labor income of $100 would gain next year $5 additional dollars from capital and $3 from labor; the rich guy with $1000 in capital and $1000 in labor with gain additional $50 from capital and $30 from labor. Their overall income ratios will remain unchanged. But the real world is such that the poor guy in our case is faced by a capitalist who has $2000 of capital income and  nothing in labor and his income accordingly will grow by $100, thus widening the income gap between the two individuals.

In their different ways, what Ackerman and Milanovic are arguing is that there is a fundamental class inequality at the heart of all forms of capitalism.


I have been arguing all along (e.g., here) that, after the crisis of 2007-08 and in the midst of the Second Great Depression, capitalism faces a legitimacy crisis.

But don’t take my word for it. Consider the words of Mark Carney [pdf], the Canadian governor of the Bank of England, who is worried that capitalism is eating its own children.

Inclusive capitalism is fundamentally about delivering a basic social contract comprised of relative equality of outcomes; equality of opportunity; and fairness across generations. Different societies will place different weights on these elements but few would omit any of them.

Societies aspire to this trinity of distributive justice, social equity and intergenerational equity for at least three reasons. First, there is growing evidence that relative equality is good for growth. At a minimum, few would disagree that a society that provides opportunity to all of its citizens is more likely to thrive than one which favours an elite, however defined. Second, research suggests that inequality is one of the most important determinants of relative happiness and that a sense of community – itself a form of inclusion – is a critical determinant of well-being. Third, they appeal to a fundamental sense of justice. Who behind a Rawlsian veil of ignorance – not knowing their future talents and circumstances – wouldn’t want to maximise the welfare of the least well off?

This gathering and similar ones in recent years have been prompted by a sense that this basic social contract is breaking down. That unease is backed up by hard data. At a global level, there has been convergence of opportunities and outcomes, but this is only because the gap between advanced and emerging economies has narrowed. Within societies, virtually without exception, inequality of outcomes both within and across generations has demonstrably increased.


I have no idea whether or not Thomas Piketty [ht: ra] ever read Marx’s Capital. He says he didn’t but John B. Judis thinks he’s just pulling our leg.

Fine. I don’t care one way or another. If Piketty hasn’t read Marx’s magnum opus  it wouldn’t make him any different from most other mainstream economists out there (who, to be honest, haven’t read The Wealth of Nations or The General Theory either). But if someone claims to have read Capital, as Judis does, at least let’s get it right.*

What about this tendency of the rate of profit to fall? I have three brief points to make:

First, the tendency (which Marx discusses in chapter 13 of volume 3 of Capital) is based on the idea that, as a result of capitalist competition, in a battle over distributions of the surplus (S), one strategy is for capitalists to deploy more constant capital (C, think plant, equipment, and raw materials) relative to variable capital (V, think wages). Therefore, there is a tendency for the rate of profit (r = S/[C + V]) to fall (provided, of course, the rate of exploitation, S/V, remains the same). That’s it. Pretty straightforward, at least for Marx and for generations of Marxist economists.

Second, Marx didn’t invent the idea of a falling rate of profit. It was actually a concern for the classical political economists, especially David Ricardo. Their fear was that, if the rate of profit continued to fall over time, capitalism might grind to a halt. Marx’s critique of the classical political economists consisted in challenging their view that the problem was external to capitalism, as a result of the declining fertility of land (thus leading to capitalist profits being siphoned off in rents to landlords, which led Ricardo to support repeal of the so-called Corn Laws, thus allowing for the import of cheap food stuffs). Marx’s view was that, if there was a tendency of the rate of profit to fall, it was because of capitalism’s own internal dynamic, that is, it was an endogenous tendency created by capitalist competition.

Finally, if we’re going to attribute to Marx the idea of the falling rate of profit (whether as credit or blame), then we should at least also make it clear that the chapter in which the “law as such” is presented is immediately followed by another, chapter 14, in which Marx discusses the “counteracting influences,” such as an increase in the rate of exploitation, depressing wages below the value of labor power, the cheapening of the elements of constant capital, and so on. The result is a tendency for the rate of profit to fall—and a tendency for the rate of profit not to fall. No iron law there!

Piketty may or may not have been pulling our leg but it seems he and the other participants in the current debate need a little Marx for beginners.


*You can blame my attempt to correct Judis on my current mood, since I’m in the midst of reading and grading my students’ final projects.