ANATOMY OF A FREE MARKET SOCIETY
THE UNITED STATES
The US is one of the world’s wealthiest countries. It is a science and technology powerhouse. Its top universities are world class and produce a flow of innovation in the fields of electronics, physics, chemistry and pharmaceutical science. Science and industry are sources of wealth and military power. It has a history of entrepreneurship and innovation that leads the world. Its military might has enabled it to exercise great influence on the world stage, and lead what was seen by many as the struggle against “Communism”, (in actuality the economic and military power of the Soviet Union). Its brand of capitalism has been hailed by some as the pinnacle of socio-economic excellence, incapable of further improvement. Over the last 30 years The US and its close allies have sought by propaganda, diplomacy, undercover operations and military intervention to introduce their political and economic model across the globe.
On the surface, America could be seen as a model for all nations to follow. However, there are some underlying trends that may indicate deep flaws in their socio/economic model, which has been driven by dogma deriving from free-market thinkers going back to Adam Smith in the eighteenth century and honed by succeeding ideas from Europe and more recently in American universities and Institutes. Essentially the prevailing dogma lauds the free market as the source of wealth and social wellbeing, enterprise, and denigrates the role of the state as a source of inefficiency and bureaucracy; arguing that its roles should be limited to maintaining law and order and defence.
US (and British) political classes became enthused with free market ideas some thirty years ago. The results of massive deregulation of the financial markets and retreat of government from social welfare and many public services have been dramatic. The economy enjoyed periods of boom, interspersed with collapses. These oscillations have become more and more marked, to the point that the economy has become very unstable over the long run.
Changes in the balance of the US economy, the relative decline of manufacturing and technology; coupled to the growth in influence of finance and services has caused some important changes.
The last thirty years have seen a substantial part of the manufacturing base either acquired by foreign companies or “offshored” to countries with lower wage costs. The decline in manufacturing has been to some degree offset by growth in the financial and services sectors. Whilst this has generated employment, the levels of skill required in many service jobs are less demanding than engineering and process work, so the overall skill level of the workforce has declined, and with it wage levels. This has been accompanied by a decrease in the demand, and hence the supply, of educated workers. The US workforce has become increasingly lower skilled and lower paid, with a growth in part-time and insecure work.
Another effect of the decline in manufacturing and technology is a massive growth in the balance of trade deficit which has in turn increased the levels of national debt. This is because the foreign earnings generated by technology industries tend to be far higher than services, so this sector has not made up for the loss of presence in technology and manufacturing. Succeeding consumption booms have sucked in imports, with serious effects on the balance of payments deficit, and debt.
Rise of the power of banking and finance
Maybe the most noticeable changes are a growth in the power of finance and capital, resulting in the growth of giant virtually unregulated global banks. Their wildly speculative behaviour virtually brought the US and the global economy to its knees in 2008. Despite this the banking and finance industries continue to wield great economic and political power and continue to lobby hard for freedom to operate with little regulation. The growth of finance and the dominance of capital have affected the earning power of the majority of the working population. Trade Unions have declined in influence, and are vigorously denounced by many elements in the media, politics and finance and industry.
So there have been several pressures on the bulk of the population. The first is a decline in permanent employment and growth of temporary and part-time work. Pressures to decrease the size of the public sector and privatise public sector employment has exacerbated this tendency.
In parallel, the real earnings of a majority of the working populace have declined inexorably over several decades. The main reason is that “Capital”, in the form of investment markets, top managers in large corporations and very wealthy individuals have taken the lion’s share of growth – and the tax system has facilitated the accumulation of wealth in the hands of a few. This, combined with rampant consumerism has had the effect of increasing private debt to unsustainable levels.
At the same time, the population has been strongly encouraged by consumer industries, politicians and massive advertising to believe that wellbeing and the “Good Life” was to a large degree dependent upon possessions and “lifestyle”. In the eyes of many, possessions and the “good” life they brought became a part of the hallowed American Dream. This has caused dramatic increases in consumer debt, as many people seek to enhance their standard of living when real wages have been static or declining. Successive consumer booms have been largely fuelled by debt, as earnings have not kept up with the appetite for possessions.
The right to own a home also became commonly accepted. Some political leaders asserted that home ownership was an inherent part of living in a ”property owning democracy”. So over time, the ideas of citizen and consumer gradually elided.
The bright side of US society
Life in America for some 20/30% of higher earners and wealth possessors is very comfortable. they have been able to insulate themselves from the worlds of poorer citizens by geographical and psychological separation in a society designed to provide service to those who can afford to pay. So whilst the majority of the populace has suffered decreasing standards of life and earnings, the relatively rich have seen their wealth burgeon over many decades.
Some aspects of increasing impoverishment of poorer segments of society have been ameliorated by philanthropy and social enterprise.
America has growing networks of non-governmental institutions that provide social support, filling some of the gaps left by governmental retreat from public services. Amongst the leading providers of charitable services are the churches, many of which not only support their own congregations, but also provide shelter, clothing and food to the poor. Some churches also campaign for a “fairer” society, and comment on what they see to be particular social evils.
Next comes a very wide range of charities, which support a range of activities ranging from advanced medical research, support for vulnerable women, provision of education and services for intellectually challenged children, to provision of food and shelter for poorer people. Charitable giving is a very positive facet of behaviour, not only for domestic organisations, but also for a vast range of problems in other parts of the world.
Philanthropy is also a notable facet of non-governmental activity. There are myriads of charitable institutions, supporting research, education, the arts, health and alleviation of poverty.
The other Face
The other side of the picture has been burgeoning inequality, not just of wealth distribution, but also of earning potential and life opportunities. Social mobility has decreased dramatically, the wealthiest are able to purchase privilege and preferment in education and work opportunities.
In the United States, wealth is highly concentrated in a relatively few hands. As of 2010, the top 1% of households (the upper class) owned 35.4% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 53.5%, which means that just 20% of the people owned a remarkable 89%, leaving only 11% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.1%.
Effects of inequality on Society
One direct effect has been the segregation of the population, socially and geographically, to the extent that significant pockets of wealth and deprivation have grown apart from each other. In the poorer areas, the quality and standards of education and health have decreased, and significant pools of ill-educated and often unemployed people have developed. Over time, many of these poor areas have become permanently segregated from other parts of society. Unemployment and social exclusion have become intergenerational. The overall effects of this tendency have been to de-skill parts of the workforce, and encourage the growth of work opportunities for more active and skilled immigrants. In turn, this has caused social stress and a rejection of foreigners, often promoted by right wing political parties. It has become very difficult to reach consensus about what should be done to address problems of exclusion, low skill and unemployment. The media has tended to brand such people as “scroungers” and support punitive measures such as reduction in benefits and penalties for those who are deemed to have been reluctant to seek work. Unlike Sweden, insufficient effort or investment is put into helping poor and uneducated people to join the workforce; instead, punitive measures such as benefit reductions and heavy vetting procedures are used as “incentives”.
Measures proposed by more centrist and left wing politicians and media; churches and charities are denounced as “soft” and pandering to idleness. The motto “hard-working” has gained common currency to describe more laudable people, despite the fact that low wages mean that large swathes of “hard-working” people cannot support their families through work. A further complication is added by negative propaganda about foreigners and economic migrants, who are believed by some to be “taking our jobs”. So society has become more fragmented, and the ability of various stakeholders to collaborate for the good of the whole diminished.
Poor or relatively poor people face an unappealing complex of problems.
They live in worse housing, have poorer health facilities, worse schools and a more degraded physical environment. But even if specific interventions were to replace these with apparently world-class facilities, there is still a complex cycle of social and psychological deprivation at work amongst the poorer members of society.
Poverty is usually the result of unemployment or inadequate pay. In turn, access to better employment prospects tends to be blocked by a lack of literacy, numeracy - and even worse, critical thinking and appraisal skills. All of this leads to poorer mental and physical health fuelled by an inadequate environment, the struggle to make ends meet, unhealthy lifestyles and poor diet. In such environments, crime burgeons, often caused by young men who have little respect or connection with the other world outside, with poor employment prospects and little to do. Crime leads to punishment and a growing prison population. Male prisoner re-offending rates are over 60% and some 70% of young offenders are shown to suffer from mental disorders, exacerbated by incarceration. Thus a descending spiral becomes established.
In turn, poverty and crime fuels fear and distrust. People are suspicious and fearful of others and social isolation ensues, with many people frightened to go out and lead a normal social life. Thus social cohesion deteriorates, especially where vandalism degrades the physical fabric and drives out retailers, social and cultural facilities and other businesses that act as societal glue.
Alienation from the wider society becomes endemic – the institutions of that society are rejected and a portion of the populace become immunised from sometimes well-meaning attempts of officialdom to help. The knock-on effects of this physical degradation are multi-fold – for example, the very acts of buying food and other essentials become expensive and difficult. Because too many people are poorly educated, they find difficulty in managing their affairs in an increasingly complex world. Many people take on obligations that they cannot afford, often using loan sharks and are susceptible to the blandishments of a consumer society that bombards them with the message that they deserve the best and can have it now by running up debt.
As poverty and exclusion become established, so the problems become passed down the generations. Children of deprived parents tend to follow their parents into a cycle of poor diet, poor health, poor education, poor employment prospects, poverty and, too often, crime and poor mental health.
So the problems are long-established, complex and circular. They are difficult to address because it is likely that sustainable improvement will take generations to achieve, because the problems are multifaceted and intertwined and because politicians have a critical constituency of ‘haves’ to please, and only a short time to the next election.
The development of gross inequality is increasingly believed to have serious consequences for economic performance. The mechanisms causing this effect are complex. Traditionally it was believed that societies with marked redistribution and more equality, linked to relatively high taxes and high social expenditure would suffer from a lack of enterprise, investment and therefore lower growth. But the performance of Sweden and other Social Market economies has given the lie to this. These countries have in recent years experienced less economic instability and similar measures of investment, entrepreneurship and overall economic performance as the US.
According to economist Branko Milanovic, while traditionally economists thought inequality was good for growth:
"The view that income inequality harms growth – or that improved equality can help sustain growth – has become more widely held in recent years. ... The main reason for this shift is the increasing importance of human capital in development. When physical capital mattered most, savings and investments were key. Then it was important to have a large contingent of rich people who could save a greater proportion of their income than the poor and invest it in physical capital. But now that human capital is scarcer than machines, widespread education has become the secret to growth."
So, economies in countries where a large portion of the population are poorly educated, and excluded from the mainstream economy are at a significant disadvantage in the modern world.
Inequality and social exclusion have enabled powerful and wealthy institutions, as well as individuals, to exercise an inordinate influence on government policy. As the political process is almost entirely dependent on external funding, powerful and rich corporations and individuals are able to support their favoured candidates. The costs of electioneering have soared to the point that individuals of modest means cannot participate unless they can attract wealthy backers. Thus the political process has become highly schismatic and influenced by wealth and external power and governments invariably find themselves favouring the agendas of their particular backers. So whilst all political parties claim to represent all interests, they are in fact deeply biased.
Thus the whole political process has become deeply combative and parties are almost unwilling to collaborate for the overall good. This has resulted in a form of political stasis. Governments propose and oppositions oppose, and it has become almost impossible to pursue any long term programmes of societal change and adaptation. An example is the extreme difficulty in introducing medical cover for poorer members of society – a programme that would be seen as obvious and minor in many other countries, certainly Sweden, has been the subject of bitter ideological and political wrangling.
The reality is that the US is becoming a Plutocracy in which only the rich and powerful have significant influence. The realisation of this has caused deep cynicism about politicians, powerful institutions such as corporations, but including the police and super-rich individuals
Trust and social capital
What is Social Capital?
The World Bank believes that:
'Social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society's social interactions... Social capital is not just the sum of the institutions which underpin a society – it is the glue that holds them together' (The World Bank 1999).
The central thesis of social capital theory is that 'relationships matter'. The salient idea is that 'social networks are a valuable asset'. Interaction enables people to build communities, to commit themselves to each other, and to knit the social fabric. A sense of belonging and the concrete experience of social networks (and the relationships of trust and tolerance that can be involved) can, it is argued, bring great benefits to people.
Trust between individuals thus becomes trust between strangers and trust of a broad fabric of social institutions; ultimately, it becomes a shared set of values, virtues, and expectations within society as a whole. Without this interaction, on the other hand, trust decays; at a certain point, this decay begins to manifest itself in serious social problems. The concept of social capital contends that building or rebuilding community and trust requires face-to-face encounters. (Beem 1999: 20)
There is evidence that communities with a good 'stock' of such social capital are more likely to benefit from lower crime figures, better health, higher educational achievement, and better economic growth.
There is strong evidence that the US is low on links and trust between different socio-economic groups. This can be contrasted with the relatively collaborative traditions of Sweden. The effects on the whole of society and even the economy are serious. In America, it is becoming almost impossible to generate consensus on vital economic and political issues. Mainstream parties have moved further apart and extremist, often right wing political groups have filled the gaps between them. Society is becoming fragmented, trust between different socio-economic is declining, suspicion and mistrust of politicians, big business and finance has grown. Social and economic deprivation have terrible effects on the health and education of the deprived.
The US and the wider world.
In the twentieth century, the United States has played a crucial role in the two world wars. Without American military and industrial might, the outcomes of both wars could have had different outcomes. The generosity of American aid in war-torn Asia and Europe made a huge impact on economic recovery and support for such institutions as the United Nations and European Union facilitated a period of improving relationships and economic cooperation.
After the Second World War, a new struggle developed – between the Soviet Union and the Western nations, led by America and Britain. This struggle became extremely intense, and was characterised as a life-and-death conflict between “Communism” and “Democratic Freedom”.
Eventually the Soviet economic system collapsed under the weight of its autocratic centralised government and massive bureaucratic inefficiency. This was characterised in the West as the triumph of Democratic Capitalism, ushering in an era of peace and prosperity.
But as time went on and centuries changed, it seemed to some that the system of democratic capitalism, based on limited government and economic “freedom”, had serious flaws, the worst of which was a tendency towards severe oscillations, otherwise known as “Boom and Bust”.
The twin threats of serious inequalities within and between nations, and competition between socio/religious dogmas has had a seriously destabilising effect on peace and world order. The rise of Muslim fundamentalism resulted in the disastrous Twin Towers attack on New York. This sparked a massive retaliation, resulting in the invasions of Afghanistan and Iraq, as well as military and security incursions in other regions.
More subtle but serious trends have emerged as a result of the growing concerns over terrorism. It has become apparent that no matter how sophisticated and powerful America’s military force, it has been quite ineffective against guerrilla forces and terrorism.
These factors have enhanced tendencies towards isolationism and a suspicion of the wider world. Lack of language skills and inward looking cultures have resulted in relationships based on suspicion and intensive electronic surveillance, even of allies and supposedly friendly countries.
Reactions to this have soured international relations and made international economic and political co-operation more difficult.
Openness to the world
Isolationism has been a recurrent feature of the US for many decades. The lack of language skills and increasing suspicion of foreigners and “terrorists” has caused the US to increasingly turn in on itself. There is a generalised lack of knowledge and interest amongst the populace in the wider world. Even vacations tend to be taken in restricted resorts and through closely escorted tours.
Political leaders are judged by the degree to which they “fight” for national interests in an increasingly zero-sum international power game.
America is still very powerful and a major influence in the world. But recent failed international military adventures have seriously dented the belief that the free market model of democratic calitalism can be imposed on other nations. Thus its “hard” influence has declined and a form of isolationism is rapidly replacing former idealistic beliefs about saving the world. Also, the “Soft” influence has been seriously undermined by military adventurism and the activities of security agencies. The progressive decline in the real economy and worsening relative performance in relation to many developing nations is becoming a source of increasing concern.
So although the United States is still very powerful and a very good country to live in for the wealthy, concerns about personal security and crime are having an effect on the overall sense of wellbeing and moral superiority. Some are beginning to question whether the model of democratic free-market capitalism is viable in the longer term.