FacebookTwitterGoogle+RedditEmail

The Social Costs of Capitalism

by PAUL CRAIG ROBERTS

When I was a graduate student in economics, the social cost of capitalism was a big issue in economic theory.  Since those decades ago, the social costs of capitalism have exploded, but the issue seems no longer to trouble the economics profession.

Social costs are costs of production that are not born by the producer or included in the price of the product. There are many classic examples: the pollution of air, water, and land from mining, fracking, oil drilling and pipeline spills, chemical fertilizer farming, GMOs, pesticides, radioactivity released from nuclear accidents, and the the pollution of food by antibiotics and artificial hormones.

Some economists believe that these traditional social costs can be dealt with by well defined property rights. Others think that benevolent government will control social costs in the interests of society.

Today there are new social costs brought by globalism. For developed countries, these are unemployment, lost consumer income, tax base, and GDP growth, and rising trade and current account deficits from the offshoring of manufacturing and tradable professional service jobs. The trade and current account deficits can result in a falling exchange value of the currency and rising inflation from import prices. For underdeveloped countries, the costs are the loss of self-sufficiency and the transformation of agriculture into monocultures to feed the needs of international corporations.

Economists are oblivious to this new epidemic of social costs, because they mistakenly think that globalism is free trade and that free trade is always beneficial.

Economists are also unaware of the social costs of deregulation. The ongoing financial crisis which requires massive public subsidies to “banks too big to fail” is a social cost resulting from government accommodating Wall Street pressure to deregulate the financial system by repealing the Glass-Steagall Act, by removing the position limits on speculators, by preventing the CFTC from regulating derivatives, and by turning the Anti-Trust Act into dead-letter law and permitting massive economic concentrations. The social costs of successful corporate lobbying is enormous. But economists who believe that markets are self-regulating imagine that an enormous gain in efficiency has occurred, not massive social costs.

In order to keep the deregulated financial system afloat, the Federal Reserve has monetized trillions of dollars of debt over the last several years.  Real interest rates have been driven into negative territory. Retirees are unable to earn any interest income  on their savings and have to draw down their capital in order to cover their living expenses.

The liquidity injected into financial markets by the Federal Reserve’s policy of quantitative easing has produced huge bond and stock market bubbles. When they pop, more American wealth will be wiped out and more jobs will be lost.

Consider just one example of the social costs of jobs offshoring. When US corporations produce
howeconabroad the goods and services that they market to Americans, the goods and services that flow into the US arrive as imports. Thus, the trade deficit rises dollar for dollar.

The trade deficit means that the US has imported more than it has earned in foreign currencies by exporting. For most countries this would be a problem, but not for the US.

The US dollar is the world reserve currency, which means that it is the means of international payment and that foreign central banks hold US dollars as reserves to secure the values of their own currencies.

With the passage of time, this advantage becomes a disadvantage, because foreigners use the dollars gained from their trade surpluses to buy up American income-producing assets.  They buy US Treasury bonds and US corporate bonds, and the interest income leaves the country. They purchase US companies, and the profits, dividends and capital gains leave the country.  They lease Chicago’s parking meters and American toll roads, and the revenues flow abroad.

The enormous outflow of income streams creates a large current account deficit for the US, which means that foreigners have even more surplus dollars with which to buy up more US assets. In other words, a chronic trade deficit is a way to redirect a country’s revenues and profits into overseas hands.

The ownership of a country changes from its own citizens to foreigners.  According to Reuters, in 1971 foreign companies owned 1.3% of all corporate US assets.

By 2008 foreigners owned 14.2 percent of all US industries, including 21.5% of mining, 25% of manufacturing, 30.2% of wholesale trade, 12% of information industries, 12% of real estate, 15% of finance and insurance, 25% of professional, scientific, and technical services, 11% of entertainment and recreation and 11% of accommodation and food services, according to a report from Economy In Crisis.

Numerous famous American brand names now are companies owned by foreigners.

Budweiser belongs to a Dutch company. Alka Seltzer belongs to a German company.

Firestone belongs to a Japanese company. The magazines Car and Driver and Woman’s Day are owned by a French company. Gerber baby food and Purina dog food belong to Swiss companies. Hellman’s Mayonnaise and Ben & Jerry’s ice cream belong to UK companies. Many thousands of former US companies have moved into  foreign control as a result of the US trade deficit, which is swollen by the offshored production of US corporations.

The policy of chasing lowest labor cost abroad, that is, of pursuing absolute advantage, the antithesis of comparative advantage which is the basis of free trade, is the redirection of US profits, capital gains, rents, interest, parking meter and toll road fees into foreign hands.

Thus, there is a high social cost from corporate executives pursuing short-term profits in order to maximize their performance bonuses. The profits from offshored production are not indications of economic efficiency and social welfare. Most likely, the social costs to the US of offshored production are larger than the profits gained, making jobs offshoring a net loss to the US economy. There is little doubt that the social costs of GMOs exceed the profits of Monsanto.

But don’t expect mainstream economists to pay any attention. They are still waxing eloquently about the advantages of Globalism’s gift of the New Economy of high unemployment and low wages, financial crisis and dollar erosion.

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. His latest book is  The Failure of Laissez-Faire Capitalism. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. 

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is The Neoconservative Threat to World Order.

Weekend Edition
February 12-14, 2016
Andrew Levine
What Next in the War on Clintonism?
Jeffrey St. Clair
A Comedy of Terrors: When in Doubt, Bomb Syria
Ismael Hossein-Zadeh – Anthony A. Gabb
Financial Oligarchy vs. Feudal Aristocracy
Paul Street
When Plan A Meets Plan B: Talking Politics and Revolution with the Green Party’s Jill Stein
Rob Urie
The (Political) Season of Our Discontent
Pepe Escobar
It Takes a Greek to Save Europa
Gerald Sussman
Why Hillary Clinton Spells Democratic Party Defeat
Carol Norris
What Do Hillary’s Women Want? A Psychologist on the Clinton Campaign’s Women’s Club Strategy
Robert Fantina
The U.S. Election: Any Good News for Palestine?
Linda Pentz Gunter
Radioactive Handouts: the Nuclear Subsidies Buried Inside Obama’s “Clean” Energy Budget
Michael Welton
Lenin, Putin and Me
Manuel García, Jr.
Fire in the Hole: Bernie and the Cracks in the Neo-Liberal Lid
Thomas Stephens
The Flint River Lead Poisoning Catastrophe in Historical Perspective
David Rosen
When Trump Confronted a Transgender Beauty
Will Parrish
Cap and Clear-Cut
Victor Grossman
Coming Cutthroats and Parting Pirates
Ben Terrall
Raw Deals: Challenging the Sharing Economy
David Yearsley
Beyoncé’s Super Bowl Formation: Form-Fitting Uniforms of Revolution and Commerce
David Mattson
Divvying Up the Dead: Grizzly Bears in a Post-ESA World
Matthew Stevenson
Confessions of a Primary Insider
Jeff Mackler
Friedrichs v. U.S. Public Employee Unions
Franklin Lamb
Notes From Tehran: Trump, the Iranian Elections and the End of Sanctions
Pete Dolack
More Unemployment and Less Security
Christopher Brauchli
The Cruzifiction of Michael Wayne Haley
Bill Quigley
Law on the Margins: a Profile of Social Justice Lawyer Chaumtoli Huq
Uri Avnery
A Lady With a Smile
Katja Kipping
The Opposite of Transparency: What I Didn’t Read in the TIPP Reading Room
B. R. Gowani
Hellish Woman: ISIS’s Granny Endorses Hillary
Kent Paterson
The Futures of Whales and Humans in Mexico
James Heddle
Why the Current Nuclear Showdown in California Should Matter to You
Michael Howard
Hollywood’s Grotesque Animal Abuse
Steven Gorelick
Branding Tradition: a Bittersweet Tale of Capitalism at Work
Nozomi Hayase
Assange’s UN Victory and Redemption of the West
Patrick Bond
World Bank Punches South Africa’s Poor, by Ignoring the Rich
Mel Gurtov
Is US-Russia Engagement Still Possible?
Dan Bacher
Governor Jerry Brown Receives Cold, Dead Fish Award Four Years In A Row
Wolfgang Lieberknecht
Fighting and Protecting Refugees
Jennifer Matsui
Doglegs, An Unforgettable Film
Soud Sharabani
Israeli Myths: An Interview with Ramzy Baroud
Terry Simons
Bernie? Why Not?
Missy Comley Beattie
When Thoughtful People Think Illogically
Christy Rodgers
Everywhere is War: Luke Mogelson’s These Heroic, Happy Dead: Stories
Ron Jacobs
Springsteen: Rockin’ the House in Albany, NY
Barbara Nimri Aziz
“The Martian”: This Heroism is for Chinese Viewers Too
Charles R. Larson
No Brainers: When Hitler Took Cocaine and Lenin Lost His Brain
FacebookTwitterGoogle+RedditEmail