"If everybody doesn't want it, nobody gets it" ---- Behold the true guidance for producing products and services under the American system of market capitalism, where the bean-counters keep a flinty eye on the quarterly bottom line, influencing most crucial corporate decisions, and where accountants are outranked only occasionally by the lawyers. Don't believe me? You think those overpaid CEO's with the golden parachutes make the big bucks because they are the risk-taking Deciders? Think again.
I know, I know, this does not exactly fit the picture of harmony and plenty presented to us, the wonderful world of consumer goods galore, a rising middle class everywhere, living in a heaven of endless growth. The economic system that has lifted everyone's standard of living, producing a true Golden Age with ever-increasing gross world product is presumed to be scientifically based on the profit motive (greed), endless quarterly growth (regular short-term profits), free movement of goods around the world (free trade, globalization), and free decisions made by individuals in the open market on what they will purchase (market competition, the economic man), all of which results in the best allocation of resources through the mysterious hidden hand of the market. That is what free market capitalism is, the garden of entrepreneurs.
Here's a fun description of a generic business operation (hypothetical, you understand) and how it grows in the garden of the entrepreneurial free market:
|Inventive Beginning: Mr. Bright, working at night in his garage, invents a new widget so clever he decides to manufacture it, sell it, and make himself a fortune. After much hassle he hires an attorney, gets a patent, works his tail off to generate some venture capital backing (the banks don't think he has a good business plan so they won't give him a loan), but his backers demand a crushing sixty percent interest in his startup, so right away he has lost control of his adventure. After much longer than he originally expected, he gets his act together and produces his first commercial widgets, but sells only a few. It turns out he needs more money to advertize and market Bright-time Widgets, so his backers come through with more money, probably in exchange for maybe another twenty percent of the company.
Successful Start-up: unlike about ninety or ninety-five percent of start-ups, Bright-time Widgets makes it! Mr. Bright is off and running, proud and happy to be eking out a small profit by the second or third year of operation, beginning to build a market, nibbling at the market share of Major Mojo Widgets.
Growth and expansion: Mr. Bright not only expands, but invents and patents a new, improved widget and another, different kind of widget, growing his market exponentially to his pleased surprise. Bright-time Widgets prove very popular, and all versions develop a loyal following. His accountant is overjoyed as each quarter shows some degree of growth, and his venture capital backers are therefore pleased. It is a great American success story.
Buy-out: Major Mojo Widgets takes note of Bright-time Widgets when its accountants observe a blip in quarterly profits and a smidgen of reduction in market share in one region. Major Mojo implements its standard plan when faced with competition, that is, it offers to buy Bright-time Widgets and will do either a friendly buyout or a hostile take-over, but it will not let the situation continue as-is; being an established firm with connections it easily sets up bank financing for the buy-out. It even opens a second front by instituting a patent infringement lawsuit. Mr. Bright is outraged but ultimately out-voted by his venture capital partners, and Bright-time Widgets is absorbed by Major Mojo Widgets. Mr. Bright did negotiate an agreement whereby Bright-time Widgets would continue to be manufactured and marketed under that name, with no degradation of quality or style, so his old customers would notice no change.
Ultimate Results: Sooner or later, Bright-time Widgets are changed, quality deteriorates as Major Mojo seeks to improve its bottom line (why do you suppose they took over Bright-time in the first place?), and eventually, one by one, the various styles of widgets so lovingly created by Mr. Bright become indistinguishable from Major Mojo's many versions, and they disappear one by one from the line of widgets being sold by Major Mojo. Mr. Bright's old customers look in vain for their favorite widget, but finally settle for some inferior but more expensive Major Mojo version when they are told firmly, "Sorry, but that Bright-time widget just didn't sell enough to make it worthwhile to keep making it, and this Major Mojo version is the same thing, only better anyway."
If everybody doesn't want it, nobody gets it. The public learns once again that the "free market" which supposedly gives the customer many choices actually ends up giving him only the choices the manufacturer offers, and those choices are always the ones that make the manufacturer the most money. The manufacturer will ruthlessly eliminate other choices based on what his accountant tells him, and, one way or another, drive from the market any serious competition. Weaker or less profitable products lose shelf-space and vanish, whether or not a few buyers still prefer them; little companies and minor company executives also disappear, with or without a comfortable sinecure. There is an inexorable tendency toward monopoly or at best oligopoly, frequently in the latter case accompanied by the eventual creation of cartels.
A corollary to the market capitalism doctrine is that the system requires periodic crises, called panics or recessions, in order to cleanse itself of excesses and mis-allocation of resources, which means that economic booms and busts are natural and inevitable. Another, covert, corollary actually enunciated by the originator of the formal version of the theory, is that a pure system of free market capitalism can only be established (that is, imposed) on a country-wide basis when that country is in the throes of a serious crisis and, therefore, deliberately creating such a crisis is sometimes necessary. (See Naomi Klein's book Shock Doctrine: Disaster Capitalism).
As market capitalism grew, the system became dominated by corporations which, as they matured, entered the globalization stage, creating a massive network of Big Money mega-corporations that resemble what can be called corporate feudalism. These corporations exercise enormous political as well as economic power around the world. Over the last few years the entire world economy has become enmeshed in a miasma of byzantine financing instruments developed mostly by American financial houses on Wall Street to finance the globalization---- and to make enormous profits for Wall Street, that is profits not from producing goods, but profits based on the manipulation of financial paper.
When the inevitable "cleansing" or recession occurred, it cascaded into a world-wide panic that is feeding on itself and, more and more, appears intractable, possibly too complicated to repair. The Free Market capitalist system as it has developed under America and Wall Street has failed. It is becoming clear that the free market theory may work well when applied to individual companies or local corporations, but it is a failure when stretched to cover several countries, and a total disaster when applied to the entire world economy.
It was not government interference that caused the failure (as free market theorists claim). It failed for many reasons, some of which were: "free markets" can never exist, one side always has an advantage; the "economic man" is a fantasy; greed distorts decisions and fails to create products or services society needs; environmental and social costs have to be included in market pricing when dealing with a country-wide or world-wide economy, and so on.
I agree with Robert Reich (President Clinton's Secretary of Labor), writing in AlterNet (http://www.alternet.org/story/141232) that trying to save the Wall Street banks and restore the system as Geithner and Obama are attempting to do, is an exercise in futility and will not end the recession/depression. Reich says the recession is not going to be V-shaped, or U, or W, or even L (like the Japanese in 1990); it is "X" and that means the old way is dead and cannot restored:
"The economy can't get back on track because the track we were on for years---- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere---- simply cannot be sustained."
What we must do, and, unwittingly perhaps, are doing, is invent a new economy. Just what it will look like Reich does not say. I believe it will be a long and painful birth, and I suspect that the rest of the world, fed up with America's stewardship of the world's finances, while they may like the American life style, they will have no intention of putting us back in charge of the world economy, like it or not, even though we are still the big kahuna. It behooves us to begin creating the new version of the economy though, for reasons of enlightened self-interest.