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Money Manager Capitalism

We often have this grandiose view of capitalism. You know the one where any one can be become wealthy and live the American Dream.  Reality is quite different and capitalism, particularly in its current form, is not worthy of such a view.

Before the critique starts, we need to clarify one thing.  Capitalism is NOT democracy.  Capitalism is an economic system and democracy is a political system.  Too many people equate the two. Capitalism, because of its flaws/characteristics, can and is destroying democracy via its current form. 

Capitalism comes in many forms.  European forms of capitalism are quite different than American capitalism.  Even China practices a very exploitative form of capitalism.  Capitalism is also dynamic.  It can change over time.  For instance, there was a time in U.S. when the economy evolved around trade and production - when we actually made things.  Not only that but Americans could actually afford the things that were made in the U.S.  Not any more.

It use to be that most economic activity, markets or financial transactions centered around trade and production.  Today, those things are dominated by money managers. Money managers who push speculation over investment for production.  This speculation is often leveraged with more and more debt making for a very fragile financial system.  Money Manager Capitalism has elevated the level of fragility in our financial system and economy. 

Money managers are judged by one standard for performance - total return to fund owners.  The dominance of money managers in markets and financial transactions has caused corporate executives to focus more and more on corporate stock performance because after all the one standard is maximizing total returns to fund owners.  This has resulted in profit margins being managed not in terms of long-term viability of the company or what’s best for the entire company but what is best for stock price - an often fleeting measure.  Outsourcing, downsizing or squeezing more productivity of workers for less pay have become standard practices for wooing the interests of the dominate money managers.  For what, something had to sacrificed - stability and job security.

In the interests of our democracy, capitalism must change one again.  We have to change this Money Manager Capitalism that is creating a fortress for a select few and misery for the rest.  It will require a more mixed economy - one that provides a safety net when people try but fail or stumble.  Hyman Minsky and co-author Charles Whalen (1996) wrote:

Capitalism can be successful only if economists and policymakers recognize that people have a limited tolerance for uncertainty and insecurity. Evidence of this limited tolerance is provided by insurance, which is purchased to provide protection against large contingent losses. When deleterious consequences mount for uncertainty outside the reach of private insurance, society must respond through public action.

Really, it boils down to what kind of economic system do we want?  Money manager capitalism we have now is not working for most Americans. Are we OK with that?  But to change it requires significant institutional reforms such as those mentioned by Minsky and Whalen.  Are we prepared to fight for those changes? 

What I am struggling with is - is capitalism in any form worth fighting for?

Good luck.

Source:  Economic Insecurity and the Institutional Prerequisites for Successful Capitalism, Hyman Minsky and Charles J. Whalen (1996)