Despite Everything, Capitalism Is Alive and Well

If you are like most people, you probably feel that capitalism has taken a beating this year. You might even think that it’s on the ropes waiting for the final knockout punch. Local far left liberals like Michael Moore and radical socialists abroad have been pointing to America’s recent economic troubles as evidence for the ultimate failure of capitalism. And yes, the recent loan to America’s struggling automakers might seem as yet another triumph of socialism over capitalism.

However, a closer look reveals that capitalism is still way ahead of its competitors. While I concede that American automakers have failed in the current environment, it is no secret that the biggest catalyst for that failure has been the domination of the workforce by the labor unions. And let's face it; labor unions such as the UAW are one of the biggest barriers to free market capitalism. As everyone already knows, foreign owned automakers that manufacture cars in the U.S and are free of unions have been doing significantly better than their unionized American counterparts.

We must also remember that we are in a global recession. If America was the only country facing economic difficulties today, than critics would indeed have something to latch on to. But this is not the case. Economies all over the world are suffering, with most stock markets in the more socialist European and Asian countries plunging more than ours. Unemployment in most of Europe is also higher, not to mention the lack of career advancement opportunities for those who desire them.

Lastly there is the disaster that has befallen our financial sector. Truly, if someone wanted to point to a complete systematic failure, all that is needed is a look at America’s banks. But the true failure of capitalism wasn’t the failure of the banks; the failure was the actions taken by our government that prevented the banks from collapsing. No one ever said that that capitalism is the absence of failure. In fact it is the exact opposite. Unprofitable companies and even sectors should go out of business so successful ones may thrive. And although credit and finance are an integral part of our economy, I doubt anything catastrophic would happen if some of the companies that charged the public huge commissions, gave out useless financial advice, increased underwriting spreads on IPOs, taken over-leveraged bets in volatile markets, and generally take a middleman’s cut from every financial transaction went out of business.

Comments

[UseMyFedTax...:]

Favel believes that “labor unions such as the UAW are one of the biggest barriers to free market capitalism.” I believe that the issue is a bit more complex than he describes. It is generally thought that the “labor cost” of the average vehicle is approximately 10 percent of the total vehicle cost. If this is true, then how can this be the “biggest barrier”?
A few examples to larger impediments to “free market capitalism” are the following:
1] Legacy costs related to pensions and healthcare of older companies. If the US government does not “re-structure” this social environment, all companies will eventually shoulder this burden increasingly as they age. One potential solution in the current environment would be to only have companies that are less than 25 years old. That way a company would not have any employees retiring or requiring expensive medical care.
2] Currency manipulations by foreign governments that cause inconsistent economic value transfer into foreign markets.
3] Decades of "Bail-Ins" that state and local governments have provided primarily to transplant auto companies. Significant growth in taxpayer subsidized new auto manufacturing capacity – in the name of jobs – has demonstrated the consequences of an incoherent national industrial policy over the last 25 years. It should not go unnoticed that Senator Bob Corker, as mayor of Chattanooga, probably played a significant role in marshalling over $0.5 Billion Dollars in incentives to have a foreign automaker, VW, build a plant in Chattanooga – all in the name of 2000 plus automaker jobs in Tennessee.
The biggest paradox of so-called “free market capitalism” is that the market is NOT free of obligations and consequences. If one looks at any area where there have been incentives to grow markets like, automotive manufacturing, housing, and retail, - one can see an explosion of overcapacity that has lead to economic breakdowns for the constituents in those markets.
For many years, many have assumed that the lack of a coherent economic plan is a plan. The lack of a real US economic plan does not work in the context of foreign countries that have robust economic strategies.
Refer to this article: www.businessweek.com/m...

2008 Dec 21 12:32 PM

[Tesa:]

To the author,

If capitalism is not absence of failure then there is no need to boast about its super powers that it doesn't really have by your own admission.

The double talk by those that have caused the current financial disaster by boasting about the super powers of capitalism is easy to spot. They often bash unions and the worker class and yet they are blind to the massive corruption that capitalism has pursued and that is even after getting saved by socialism.

These claims are fabricated, they use what-if-scenarios although the boasters of purely capitalist economies were in fact on the receiving end of subsidy by socialism. The very banks and the very financial institutions that were advising to all other countries to join them, pushing for easy credit and damaging the world economy are the very high power institutions that claimed the super power of capitalism and also they were the very first institutions that begged to be saved by socialism when they "failed" and they did "fail".

To believe that all markets can stand these failures is either naive or manipulative.

2008 Dec 21 12:35 PM

[javnnf:]

Was the sub-prime factor the dominating cause, or was it the the labor union, for this crisis?

This sub-prime phenomenon lead by the great capitalistic American financial institutions and supported by the great capitalistic leaders such as Allen Greenspan is responsible for this global recession.

Is the author so naive or simply an advocate of these corrupt institutions, providing a cover-up for them so that they can be given another chance?
America is responsible for the global recession!!

A true Capitalism does not need bailout from the tax payers' money, to provide multimillion dollar bonuses for the same corrupt executives while the unemployment continues to rise!!

2008 Dec 21 12:54 PM

[jepittman:]

While I agree with the title to Mr. Favel's piece I have issues with some of his assertions. First, labor unions in and of themselves are not responsible for the decline and possible failure of GM and Chrysler (Ford is still not asking for Federal assistance). Agreements with labor unions involved another party - management. It was management's failure to negotiate competitive labor contracts as well as unrealistic demands from the unions the contributed to an uncompetitive cost structure. Both must bear responsibility.

Second, the author seems to believe banks should be allowed to fail in order for capitalism to operate properly. The trouble with this is that failing banks creates a downward spiral of economic activity that leads to unemployment rates unacceptable to any responsible government. It was policy mistakes that turned a similar recession to the one we are currently experiencing into the decade long depression of the 1930s. The primary policy mistake made then was allowing banks to fail. Indeed the one glaring policy mistake our Federal Reserve has made during the current crisis was allowing Lehman Brothers to fail. The evidence of this is the Fed's rush to save other banks and insurance companies in the wake of Lehman's bankruptcy. The result of this has been a noticeable stabilization of the credit markets. Thanks to the policy actions of the Federal Reserve another depression is highly unlikely.

So capitalism is alive and well. We will always have a business cycle but they can be cushioned by responsible government institutions.

2008 Dec 21 01:09 PM

[Trinitymaster:]

First of all:

The Stock Market is not an example of Capitalism at work.
Free Market Capitalism is about as real as the tooth fairy, and it's true location is Never-Never Land.

Second:
Ford's CEO receives (not earns) roughly $28 million/year.

Typical Assembly-line worker: $80,000/year (lots and lots of overtime figured in here).

CEO loses billions each year. Assembly-line worker produces $800,000.00 worth of product.

Now, tell me how the worker is the problem

Third:
The Author looks like a KGB Agent. Thank God he doesn't know how to find me.

2008 Dec 21 01:17 PM

[working at ...:]

The author is is just a poor college unedreducated fellow who will not make it through this depression on his own. He lack a since or reality do to the fact that he has lead sheltered life and has not had the opportunity to get a working education. In the survival of the fittest world that fools like him dream of or in reality a nightmare beyond his imagination. The key word to this mentality is fittest. College education does littlr to make you fit. Art education and political science programs have little to offer if you must earn a living using your talents and skills. To get to my point if your cannot hunt, fish, grow a garden, preserve foods and cook a meal out of raw materials, If you cannot build a fire withput a match or lighter. If you do not know how to create of find drinking water, If you t if you do not have any tools or the skills to use them to make a usable product them you will not be fit enough to survive in a real free market.

2008 Dec 21 02:48 PM

[capitalismi...:]

Your article makes no sense, you go on blabberring about how capitalism is alive and well, yet you end your article by claiming that capitalism would have survived without the bailout of the banks. Thus negating your initial point. The government is a capitalist government, more or less, thus the bailing out of the banks is a "capitalist" action. The use of hard earned people's money to satisfy the meaningless expansion of superstructures.

Also, your point concerning the unimportance of the banking sector is ridiculous. The financial sectors are the clergy of capitalism. Without them, almost every other company will crumble due to the lack of financing possibilities and such.

Unless you are subscribing the the notion that government should finance small business, in which case capitalism is dead.

Your article was stupid and meaningless, a pathetic diatribe were nothing at all gets proving. It seems to me is that the only purpose for writing such rubbish is to have the title floating around the net.

Capitalism is a defunct system because it expects constant growth, and it is impossible to grow at the imaginary rate when resources are limited and more importantly when people's capacity to consume is limited as well.

You can get the masses to buy pounds upon pounds of burgers but at one point their belly will explode and you are witnessing this explosion. So next time do us all a favor and keep your mouth shut.

2008 Dec 22 07:40 AM

[carey_jim:]

One word, capitalism, can't really describe the American economy, just as one word, communism couldn't describe the former Soviet Union.

America is not only an economic system but also a mixture of social, political, legal and historical traditions which support economic activity.

Capitalism takes many forms.

In the past and even today, America has had many monopolies such as Standard Oil, the American Tobacco Company and AT&T.

In the present, we have many oligopolies such as the automobile industry, Big Pharma, the newspaper industry, television networks and many others.

It is difficult for small businesses to find a niche in oligopoly business. It was done in the computer industry but it was necessary for the government to break up AT&T to allow competition into the telephone market.

We have a thriving small business environment where new ideas can be tested in a tradition of willingness to trust advertisements and to try new things but it rests on the knowledge that a legal system is in place to protect against fraud.

The concept of unions are not simple either.

If you consider the unions that protect the professions but call themselves by another name, you will understand that.

Doctors, lawyers and dentists, among other professionals, are protected by closed shop unions where workers are forced to join and those who don't are not allowed to practice. These professional associations are protected and enforced by laws.

2008 Dec 22 01:28 PM