End capitalism

We are at the first days, not only of a new year; but, at the beginning of a new decade – 2020s. This past decade, the biggest development has been the increasing or accelerating inequality of income and wealth. We are at a point where certain  economic statisticians believe that only 67 individuals own as much wealth as the bottom 50% of the world’s population. This means that 67 individuals own as much wealth as the 3.8 billion people at the bottom of the economic ladder in the world. This is a statistic that is not just a cause for social concern; but, it is also morally evil.

This level of income inequality has led to the rise of populism. Any global leader that attacks the elite gains popularity with the masses which is composed of the overwhelming majority of the population. In the 1970s, the economist Milton Friedman popularized the doctrine that “...a company’s social responsibility was to produce profits for its shareholders.” He won the Nobel Prize for Economics for this advocacy. 

During the next few decades business leaders internalized this mantra that their sole responsibility was to make profits. Their justification was that the more money the very rich make, the more wealth will “ trickle down” to the rest of the population. This ideology is, of course, capitalism. There was even a time when the slogan “greed is good” became well known in business and social circles. In the 1980s, this belief caused a global financial meltdown.

The strange thing is that people who caused the financial meltdown – the rich businessmen – did not pay for the social costs of this meltdown. In fact, they became beneficiaries as most countries resorted to reducing social services and welfare benefits in the guise of “austerity” programs. However, at the same time nations resorted to massive tax cuts to provide “incentives “ to business as a means of “motivating” more investments. This was again the principle of “trickle down”. The actual result is that a few individuals became richer and income inequality became worse. 

Sometime during the past decade the general population began to rebel. Since Communism had proven itself to be ineffective in the distribution of wealth, they resorted to electing individuals who promised to correct the injustice of income inequality. These leaders, or populists, echoed the believable claim that the elite were to blame for all these inequality. The claim was that capitalism was just a tool for enriching a few at the expense of the majority.

Even the economists became enamored with GDP growth rate and the number of billionaires as the evidence of a progressive economy. Wages became an economic tool; and, therefore economists and business leaders preached another mantra – that low wages which keeps workers poor – is good for the economy because it makes the economy “competitive.” Productivity increase was used keeping workers poor as a major tool, instead of innovation and increasing efficiency. The concept of a living wage is considered an unacceptable goal. 

In the Philippines, for example, business groups opposed increasing salaries of teachers because it would lead to budget deficits. However, at the same time, business leaders opposed increasing taxes to meet budget goals. Even more than this, they opposed any move for a wealth tax. Did they ever imagine how this would be viewed by teachers – the idea that teachers are responsible for ensuring that there will be no budget deficits? At the same time they complain about the state of education in this country. 

In the Philippines, capitalism is still being vigorously defended by the business community. However, in 2019, in the Western world several chief executives have started disavowing Friedman’s capitalist ideology that a company’s goal is to maximize profits. Salesforce CEO, Marc Benioff told a conference last October: “Capitalism as we know it is dead.” He said that a new model of business was taking its place driven by values, ethics and taking care of its employees and not “...the Milton Friedman capitalism that is just about making money.” PayPal CEO Dan Schulman promised to raise wages after discovering that 60 percent of the company’s hourly employees were struggling to make ends meet. In the Philippines there are business leaders who are trying to prove that a family or household can live a “decent” life on P10,000 a month! Across the Western world there are business groups that are waking up to this new reality. 

Their motivation is partly to deter intervention in the business world by populists and by left wing politicians, like Warren and Sander in the USA and Corbyn in the UK. UK’s Institute of Directors said it’s looking for “...new ways to combine the profit motive with social responsibility.” Even the Washington based Business Roundtable has decided to abandon the Friedman ideology of the primacy of the shareholder and the profit motive. Last August  it published a statement of purpose which said shareholders are only one of five stakeholders of a business firm. 

Philippine business leaders should heed the warning that unless they take the initiative to look for this new business model, it might be grasped by somebody else who will do more damage. 

Creative writing classes for kids and teens

Young Writers’ Hangout on January 25 on Using the Force: Heroes and Villains with Roel Cruz (1:30-3:30 pm, stand alone sessions)at Fully Booked BGC. For details and registration, email [email protected].

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Email: [email protected]