Our new slogan: "Privatize the Profits, Socialize the Risks"

Explaining the roller-coaster of events over the last couple of months is made more difficult in the midst of this blame storm. Simplifications abound: one camp says the market collapse is attributed to the largess of the government, over-regulation, and constraints on the free market; the other camp says the market collapse can be blamed on a government that was too slow to respond, too anemic in its regulations, and too lenient on the excesses of capitalism. Once again, we return to the cliché debate between Capitalism and Socialism. That’s so last century¸ I think.

Both camps couldn’t be further from an accurate explanation of the mess we’re in. Over the last couple of decades, a hybrid policy has been the accepted norm: privatize the profits, socialize the risk. There has been bi-partisan cooperation towards this goal under Reagan, Bush I, Clinton, and Bush II. The market is free on the way up, and given a soft cushion at the tax payer’s expense on the way down. The largess of our government and generosity afforded to those who fail due to their own greed and/or shortsightedness fall on people who pay income taxes at all levels. While two thirds of US corporations don’t pay any federal income taxes, wage earning Americans, their children, and their children’s children will be paying for policies that privatize the profits and socialize the risks. They’ll also pay in the form of a dollar that buys less and a bank account that is worth less because we’ll have to resort to printing more money.

What most people understand about the term “socialism” is really in the eye of the beholder. Those auto executives who for the past 30 years have been tremendously successful in fighting off higher fuel efficiency standards in the name of shareholder profits are now asking for government handouts to save them from their own shortsightedness. Privatize the profits and socialize the risks at taxpayer cost. In truth, We the People are socializing their stupidity. We are socializing their assumption that gas prices would stay low forever and that Americans would still drive big on a smaller wallet.

The dynamic works the same for other sectors. While defense contractors (and I used to work for one) have made vast private profits off of the American empire since President Eisenhower warned us about the military industrial complex, the risk comes at the expense of current and future tax payers – not to mention American lives. We now have mercenaries in Iraq that make multiples of what American soldiers make for the same exact work. This isn’t capitalism, this is cronyism.

Concerning our health care system, one has to hold back laughter when various stakeholders ponder with gloom and doom what would happen if a “socialized” system were to take hold in America. I guess they haven’t read about the socialized care we currently provide teachers, veterans, Federal employees, prisoners, the deserving and undeserving poor (Medicaid), and senior citizens (Medicare). Socialized health care in the US is not a matter of when or if, it’s a matter of who, how well, and how much more it costs us than other countries. Doctors fear the prospect of making what their counterparts in other countries make, but fail to see who’s really shafting them in their own country: insurance company profits and wage taxation that supports a bungled empire and an inefficient, fragmented entitlements system. If you want to make money in medicine, become an administrator in the shining towers that house the vast bureaucracies of insurance employees arbitrating on whether or not some poor soul’s condition is preexisting or not. We support an empire of 700 military bases, yet cover fewer people at higher cost than most Western market economies. (For a balanced review of alternate market-based systems, view Frontline's work on this subject, "Sick Around the World." ) Privatize the insurance company profits, but then socialize the increased costs to the taxpayers and lenders when someone declares bankruptcy due to a medical emergency (a situation unheard of in many other Western market economies).

And, as it relates to the environment, profits from unchecked growth and expansion are shared by the shareholders and management, and the costs – the “negative externalities”, the site clean up, the human health costs, the financial costs to future generations – are paid by society and the unwitting wage earners at all income levels. While large agribusinesses make money hand over fist (with government’s help) in pumping cheap corn into every imaginable food item (as seen in corn syrup in processed foods and animal feed that creates meat with higher fat content), it is society who must pay for the costs of prosperity diseases like diabetes and heart disease. Further, while the US government (as well as EU) protects large agribusiness from cheap imports and competition, American citizens pay more for their food while farmers in third world salivate over the prospect of exporting to the US and EU. Guess where our surplus production ends up? US and EU governments purchase surpluses and dump them in third world nations, further undermining prices. I've heard some call this "aid."

I’m quite agnostic about the record of capitalism and socialism in the 20th century. This is not because I lack an opinion in theory, but because we’ve followed a flawed hybrid of these two systems in practice. To use these labels in absolutes amounts to talk-show semantics. So, at this precarious juncture in our history (which a friend described to me as the feeling one gets in those slow seconds right before a high speed collision), maybe we ought to ask ourselves where we are, how we got here, and where we are going as a society. Do we want to continue this one-foot in, one-foot-out approach towards both systems? We need to decide whether we are to become a country like Switzerland or Finland (which oddly rank right next to us in economic competitiveness rankings), for example, or model ourselves after the "free market" in post-Soviet Russia, after the "small government” as seen in Mexico, or perhaps after various 18th century political theories. What is our shining city on a hill: an idea or a self-aggrandizing platitude? Are we still trying to create a more perfect union, or just elect politicians and consume media that tells us we are the perfect union?

I used to engage in "green washing" for major US corporations and mainstream politicians. Corporations (who have same legal status as individual people), want to deceive you into thinking they believe in a higher calling than increasing shareholder value. I - like other Americans in this ownership society - love increasing shareholder value, especially when we own the shares. But not unconditionally and not arbitrarily above all other concerns. What was once a legal vehicle that served at the will of municipality (a corporation of individuals seeking to minimize risk when building a bridge, a dam, school, road, etc), has become a vehicle to spread costs to different lands and times, to increase shareholder value above all other concerns, and to pay their shareholders with the investments of tax payers. Their original social charter has reversed direction: the fiduciary responsibility no longer leads from the corporation to the authorizing municipality, but from the authorizing municipality to the corporation in the form of tax credits, education for the workforce, infrastructure, and – increasingly – corporate welfare and bailouts. If you think you're getting fleeced on April 15th, you most certainly are.

You probably think – incorrectly – that I’m a socialist. In fact, I love the free market, I just don’t think we’ve seen one yet. All of the hallowed benefits of the free market, as seen in Economics 101 text books, are assuming fairness, full information for all actors, full knowledge and accounting of costs (current and future), and access of all stakeholders to their markets. It assumes that when I make an investment, I can look at the books of a company and believe what I see. It assumes that I can have faith in debtors' ability to repay. It assumes creditors are not engaging in predatory lending (some people, like Jesus, might call this usury), providing full information, and offering market competitive rates. It assumes arms length transactions. But as the assumptions grow, the resemblance to reality shrinks.

Looking at the major policies of last couple of decades, the US does not have a true market economy: until corporate money is out of politics it will always harbor crony capitalism. I believe in a free market that operates by the rules set by a government of the people, a government where the voter matters more in policy making than the campaign contribution, where logic and expert opinion weigh more than cold hard cash and raw influence. We have a long way to go. We’re a country that fought off the arbitrary rule of a distant monarch, and we’ll have to become a country that protects its citizens against the arbitrary rule of organizations whose sole purpose is to maximize shareholder value at any cost to current taxpayers, future generations, and our ecological and mental environments. The coal plant in Tennessee certainly increased shareholder value by building a cheaper retention facility to hold back toxic coal ash from the citizens and watersheds downstream, but maybe there is a higher value than just boosting the shareholders' value? If it is true - as the classic libertarian argument goes - that government should only be where The Market fails to provide or protect, isn't the environment one of these many areas?

Let me leave you with one example of the free market in action, where a brave citizen knew that he too deserves a literal seat at the table just like other "individuals," or corporations as they're more commonly known. The Utah student decided that he too deserved to bid on the same land that the oil and gas industries can bid on: http://www.truthdig.com/report/item/20081223_bush_and_the_monkey_wrench_guy/.

When did we forget that social capital is part and parcel of capitalism? What we need now more than ever is true conservative leadership, like the leadership of Teddy Roosevelt, a "conservative" who saw that we must conserve our market system from it’s own abuses and saw that we must conserve our natural environment for future generations. Today, what are we trying to conserve? The myth that we can have our tax cut and spend it too? The myth that we can continue to buy more and produce less? The myth that inputs are infinite and costs are invisible? The myth of the City on a Hill?

© Bjorn Beer, 2008