Wall Street, Beijing?

I am intrigued by these mass protest movements – whether it is the Tea Party or the Occupy Wall Street movements.  They are an inevitable consequence of a free and open democracy.

For advocates of a pure free market system – untouched by government – they would be better off in China.  In a democracy, the economic system we use to interact with each other will always be influenced by the public – by definition.  If a large enough and insistent enough majority call for high taxes on the ‘rich’ they will eventually get high taxes on the rich.  The top marginal rate on income back in the 1960s in the U.S. was something like 90%.

In China,  all you have to do is make sure the bosses like your model – a much easier rent seeking effort.

I remember my father-in-law telling me that when Brazil was in dictatorship back in the 1960s-1970s – that’s when things got done.  You want to build a grand, new city in the middle of nowhere called Brasilia from scratch?  No problem.   Try doing that in a democracy.

The implied promise of US style democratic capitalism was that even if I was down and out, if I work hard enough – or my kids work hard enough – they could have a better life.  The whole system was based on that.  The idea that one can get ahead if one works hard, gets educated, builds networks, etc.  If that idea goes away and it is perceived that a few are getting ahead at the expense of everyone else – you get mass movements.  When there are 25 million either unemployed or in part time work looking for full time work, in a democracy, you will get these kinds of responses.

In Canada, the implied social contract is a little different – it had a larger social safety net but less chance of making the big dough – but that seems to work here without causing social unrest.

Not that long ago, I read a bio of FDR and after he put in all the social welfare programs, stimulus spending, increased tax rates, etc. he was called “a traitor to his class”.   His response, and I paraphrase here was something like “I’m the only thing standing between your money and the mob”.    I’ll let historians decide if that was true but in his mind, the toxic mix of a rich class doing very well (luxury goods spending either remains the same or goes up in a recession) and a massive poor class – unemployed and in misery- was a recipe for revolution.

Peter Lindfield recommended Capitalism 4.0 and I am getting comfort from that book.  I am a huge fan of free markets and capitalism.  I am amazed at how the system with no central planning at all can lead to such efficient and good outcomes.  I have talked about it here many times.  My pizza example is a favourite.   The product gets ever more better, ever more niche/specialized and the price (in real terms) is lower today than it was 25 years ago.    When you peek under the covers, you see an industry (pizza) that is  ferociously competitive – companies going out of business weekly.  Large multinational pizza chains crumbling.  Vast stores of equity wealth disappearing at the whim of the market.

But I digress.

Capitalism 4.0 clearly shows how capitalism has been redefined each time it faces a run in with ‘democracy’.  It is a highly adaptable system – it can work under most forms of political economy. The author suggests it will do so again.

Last point on this.  I chuckle when I read the Occupy NB twitter feed.  Occupy Wall Street started out as a mass protest against the lack of jobs and income inequality.  In New Brunswick, it is about shale gas.  Despite the fact we have a higher unemployment rate than in the U.S.  Despite the fact that in rural and smaller town NB unemployment is pushing 15% and despite the fact that nearly 1/3 of all working NBers outside of SJ and Moncton collect EI at some point during the year, we have managed to morph a protest movement about the lack of jobs and income inequality into a protest against high income jobs.