An appeal to the workers of the world.

Beyond the political theater, there exists a fundamental political economic crisis.

Oxfam International https://www.oxfam.org/en/research/economy-1

The election of Donald Trump is not the crisis. His election is a symptom of the crisis. His removal from office will not eliminate the crisis, although it’s still a good idea for many other reasons. The current global political economic crisis stems from the fundamental challenges caused by the inequitable concentration of capital. A small number of people control an enormous share of the worlds capital. No single owner of capital, politician, or for that matter, nation is solely responsible for this crisis. It is simply a function of the nature of capitalism. It will be up to the workers of the world to stem this crisis by strengthening the unions and electing governments that regulate capital and advocate for a global solution.

Capital is a lot of things. Adam Smith refers to it as the stock from which you derive revenue. It is the rake of a farmer, the hammer of a carpenter and the computer of a software engineer. It is Henry Ford’s assembly line, Exxon’s oil wells, and Elon Musk’s robots. Ultimately, it is the means of production, and it is amoral. It has only one simple purpose, to create additional capital. When capital is used efficiently it generates the highest potential return. The role of capital as a means of production has evolved overtime, however its relationship with its counterpart in production, labor, has remained the same. Only a few hundred years ago the economy was largely agrarian, where land and labor accounted for much of the worlds production. The industrial revolution mechanized production with a mix of machinery and labor. Today the age of the computer has led to a surge in the production of information.

Until artificial intelligent robots take over completely, capital will still require the use of labor. Ceteris Paribus (all else equal), capital will produce the highest return where labor is least expensive. As capital becomes more efficient less labor is required to produce the same amount of production, which in turn frees up surplus labor. The surplus labor reduces the price of labor which attracts additional capital. In a market, where capital, labor and trade flow freely, the cost of labor across all markets will equalize. This is the simple law of factor price equalization.

However, as capital has become more efficient, the supply of labor has become effectively infinite. This can be seen in both agrarian and industrial production, where production requires significant less labor now than ever before. At this juncture capital can effectively scour the globe to find the the least expensive labor, which, because of the glut of labor caused by rising populations and global trade, reduces its price to a level that is barely able to sustain survival. This is not a futuristic world. This is our reality. Mechanization, automation and globalization has reduced the value of labor in many pockets of the world creating a global race to the bottom.

Tesla Factory photo from NYT

That is the origin of today’s current political economic crisis. Unfettered capital is flowing freely across the globe, searching for the highest return, while enormous (almost infinite) pools of unskilled labor sit idol. Meanwhile capital further concentrates in the hands of the few. Governments across the world have not only failed to regulate the absurd concentration of wealth, but have been complicit in this process, as capital has corrupted the political system.

The role of the state

Over the course of human development, populations have experimented with different governing bodies. In its purest most just form, a state or government is a group of individuals who make decisions and pool resources, when necessary, to properly value negative externalities and benefit the public good. There is an entire spectrum of governing bodies. Some states sole purpose has been to concentrate wealth and capital for the benefit of a few fortunate individuals regardless of negative externalities or the plight of the public good. This has often led to a failing form of government that has eventually led to social uprising and political revolution. Generally, though, many nation states including our very own United States of America (founded on its own revolution from a monarchy) have instead formed to protect the public good by balancing the needs of both capital and labor.

Regulations prevent market forces from creating negative externalities. Typically, one thinks of environmental, labor, and financial regulations, which are all meant to protect the public good from the nature of capital. Only a half a century ago environmental standards were practically non existent, which allowed industrialist to pollute our waterways while cars belched CO2 into the environment polluting the air, making it unbreathable. Regulations forced capital to invest in less polluting technology, which increased expenses and reduced profits, but helped solve a significant market failure. Labor regulations and unionization enabled workers to combat exploitation, introducing to society such wonders as the weekend, child labor laws, minimum wages, the eight hour day, and work place safety.

Los Angeles

There is no debate that regulations limit the immediate return of capital. However, it can be argued that regulations, by protecting the public good, actually increase the long run potential return on capital. The classic example of a negative externality that demonstrates the short sighted nature of capital and a need for state intervention, is called the tragedy of commons. A specific example of this can be seen in the fishing economy. Without regulations each fisherman has an incentive to cast the biggest net to catch all the fish. If all the fisherman act to maximize their individual production, the stock of fish would be depleted. In the short run, the fisherman might maximize his return, in the longer run there would be no fish and their capital and labor would be worthless. Hence the need for the state to regulate fishing licenses to prevent the long run inefficiency and protect the public good.

The election of an aristocrat

Unfortunately, the narrative of our recent political upheaval is that the political capitalist elite have ignored the working class. The political capitalist elite have used their capital to manipulate the political economic system to further their own welfare to the detriment of the worker. The gridlock in Washington, the jobless recovery in the rust belt, the degradation of the factory town, has in fact occurred as capital absconded. The politician ignored the plight of the workers who were left behind, assigning blame to each other and creating gridlock. The political gridlock (led by the republican congress) ignored the dangerous social costs of globalization. Many were convinced that the root cause of the problem was determined to be the federal government led by an elite political economic class, which needed to be destroyed. Anyone affiliated with the political economy, regardless of party affiliation was at fault. The worker needed an outsider to break things up, and put an end to political corruption and crony capitalism. Ironically, the worker, in its efforts to defeat the political capitalist elite were unable to elect their own leaders and instead were persuaded to elect an outsider, an aristocrat, with dictator tendencies who promised to drain the D.C. swamp from his golden castle in the sky in the heart of global economic capitalism or his estate in Palm Beach Florida.

The home of aristocracy

It has often been said that the most efficient governing body is the benevolent dictator, who is not beholden to any specific political interest, but instead rules altruistically with only concern for the welfare of the nation. It is a compelling argument and seen as justification for many of the governing bodies across the world today. (many of which are economic failures held together by repression and ultra nationalist propaganda) Yet the success of the United States has occurred because of its direct resistance to the rule of the aristocracy. This nation was founded upon, and defined by, its revolutionary desire to rid itself of an abusive aristocracy. It was founded on the basis of a rule of law, not the rule of man, and that is where it has found its success. The strength in the rule of law has actually been one of the main reasons that the nation has continuously, for the past 400 years, attracted global capital. The rule of law has created stability, clarity, and transparency, with vast legal enforcement mechanism that are not at the whim of any one individual.

The political economic crisis has only deepened with the election of the aristocrat dictator. The aristocrat elected to lead the United States, does not value the rule of law, and would prefer to have the power of a dictator, but not necessarily a benevolent dictator. However, the nation’s rule of law prevents the president from possessing unlimited individual power; remember that is the strength of the U.S. Constitution and rule of law. That leaves the aristocrat with a choice, attempt to disband the rule of law, or find a willing partner to maintain power. The natural ally of this aristocrat, is not the exploited worker, who elected him, but in fact the political capitalist elite. And so begins a thorough dismantling of the limits of capital.

The alliance between the aristocrat and the political capitalist elite will involve some conflict as their interests are not fully aligned. The aristocrat's goal is to retain power, which requires an electoral process, while the political capitalist establishment goal is to maximize their financial return. The aristocrat must appear to please his base with his promise to be strong and protect his constituents from the enemy, while stamping out corruption, bringing good jobs back and purging society of evil. The concept of a ban on immigrants, the threat of trade barriers and capital controls are meant to serve his base, yet these ideas come in conflict to the optimization of capital. Additional restrictions on the flow of trade will increase the cost of production, which will be rejected by the political capital elite. There will be compromise so that the powerful aristocrat can appear to be protecting the electorate, while protecting the interests of capital.

This is the foundation behind the policy of the new administration and the republican led congress. There is little question that their shared campaign to reduce taxes and eliminate regulations will increase the return on capital, but at what cost to the worker. Indeed reducing labor standards or environmental standards will make firms more profitable because it will allow them to cut costs. Reducing the cost of labor, worsens conditions for workers. Please, I would like someone to explain to me how this is beneficial to the worker. Yes, it will create additional demand for jobs because labor will be cheaper. Who benefits from labor being cheaper? Not labor, but capital. So reducing labor standards hurts labor and benefits capital, resulting in further concentration of capital. The same can be said of reducing environmental standards. Smog filled skies and poisoned rivers have costs, like increased health care expenses and decreased productivity, because people are sick all the time. Indeed capital will be more profitable in the short run because it will pay less to pollute, but in the long run, one can argue it is will be bad for capital as labor becomes less productive. There is already evidence of short term gains, as forward looking equity markets climb to new heights. This is great if you own capital! But of course most of the population does not actually hold capital, and the benefits are retained by those who already own capital.

Solution

The current political economic crisis has not been caused by the election of the aristocrat. The election of the aristocrat is a symptom of the crisis. Removing this aristocrat from office, while certainly an improvement, will not immediately solve the crisis. The solution to the crisis is considerably more complex and requires, not only consensus within this country but throughout the world. The power of capital is not limited within our borders, but is in fact global. Capital is considerably more mobile than it ever has been. It can cross borders at the click of a button. It will find a location with lower taxes, fewer regulations and cheaper labor.

Ultimately though the solution to this political economic crisis is not in fact dismantling the power of the state. That is the ALT-Solution. The REAL solution is to enable a system that removes the competitive advantage of individual nations to reduce regulations, by strengthening the global regulatory system. The immediate response, is one of skepticism and concern as few nations would sacrifice their own sovereignty at the behest of a world order. Unfortunately no single nation can successfully regulate capital properly by itself.

Global cooperation is required, which while daunting is not impossible. Nations must be willing to give up some of their own sovereignty to allow a global political body to better regulate and enforce environment & labor standards, trade rules, and capital flow. In many ways the institutions already exist (WTO, United Nations, World Bank, IMF), they simply must be given more power. Of course strengthening common regulations will limit the short term returns for capital, which will always invite some nations to flout global agreements to gain a competitive advantage, and that is what capital wants. These global regulatory bodies must therefore be given real enforcement authority.

We all pledge our allegiance to the United States of America. And I am arguing that we as a nation must cooperate with other nations to regulate the power of capital, which might appear to some as limiting our strength and perceived sovereignty. But I would contend that our fine nation and the actual people who live in it will be far better off if we do so. There is absolutely nothing in our constitution that claims that capital is more important than labor. There is nothing that suggests that inequality is our rule of law. Our rule of law is meant to ensure that all man is entitled to the pursuit of life liberty and happiness. It is the model, against the concentration of power and one in which the global economy should follow. Our laws need not be altered significantly, rather they need to be applied universally.

Maybe I’m a dreamer, but I am not the only one. I am not arguing for the elimination of private property. I am not arguing for socialism. I am only arguing that our nation’s exceptionalism lead by example rather than cower behind a Great Wall. I believe in free migration, free flow of capital and ultimately open trade for all. I believe it is inevitable and truly the only solution to global prosperity. I believe though that, left unregulated, capital will simply follow its natural course to concentrate in the hands of those who control it and that the only way to ensure that people prosper is to regulate the power of capital universally, which requires cooperation, not isolation.

Therefore this is an appeal to the workers of the world. This is an appeal for unity. An appeal to reject fear and isolation. An appeal to reject false populism and nationalism. This is an appeal to unite against policies, which further the concentration of capital and wealth in the hands of the few and instead unite for policies that benefit the many.

This sounds like a daunting task, it almost seems incomprehensible given the power of those in opposition. But in many ways this is the natural step along a long road of progress that began generations ago. This is not a new concept. Institutions are already in place, progress has been tremendous. This is simply an appeal, a reminder, that in order to continue this progress we must not be divided. We must strengthen our unions and mobilize. We must elect and then stand behind those elected officials who support institutions that protect the common man against the nature of capital.


Critical thoughts appreciated. Feel free to click the green heart if you make it all the way to the end!