What is capitalism The liberal approach l‘investing money with the aim to gain more money’ (Fulcher) lSet of economic and legal institutions that turn the production of things for profit into the common basis of economic organizations. It is a way of organizing economic activity (Oxford dictionary of world politics) The liberal approach lPrivate ownership of the means of production (eg land, machinery…) lLegal regulation that entitles the owners of these means to appropriate profit that they produce lSystem of contracts that serves the realization of sale and purchase, especially the right to hire workers lThe right of the owenr to use the profit at free will with clearly defined limitations The liberal approach lCapitalism requires a market, money, competition, profit, contractual law lTwo ways of coordinating an economic organization: centrally planed economy (socialism), market economy (capitalism) (Fuchs-Tuleja: The basics of economics) The liberal approach lMarket economy is a system in which relations between subjects are mediated through a market, changes are based on subjects decisions, which are based on their free will. ‘Market environment is a democratic and a liberal system’ (p. 49) lMarket mechanism is the process of mutual influence of the creation of supply and demand and the price. The liberal approach (Friedman) lCapitalism is freedom lEconomic freedom is an end in itself and a means toward political freedom (Friedman: Capitalism and freedom) lDisruptions of economic (and therefore political) freedom: exchange control, compulsory retirement scheme, quote on goods, occupation license lCapitalism separates political power from economic power The liberal approach lMarket as a direct component of freedom: division of labor → interdependence: Q: How to reconcile interdependence with individual freedom? How to coordinate? 1. Coercion, 2. Voluntary cooperation – free private entreprise exchange economy – competitive capitalism l‘Since the household always has the alternative of producing directly for itself, it need not enter into any exchange unless it benefits from it’ (p. 20) The liberal approach lMarket is simply exchange lThere is a plurality of sellers and buyers who protect one another from each other (assumption of no monopoly) lFree economy gives people what they want instead of what a group of people thinks they ought to want (as in socialism: assumption of no influence by advertisment) The liberal approach lMarket as indirect component of freedom – market eliminates coercive power – permits diversity – numerous centers of economic strength (‘many millionaires’) who check the government and promote any ideas as patrons l‘In a capitalist society, it is only necessary to convince a few wealthy people to get funds to launch any idea’ (oligarchy?) l‘The fundamental threat to freedom is […] a momentary majority’ The liberal approach lHayek: Road to serfdom – similar arguments: planning or regulation restrain civic freedom – are coercive – and eventually this kind of socialism leads to serfdom. lGovernment intervention leads to a loss of freedom, the government should be minimal and let the market work – laissez fair Marxist approach l‘Capitalism is a set of configurations, assembalges, or bundles of social relations and processes oriented around the systematic reproduction of capital relation, but not reducible – either historically or logically – to that relation alone’ (Anievas – Nisancioglu, p. 9) lThere is no essence existing independent of other feautres in capitalism – intersectionalism. Marxist approach lSeparation of laborers from all property (means of production) – proletarianization – farmers who work on their own field (property-means of production) become proletarians (wage-earners) lMeans of prduction are concentrated in a few hands lProletarians are forced to work for someone else by the market – ‘economic means’, in feudalism, the force is ‘extra-economic’ - military, juridicial Marxist approach l‘Since the household always has the alternative of producing directly for itself, it need not enter into any exchange unless it benefits from it’ (p. 20 Friedman) lThere can be wage labor in a non-capitalist society, in capitalism it is connected to its laws of motion – systemic imperatives Marxist approach lCapitalists must sell their production on the market in order to realize profit lCapital-labor – exploitation – extraction of surplus value – labor vs. labor power lSurplus value=profit lProduction is motivated by profit, without a profit expectation it will not be undertaken Marxist approach lCompetition between capitalists -> continual accumulation, profit maximization, ↑labor productivity – this is imposed on capitalists regardless of their preferences (for social responsibility) – it is not greed, but a systemic imperative Marxist approach lThis imperative leads to technological improvements and to constant growth (ex: Nokia) – the quest for survival underpins the necessity of accumulation through expanded reproduction – ↑the scale of production → ↓costs and ↑profits lCreation of wants lRepresentation of economic growth in the media Marxist approach lFirst contradiction of capitalism: ↑power of the capital → ↑profits, ↓wages → lower demand, overproduction → crisis Green Marxist approach lGreen criticism – Second contradiction of capitalism (the absolute general law of environmental degradation under capitalism) lProduction relies on free raw materials – nature is capitalized and the true costs are extarnalized to it (ie, one does not pay for the pollution of the air, nobody pays for climate change) lUndervalued nature → resource exhaustion Green Marxist approach lCapitalism colapses (or capital accumulation will be jeopardized) because: 1. The environment is destroyed (climate change), 2. ↑Production costs because of ↑of prices of depleted raw materials or the ↑need to develop substitutes, 3. State demands too much money to prevent the collaps. Marxist approach lCounter-argument: Nature can be assigned its true cost (eg, CO2 emissions trading) lCounter-counter-arguments: 1. The price of the emission is actually too low (but could be higher), 2. It cannot be higher – none of the top 20 dirtiest economic sectors would be profitable if all the environmental costs were included in the prices. Centrist approach lMuch closer to neoliberalism – capitalism needs to be regulated in order to function – needs to be saved from itself. lExample: Corporate inversion http://www.cc.com/video-clips/ehvwjx/the-daily-show-with-jon-stewart-inversion-of-the-money-snatche rs Centrist approach l‘When does this end … They just want, and want, and want, with no concern...’ How does this differ from a Marxist perspective? lObama regulation (2016): Against ‘serial inverters’ - disregards past 3 years of mergers to determine the size of the foreign company – if after merger shareholders of the former US company own at least 80 % of the combined firm, it is treated as US, if 60 % - restrictions apply. Pfizer cancelled its merger. Obama regulation lPrevents ‘Earnings stripping’ (Mother abroad lends money to a US subsidiary, tax is avoided through interest payment (Obama: interest payments [deductible] become dividends [undeductible]) lCounterargument: This is paperwork for corporations worth 15 M $ who have to prove that their loans are supposed to be just loans. Obama regulation lApril 2017: Trump: those regulations ‘increased tax burdens, impeded economic growth...’ Trump ordered a review of the tax regulation (against his campaign to prevent companies from moving overseas) Obama regulation lOctober 2017: Federal court in Texas ruled that Obama administration acted unlawfully (Chamber of Commerce and Texas Association of Business filed a lawsuit) – the legislation required a notice and comment period lOctober 2017: Trump keeps the regulation. Treasury dep.: ‘these regulations are necessary to safeguard against earnings stripping’ Trump’s tax reform lFebruary 2018: Trump’s tax reform (Base Erosion and Anti-Abuse Tax) should reduce advantages for corporate relocation by lowering US taxe 35 % → 21 % lAlso: limits degree to which big companies can deduct interest expenses and royalities paid to foreign parents) for some companies tax ↑2-4%, for others neutral 2018 lOctober 2018: ‘US coorporations have largely abandoned the contentious deals…’ BUT they still shift intellectual property abroad, where revenue from it is taxed (65 % of the value of the technology produced in Ireland in 2015 was from US owned-companies) 2019 lReturn of Mylan, Allergan PLC lInversion are still slightly adventageous financially but not in terms of reputation lTrump admin: Removal of a part of Obama regulation to document internal loans Biden campaign l10 % tax credit for businesses that invest in revitalizing facilities and bring production to the US l10 % surtax (ie 10 % of tax on top of tax) to sales to US customers from a US company foreign’s affiliate l↑21% → 28 % corporate tax (taxable income) lStrong rules against inversions lGILTI (Global Intangible Low-Tax Income) from minimum 10,5%→21% (foreign income) l15 % book income - adopted