Alternatives to Free-Market Capitalism

Americans have been exposed to so much propaganda about free-market capitalism that few ever think there is any other way of running an economy. However, if they were to examine this system, they would see that its focus is on economic growth and the maximization of profit. In theory, this system would create enough wealth so that everyone would benefit. However, during the last 30 years or so, we have seen changes in the rules that guarantee most of the increases in wealth go to those at the top. During this time, there has been little-to-no concern about the resulting harmful effects of this system on society.

Free-market devotees often quote Adam Smith on the seemingly all-knowing ‘invisible hand’ as justification for their free-market theology. Somehow these advocates ignore Smith’s warning about the invisible hand. For example, in an 1993 article Noam Chomsky wrote: “The invisible hand, he [Smith] wrote, will destroy the possibility of a decent human existence “unless government takes pains to prevent” this outcome, as must be assured in “every improved and civilized society.” It will destroy community, the environment and human values generally — and even the masters themselves, which is why the business classes have regularly called for state intervention to protect them from market forces.” Unfortunately, as the 2008 crisis and the recent attacks on collective bargaining have confirmed, Smith’s concern was well placed.

Results of the Poorly Regulated U.S. Approach to Capitalism

The economy has yet to recover from the 2008 disaster although Wall Street and the too-big-to-fail banks are continuing to make out like bandits (apologies to bandits). As a result of our political/economic system, the U.S. now is faced with:

* almost 44 million (one in seven) people living in poverty;
* over 25 million (one in six) workers unemployed or underemployed;
* almost 51 million (one in six) people without health insurance;
* about 2.9 million homes that were foreclosed on in 2010, a slight increase over the 2.8 million in 2009;
* 1% of people receiving about 21% of the total U.S. income in 2008; and
* inequality between the rich and the rest of the U.S. population being among the greatest among Western industrialized nations.

Shouldn’t our economic approach deliver better results in this, the richest country in the world?

Strong Regulatory Approach, Strong Unions and Sense of Community

Western European nations have different economic approaches than the U.S. although Britain began the process of moving towards the U.S. model in 1980 under Margaret Thatcher. Western European nations differ slightly in their specific economic approaches, but they have a common theme of creating a humane economy that meets the needs of the people. Western European nations pursue the goal of providing socioeconomic security for their populations while, simultaneously, making economic progress.

Specifically, Western European nations have tighter regulations on corporations. In addition to having strong regulations, many of these nations use a mixture of socialism and capitalism. These nations also have strong labor unions. The combination of these factors has enabled the provision of social benefits to the public, although these benefits are under attack by free marketers today.

In the U.S., the experience with regulation has not worked nearly as well. Despite some impressive early successes, the long-term trend has been toward the corporate takeover of the regulatory agencies. Unless we are able to remove the power of big money from our political system, our regulatory system will become even more impotent.

Cooperatives — Voluntary, Jointly Owned and Democratically Controlled

According to the International Alliance of Cooperatives, a co-op is an autonomous, voluntary association meeting common economic, social and cultural needs through a jointly owned and democratically controlled enterprise. Many people may be familiar with local ventures such as housing co-ops, credit unions, or co-op groceries, but there are much larger co-ops including Nationwide Mutual Insurance Company, REI outdoor stores and Land O’Lakes dairy products. There are over 30,000 co-ops operating in over 73,000 locations in this country and many, many more operating around the world.

One famous example of what is possible through the use of co-ops is the Mondragon Corporation in Spain. It started in 1956 and was founded on a form of humanism based on solidarity and participation in harmony with Catholic social teaching. Today Mondragon has over 85,000 workers and works worldwide.

The wonderful 1973 book, Small Is Beautiful: Economics As If People Mattered by E.F. Schumacher, provides other ideas about alternatives to the free-market approach. If we believe that people matter, we will open our mind to other approaches. Otherwise we will continue the race to the bottom.

Ron Forthofer is a retired professor of biostatistics from the University of Texas School of Public Health in Houston and was a Green Party candidate for Congress and also for governor of Colorado. Read other articles by Ron.