Capitalism Under Fire
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Capitalism Under Fire
William Pfaff
Published: THURSDAY, MARCH 30, 2006
PARIS: The demonstrations by French
students, workers and would- be workers,
with unions and the French left riding on
their bandwagon, have amounted to a
spontaneous revolt in France against
something that I suspect few of the
participants fully appreciate.
The protests' ostensible purpose is to
force withdrawal of a minor change in this
French government's employment policy,
but they have taken on a radically different
significance.
The crowds in the street contest a certain
form of capitalist economy that a large
part, if not the majority, of French society
regards as a danger to national standards
of justice and, above all, to "equality" - that
radical notion of which France is nearly
alone in proclaiming as a national cause,
the central value in its republican motto of
"liberty, equality, fraternity."
Prime Minister Dominique de Villepin
undoubtedly had little notion of the
consequences when he launched what
seemed to him a small but constructive
employment initiative, intended to loosen
current structural inhibitions to job-creation.
He inadvertently opened what many of the
French see as a central question to their
national future, just as two years ago they
saw in the European constitutional
referendum disturbing questions about the
future nature of the European Union and
about the model of capitalism that would
prevail in Europe's future.
They are not alone in this concern. A
kindred debate about "models" of
capitalism has been a persistent factor in
Germany, now suffering labor unrest, and
in the European Commission itself, which
since EU expansion to 25 members, has
tipped away from the traditional European
"social" model. Even in Britain last
Tuesday there was the biggest strike since
the 1920s, on the question of pensions.
The French, of course, have been against
"capitalisme sauvage" ever since that
rough beast loomed amid the satanic mills
of Britain in the 19th century, subsequently
making its trans-Atlantic journey to
establish another lair.
A recent international opinion poll on the
free-enterprise and free-market system,
found that 74 percent of the Chinese say
they think it the best system of all,
compared to only 36 percent of the French.
(The Germans were not far off the French.)
The essential question is, what capitalism
are we talking about? Since the 1970s, two
fundamental changes have been made in
the leading (American) model of capitalism.
The first is that the "stakeholder,"
post-New Deal reformed version of
capitalism (in America) that prevailed in
the West after World War II was replaced
by a new model of corporate purpose and
responsibility.
The earlier model said that corporations
had a duty to ensure the well- being of
employees, and an obligation to the
community (chiefly but not exclusively
fulfilled through corporate tax payments).
That model has been replaced by one in
which corporation managers are
responsible for creating short-term "value"
for owners, as measured by stock
valuation and quarterly dividends.
The practical result has been constant
pressure to reduce wages and worker
benefits (leading in some cases to theft of
pensions and other crimes), and political
lobbying and public persuasion to lower
the corporate tax contribution to
government finance and the public interest.
In short, the system in the advanced
countries has been rejigged since the
1960s to take wealth from workers, and
from the funding of government, and
transfer it to stockholders and corporate
executives.
While that may seem an incendiary
comment, it seems to me a simple factual
observation. The criticism currently made
of Europeans who resist "reform" is that
their policies block managers from
downsizing and outsourcing jobs, in order
to add "value" to the corporation. (A recent
headline in the International Herald Tribune
read: "AT&T- BellSouth deal gets Wall St.
applause. Merger would lead to 10,000 job
cuts.")
I once called this "CEO capitalism," since
corporate chiefs today effectively control
their boards of directors and are also the
biggest benefactors of the system, subject
only to critical attention from
investment-fund managers, themselves
interested in maximizing dividends, not in
defending workers or the public interest.
(The well-known American fund manager,
John Bogle, now retired, has taken up my
argument and advances it in his recent
book, "The Battle for the Soul of
Capitalism.")
The second change that has taken place is
globalization. The crucial effect of this for
society in the advanced countries is that it
puts labor into competition with the
poorest countries on earth.
We need go no further with what I realize is
a very complex matter, other than to note
the classical economist David Ricardo's
"iron law of wages," which says that in
conditions of wage competition and
unlimited labor supply, wages will fall to
just above subsistence.
There never before has been unlimited
labor. There is now, thanks to globalization
- and the process has only begun. It
seems to me that this European unrest
signals a serious gap in political and
corporate understanding of the human
consequences of a capitalist model that
considers labor a commodity and extends
price competition for that commodity to
the entire world.
In the longer term, there may be more
serious political implications in this than
even France's politicized students suspect.
What seems the reactionary or even
Luddite position might prove prophetic.
William Pfaff
Published: THURSDAY, MARCH 30, 2006
PARIS: The demonstrations by French
students, workers and would- be workers,
with unions and the French left riding on
their bandwagon, have amounted to a
spontaneous revolt in France against
something that I suspect few of the
participants fully appreciate.
The protests' ostensible purpose is to
force withdrawal of a minor change in this
French government's employment policy,
but they have taken on a radically different
significance.
The crowds in the street contest a certain
form of capitalist economy that a large
part, if not the majority, of French society
regards as a danger to national standards
of justice and, above all, to "equality" - that
radical notion of which France is nearly
alone in proclaiming as a national cause,
the central value in its republican motto of
"liberty, equality, fraternity."
Prime Minister Dominique de Villepin
undoubtedly had little notion of the
consequences when he launched what
seemed to him a small but constructive
employment initiative, intended to loosen
current structural inhibitions to job-creation.
He inadvertently opened what many of the
French see as a central question to their
national future, just as two years ago they
saw in the European constitutional
referendum disturbing questions about the
future nature of the European Union and
about the model of capitalism that would
prevail in Europe's future.
They are not alone in this concern. A
kindred debate about "models" of
capitalism has been a persistent factor in
Germany, now suffering labor unrest, and
in the European Commission itself, which
since EU expansion to 25 members, has
tipped away from the traditional European
"social" model. Even in Britain last
Tuesday there was the biggest strike since
the 1920s, on the question of pensions.
The French, of course, have been against
"capitalisme sauvage" ever since that
rough beast loomed amid the satanic mills
of Britain in the 19th century, subsequently
making its trans-Atlantic journey to
establish another lair.
A recent international opinion poll on the
free-enterprise and free-market system,
found that 74 percent of the Chinese say
they think it the best system of all,
compared to only 36 percent of the French.
(The Germans were not far off the French.)
The essential question is, what capitalism
are we talking about? Since the 1970s, two
fundamental changes have been made in
the leading (American) model of capitalism.
The first is that the "stakeholder,"
post-New Deal reformed version of
capitalism (in America) that prevailed in
the West after World War II was replaced
by a new model of corporate purpose and
responsibility.
The earlier model said that corporations
had a duty to ensure the well- being of
employees, and an obligation to the
community (chiefly but not exclusively
fulfilled through corporate tax payments).
That model has been replaced by one in
which corporation managers are
responsible for creating short-term "value"
for owners, as measured by stock
valuation and quarterly dividends.
The practical result has been constant
pressure to reduce wages and worker
benefits (leading in some cases to theft of
pensions and other crimes), and political
lobbying and public persuasion to lower
the corporate tax contribution to
government finance and the public interest.
In short, the system in the advanced
countries has been rejigged since the
1960s to take wealth from workers, and
from the funding of government, and
transfer it to stockholders and corporate
executives.
While that may seem an incendiary
comment, it seems to me a simple factual
observation. The criticism currently made
of Europeans who resist "reform" is that
their policies block managers from
downsizing and outsourcing jobs, in order
to add "value" to the corporation. (A recent
headline in the International Herald Tribune
read: "AT&T- BellSouth deal gets Wall St.
applause. Merger would lead to 10,000 job
cuts.")
I once called this "CEO capitalism," since
corporate chiefs today effectively control
their boards of directors and are also the
biggest benefactors of the system, subject
only to critical attention from
investment-fund managers, themselves
interested in maximizing dividends, not in
defending workers or the public interest.
(The well-known American fund manager,
John Bogle, now retired, has taken up my
argument and advances it in his recent
book, "The Battle for the Soul of
Capitalism.")
The second change that has taken place is
globalization. The crucial effect of this for
society in the advanced countries is that it
puts labor into competition with the
poorest countries on earth.
We need go no further with what I realize is
a very complex matter, other than to note
the classical economist David Ricardo's
"iron law of wages," which says that in
conditions of wage competition and
unlimited labor supply, wages will fall to
just above subsistence.
There never before has been unlimited
labor. There is now, thanks to globalization
- and the process has only begun. It
seems to me that this European unrest
signals a serious gap in political and
corporate understanding of the human
consequences of a capitalist model that
considers labor a commodity and extends
price competition for that commodity to
the entire world.
In the longer term, there may be more
serious political implications in this than
even France's politicized students suspect.
What seems the reactionary or even
Luddite position might prove prophetic.
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