Capitalism Under Fire
Capitalism Under Fire
William Pfaff - Published: THURSDAY, MARCH 30, 2006PARIS:
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, 2006PARIS:
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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