China-- The New Model For A Republican Economy?

Lately we've heard some mixed messages from the American right with regard to China. There's some recognition that China's currency manipulation is draining American jobs, destroying American manufacturing and wrecking the American middle class. It is the single great failing of the American ruling class since Richard Nixon's presidency and really kicked into high gear with George H.W. Bush, Bill Clinton, George W. Bush and Barack Obama. All of them will be judged by history as catastrophic failures because of their economic and fiscal agendas with regard to China. Romney will fit in smoothly, but that hasn't stopped him from making hypocritical noises about how he will stand up to China. Mitt Romney can't stand up to the Tea Party. Mitt Romney can't stand up to his own record. Mitt Romney isn't going to stand up to anyone on anything. Mitt Romney is going to be an even worse version of Obama.

But at the same time we're hearing these phony saber-rattling noises from the right, we're also hearing another message about China-- about what a capitalist's dream China is. Michele Bachmann led the way during the GOP "presidential" foreign policy debate. But this is a message we've been getting loudly from Chinese moles inside the GOP-- from Miss McConnell, Pat Toomey and Ron Johnson, to the Speaker who owes his majority to Chinese money illegally funneled into the American political system through the Chamber of Commerce. They pain a picture of China-- Communist China-- as a capitalist's paradise. I wish they would all go live there. Professor David Korten deals with the contrast between a market based economic model and an extreme capitalistic model in his newest book, Agenda For A New Economy. Last month he delivered a lecture at the University of Oregon, From Wall Street to Main Street:  Capitalism and the Common Good, which acts as a healthy antidote to the toxins being spread by Bachmann and the other ignorant Republican tools. Let me quote from his compare and contrast section which is also covered beautifully in the book:

The greed-driven, money-serving, corporate-ruled Wall Street Economy measures its success exclusively by the financial profits it generates for the already rich. It neither acknowledges nor accepts responsibility for the economic, social, environmental, and political devastation it leaves in its wake.

The democratic, community-rooted, market-based, life-serving Main Street economies that ordinary people are rebuilding across the nation and around the world measure success by their contribution to securing adequate and meaningful livelihoods for everyone in a balanced relationship to nature.

The differences between these two economies trace directly to their contrasting ownership models. The Wall Street economy features the absentee ownership of global publicly-traded, limited-liability corporations for which short-term financial profit is the sole measure of performance. It is a system designed to distribute wealth upward and risks downward and to facilitate reckless speculation and rampant fraud. Economic and political failure starts with Wall Street.

The Main Street economy features the responsible living ownership of locally rooted businesses by people who care about the health and vitality of their community and its natural environment. Real prosperity starts with Main Street.

The distinction between Wall Street and Main Street holds the key to understanding why our economic system is failing and what we can do about it.

Unfortunately, under current institutional arrangements, economic and political power resides with Wall Street. It is a distinction that corporate media consistently ignore.

Take an example. We regularly hear pundits debating the question: “Do we face a double dip recession?” Most people find this question confusing, because it implies that the economy recovered from the 2008 financial crash. Most people listen and ask “But what recovery? For whom?”

The discrepancy is easily explained. Most people live in the Main Street economy, which remains in the tank. The economists and pundits are looking at indicators of performance in the Wall Street economy, which is doing just fine thanks to trillions of dollars in bailout money from the Federal Reserve and the U.S. Treasury.

So, what about “capitalism and the common good?” In America we are taught from birth that capitalism is synonymous with markets, democracy, and individual liberty. Whatever capitalism’s flaws might be, we are told that the only alternative to capitalism is the sacrifice of our liberty to central economic planning by unaccountable innovation killing communist bureaucrats.

This sets up a false and dangerously self-limiting choice between two economic models-- both of which create concentrations of power that stifle liberty and creativity for all but the few at the top.

Communism is dead. As we look for solutions to our current economic crisis, the relevant distinction is not between capitalism and communism, but rather between Wall Street and Main Street.

The economy internal to a global corporation is managed as an authoritarian, centrally-planned economy in which any decision made at a lower level can be immediately over-ruled, thousands of people can be hired or fired, subsidiaries can be bought and sold, all at a moment’s notice and without recourse by those whose lives are affected-- and all to maximize financial returns to those members of society who have least need of more money.
 
The global Wall Street economy is comprised of such corporations, each of which seeks to extend its monopoly control of markets, physical resources, and technology. The business of Wall Street is to expropriate wealth, not create it.

From a national perspective, Wall Street cloaks itself in the American flag, but most of its institutions offshore their profits to avoid paying their share of the taxes required to maintain the American infrastructure, essential services, and national security on which their profitability depends. Wall Street’s actual relationship to America is that of an alien occupier.

The Main Street economy, by contrast, is comprised of local businesses and working people who self-organize in local markets, within a framework of community values and democratically determined rules to provide livelihoods for themselves, their families, and their communities by producing real goods and services in response to community needs. Main Street is about people working together in their communities to create wealth to their mutual benefit. This is what real markets and real democracy are about.

Main Street exemplifies the market economy envisioned by Adam Smith; Wall Street is the antithesis.

Adam Smith believed that people have a natural and appropriate concern for the well-being of others. This belief was a foundation of his vision of a market self-organized by mindful individuals who act with an inherent sense of responsibility for the well-being and happiness of their neighbors. He also recognized the responsibility of government to restrain those who fail in this duty.

Adam Smith and the political economists who followed in his tradition developed an elegant theory of the market’s capacity to self-organize for the common good for so long as it fulfilled a number of carefully articulated conditions, including the following:

• Buyers and sellers must be too small to influence the market price and must honor basic principles of honest dealing.

• Income and ownership must be equitably distributed.

• Complete information must be available to all participants, and there can be no trade secrets or patent monopolies.

• Sellers must bear the full cost of the products they sell and incorporate it into the sale price.

• Investment capital must remain within national borders, and trade between countries must be balanced.

• Savings must be invested in the creation of productive capital rather than in speculative trading.

These are the characteristics of a real market economy.

Wall Street’s version of capitalism systematically violates each foundational market principle. Furthermore, Wall Street uses its political power to rewrite our laws to facilitate the violation of each foundational market principle.

Wall Street’s version of capitalism systematically violates each foundational market principle. Capitalism is a term originally coined in the mid-1800s to refer to an economic and political regime in which the ownership and benefits of capital are appropriated by the few to the exclusion of the many who, through their labor, make capital productive. By this definition, which fits Wall Street perfectly, capitalism and the common good are mutually exclusive.

Now do not confuse capitalism with markets. Capitalism strives for monopoly control to defeat the market’s corrective mechanisms.

Markets can, in fact, work wonderfully for many functions-- within a framework of clear rules and an ethical culture. The stronger the relations of mutual trust and caring and the more equitably economic and political power are distributed, the more the market becomes self-policing and the less need there is for formal governmental intervention.

An economy comprised of powerful global corporations governed by a culture of greed and a belief that their only legal duty is to maximize their profits is a very different situation. The common good is not served by the invisible hand of the market, but by the strong and visible hand of an intrusive government to limit the abuses and clean up the messes. When the power of big corporations melds with the power of big government in the service of an authoritarian oligarchy-- we have what is technically known as fascism.

The term “free market,” a code word for an unregulated market, is a contradiction. A market without rules facilitates and encourages the unlimited concentration and abuse of corporate power unconstrained by market discipline and democratic accountability.

For millennia humanity’s most celebrated spiritual teachers have taught that society works best and we all experience our greatest joy and fulfillment when we share, cooperate, and are honest in our dealings with one another.

For the past few decades this truth has been aggressively challenged by market fundamentalists-- proponents of immoral and counter-factual economic ideology that has assumed the status of a modern state religion. Its believers worship the God of money. Stock exchanges and global banks are their temples. They proclaim that everyone does best when we each seek to maximize our individual financial gain without regard to the consequences for others.

In the eyes of a market fundamentalist, to sacrifice profit for some presumed social or environmental good is immoral. By Wall Street ethics, greed is a virtue and sharing is a sin.

The financial collapse of 2008 penetrated Wall Street’s carefully fabricated façade to reveal the inner workings of Wall Street capitalism as a criminal syndicate engaged in counterfeiting, predatory lending, usury, tax evasion, fraud, and extortion.

And guess what. We learned that the religious teachers were right. Greed does not serve the common good. Wall Street operates with the ethics of a criminal syndicate.
You don’t fix a criminal syndicate by appeals to moral conscience. You shut it down through the enforcement of laws that protect the public interest. As our forbearers liberated America from rule by a distant king and the British East India Company, we must now liberate ourselves from Wall Street.

It’s no mystery what we need to do. We did it before in response to the Great Depression of the 1930s, which was also a creation of Wall Street excess.

We solved that problem by putting in place a highly progressive tax system and strong regulation of Wall Street banks and corporations. The resulting American economy created the American middle class, made America the world leader in industry and technology, and made the American Dream a reality for a substantial majority of Americans.

This well-regulated and fairly-taxed economy served us well-- until Wall Street began mobilizing in the 1960s to launch an assault on regulation, unions, social safety nets, and taxes on the rich. As its power grew, Wall Street players became ever more skilled at pushing down wages and benefits, eliminating and outsourcing jobs, and shifting financial markets from long investment to short-term speculation.

Contrary to the Wall Street propaganda, Wall Street is a demonstrated job killer, not a job creator. Wall Street banks and corporations have no interest in creating American jobs, educating American children, or assuring that Americans have health care and retirement security. They appeal for ever more tax breaks and regulatory relief to have yet more money on hand to use as they used their taxpayer provided bailout money-- to increase executive bonuses, pay dividends, buy other companies, buy back their own stock, buy political favor, create new financial bubbles, and outsource more jobs-- none of which produces any benefit for America.

Increasing Wall Street taxes and regulation will actually increase jobs, by shifting power from Wall Street job killers to Main Street job creators.

I recommend skipping the next GOP debate and spending your time reading the rest of Korten's essay. He even lays out a step-by-step agenda to rein in Wall Street's excesses and empower the real spirit of market economy through Main Street. It isn't something Michele Bachmann-- or even Mitt Romney-- is ever going to understand or embrace. A somewhat more cerebral conservative than Bachmann, British writer John Gray-- who has since seen the light-- used his book, False Dawn, for a ferocious denunciation of global capitalism. According to Corey Robin, he assailed "the shock troops of the free market" and warned that global capitalism could "come to rival" the former Soviet Union "in the suffering that it inflicts."

As far as Bachmann, she ought to take a look at a report from the Alliance for American Manufacturing yesterday from the U.S.-China Economic and Security Review Commission (USCC), a wake-up call for morons like her regarding China’s impact on our national and economic security. Scott Paul, Executive Director of the Alliance for American Manufacturing:

“This is a serious indictment of our massively flawed relationship with Beijing, and both Congress and the Administration urgently need to address these issues. As a unanimous report from a bipartisan group that includes representatives from business and labor, as well as conservatives and liberals, it is particularly striking that they agreed on the threat our nation faces, and how it must be addressed.

“We can only hope that the President, every Member of Congress, and all the Republican presidential candidates study this report thoroughly. Otherwise, they will be ill-prepared for some of the growing security challenges we face from China’s extraordinary economic and military progress.”

Ten Points to Consider from the New USCC Report

1. Even a cursory read of the report yields a wide array of pressing concerns over China’s economic and military interaction with the U.S. The opening sentence on China’s “Foreign Policy” makes clear that, “Despite Beijing’s attempts to emphasize its peaceful rise, China continues to support countries that undermine international security.” Additionally, China “appeared to sponsor numerous computer network intrusions throughout 2011.” These attacks are consistent with China’s military strategy, which “envisions the use of computer network exploitation and attack” in order to “critically disrupt the U.S. military’s ability to deploy and operate during a military contingency.”

2. China’s ongoing military expansion is funded by tremendous export-led growth. The Commission reports that China’s foreign currency reserves are “skyrocketing,” thanks in large part to a “policy of maintaining closed capital accounts.” China now holds foreign currency reserves in excess of $3 trillion, three times higher than the next largest holder of foreign currency reserves, Japan.

3. The United States is a prime funder of China’s growing wealth, with the Commission citing a record $273 billion U.S. trade deficit with China in 2010. This trade deficit “now accounts for more than 50 percent of the total U.S. trade deficit with the world.”

4. One key factor in China’s booming trade surplus is its policy of currency undervaluation. The Commission found that over the preceding 12 months, its currency, the Yuan, has appreciated by 6 percent, but economists estimate that it “remains substantially undervalued.”

5. Along with a widening trade surplus, the Chinese economy and its exports are “moving up the value chain.” A critical indicator, “advanced technology products,” shows that on a monthly basis, the U.S. “now imports roughly 560 percent more advanced technology products from China than it exports to China.” Conversely, China is shedding its low-cost, labor-intensive manufactured goods. As a share of China’s total exports, these lower-tier items have “decreased from 37 percent in 2000 to 14 percent in 2010.”

6. Beijing continues to employ a wide array of questionable practices to boost its exports. At the same time, the Commission reports that China has grown “more assertive and creative in using WTO procedures to alleviate, eliminate, and avoid certain restrictions in the Accession Protocol.” And even though the WTO has ruled that “China’s existing system of state monopoly over imports of cultural products is inconsistent with WTO obligations,” China has “not yet complied fully with the WTO ruling, and the United States has the right to initiate further proceedings to compel China to do so.”

7. Chinese state-owned enterprises (SOEs) continue to “dominate important portions of the economy.” These SOEs benefit from a variety of industrial policy tools, including “a wide range of direct and indirect subsidies, preferential access to capital, forced technology transfer from foreign firms, and domestic procurement requirements.”

8. As the U.S. continues to face enormous domestic economic problems, and faces a web of protectionist barriers in China that limit market access for U.S. exports, the Commission wants to know what Chinese firms have been able to successfully bid for federal contracts. Specifically, the Commission believes Congress should urge the Administration to “review federally subsidized contracts provided under the American Recovery and Reinvestment Act of 2009 and report on the extent to which Chinese-produced goods and services were procured” with U.S. taxpayer funds.

9. An additional concern is the transfer of sensitive U.S. technology to Chinese firms, with foreign investors “frequently forced into joint ventures or other technology-sharing arrangements.” Although China agreed in 2001 to stop explicitly requiring foreign companies to surrender their technology to China in return for market access and investment opportunities, Beijing “still employs several tactics to coerce foreign firms to share trade secrets with Chinese competitors.” This includes an industrial policy that seeks to “circumvent accepted intellectual property protections and to extort technology from U.S. companies.”

10. Among the Commission’s key recommendations to Congress and the Administration are the use of “all necessary remedies authorized by WTO rules” to counter Beijing’s extensive, “trade-distorting” subsidies. Additionally, the President should direct the USTR to move aggressively to “bring cases to the WTO to enforce intellectual property rights.”