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Three Cheers For Capitalism, Now Show Me The Money!

Let’s be quite clear on our terms. What does it mean to be a right-winger or a left-winger? What does it mean to be socialist or communist or capitalist?

These terms are usually bandied about with such carelessness that I’d like to start by setting down some sort of definition. Most definitions of right wing suggest that they are the “conservative or reactionary” part of a group or country, whereas the left is defined as “the radical, reforming, or socialist section of a political party or system.”

Now, you can immediately see the trouble with using terms like this in contemporary Australia. The so-called conservatives are perpetually talking about the need for “reform”. While some of their social policies may be reactionary, their economic policies all talk what changes we need to make. In government, the Coalition have made just as many changes to long term institutions and driven “reforms” as have Labor Governments.

Frequently I’ve read comments and blogs where Labor is refered to as “socialist” or even “communist” – and not just by people spelling Labor with a “u”. But after that the writer offers no evidence of their “socialism” just an attack on their competence. (Usually there wasn’t any evidence for that either, beyond an assertion that they were “worse than Whitlam” and sending the country broke by borrowing $100 million dollars every day. I used to suggest – if comments were allowed – that surely the Government was doing that; surely they’d borrow enough for the week rather than do it every day. If anyone was silly enough to say that – of course – they weren’t borrowing it “every day”, I could say, “Ah so, it’s a lie to say every day!”)

Both major parties are happy to accept “socialist” ideas if it suits their constituencies. Labor have occasionally flirted with some redistribution of wealth, but, in the past few years, anything more than minor tinkering is met with accusations of “class warfare” or “the poliics of envy”. The National Party has no trouble with subsidies to primary producers, but elsewhere it’s the equivalent of inviting the ghost of Mao to run the country. Fuel rebates to the mining industry are just fine, but expecting them to pay something back if they make “super-profits” will ensure that they pack up their tools and start mining in the Cayman Islands.

Australia is a capitalist country, and neither major party or, even The Greens, have any plans to completely change that.

But what does capitalism mean?

One definition is entirely consistent with people’s worst fears on the TPP.

“an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.”

Others, however, aren’t quite so

“An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.”

So, simply, people gain profits because they “own” things. If you own a house, which you don’t live in, someone will pay you rent to live there. If you own a factory, people will buy what it produces, and you get to keep what’s left over after you’ve paid for raw materials, wages and any other costs. If you own money, you can lend it to someone and they’ll pay for the privilege of using it.

All of these things involve varying degrees of risk. They may lose money, so encourage them we reward people for taking that risk when it comes off, because that’s what keeps the economy going.

Some things – like Defence or building the countries infrastructure – are too big or complicated for anyone but the government to take, so these things are paid for through our taxes.

Or that’s the theory anyway.

So, we have situation where money begets more money, and we have large corporations who have a lot of money tied up in assets. It didn’t take them long to realise that they could make more money by using these assets to borrow more money. And with the money they’d borrowed they could expand, diversify, take over their supplies or other businesses.

They used the borrowed money to grow.

Of course, it can all come unstuck, but in the case of Limited Liability companies, they just go into liquidation, and some other companies will take over any of their profitable assets.

The trick – of course – is not to overreach and to ensure that you don’t have all your eggs in a basket that’s got a hole in it. If something goes wrong, you’ve got the capacity to raise more money or to sell off some of your assets.

Quite simply, the Global Financial Crisis was caused when nobody bothered too much about the assets and just worried about money leading to more money. It’s more complicated than that, of course, and I intend to write a more detailed analysis over the next few weeks, but basically, it was a little bit like an old fashioned bank run. “I just realised that the bank doesn’t have enough money to pay us all so I’m getting my money back before the panic starts.”

Debt – for a few minutes – was a bad thing. Governments had to come to the rescue, otherwise the whole system could collapse. But it didn’t take long before the Capitalists were borrowing money again. Investing it so that they could start to grow again. Then, naturally, any government involvement or regulation was unwelcome and akin to socialism.

Of course, the Australian Government borrowed money. And the Australian economy continued to grow all through those “disastrous” Labor years. If they were a listed company on the stock exchange, nobody would have had a problem with this and they’d be applauded for their intelligent management through the crisis.

Strangely though, the so-called party of Capitalism simply wants to cut back, and is critical of Labor. The Liberals aren’t capitalists at all. When it comes to the economy, they’re like small time managers who feel that the best thing is to do nothing – that way you can’t be criticised.


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