In a rousing but measured indictment of American Capitalism in its prevalent form, Steven Pearlstein in this very essential, compelling and relevant book, charts the insidious trajectory of a dangerous variety of capitalism which has gripped both the imagination as well as fervor of its fevered apologists. Raising its seemingly innocuous head as justification to and of the following three ideas (as argued by Mr. Pearlstein), capitalism has spawned a riotously active set of proponents who in the wake of revered economic prophets such as Milton Friedman, Gary Stanley Becker and Co, wax eloquent in its praise:
“The Government was significantly responsible for the decline in American competitiveness”.
“The sole purpose of every business is to deliver the highest possible financial return to its investors”.
“Free markets had to be accepted as fair and just”.
The troika of ideas assumed Biblical proportions and led a ludicrous slew of deregulations spectacular in their sweep and controversial in their wake. At the time of this review, rules setting stringent standards for oil and gas drilling in national parks and wildlife sanctuaries, prohibition of federal student loans at for-profit colleges whose graduates are unemployed etc. are all history or on their way to becoming history. Corporate raiders and remorseless “greenmailers” such as Carl Icahn and his ilk not only gained acceptance but also a new and respectable moniker, imaginatively titled “activist investor”, which was but a mere euphemism for corporate raiders. The darlings of Wall Street such as the notorious Goldman Sachs led the way in birthing “synthetic” securities which allowed people to blindly invest in the mortgage market, than were actual mortgages for them to buy. Practices of this ingenious kind and similar sleights of hand resulted in one of the most crippling recessions (2007 – 2009) seen since The Great Depression of 1929. Mr. Pearlstein also asserts that the capitalists took succor in the writings of both Adam Smith and Charles Darwin, by lending a convoluted twist and more than just a contrived turn to the immortal phrases “The Invisible Hand” and “The Theory of Natural Selection“. Two absolutely evolutionary (no pun intended) terms lay transformed, in the hands of a few buccaneering elites, into terms of pejorative connotations! The objective of ‘maximizing shareholder value’ assumed deadly proportions as it transcended from being an acceptable rhetoric to a veritable zeitgeist. The dastardly behavior of immoral and unscrupulous capitalists such as Martin Shkreli – who after buying up licenses for generic drugs went on to jack up the price of Daraprim, a drug used to treat AIDS from $13.50 to $750 – exacerbated an already worrying trend of income inequality boosting the personal wealth of a select few at the cost of the remaining. According to the Economic Policy Institute , the average Chief Executive of the country’s 350 largest companies control more than $15 million a year, or 271 times the pay of the typical worker. Accumulation of status good and bandwagon accouterments became more a norm than an aberration. This maddening spell of acquisition reached its zenith when the crown prince of Saudi Arabia splurged an eye popping sum of $450 million at an auction to procure a Leonardo Da Vinci painting.
As illustrated by Mr. Pearlstein, the scourge of inequality and the moral predicament surrounding it have been accorded myriad explanations and mesmerizing justifications. From Bernard Mandeville and his fable of bees to Arthur Orkun’s “the big trade off”, both economists and moralists in the words of Mr. Pearlstein have been “bedeviled by the tension of wanting to generate a bigger pie and wanting to cut the slices more equally.”
In an interesting reflection on Professor Robert Nozick‘s entitlement theory, Mr. Pearlstein mulls on the concept of ‘just deserts’ as it is being adhered to today and calls for a realignment of the moral compass governing the distribution of income and establishment of measures of equality. While candidly admitting that he is not in the know of a more objective system than what has been instituted and worked upon currently, he also asserts that, “as a moral concept, just desert is inadequate and incomplete. In determining whether any distribution of income is just, it is not enough to simply enquire whether someone has earned his income through voluntary market exchange playing by the rules. We must also look at the distribution of income and ask whether the rules themselves are just”.
The unrepentant corporate executives – the top five amongst whom in large American Corporations routinely account for a whopping 12 percent of their firms’ annual profits – find themselves in an unforgiving quandary. Caught between paying obeisance to the ‘terror’ of quarterly earnings, thereby sacrificing long term growth prospects at the altar of Wall Street diktat and furthering the economic and reputational prospects of the genuine stakeholders, these titans of business, more often than not succumb to the melodious albeit transient music generated by an exponentially increasing share price. As Mr. Pearlstein brings to us this jaw dropping statistic: A mere 5 percent fall in the share of corporate gross income going to compensation for labour, from around 80 percent since the early 1990s to 75 percent represents “a shift of more than half a trillion dollars a year from workers to shareholders, disproportionately benefiting those at the top”. This one damning statistic bears monument to the pernicious tentacles of wealth and income inequality and a new rampant breed of capitalism that takes no prisoners and flushes scruples down the gutter!
A stellar feature of this book is the thrilling degree of empirical evidence drawn upon to back the various assertions. The enviable fount of research that has been done by pioneers in various socio-economic realms is relied upon to the hilt by Mr. Pearlstein in his admirable work. For example, while holding forth on the correlation between income inequality and intergenerational mobility, Mr. Pearlstein brings to the attention of the reader the landmark findings unearthed by Alan Kreuger, one of the former top economic advisors to Obama. Christening this correlation, the “Great Gatsby Curve” , Kreuger predicted that “the surge in inequality in the States during the last 40 years will wind up reducing mobility in the next generation – those born after 1980 – by 20 percent”.
So is there a way to curb this unfettered permeation of greed or are we resigned to living in a Dickensian era characterized by income distortions and wealth inequalities? Mr. Pearlstein proposes a few radical measures which are bound to rankle more than just a few eyebrows and ruffle not just feathers. These range from the much touted Universal Basic Income to more radical notions such as compulsory worker participation in profits and levy of inheritance taxes. A call for the restitution of anti-trust regulations to curb colossal mergers and creation of monopolies is also a proposal put forward by the author.
“Can American Capitalism Survive” is not a mindless and unidirectional polemic seeking to purvey an entrenched ideology. On the contrary it is a highly relevant work informing and urging its readers to lend their attention and efforts towards an urgent and compelling need to critically and consciously relook into an economic practice that has the power to impact civilization in a regressive way.
The time to act, and to react is now!