Market Economy -
“The free market economy that began with the demolition of privileges and brought unbelievable benefits for personal achievements with it, ended in a capitalism that remunerated achievements increasingly less and at the same time allowed for a fantastic accumulation of revenues from wealth”.
Gero Jenner 1
Just as planned economy and socialism are always confused with, or are considered equivalent to, one another, the same applies in the case of market economy and capitalism. Actually both concepts have nothing to do with each other at all. As a matter of fact, they are mutually exclusive. Market economy is an economic system in which all economic processes, i.e. production, prices and terms of exchange, are determined by demand and supply alone, whereas capitalism – as will be shown – is a monopoly instrument for domination.
A pure market economy represents the most just and most effective system of supply and distribution of goods that is built on reciprocity and equality of rights. However, this is the case only when appropriate government regulation of economic processes exists to avoid the formation of monopolies and cartels which arise from the capitalistic effect to get stronger and stronger.
What exactly is meant by market economy?
In Germany, after the war, the term ‘social market economy’ was coined, which stressed the aspect of equality of rights of this economic system. The term suggests that the economy prevents social tensions from within the system itself and regulates any problems that could possibly arise. In reality, however, it is a system in which the state absorbs the risks with the help of measures laid down by law. A market economy can support fair exchange under the above mentioned exclusions of monopolies, but not in the sense of an equalising of burdens for the socially weaker sectors of society.
This combination of state and economy that is called social market economy has been functioning fairly well in Germany and in a similar way in many other countries over decades, at least as long as there is sufficiently high economic growth, constantly increasing taxes and social levies that fill the public treasury. Why then does this social state get into difficulties today and why has this concept become a matter of discussion on account of these difficulties? Why is there so much talk about the inability to afford the social state and even calls for its end? How was it possible for industrial nations, after the war, even though they were so much poorer, to afford such a social system, but now, in spite of wealth in many respects greater than ever before, they can no longer finance it?
If one examines these questions, a second and often used term emerges, i.e. the ‘free market economy’. In the meantime it has been replaced more and more by the term ‘liberalization’. This term is understood to mean a withdrawal of the state from the economy and the dismantling of all regulations, including those that till now were distinctive to the concept of a social market economy.
If one were to observe the last five decades in slow motion, a long term and almost inconspicuous shift from a social towards a free economy could be perceived. However, this is a shift towards an economic system in which not only the unsocial distribution of incomes increases, but also the indebtedness and over-indebtedness of state and enterprises leads to the domination of what we have to see as the anti-thesis to the market economy: capitalism.
What is meant by capitalism?
In its broadest sense, the term ‘capital’ comprises all means that can be used for production, from natural resources to goods created by man, right up to his intellect. Strictly speaking – and this is what is understood here – all those assets are considered as capital, which produce an effortless income for its possessor. The simplest and most comprehensible example is monetary capital, i.e. savings and their interest yields. However, as all real investments are realized through money, these interest profits that can be obtained by monetary capital are the basis for all means which had been invested in production and therefore are also called tangible assets. It does not matter whether this capital is in private hands, government hands or in the possession of cooperatives: in all cases the interest return of invested money has to be assured before the money will be invested and jobs will be created.
Capital consists of interest bearing assets, a capitalist is someone who has such assets at his disposal and capitalism is an economic system in which the fulfilment of interest claims takes priority over all other economic processes. And as the level of the remuneration starts from the interest on money and holding money back can prevent interest rates declining, we are dealing with a monopoly in our present monetary system that contradicts every kind of market economy. More explicitly, as long as our economic system is associated with the capitalist system, there can be neither a truly free nor a social market economy!
By the term capitalization in summary, we refer on a small scale to those processes by which companies refinance themselves at the stock exchange or sell their tangible assets in monetary units. On a larger scale, capitalization is understood to be a process in which all the activities in the economy serve the interests of capital and are finally subordinated to it. And this trend, to transform all tangible assets into money or to bind all the available money into the worldwide economy has reached a new dimension meanwhile. Capitalism is about to establish itself worldwide in such a way that it threatens to steam roll over all protective safeguards of people. And this expansion is, at the same time, associated with increasingly faster acts of devouring and being devoured, which can be watched almost daily at the stock exchange, at the banks and companies. The fewer the number of ‘fish’ that finally remain and the bigger they are, the less remains from what once began as a free and social market economy. The danger is growing that the last and biggest fish perish – as once the dinosaurs – because of their excessive-size. All this can be summarized under the term globalisation, which has leapt to the forefront of politico-economic discourse in recent years.
What does globalisation mean?
In general, this term implies the fusion and expansion of markets and productions over and beyond national borders. It therefore basically represents a development that began thousands of years ago with the first contacts and trade ties between peoples and between continents that has continuously expanded.
What is new then in this term? – New is especially the focused transfer and concentration in that area which was considered up till now as accompanying the flows of trade, namely the area of money. More specifically, globalisation today means, above all, the monetarization of our planet and the subordination of all processes taking place under the primacy of big money, the realization of the highest profits which seems to have become the sole meaning of every activity on earth. The monetary capital, that has swollen up excessively in this world and has become more and more mobile, exploits all interest and profit differences around the globe in order to increase profits. Since people who live from the earnings of their work do not have a comparable mobility, this development leads to a shifting of work from high-wage countries to countries with lower wages. Ernst Ulrich von Weizsäcker characterized this development in 1977 with the following words:
“The globalised economy inevitably calls for a ‘divergence’ of income differences. In plain language: the poorer must stand back with their demands so that the rich feel good in the country and in particular not strip them of their capital… A new epoch, the era of global capitalism is opening up and it will determine the societies in the coming ten years.”
In view of the present worldwide inequity of income from labour, which is also an important cause of increasing immigration flows, a certain adjustment of the wages would definitely be advisable, maybe even necessary, if we want to preserve peace in the world. This means more specifically, the growth in the income from labour in the rich countries has to be at least slowed down for the benefit of the poorer countries, and to some extent lowered in the long run.
On account of the growing demands of capital on the results of the worldwide economic output (the levels of which it can dictate on its own!), this sort of globalisation does not contribute to a desirable balance between incomes from labour worldwide, but rather inevitably leads to a reduction of average wages. Or expressed otherwise, since economic growth, even when it is extended on a world-scale, cannot cope with the growth of monetary assets, the workers must come off worst.
As a result of the explosively growing demands of monetary capital, this worldwide expansion and optimization of its investment is probably its last chance to meet the growing demands of the mass of capital for some more time. And inevitably this is also true for the existence of the whole capitalist economic system behind this globalisation. It is only through the worldwide propagation of competition, which more and more takes on the appearance of a competitive fight, that wages can be reduced to the extent necessary for assuring capital revenues and, with it, the operation of this system.
Capitalism once thought of as a harmless partner of the market economy, has left its national location and in the meantime turned from the playful looking casino-capitalism to a global turbo and brutal capitalism.
What about liberalization and deregulation?
Just as in the past capital and enterprises put towns and municipalities under pressure with regard to their decision for location or have extorted tax rebates or favourable conditions, this is happening today with states worldwide. Because of unemployment in almost all regions, they are particularly vulnerable to extortion. Moreover, capital and enterprises acting on a worldwide scale call for a dismantling of all national and international laws and agreements, which interfere with their operation (just think of the MAI and WTO negotiations!). At the same time, with the claim for more freedom and better conditions, the multi-national companies even shift their headquarters to other countries where they can often escape the tax payments at the production locations. With the terms liberalization and deregulation these activities are propagated as something favourable for all.
The states, which lose not only their scope for decision making but also a part of their revenues, are forced thereby to increasingly rely on those who cannot move their capital. These are, besides smaller companies, especially those workers who are bound to their domicile. And in those places where these workers attempt to imitate capital, i.e. go where the best ‘returns’ can be collected, then paradoxically, there is no more talk of globalisation. The borders shut down for these people as much as they are open for capital.
Is that which we refer to as globalisation and liberalization, the latest attempt perhaps for capitalism to restart worldwide and secure its own existence for a little while longer through a new thrust for growth? Or might there be further attempts after that to save capitalism by such gigantic capital wastage and capital annihilation, for example, on space islands, on the colonization of the moon or mars or whatever, regardless of a further increase in the discrepancy between the poor and the rich as well as environmental destruction? Or will the world, in the end, be thrown into the ‘cleansing showdown’ of a global war?
What about provision for old age?
Before we deal with the question of war and peace, a special and current topic should be mentioned here, which, however, has only a rather indirect association with the problem areas of the social state right up to globalisation that is under consideration here: securing income for old age.
Not only in Germany but in other countries, too, this safeguard through state-organized pension funds encounters increasing difficulties. No doubt the increase in the number of aged in most of the industrial nations plays a decisive role, i.e. the shift of generation shares to the liability of the working population. In the medium term, these increased costs of the ‘no-longer-working-generation’ are partly balanced by declining costs for the ‘not-yet-working’. In the longer term, the decline in the birth rate brings with it a big problem, too, for old age security. In view of the emptying public coffers, this problem, common to many countries, is serious.
As a solution to the problem, the working generation of today, which is already overburdened by the number of pensioners, is being urged to look to additional private old age pension schemes that are partly also favoured by tax benefits. Utilizing the current share boom, the investors are shown the gains they could achieve with this capital insurance. For example, a twenty-year old of today, who pays each month 190 Euros, at an interest rate of 6 per cent on his deposits, could reckon with a pay out of half a million Euros at the age of 65. The question as to where the difference between the payment of a total of 102,600 Euros and half a million actually comes from is never asked.
That this increase to five-fold the continuous payments does not fall from heaven but arises from interest yields does not need mentioning any more than that these interest yields have to be earned by the very same people who are to enjoy the gains afterwards.
There is yet another problematic aspect. In today’s method of apportionment, the contributions to the pension insurance practically flow directly to the pensioner of today and thus directly into demand. In capital accumulation procedures, contributions increase the monetary assets, which first have to be fed back into the economy via loans. This entails the necessity for macro-economic indebtedness and with it interest burden increase along with interest revenues, which are then credited to the contributors later. And as huge investment amounts collect in these pension funds and insurances, they exert a correspondingly large pressure on borrowers, i.e. funds, where the deposits had been placed to bring interest. This massive pressure, in turn forces indebted enterprises to the reduction of costs and rationalizations which are inevitably associated with wage reductions or additional layoffs, and this, in turn, affects those who try to build up their old age security in the way described.
This means that the contributors not only have to pay for the future profit payments themselves beforehand through a higher interest share in all prices, but perhaps also with income-reduction or even a loss of jobs. And the fact that such profit projections in the case of a person who lives to enjoy them, can go totally wrong, namely, when money is only good anymore as wall paper, as has been experienced by our parents and grand parents in the last century, as well as those in our Eastern neighbouring countries.
Of course, there is the possibility of letting the money ‘work’ outside the country, if need be, in countries in the southern hemisphere. In this case it would mean that people who are much poorer than we are would care for our insurance profits. This example shows that the definition of interest as hidden slavery is not at all far fetched.
1 Sociologist and Japanologist in “Das Ende des Kapitalismus” (The End of Capitalism). Fischer Pb., 1999