The Flaw in the System

Recent global events have demonstrated that we live within a system that is simply not designed with any capacity for resilience. After only a brief pause in productivity, the entire mechanism of capitalism has been brought to its knees, and is begging to be rescued by the kind and generous people of nations in which its companies reside. At the direction of their governments, via taxation, of course.

The capitalist system is the ultimate in hypocrisy; simultaneously demanding of the population that they rely only upon themselves as sole provider, whilst requiring assistance when things do not go the way that any given corporation might intend. Over the last decade or so, we have seen bailouts for the automotive industry, banks, and insurers. Of course, there is a delicious irony in the idea that the hyper-capitalist banking industry has been the recipient of the greatest amount of public cash. It seems that in the most capitalist nations, where socialism is but a dirty word uttered only behind closed doors between individuals considered to be part of some kind of liberal conspiracy to destroy the planet, individuals are seen as social pariahs for seeking public assistance in bad times, yet companies may dip their hand in the public pot as and when required.

But back to recent global events.

The Great Productivity Pause (as I would like it to be known) has thrown the world travel industry into some kind of terminal downward spiral, and now governments are considering throwing billions at airlines in order to keep them afloat, and reopening hotels regardless of the Covid-19 threat level. What’s a few thousand additional deaths here and there if it ensures CEOs and shareholders receive their payments?

Most recently, the retail giant Intu has collapsed into administration, just as our government in the UK has decided that we should be encouraged to go out and spend, spend, spend in order to keep our wonderful capitalist economy going. We are assured of an economic bounce-back! Hurrah! Everything is going to be fine. Do not worry about a second wave of Covid-19; just make sure that our shops do not go bankrupt.

Intu is not a retailer itself, but an owner of large shopping complexes – temples of retail in which people sacrifice their paycheques upon the alter of useless trinkets. Yet, since the early 2000s slowdown, and the 2007 global recession, customers have been less faithful to their gods. Spending in retail stores has seen sharp declines, and in turn, the high rents they were able to pay in exchange for locations with heavy footfall has diminished. As such, the revenue potential for these giants of retail landlording has been equally suppressed, whilst their costs have remained. Therefore, haemorrhaging money, they have had no option other than to place themselves into administration.

Although this may seem like a recent problem, the economic slowdown that has resulted from the Covid-19 crisis is only a symptom of a much bigger problem. Capitalism itself.

The goal of capitalism is, as its name suggests, the acquisition of capital. This is done by producing goods and providing services to consumers, at a profit. This profit is used to produce more goods and provide more services to consumers, at a profit. This profit is used… you get the picture.

In order to create a profit, goods must be produced at the minimum possible cost, and sold at the maximum possible price. In the past, this system worked relatively well. However, with the advent of the industrial revolution, all that began to change. It has become less and less necessary to keep humans in the production loop. Goods produced by machines can be created at a far lower cost, far more consistently, and can be sold at a greater profit.

But isn’t this good for the consumer?

Well, for the short-termists, yes. But if you consider the greater consequences, you see that capitalism has a fundamental flaw when it comes to profit-maximisation. To explain this, we will consider a generic example.

A company produces kitchenware for the mass market. It sells lots of units and makes a great profit. However, a new machine comes along that is able to take the place of the humans in the factory who produce those plates and cups and dishes and other things. So, the business owner buys the machine and produces the same items at a lesser cost, selling them for the same price to the market. The business owner gets richer. Yay! Capitsalism is working.

But what about those workers who no longer have jobs? How do they access the market without the capital that they had previously earned from producing those kitchenware items? They must get another job elsewhere, either producing some other good, selling it, or providing a service. However, in reentering the labour market, they have increased the supply of labour, driving down the cost that they are able to charge for their service.

Repeat this across several companies, or several hundred companies, or several thousand companies, and you have replicated the situation within large and complex economies across the world. Labour costs are constantly driven down by increased supply until a significant portion of the population simply cannot afford the goods that are produced within the market of which they are a part.

So, you have a population that cannot afford the goods that are produced, so companies seek to drive down their production costs yet further, implementing further cost-cutting measures in order to drive their unit prices down. Yet this puts further individuals out of work and back into the labour supply, and the situation becomes gradually worse.

Eventually, a tipping-point is reached at which nobody can afford said goods, and the company is no longer selling units in order to make its profits. Where does it turn? To the government of its nation, who bails it out with public money. Where does this money come from? The public, via taxation. Or printing money. Both of which lead to the same devastating problem; inflation. And so the value of the capital owned by every person within the market is diminished. Not such an issue for those with plenty of spare capacity, but a potentially life-threatening problem for those on the edge of financial survival. And of course, as the supply of labour increases, and the cost of labour decreases, and the value of the money in circulation is reduced, more people are pushed towards that line of financial destitution.

Yet, we exist within this system, which self-protects at all costs. It continues to devalue money in order to perpetuate the inexorable march toward the endgame, at which the majority of people will no longer have the capital available to sustain the market.

So what does this have to do with Intu? Well, it is an example of what happens when the population does not have the capital to sustain the system around it. Managed protection of the system may delay the inevitable, but at some point in the future, the Intus of this world will become so numerous that systemic failure will become inevitable.


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