Donald Trump has tapped into a vein of unhappiness with the direction of US capitalism. Photo / AP
Robert B. Reich's book Saving Capitalism is an excellent read for those wanting a better understanding of the Donald Trump phenomenon. It also highlights why the traditional political order has been disrupted in many other countries and why New Zealand could also have a "Trump experience".
Reich, who was Secretary of Labor in the Clinton Administration, is a strong supporter of capitalism but he believes that its rules are strongly skewed in favour of a number of elites and against the majority of ordinary citizens.
He argues that communism and fascism are no longer the major threats to capitalism but that the biggest threat is "a steady undermining of the trust modern societies need for growth and stability".
Reich believes that when individuals consider that neither they nor their children have a fair go, they will find ways to protest against the unfairness of the capitalist system. This is a core reason behind the strong support for Trump in the US presidential primaries.
Reich identifies a number of reasons for the widespread discontent in the US, including:
• In the 1950s a schoolteacher, baker or mechanic could earn enough to buy a house, purchase two cars and raise a family but this is no longer possible unless they are willing and able to borrow substantial sums of money.
• CEOs of large corporations now earn more than 200 times the average worker's income compared with 20 times 50 years ago.
• The richest 1 per cent of Americans now receive more than 20 per cent of the country's income compared with 9-10 per cent in the 1950s and 1960s.
• Politicians pay more attention to the needs of large corporations, compared with individuals, because these corporations are successful lobbyists and make huge political donations.
He argues that corporate and financial elites have huge political influence and have been able to dictate the way the US economy operates. These elites have actively reorganised the rules of the "free market" for their own benefit.
Reich believes that the biggest political divide is not between the Republican and Democratic Parties but between ordinary Americans and large corporations, Wall Street banks, Washington politicians and wealthy individuals who have managed to reorganise the economy to their own advantage.
Donald Trump has successfully tapped into this discontent.
Reich wrote: "While this book focuses on the United States, the centre of global capitalism, the phenomena I describe are increasingly common to capitalism as practiced elsewhere in the world, and I believe the lessons drawn from what has occurred here [USA] are as relevant to other nations.
"Although global businesses are required to play by the rules of the countries where they do business, the larger global corporations and financial institutions are exerting growing influence over the makeup of those rules wherever devised. And the growing insecurities and cumulative frustrations of average people who feel powerless in the face of economies (and market rules) that are not working for them are generating virulent nationalistic movements, sometimes harboring racist and anti-immigrant sentiments, as well as political instability in even advanced nations around the globe."
Reich goes on to write about the need for governments to make and enforce rules, including for the "free market".
House prices are out of reach for the younger generation, unless they are willing and able to borrow huge sums of money.
He argues that the size of government is not unimportant but the rules under which the market functions are far more important. It is impossible to have a free market without some rules because the absence of rules will lead to a huge concentration of power and, as a consequence, discontent among a large percentage of the population.
Reich argues that "the free market is a myth that prevents us from examining these rule changes and asking whom they serve. The myth is therefore highly useful to those who do not wish such an examination to be undertaken. It is no accident that those with disproportionate influence over these rules, who are the largest beneficiaries of how the rules have been designed and adapted, are also among the most vehement supporters of the free market and the most ardent advocates of the relative superiority of the market over government. But the debate itself also serves their goal of distracting the public from the underlying realities of how the rules are generated and changed, their own power over this process, and the extent to which they gain from the results".
He also goes on to point out how the underlying rules of the free market are hidden because intangible assets are becoming more and more important. Rules governing intellectual property are harder to see as are the dominant market power of Google, Apple and Facebook compared with the giant railways and oil trusts of over a century ago.
That is why any investigation into the commercial strategies and tax policies of these cyber giants is important.
New Zealand has a few faint signs of these issues and the discontent that has led to the strong support for Trump.
House prices are out of reach for the younger generation, unless they are willing and able to borrow huge sums of money, and student debt continues to increase. There are clear signs of monopoly and oligopoly power in business, although our corporate sector doesn't finance political candidates to the same extent as the US corporate sector.
Fonterra, the country's largest company, was formed through the merger of our two largest dairy companies to create a dominant market position, while Auckland International Airport, the largest listed company by market capitalisation, is an effective monopoly. There are also concentrated market positions in a number of other sectors, including supermarkets.
However, a small sample of New Zealand chief executives shows that they are more modestly remunerated than CEOs in the United States. The accompanying CEO remuneration table includes Fonterra, Auckland International Airport and New Zealand Post. The latter is the country's largest 100 per cent state-owned enterprise, mainly because it owns 100 per cent of Kiwibank.
The average CEO salary of these three companies is 54 times greater than the average New Zealand income, compared with 45 times the national income a decade ago. This compares with a CEO/average worker's income ratio of over 200 times in the United States.
Fonterra is the standout among this small sample as its CEO receives 93 times the national average compared with 90 times a decade ago.
The business community needs to look beyond short-term self-interest and ensure that it doesn't allow elite groups to capture most of the economic spoils. If it doesn't, the danger is that we could end up with a similar political situation to the one the Republican Party in the United States found itself in, facing a major loss of popular support. The Republican Party originally brought in Sarah Palin to help attract this disaffected group but the strategy backfired as her supporters and others have decided to vote for Trump.
There are a few signs of this discontent in New Zealand, with the sharp rise in popularity of New Zealand First in the latest Roy Morgan political poll and perhaps also in the flag referendum. The rejection of the proposed new flag has some similarities with the support for Trump, as voters feel they have experienced too much unwanted change and would prefer to keep some of the enduring symbols of the past.
The clear message is that the "free market" needs rules and regulations that give everyone a fair chance to participate and prosper.
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