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The Changing Face of Capitalism

Many people think of capitalism as a fixed system, but in reality, it is always changing. In the United States of America, the capitalist system has adjusted over time and continues to transform. In recent history, the 2008 mortgage crisis and subsequent bail-out of the “too-big-to- fail” bankers ushered in a new, more skeptical era. The gap between rich and poor in the U.S. has been growing, with CEOs making over 100 times more than the average worker. Large industries have also been at the forefront of environmental and humanitarian disasters.

Protests like Occupy Wall Street in 2011 sparked conversations about whether or not capitalism is working the in U.S. Corporations and governments are under increasing pressure to do something about the social and environmental problems facing the country. In his conversation with financial expert Jake Moilanen, Founder & CTO of TXX Group Inc. and GP at Seraph Group, RSnake offered his own opinion of the state of capitalism. “The idea of a market being driven by capitalism is an interesting one, but I’m not sure it’s right anymore,” he said. “You really have very few people investing in a company because they believe in the fundamentals and a lot more people investing in whether they think it’s going to go up or down today.” Moilanen called this “price action” and agreed it is an issue. Many people are longing for solutions to the problems that are plaguing our county. It seems changes are coming that could alter the face of capitalism in the U.S. But what form will they take?

The Role of Government Regulation in Capitalism

In a purely capitalist system, there is no government regulation – the rise and fall of businesses is determined by the market. However, governments have always had some degree of influence on business, whether through taxation or other kinds of regulation. Just how much influence a government should have is still up for debate. When markets are completely unregulated, successful businesses can monopolize them. Without competition, these businesses can set higher prices, and exploit their employees. This was seen in the early days of industrialization. Free markets also tend to have steep boom and bust cycles in which enthusiasm for a certain product sends prices skyrocketing, only to crash down when demand is no longer high. The U.S. has seen both lower and increased government intervention in capitalism. In the late 19th and early 20th centuries, large industrialist monopolies, poor working conditions and the 1929 stock market crash led to a more Keynesian approach to capitalism. This approach advocates government spending to bolster the economy by providing jobs, for example. President Franklin D. Roosevelt’s New Deal was essentially a Keynesian approach. Since then, the U.S. government has continued to moderate the economy to varying degrees. One way it does this is through the Federal Reserve, which sets interest rates for the country, among other things. The government can also play an active role in the economy by determining who should be taxed, and how much. The government also owns essential businesses. In the U.S. Amtrak, the United States Postal Service, and mortgage institutions Fanny Mae and Freddie Mac are all government-owned. Some believes this provides more economic stability, while others advocate for an entirely free market that operates without any kind of government intervention.

The Rise of Stakeholder Capitalism

Stakeholder capitalism is the idea that businesses should not only consider making money for their shareholders, but also take its stakeholders (customers, employees, society, the environment) into account. This is closely related to environmental, social and governance (ESG) investing whereby investors determine which companies to support based on these principles. Stakeholder capitalism and ESG are being touted as the way forward for business, but the ideas are not new.

The History of Stakeholder Capitalism

Most businesses operated on a stakeholder capitalism model from the 1930s to the 1970s. These organizations attempted to make decisions based on multiple responsibilities to their shareholders, employees, and the public with varying degrees of success. Juggling so many priorities made them inefficient. As a reaction to this, the idea of shareholder capitalism, introduced by Milton Friedman arose in the 1970s. Friedman believed businesses should focus on providing value to their shareholders first and foremost. This is the framework most public businesses use today.

Is Stakeholder Capitalism a Good Idea?

Shareholder capitalism has become less popular with the rise of huge corporate entities with incredible power. These companies deliver value for their shareholders, but some have been known for poor working conditions and little regard for the environment. Recently, ESG or ethical investing has been more widely discussed. Looking for ways to promote change, people have put their money into ESG investments, or pressured organizations to do so. Many students, for example, have lobbied their universities to remove stocks in oil and gas companies from their investment portfolios. Many believe stakeholder capitalism is a good way to ensure businesses operate in a way that respects humanity and the environment. According to the Harvard Business Review, the World Economic Forum has embraced the idea, as has BlackRock, one of the world’s largest investment firms. In 2019, a number of companies including Apple, Amazon, and J.P. Morgan signed an agreement declaring a shift towards stakeholder capitalism. Critics of this model say it’s nothing more than a public relations stunt, designed to quiet opposition to these large corporations while they go about business as usual. Even though Apple pledged allegiance to stakeholder capitalism in 2019, it came under fire for horrific working conditions at its Foxconn plant in China in 2021. The same location saw fiery worker protests in 2022. Similarly, Amazon was recently cited for safety violations in three of its warehouses. Other critics explain that stakeholder capitalism is too unwieldy and will never work. How is a business to decide which stakeholder is most important? Still others caution it is a slippery slope towards socialism.

The Potential Impact of Automation on Capitalism

With artificial intelligence (AI) becoming more sophisticated, questions about which humans it will replace are everywhere. This could have significant implications for the future of capitalism. Self-driving cars are hitting the roads, prompting predictions about the loss of jobs for taxi and truck drivers. Restaurant jobs could also take a hit. In China, there is a fully automated restaurant. The release of ChatGPT has raised questions about the future of writers. One proposed solution for the advent of an automated society this is to provide people with a universal basic income (UBI). This means governments would provide citizens with a monthly stipend with no strings attached. Some would say a move to UBI would make the U.S. more socialist, though if the government continued to allow individuals and businesses to operate freely, the new system could still technically be called capitalism. Although, it would have a distinctly different flavor. UBI could also give governments greater control over their citizens. A more authoritarian government could award UBI only for “good” citizens and cut payments for dissidents.

The Takeaway

Economic systems and the amount of government regulation in them change as society does. While most people in the U.S. would agree that capitalism is better than communism, challenges to the status quo are pushing current systems to evolve. Only time will tell what future changes will look like. To find out more about the state of capitalism today, and insider tips on public and private investing, tune in to RSnake’s conversation with financial expert Jake Moilanen.

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