Fewer than half of the US population owns a single share of stock and even fewer Americans are in a position to start their own businesses. Nonetheless, at least in rhetoric this nation remains the land of the self-made man—and occasional woman. Many believe they still have the opportunity to be real entrepreneurs—by investing in corporate America through the stock market. Stock markets provide all our citizens the chance to invest in those companies with promising products and technologies. Companies use capital from the markets and loans from banks to expand plant and innovate. Banks also act as an instrument to screen and evaluate new business opportunities. All of these contentions would hardly survive the usual scrutiny the media give to most economic matters, especially government programs. Why these myths persist is a vital political question.
The stock market today seldom raises capital for real investment. Our economy has become increasingly financialized with speculative activity generating a large share of total profits and also steering—and disrupting—the course of the productive economy.
Consider first what happens when I purchase a share of stock on the New York Stock Exchange. If I buy a share of GE stock, am I in effect loaning funds to GE, which it may then use to expand its productive facilities? No. I am buying this share from another market participant. GE sees none of this money. The only circumstance in which stock purchases lead to productive activity is corporate issuance of Initial Public Offerings, IPOs. These, however, represent a tiny portion of stock market activity. Douglas Orr, professor of economics at City College of San Francisco points out that in 2007, just before the financial collapse, 43.8 trillion dollars in stocks changed hands while only 65 billion was raised in IPOs. Orr also argues: “The biggest propaganda coup of the 20th century was convincing the media and the general public to call the speculators on the new York Stock Exchange ‘investors.’”
The stock market may not be a direct source of productive investment, but that does not mean the market has no effect on the overall economy. Unfortunately the effects are often negative. Though the media portray a healthy stock market as a boon for ordinary citizens, they seldom look at the numbers. Only ten percent of the population owns 90% of the stocks. With the decline of unions and other countervailing regulations of its behavior the modern US corporation, often sitting on piles of cash, has become a financial asset to be manipulated by CEOs and institutional shareholders alike.
Michael Konczal, writing in the Washington Monthly, invites us to "compare two eras at General Electric" and continues:
This is how business professor Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: “[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer.” Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch, Davis says, believed in “the shareholder as king—the residual claimant, entitled to the [whole] pot of earnings.
CEOs, who now are more often finance experts rather than entrepreneurs, are frequently paid with stock options, the value of which depends on the stock price. Cutting jobs and driving down wages is often rewarded by the market with at least short term increases in stock prices. In addition, using those piles of cash to buy back stock can jack stock prices up even as it cuts into the capital that might once have fostered business expansion. Goldman Sacks predicts…. "The slow pace of recovery and recurring threat of economic stagnation has biased managements in recent years toward returning cash to shareholders. Although we expect a gradual shift toward investing for growth via capital expenditures and M&A as confidence in the U.S. economy grows, the popularity of dividends and buyback should continue…" What Goldman does not say is the role that stock buybacks have in slowing growth.
Both as a cause and a consequence of these trends, large investment banks have become less inclined to make traditional loans for business expansion and more focused on other speculative strategies, including mergers and acquisitions, currency trades, stocks, and new instruments pegged to other loans, such as mortgages, education, and credit card debt. Konczal points out: “Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated shadow banking sector that took over the financial sector, banks are less and less in the business of holding loans and more and more concerned with packaging them and selling them off.”
And with an economy in which working class wages have stagnated despite productivity gains, workers have needed and been encouraged to borrow more in order to sustain their living standards. Thus not only has housing depended increasingly on credit but pensions, education for one’s children, medical and long term insurance are all purchased on a market and/or depend on debt financing or stock market valuations. The neo liberal agenda is sustained not only by federal tax and fiscal policy but also through practices of everyday life. These practices in turn are supported by and in turn reinforce cultural narratives, as in the various high stakes lotteries so widely publicized in our corporate media.
Of course even this slow growth economy has seen some remarkable product, technology, and health care innovations. Any time labor and social justice advocates complain about it they are asked if they want to live in a world without computers and flat screen TVs. But what is the origin of these marvels? In a commentary for the blog Naked Capitalism, Yves Smith summarizes recent work by Mariana Mazzucato, author of The Entrepreneurial State, writing:
Typically the private sector only finds the courage to invest in breakthrough technologies after a so-called “entrepreneurial state” has made the initial high-risk investments. This can be seen today in the green revolution, the development of biotech and pharmaceutical industry, and the technological advancements coming out of Silicon Valley. Mazzucato argues that by not giving due credit to the state’s role in this process we are socializing the risks of investing, while privatizing the rewards. So who benefits from the state’s role in the development of technology? Consider Apple’s iPhone and Google’s search engine. In both cases these extremely popular consumer products benefitted mightily from state intervention. For the iPhone, many of the revolutionary technologies that make it and similar devices “smart” were funded by the U.S. government, such as the global positioning system (or GPS), the touchscreen display, and the voice-activated personal assistant, Siri. And for Google, the creation of its algorithm was funded by the National Science Foundation. Plus, of course, there’s the development of the Internet, another government funded venture, which enables the iPhone to be a valuable tool and makes Google searches possible.
In short, the state does the heavy lifting by funding not only research and development (R&D) but even further stages of product development. Then when such accomplishments are turned over to the private sector they are often patented, thus generating monopoly profits that can be used both for speculative activity and to lobby on behalf of further subsidies. Are we in an inescapable bind or are there alternative policies and strategies that offer some hope?
Why does this myth have such staying power even after the financial collapse of 2008? Part of the answer lies in the limited scope of the contemporary welfare state. Democrats, while recognizing the need for some stimulus at the height of the crisis, have largely abandoned any commitment to full employment, to unions, or to expansion of the benefits that once helped forge the New Deal coalition. The age of big government is over says Bill Clinton. The net result for many working class Americans is economic marginalization, leaving many vulnerable to these pro-business, “job creating” agendas.
The media also have played a large role in sustaining this agenda. They have become increasingly consolidated and heavily dependent on the good will of state regulators and thus not likely to engage in presenting alternatives to the market mythology. Although media do not speak with one voice, the range of debate is relatively narrow, with MSNBC seldom going beyond mild reformist critique of the market.
If Democrats' abandonment of full employment and a generous welfare state along with a compliant media contribute to the problem, mitigating it will require more than re-regulation, as in a restoration of the Glass Steagall’s separation of investment and commercial banking. Costas Lapavitsas, author of Profiting Without Producing: How Finance Exploits Us All, reminds us that the increasing role of financial speculation in contemporary capitalism depended on more than simply deregulation. Deregulation was part of the processes of transformation of corporate governance, bank practices, and household needs. New regulations are part of reversing these trends, but in Lapavitsas’s judgment they need to be accompanied by “policies that create a new outlook for production and trade that puts investment and jobs at the forefront…It is impossible to bring this change about without a new spirit of intervention in the nonfinancial sector.” We also need financial institutions “that would support production and employment but also allow people to use finance in a beneficial way in everyday life.”
But can economic policy alone give us the public spirit that must be part and parcel of these reforms? Predatory neo-liberal capitalism’s survival even after financial collapse cannot be explained merely in economic terms. These formal political beliefs cannot be simply disassociated from underlying personal fears, anxieties, and convictions.
In an interview in the May 2012 issue of Believer John Hopkins political theorist William Connolly warns us that the need for public provision and a regulatory state reminds many of inescapable human vulnerability. That sense of vulnerability can inflect the tone and substance of politics in different directions. For some it leads to claims that God backstops the market, and virulent responses to those who claim otherwise. Those who have enriched themselves in this predatory economy portray themselves—and are portrayed by the corporate media—as winners, who do God’s—or at least their fellow citizens’—work. The poor are seen as 'takers,' and that term often takes on highly racial overtones. (Opposition to climate change theory shares similar theological assumptions. Man is deemed to have dominion over the natural world. Markets are smooth and predictable as is climate and mastery of each leads to greater mastery of the other.)
The demand by some secular liberals that religion should be kept out of politics or the claim by neo Marxists that religion is epiphenomenal and contemporary capitalism is explained primarily by the "forces and relations of production" is counterproductive. Attempts to exclude religious concerns from politics only intensify fundamentalist religious hostility to economic and social liberalism and may have helped cement the unlikely coalition of socially conservative evangelicals and neo-liberal business leaders.
What might be the source of a counter coalition? Lapivitsas calls for a “new public spirit of operation” in the world of credit and finance. But from where does that spirit emanate and how does it validate itself? To paraphrase Rousseau’s famous paradox, it takes good citizens to make good laws but it also takes good laws to make good citizens. Rousseau resolved the paradox by postulating a wise, benevolent, and disinterested founding father at the beginning of the republic. But if that resolution really hides injustices and seems wildly implausible in a world of rapid and intense cultural encounters perhaps we are better in acknowledging the force of the paradox and negotiating it. Rather than excluding religion from politics or counting on economic practices and institutions to deliver a public spirit, far better to welcome a wider and deeper religious discourse. Ideally we might recognize the likelihood of intractable divisions among certain fundamental philosophical convictions. And since even the most widely participatory processes will include some rotten timber from the past and function in a world of flux, a completely just public spirit may never be fully achieved. Politics will thus be an ineliminable aspect of social life.
Though economic reform can be sustained only by a more inclusive and vigorous democratic politics, some movements cannot be invited to the party. Efforts to suppress voter turnout, either through modern day poll taxes, voter ID laws must be rejected even as the role of money in politics is curbed. Within the framework of a more open politics a range progressive movements inspired by different theological and philosophical perspectives might combat—both through their policy gains and modes of interaction—the resentments that help shape the tone and substance of much contemporary politics. Ideally even as they respectfully disagree across philosophical and theological lines, Social gospel Catholics, secular liberals, gaia proponents, process theologians, and neo- Marxists might work for climate justice and greater economic, race, and gender equality. Ideally this new public spirit would be sustained by and would sustain more receptivity to proliferating modes of being, including right-to-die initiatives that secrete and grow out of a more relaxed orientation to death. Thus environmental philosopher Thom Van Dooren, author of Flight Ways: Life and Loss at the Edge of Extinction, opens up alternatives to Christian fundamentalists’ view of death as punishment through reflections on vultures. “They remind us that death must be thought of not as a simple ending but as completely central to the ongoing life of multispecies communities in which we are all ultimately food for one another.”
Sometimes surprising alliances on specific issues are possible between right and left. Ralph Nader argues persuasively that the list of issues would include resistance of current corporate trade treaties and to current and future bank bailouts.
One potentially fruitful area for a politics across conventional divisions is long working hours. Reductions in the standard workweek as productivity expands were a staple of American politics in the hundred years from 1870-1970. These reductions create jobs at far less cost to the treasury. They also extend benefits to workers of all political, religious, and life style predilections. A shorter workweek affords individuals time for family life and personal development controlled neither by the state nor the corporate dominated market. Creating experiential challenges to the myths of the market may be the most effective counter. With more free time the need for perpetual self-discipline and the kinds of suppressed hatred of the human condition this can often breed may be mitigated. At least that is my hope.