Examining the reality of the doctrine of free market globalisation: does supply side economics benefit the poor?
The great experiment
Supply side economics has been derisively described as trickle down economics, a term which draws fire from its advocates, who say it’s not a matter of giving money to the rich, but of keeping it out of government hands:
- It allows people at all economic levels, and particularly at the top, to keep their own hard-earned money and use it as they see fit. That may mean spending it. It may mean saving it. It may mean investing it. In any of those three scenarios, the money brings more benefit to one and all than it does if the money is transferred to the government.
- If businesses and wealthy people keep more of their money, they are more inclined to invest it in businesses – hiring more employees, starting new enterprises, expanding operations. After all, it’s the rich who tend to hire people. I don’t know about you, but I’ve never been given a job by a poor person.
The idea is that by stimulating the economy in this way everyone benefits.
Those who imagine that profits first benefit business owners — and that benefits only belatedly trickle down to workers — have the sequence completely backward. When an investment is made, whether to build a railroad or to open a new restaurant, the first money is spent hiring people to do the work. Without that, nothing happens.
The last several decades of US economic policy have been a great experiment in free market economics. Top tax rates have been substantially decreased and the government has shown a commitment to deregulating markets. Economics never operates under perfectly controlled conditions, but this comes as close as the dismal science can reasonably expect.
As a result, between 1990 to 2003 CEO salaries rose by 276% after inflation, corporate profits by 103%, and the S&P500 index by 196%. However wager earners gained only 7% and the budget deficit ballooned. The rate of child poverty in the US now is triple that in France, and
Among all industrial countries for which reliable current social data exist, the United States has the smallest middle class and the highest poverty rates (being second only to Russia)… During the 1980s, almost all of the wealth gained went to the top 20 percent of wealth holders in America.
The power of the markets
Supply side economics adheres to the belief that an unregulated market is a rational, equitable, and efficient means of generating wealth and providing services. Governments worldwide, following these principles have since the late 1970s sold state owned utilities into corporate hands, lowered corporate tax rates, decreased tariffs and reduced impediments to mergers and capital transfers. Companies, especially the larger national and transnational companies, have done very well in this environment.
Companies have become extremely effective mechanisms for creating profits for their boards and shareholders (usually in that order). They can find ways to provide cheaper and better products and services than their competitors, and they can convince customers to choose their products. There are other ways of ensuring success however – most of which fall outside the simple view of the market as a level playing field. These include
- Driving down wages by employing younger staff; reducing conditions; employing more casual rather than full time staff; outsourcing, especially into cheaper labour pools; moving manufacturing bases to the third world; de-unionising the workforce; requiring longer hours for the same pay.
- Creating local monopolies by dumping cheap products to drive out competition; buying up the supply chain to prevent smaller competitors gaining access to resources; aggressive use of lawsuits against competitors; influencing government by political spending, corruption of officials, paying think-tanks and lobbyists. Takeovers and mergers become an important mechanism for the creation of monopolies or near monopolies.
- Creating cartels by colluding formally or informally with similar companies.
- Specialised tactics may apply in certain industries, including vapourware, aggressive use of intellectual property legislation, and so on.
The decrease in regulation and oversight, and a weakening of government institutions by decreasing staff levels and areas of responsibility, as advocated by proponents of “rational economics”, allowed what might be called a wave of corporate greed and irresponsible behaviour. This was particularly evident where ever government services were privatised, because each such privatisation amounted, effectively, to the auctioning of a monopoly. From the British East India Company’s abuse of tax collecting powers in Bengal in the 18th Century to the deregulation of the Californian power utilities, selling monopoly powers to a corporation has almost uniformly led to disaster. Events from Enron to the S&L fiasco have shown that government oversight is an essential part of the market system.
The common thread in all this is that a deregulated market is a market which favours the strong over the weak. A shakeup takes place which has little to do with increasing competition and efficiency. Instead markets become oligopolies, controlled by a few, with tough barriers to entry to prevent new competition. Supply-siders revel in the rhetoric of the free market, but the reality is one of highly concentrated, unaccountable economic power.
My conclusion is that it cannot all be left to the markets. The Darwinian battle of faceless concentrations of money for control of the means to make more money is not a mechanism for increasing the wellbeing of humanity. On the other hand centrally planned economies have proven that raw power corrupts as effectively as greed. I would argue for a middle path – insisting that companies adhere to the values a community democratically decides. Regulating the mythical level playing field. Not being afraid to require companies pay their share of the government’s social requirements.
All this has implications for the global marketplace, since capital is currently able to play one regulatory regime off against another, bargaining for lower wages and less regulation and taxes.