The social cost of capitalism

Published on Intrepid Report, by Paul Craig Roberts, June 3, 2013.

When I was a graduate student in economics, the social cost of capitalism was a big issue in economic theory. Since those decades ago, the social costs of capitalism have exploded, but the issue seems no longer to trouble the economics profession. 

Social costs are costs of production that are not born by the producer or included in the price of the product. There are many classic examples: the pollution of air, water, and land from mining, fracking, oil drilling and pipeline spills, chemical fertilizer farming, GMOs, pesticides, radioactivity released from nuclear accidents, and the pollution of food by antibiotics and artificial hormones.

Some economists believe that these traditional social costs can be dealt with by well defined property rights. Others think that benevolent government will control social costs in the interests of society.

Today there are new social costs brought by globalism. For developed countries, these are unemployment, lost consumer income, tax base, and GDP growth, and rising trade and current account deficits from the offshoring of manufacturing and tradable professional service jobs. The trade and current account deficits can result in a falling exchange value of the currency and rising inflation from import prices. For underdeveloped countries, the costs are the loss of self-sufficiency and the transformation of agriculture into monocultures to feed the needs of international corporations.

Economists are oblivious to this new epidemic of social costs, because they mistakenly think that globalism is free trade and that free trade is always beneficial … //

… The enormous outflow of income streams creates a large current account deficit for the US, which means that foreigners have even more surplus dollars with which to buy up more US assets. In other words, a chronic trade deficit is a way to redirect a country’s revenues and profits into overseas hands.

The ownership of a country changes from its own citizens to foreigners. According to Reuters, in 1971 foreign companies owned 1.3% of all corporate US assets.

By 2008 foreigners owned 14.2 percent of all US industries, including 21.5% of mining, 25% of manufacturing, 30.2% of wholesale trade, 12% of information industries, 12% of real estate, 15% of finance and insurance, 25% of professional, scientific, and technical services, 11% of entertainment and recreation and 11% of accommodation and food services, according to a report from Economy In Crisis.

Numerous famous American brand names now are companies owned by foreigners.

Budweiser belongs to a Belgium company. Alka Seltzer belongs to a German company. Firestone belongs to a Japanese company. The magazines Car and Driver and Woman’s Day are owned by a French company. Gerber baby food and Purina dog food belong to Swiss companies. Hellman’s Mayonnaise and Ben & Jerry’s ice cream belong to UK companies. Many thousands of former US companies have moved into foreign control as a result of the US trade deficit, which is swollen by the offshored production of US corporations.

The policy of chasing lowest labor cost abroad, that is, of pursuing absolute advantage, the antithesis of comparative advantage which is the basis of free trade, is the redirection of US profits, capital gains, rents, interest, parking meter and toll road fees into foreign hands.

Thus, there is a high social cost from corporate executives pursuing short-term profits in order to maximize their performance bonuses. The profits from offshored production are not indications of economic efficiency and social welfare. Most likely, the social costs to the US of offshored production are larger than the profits gained, making jobs offshoring a net loss to the US economy. There is little doubt that the social costs of GMOs exceed the profits of Monsanto.

But don’t expect mainstream economists to pay any attention. They are still waxing eloquently about the advantages of Globalism’s gift of the New Economy of high unemployment and low wages, financial crisis and dollar erosion.

(full text).

(Paul Craig Roberts (write him) was Assistant Secretary of the Treasury during President Reagan’s first term. Associate Editor Wall Street Journal, Columnist for Business Week, Senior Research Fellow Hoover Institution Stanford University, and William E. Simon Chair of Political Economy in the Center for Strategic and International Studies, Washington, D.C. His latest book, “Wirtschaft am Abgrund” (Economies In Collapse) has just been published.His home page is Paul Craig Roberts).

Links:

Turkish police clamp down on anti-government protests: LIVE UPDATES-video, published on Russia Today RT, May 31, 2013;

Dollar could be in danger as the world’s currency, on Russia Today RT, May 30, 2013;

America’s Greatest Affliction: The Presstitute Media, on Paul Craig Roberts, by blog ownder, June 2, 2013;

Why Disinformation Works, on Paul Craig Roberts, by blog ownder, May 23, 2013.

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