Whenever I embark in one of my explanations about the global economic problems curious listeners want to know what the problem is. Then they want me to predict the future in terms of what I can see, and they also want me to suggest solutions to the problem. These are very justifiable questions that my conversational partners are asking me, even though I must profess that the first question is relatively simple to answer (since I pay close attention to classical political economic literature, i.e. Marx, Polanyi, Hilferding, Smith etc., as well as the current business literature, especially the Wall Street Journal, Bloomberg News and the Economist, coupled with some left-wing sources); the second question is very difficult to answer, and the third question is even more difficult. However, I will try to do my best to address each of these three questions.
Let us start with outlining the problem: The basic economic problems are all intertwined, and the actions of the different groups in society often have a mutually reinforcing impact in terms of making the situation worse. This is the generally pessimistic perspective about capitalism, which I do not only inherit from the whimsical, short-term and superficial commentary of the daily business press, whose mood swings often parallel those of investors, but also from Marx’ condemnation of the capitalist system that creates so much wealth, but does not know how to appropriately use the wealth, namely to distribute it across society for social purposes. According to Marx, the contradictions of the capitalist system build on each other, and reinforce each other in such a way so that if problems are solved in one area, they show up somewhere else on a greater scale.
One important change to the economic system, which called about the current market instability, occurred in the 1970s. At that time, the post-World War II boom encapsulating the Western economies was coming to an end. The huge profit and wage growth rates with full employment could no longer be maintained. That was partly related to the enormous supply shock of the oil crisis, sending the cost of production through the roof. The main aspect of it was that the European and Japanese economies had fully recovered by the 1970s, so that capital investments toward rebuilding the country was reduced. The only profitable expansion of the economy could only occur with an expansion of the credit economy, and the stimulation of consumer desires among the working class. Credit expansion ultimately happened, but capitalists could not wait this long. What began to happen in the manufacturing industry of the United States was that labor productivity was increasing enormously due to improvements in technology, leading to a downsizing of industry. Industry harbored the strongest organized labor force that could actually compete with big businesses that were trying to maintain their profit rate through high price hikes. Organized labor countered by demanding wage increases to compensate for the price increases. The competition between organized labor and big business led to an inflationary spiral that came on top of a squeeze on employment, as businesses were shedding jobs to maintain profitability. Workers in the un-unionized sector, women, minorities, pensioners and young workers were particularly hard hit by cycles of inflation and unemployment increases, because they could neither receive the cost-of-living adjustments nor the tenure protections of workers in the unionized workforce.
With the increasingly widespread attempt of corporate downsizing, it should become obvious that the bargaining position of organized labor started to decline (in fact, organized labor had peaked in the 1950s, when one third of the US workforce was organized, but declined thereafter). Inflation was finally brought under control by the Federal Reserve’s high-interest rate policies in the 1980s. Inflation was also defeated because organized labor stopped making wage claims against the capitalist, as union power weakened. The blow against the US and most Western working classes (Japanese and European capitalists and politicians often copied US policies with a small delay- it is, therefore, pertinent to analyze economic developments from an American perspective) occurred also with the lifting of capital controls (one of the main pillars of national Keynesian policies) and the gradual opening up of the non-Western labor markets. The free capital movements allowed Western capitalists to invest in factories in non-Western countries to hire a cheaper labor force, meaning a rise in the profit rate. The most important recipient countries are India and China. India had experimented with some communist governments, but embarked on a market opening path in the 1990s, attracting foreign demand for IT workers and other service sector professions that are offshorable. China normalized diplomatic relations with the United States in the early 1970s. With the death of Mao Zedong, his successor Deng Xiaoping embarked on a course of economic reforms that aggressively attracted foreign capital to take advantage of the largest cheap labor force in the world. China built up industrial power through the export of manufacturing products to Western countries after the Western corporations increasingly abandoned their own highly paid and unionized workforce to invest in the Chinese labor force. (Other economies in South East Asia also benefited through greater foreign direct investments from China and other Western countries/companies.)
While the economic benefit flowing to China is impressive, I do want to point out as a note of caution what the kinds of instability that this movement of capital from the West to China are. The Keynesian, post-War policies of the Western countries naturally kept out all non-Western countries from ever attaining a better development status, and keeping them in poverty. But it also allowed a level of egalitarian economic distribution within the Western countries that maintained the economic stability of those countries. (Unlike liberal policymakers, however, I do not believe that such stability can be maintained under capitalist configurations that are premised on growth, and, therefore, instability.) With the opening up of the Chinese labor markets, China was now allowed to gain riches, but it did so under very unequal principles. The number of millionaires and billionaires in China have been rising dramatically, as most of the wealth gains were absorbed by the capitalists and businessmen, whereas the working class only slowly sees its income going up (even though, their rising incomes are inevitable, in part, given the inflationary pressures, but also the strong bargaining position of Chinese labor due to increasing labor shortages).
Back home in the United States, income inequality shot through the roof. The US transformed itself from one of the most equal countries in the 1970s to one of the most unequal countries in the Western world. The major driver of US income inequality is related to the increasing labor productivity thanks to technological advancement that made industrial labor redundant, while the only jobs to be expanded on an enormous scale were the low-income service jobs, such as can be found at Walmart or McDonalds (themselves highly profitable industries). The increase in labor productivity was not shared by the country as a whole, but absorbed by the capitalists, as the rising CEO compensation demonstrates. CEO compensation also escalated because they commanded an international labor force, because legal and illegal immigrants have flooded the US and because cheap foreign labor under contract of Western corporations was producing most of our goods, from electronics to cars to clothes. Corporate executives felt themselves empowered now to push for the principle of shareholder value maximization, which increased short-term profits flowing directly to shareholders in dividends and corporate executives in obscene compensation packages, while destroying the long-term viability of companies (as R&D, labor and plant investments become neglected). This condition is said to have furthered monopoly capitalism, as a rough business situation is usually temporarily solved by mergers and acquisitions. The politically powerful economic elites now set out to lobby for tax cuts for the wealthy with Reagan cutting top tax rates from 74% in 1982 to 28%. Following the conservative starve-the-government-beast theory, government revenues were reduced, which brought about a deficit crisis for the country and the apparent unsustainability of social programs such as Social Security or Medicare. The fiscal hawks that want to see the deficit reduced are naturally silent about the impact of tax cuts for the rich on the viability of social programs. The corporate tax burden shrunk corresponding to the increasing burden of the payroll tax, which is highly regressive, because only workers first $108,000 is subject to the tax. Most working people make less than that, CEOs make much more than that. (And that is not to mention the escalation in the military budget, especially following 9/11).
It can not be underestimated how harmful huge income inequality is to the stability of an economic system. Relatively equal distribution of wealth allows the products to be consumed by the society at large, which warrants rising manufacturing and rising employment and wages. The more unequal a society becomes the more difficult it is for capitalists to find outlets for consumption. He will eventually either cut back in production, or he will push bankers and governments to expand lending, or he will further try to squeeze out suppliers and their labor force to yield that profit. These are three things that were, in fact, implemented. Preference goes to the second and third option, and the first option comes about if the latter two fail.
But there are further economic problems that need some reflection: Today, we have enormous trade imbalances between countries, with Germany, Saudi Arabia, Japan and China being major surplus countries, and the United States and Great Britain being major deficit countries. The latter two sacrificed their manufacturing industries, relying increasingly on financial institutions to drive their GDP. Surplus countries such as China lend their money to deficit countries such as the US in order to keep the consumption cycle going on which the former depend so much on for their development. The problem is that with lingering economic crises in the West, consumption has seen a great slowdown, forcing the Chinese to pursue expansionary fiscal policies that temporarily prop up production, and produce problems of overcapacity. The Chinese intention to increase domestic demand to replace export dependence meets the opposition of a much too slowly rising wage bill for the workers, and still hesitant consumers (the savings rate is very high in China).
The economic crisis that started in 2008, which marked a major turning point in the euphoria of the financial markets deserves special attention. The proximate cause of the economic crisis was the financial crisis, the crash of the too-big-to-fail mega banks that had overextended themselves with the mortgage and derivative business. The near collapse of the banks led to a dramatic fall in market confidence, with no bank being willing to lend out money to each other. The economic flow would have stopped if the central banks and governments had not stepped in to bail out the banks. The recession would have been significantly more severe had there been no bailout. As a result of this bailout the markets turned to euphoria, and corporate profits returned to an all-time high, whereas wages are dropping to cope with the crisis.
Now, we have to analyze the deep-rooted causes of this financial crisis. The previously mentioned large banks were a key cause of the financial crisis, but it begs the question how they could have come into being. I will go back to my previous description of the 1970s. The main impact of the policy changes (offshoring of labor, international division of labor, technological innovation) was an enormous increase in the surplus capital. This surplus capital was concentrated in the banks, who pushed for an expansion of lending facilities for an American middle class that had not seen substantial wage gains since the 1970s (incomes have stagnated in real terms since then). From a capitalist viewpoint, such measure was ultimately necessary in order to make up for the lost wages that had greatly boosted profits, but diminished the share of total capital going to consumption. (Smaller consumption means smaller profit.) The American people were forced to accept the use of credit cards, student loans, medical debts, and mortgages in order to maintain the living standards that they used to maintain out of their own wages. Whereas total private indebtedness had continued to increase beginning in the 1980s, the political and economic power of the financial industry began to increase as well. Financial firms turned out to be more profitable than non-financial, manufacturing firms, explaining why GE finds its financial arm growing relative to its manufacturing arm. Rudolf Hilferding had described in the early 20th century the ascendancy of “finance capital”, the takeover of activities of the real, industrial economy by the financial sector and banks. In the late 20th and early 21st century his prediction should come to reality with full vengeance. The financial firms become stronger and bigger with every loan that they issued, and they used that economic power to buy politicians and get them to lift the restrictions on available capital. In 1999, the historical separation of commercial and investment banks, the Glass-Steagall Act, was lifted, allowing the investment banks to merge with commercial banks and use their assets to extend even more loans and mortgages to working class people, who were convinced that the increasing housing values in the early 2000s promised gains to the workers that had been battered by stagnant incomes. In 2000, Congress repealed regulations on trading of financial assets, which meant that banks could unscrupulously borrow a large sum to lend it to other borrowers, further driving profits. The people were all too willing to accept high-interest mortgages in the hopes of higher selling prices. Bankers were all too willing to hand out mortgages to poor homeowners, because short-term profits were there, and the risks were poorly evaluated or willingly suppressed. Rating agencies ignored the shady content of the mortgage-backed securities that were designed to be sold to third-party investors so the bank is guaranteed to profit. The risks were willingly ignored, because no capitalist bank could miss out on this lending opportunity if it did not want to lose market share to other banks. The global derivative business became significantly larger than the size of the global real economy. The house of cards collapsed with the rising defaults of the homeowners, who simply could not service their debts as it became obvious that some companies were laying off their workers upon the first signs of the crisis. The predicted credit crunch as a result of banks unwillingness to lend to other banks that were equally sitting on bad asset mortgages led to further layoffs and business cancellations that made even more Americans default on their mortgages.
Now, how was this debt problem in the private banking sector solved? First, many banks that were already very huge simply merged with each other. Putting together their administrations allows the profits to be maintained, as is usual with mergers and acquisitions in corporate America. Merrill Lynch was bought by Bank of America, Wachovia was bought by Wells Fargo etc. But that was not enough. The government bailed out the banks. The US treasury department pumped in a $700 billion rescue package for the major banks using the TARP funds. The Federal Reserve expanded its own balance sheet by assuming trillions of dollars in worthless bank assets in exchange for freshly printed dollars. Enormous inflation has not been caused by the quantitative easing policies, mainly because the banks have not used the fresh capital in the real economy, and because investors and rich people all over the world are still bullish for treasury bonds. The government was also asked to step in to help out the real economy. A fiscal stimulus package of nearly $800 billion was passed in 2009 that mainly boosted tax breaks to companies and an infrastructure program. In the following years, the Obama administration also lowered payroll taxes for workers in the hopes that they would maintain consumption (which they surprisingly did as the fabulous retail statistics for 2010 and 2011 show- after all consumption poses 70% of the US economy). Unemployment insurance also served as a boost for the economy, as laid off workers did not have to dramatically adjust their lifestyle and keep consumption going.
But the fundamental problems of the US economy remain unsolved. The crisis even reinforces the desire of further empowered businessmen and financiers (who got the bailout, while working people’s wages and pensions are eviscerated) to reduce costs by paring down their payroll, using subcontractors, non-union labor and doing work speed-ups etc. They exacerbate income inequality, but labor is passive enough to swallow it, as unionization rates are at an all-time low of about 11% of the workforce. The few union that still exist, such as the auto workers, accept severe concessions in the form of pay cuts and employment reductions. Government bailed out GM, for example, announced to hire new workers at $14 an hour instead of $28 under the old rate. Private-sector workers have seen their unions disappear, but public-sector workers seem to follow suit, as governors in Wisconsin and Michigan pass anti-union laws that attempt to defund and weaken the public-sector unions. Investors, who have become skeptical about the US job market are now touting to focus their consumer markets in East Asia, where consumption is undeniably growing. The recent job statistics show a drop in the unemployment rate to about 7.8%, but the validity of the numbers are seriously questioned by the number of people that had given up looking for work, and is overshadowed by the low-income jobs that formed the bulk of the jobs that were created. Note also that most of the jobs that corporations got rid off since 2008 are considered middle-income jobs. It can be no surprise that the “markets” are roaring again, as corporate profits reach all-time highs. By markets, I mean the investors, whose national allegiance, or care for the welfare and well-being of the country and the people at large, does not exist.
The US government is not expected to do anything substantial to solve the problem, because Republican control over the house of representatives and congressional procedures that require a filibuster-proof majority in the senate prevent the political class from taking significant action to solve economic problems. Furthermore, the bailouts and the expectations on the government to maintain demand in the economy have led to annual trillion dollar deficits and an accumulating debt burden. The US is favored only by the fact that treasury note interest rates are facing all-time lows due to global economic turmoil (especially in Europe), and the dollar as world reserve currency (implying the trust of the world’s rich, who are the majority of the lenders). Given all these economic pressures, the lowered wages and benefits, the lowered employment stability, the emerging austerity, and the rising bank and corporate profits, some people have gathered on public squares under the banner of the Occupy Wall Street protests in the fall of 2011 to highlight the class separation between the richest 1% of the American people, who own roughly 90% of the national wealth, and the 99%, who own the paltry rest. Unfortunately, the US ruling class reacted harshly after letting the protests continue for a few months. They used the police to dismantle the Occupy encampments and arrest several protestors. So far the protest has not returned, the police that has been paid out by the bankers is on the watch to prevent any future convocations. But the corporations are sure to push deeper against the living standards of US working people, thus setting the stage for future class conflict.
It might be pertinent to throw some light at the contemporary situation in Europe that had been struggling since at least 2010. Europe was heavily impacted by the American banking crisis in several ways. The European banking system also had significant exposure to the American banks, trading the same kind of derivatives and junk bond mortgages as the American banks. As a result, the European governments were similarly forced to bail out their banks, and increase their debt load. Because many countries do not have the luxury of the US with their dollar, there has been a call for austerity policies that are sweeping through Europe, and are promising even steeper economic declines, an increase in unemployment, a fall in wages and living standards, and a further increase in debt. In addition, it needs to be remarked that the European countries were undergoing similar trends as the United States. The 1970s saw reduced the profit rates for companies. Capitalists reacted with rationalizations, outsourcing and productivity increases, leading to layoffs and an increase in precariously employed persons. Even though the economic and labor market trends were similar to US trends, it must be noted that the welfare state was left intact (it had historically been stronger than the US welfare state), so workers in Europe are nowhere near as fearful about their economic fortune as American workers. But the recent financial and economic crisis seems to work against the continued existence of the welfare state, as the powerful European Central Bank chief, Mario Draghi, predicted the end of the European social model mounting debt obligations and austerity policies.
It needs to be further remarked that some countries, especially Spain, Iceland and Ireland had in the early 2000s similarly engaged in debt-fueled growth, mainly by expanding their housing industry, leading to a boom and speculation period. In Spain, a large percentage of the workforce leading up to the bubble collapse in 2008, was directly employed in the construction industry, which is why many Spaniards today are unemployed. Iceland was probably the worst offender in terms of the banking excesses. A previously very low-key country until the late 1990s, the deregulation of the banking sector led to an enormous increase in the leverage of the Icelandic banks. They heavily invested in the same American housing market that was about to collapse in 2008. They also speculated in other domestic activities in Iceland, which ultimately brought about a collapse and a government bailout. Since the small country of Iceland was never able to pay off all the assumed debts, the government simply defaulted on the payments, and let the foreign creditors take a loss. This seems to be an interesting paradigm for the rest of the Western world, as it is desperately trying to solve the banking problems.
Banking problems are very intricate, because every government knows that they are necessary for the capitalist system, because without credit, there can be no expansion. But at the same time, they have grown so large and powerful, that they crowd out productive activities, as debt on compound interest eats up into the abilities of countries to invest. This does not mean that wealth simply disappears. It just means that the capitalist have even more money at their disposal with which they are applying further pressure on the workers and governments, whose subservience has allowed them to become so rich and powerful in the first place. I will discuss some solutions to problems in the financial system in the end of the article.
In addition to the bank problem, Europe has been having another structural problem, which the leaders are not about to solve. This problem is concerning Europe’s monetary policy. After the end of World War II, it was resolved that one of the stumbling blocks to long-term European peace was the deep antagonism between France and Germany that had been disputing over economic issues and territorial issues for the last few centuries. What was then West Germany was to be integrated with France and other Western European countries in an economic union. The European Economic Community was founded in 1957 to facilitate free trade between Germany, France, Italy and Netherlands among others. Ever since then the European Community had been expanding, involving more and more member states in the hope that economic and political integration would prevent future wars in Europe. In the 1980s, the Southern European states of Greece, Spain and Portugal also joined the EU. These countries had just established new democratic governments after decades of authoritarian rule. They were economically weak relative to the countries in Central and Northern Europe. The Southern European countries were attracted to be part of the EU, because the union allowed the wealthy states to subsidize the economic development of the poorer states in the hope that regional disparities would gradually disappear, which would simultaneously diminish political antagonism.
In order to facilitate further improvements in trade relations, the European leaders decided to implement a common currency. The main exporting country Germany was especially enthusiastic about a common currency, because the disappearance of exchange rates within the Eurozone countries would permit exporters to increase their exports without having to worry about currency fluctuations that would diminish the quantity of goods to be sold abroad. Having a common currency across a continent is not necessarily a problem so long as the fiscal policies are coordinated by the same entities. Unfortunately, the European leaders found it more difficult to agree on a common government than to agree on a common currency. In 1999, the Euro was implemented, and in 2002 it was officially used as the common currency in twelve Eurozone states. The German export economy now boomed as they could easily export their products to the peripheral Eurozone countries. The ensuing trade deficits of countries like Greece or Spain were bridged easily by the German banks that loaned money to the southern economies, who could go into debt to stimulate their consumption. Germany held down their labor cost increases, as increased productivity did not go into wage increases but corporate profits and export expansion. Their Agenda 2010 reform had ensured that poor people were now forced to accept any job that was offered to them, no matter how low paid it was. This policy helped to keep overall wage levels rather low, which was used to stimulate the export economy. The economies of the periphery had the opposite picture. Namely, due to the debt their labor cost increases could exceed their productivity increases since the difference was borrowed from abroad. This set the stage for enormous inequality among the Eurozone countries and instability as it became clear in the late 2000s that the debt burden could impossibly be serviced.
Back to Greece: Greece was also integrated into the Eurozone, even though their budget deficits were significantly higher than the Maastricht criteria allowed. The Maastricht criteria was an agreement among European countries to never raise their government budget deficit above 3% of the GDP. Fiscal discipline proved to be crucial in order to maintain a common currency. Otherwise enormous payment difficulties would result from which a country could not easily escape with autonomous monetary policies, namely to inflate the currency in the hopes of reducing the effective debt burden. Goldman Sachs, a major Wall Street bank, effectively helped the Greek government to hide their debts and push them into the future, off the accounting books. Goldman Sachs profited handsomely too from this deal.
When the financial crisis hit America, and European banks got into similar troubles, it was becoming evident that the Greek debts could no longer be hidden any longer. In 2010, the Greek government revealed that their debt and deficit was higher than previously accounted for. The investors, who were the major creditors of the Greek government, panicked and sent the interest rates on Greek government debt to the roof. Greece’s already large debt burden increased even further, and now the government desperately implemented austerity measures by, for example, tagging enormous surcharges to people’s electricity bill. They were also begging the EU and the IMF to make emergency loans to Greece so that it can continue to service its debts to the creditors. The Greek economic position from then on deteriorated, as unemployment sky-rocketed, business investments declined, and tax collection was reduced. The cycle of debt continued to develop, and the Greeks are now sacrificing their living standards which can only make the fiscal and economic situation worse. The German taxpayers, among others, are being asked to bail out the Greek government, which in turn uses every penny not to recover their economy to service their debt, but to immediately funnel all of the loans to their creditors, mainly French and German banks. Angela Merkel essentially ensures that the banks are bailed out a second time with almost endless royalty payments without any European workers benefiting from it.
In some countries like in Spain, the unemployment rate has now become intolerably high. Spain has an unemployment rate of 26%, and their youth unemployment rate is upwards of 50%. This is the type of job market that resembles many of the North African countries, such as Algeria or Tunisia, that can not promise their young people any sustainable economic future, explaining their protests and the Arab Spring. Similar social movements are observed in Europe. In Spain, the indignado (literally ‘outraged’) movement emerged that actively campaigned against austerity policies that exacerbate the economic and fiscal position of the country while temporarily satisfying the profit-hungry investors. The success of the European protest movements is very much an open-ended question, but similar to the US, the economic pressures will mount, the economic divisions will continue, and the people have to show greater resistance to counter the threat to their living standards.
In respect to the bank bailout and national debt problem one is reminded of Shakespeare’s “Merchant of Venice”, who brilliantly depicted the greed and recklessness of the moneylender, asking for his pound of flesh from the helpless people. Some people might suggest that the Greeks, Portuguese and Spaniards have to blame themselves for taking on this huge debt load, and they now have to live with the consequences. These critics so conveniently choose to ignore the fact that the relationship of creditor and debtor always goes both ways. And this debtor-bashing argument, the creditor’s responsibility is unfairly ignored. Of course, in an unregulated environment both the debtor and the creditor are eager to transact the greatest sum possible as the creditor expects huge interest payments, and the debtor can immediately satisfy his needs. But this is the reason why an unregulated environment is entirely nonsensical, and needs to be criticized. The unregulated environment, I will also caution people, is directly related to the monetary union. The reason why the creditors were so willing to push out their capital to the debtors was because they knew that the debtors could not simply use the printing press to reduce their debt burden if it became too burdensome to them. The monetary union was held together by the European Central Bank that had its headquarters in Frankfurt, Germany, where the German government and investor interests were basically calling the shots. Germany was traumatized by high inflation, which, some suggest, has brought Hitler to power in the 1930s. So they had every interest to keep Eurozone inflation low. The logic of their export economy similarly favored rather little inflation. The monetary union instead of promising economic stability and integration fostered instability, division and inequality. The globally empowered investor class is taking advantage of the political confusion of the European leaders. They do this by extracting austerity measures from the people of Europe, now by going after the cherished welfare state, and then by having the surplus re-directed to the banks to have the debt paid off. The banks, in turn, are paying out dividends to the shareholders. So the shareholders willingly funnel more money to the governments so it can continue to borrow. Within the confines of this creditor-debtor relationship, it should become evident that the debt can not be paid off, and the slavery to the bankers under which the people are subjected to makes evidently no sense.
Some brief comments are due in regards to the other major economies, who are deeply impacted by floundering markets in North America and Europe. I have previously made some remarks about China, and find them worthwhile repeating. China is the single-handed growth engine of the world, as most suppliers such as American steel exporters, Australian mineral ore exporters or Middle Eastern oil exporters all anxiously look at Chinese demand to determine their production priorities. If China’s growth projections shrink, so do the raw material import orders. A slowdown in demand has cumulative impacts on national economies around the world. China’s growth projections have been lowered from an average of 10% per year as was the average since the 1990s, when China’s growth started to occur, to 7.5%. This growth slowdown is coming despite of the enormous finance-driven stimulus projects of the Chinese government, and is the result of the weakening export markets in Europe, China’s main trading partners, and the United States. This situation means that despite every effort to internally induce economic growth, China has not been fully able to reduce their reliance on the export markets. The only long-term promising aspect of growth for China is a strengthening of the domestic consumer markets, which actually have weakened relative to investment and export sector of the Chinese economy. China’s main driver of growth are domestic infrastructure and housing projects. But the housing projects turn out to be a hoax, as the history of housing speculative bubbles of Japan in the early 1990s and the US in the early 2000s demonstrate. China’s enormous income inequality and high saving rate are further barriers to consumer-led economic expansion.
The investment climate of the Indian economy has similarly declined. The Indian economy mostly relies on its service exports, such as IT and customer service. With a weakening Eurozone, their economic growth rates are shrinking. The same thing occurs in Brazil that had been hailed for its rapid economic advancement. Its growth rate for 2012 was lowered to 1% despite low inflation rates and low interest rates. The slowdown in commodity exports (especially iron ore, petroleum, sugar and soy beans) to Asia, North America and Europe explain the weakening growth prospects for Brazil. Russia’s economy grew by 4.3% in 2011, and has seen a major slowdown since 2008. Before that it grew by about 7-8%. Russia had suffered an enormous economic shock in the 1990s after the collapse of the Soviet Union, closing down many defense factories and privatizing state assets in the hand of oligarchs, who practiced capital flight. The Russian financial crisis of 1998 led to a devaluation of the currency, which immediately improved domestic production and employment. The rising oil and gas prices on the world market led to current account surpluses. Since the 2008 crisis, the major European trading partners have reduced their exports, which explains the slowdown in Russia. South Africa, the strongest country in the continent, has seen an enormous slowdown. Despite its high wealth position a quarter of the population is living on less than $1.25 a day. The persistently high unemployment rates that often have a racialized context breed social conflict. South Africa is a primary exporter of mining products, such as platinum, coal and diamonds. The country has seen enormous labor uprisings, as mine workers demand more rights and better wages. With a slowdown in exports, the country’s economy fails to grow rapidly.
It is now clear that the world economy will continue to see reduced growth expectations. We should be aware of the fact that most of the recent growth was driven by the expansion of financial services. This is not generally an economic activity that can carry itself on its own strength. It is also clear that growth would probably not have occurred if financial services were not there to lubricate investments. The enormous economic transformation we have experienced in formerly developing countries, especially in East Asia, South Asia, Africa and Latin America, would not have been possible without the intervention of financial institutions. However, these are one of the main culprits that need to be controlled if economies want to stabilize.
What economic trends and challenges do I see developing in the global economy? Besides the usual business press pessimism that I very well explained in the previous sections, I see two fundamental underlying dilemmas for humanity that will require a redress. First, despite all these technological and economic advancements, economic instability for most working people in the world has deteriorated. And here I want to include even the workers in parts of the world, where an upward wage trend is noticeable, i.e. in China and India. Let us start there. Yes, the introduction of capitalism has increased the labor force and reduced people living in absolute poverty. China reduced its number of people in poverty by 600 million people. But the fact that they are now placed into wage labor has exposed them to the type of market insecurity that marks any capitalist economy. This argument is following closely the argument developed by Karl Polanyi, who argued that free market forces on people, who become laborers, has enormously disorienting and destabilizing effects. A farmer-based, agricultural society might be significantly poorer in real terms than a capitalist society, but at least in the former there is a sense of certainty about the means of livelihood that does not exist. (The only- yet not inconsiderable- source of uncertainty for agricultural societies are natural catastrophes, such as droughts and floods, rather than economic problems arising from a particular social and political arrangements, as we find in capitalism.) But as long as capitalism is delivering the goods, none of the people in the developing countries might seem to care about the downsides of capitalism. I do want the caution the optimists though, that the optimal development of the emerging markets is still built on the healthy export markets in the West, that obviously have to struggle to cope with their internal problems of weakened manufacturing and trade deficits. I predict that there will be continued growth in the emerging markets, and they might even overtake the West in total wealth, but this might come at the cost of political confrontation. Growth prospects, however, are dimmed by a weakening of the Western economies, which can not simply be overcome by an increase in domestic consumption.
The second part of my analysis about the instability for the working class involves the position of the Western workers. They have been battered by lower wages, more flexible employment conditions and more unemployment. The neoliberal policy agenda has been carried out on the backs of the workers in the Western countries, who see a diminishing stake in the workplace, and in economic life. Where the disintegration of the working class in the West has been most advanced, such as in some cities in the US (Detroit, Michigan or Camden, New Jersey), economic and political struggles appear almost hopeless, as many people turn inward rather than take outward political action. By that I mean an increase in suicide rates, crime rates, alcohol and drug addiction and violence. The government that is beholden to the whims of the financial markets will likely exacerbate the situation over the short term with cuts to essential social programs such as pensions or food security. This frightening trend of deindustrialization and reduction of living standards and job security of the Western working class should serve as a warning to workers in emerging markets. It will find no end, unless an enormous push back is mounted. I remain rather hopeful on this front, because I think that there are limitations to how far one can sink. I would not, however, plot out a time line of change. No one certainly has predicted that a few leftists calling for an occupation movement could become so successful in so short a time period.
The major problem that underlies most of the economic difficulties is class-based. So long as a tiny minority of the world population absorbs most of the global wealth, there will be diminished growth prospects. This belies the whole argument of trickle-down economists, who for the longest time have hailed the reduction in upper income tax rates and control of financial markets that are owned by the wealthy oligarchs. Enrich the oligarchs and your economy is guaranteed to improve, because the more investment capital the rich have, the more they will invest. This crude logic was adopted from the French economist, J.B. Say, who argued that savings are impossible, because every dollar earned in sale, will immediately be spent. By now it should be obvious, that a dollar earned does not have to be spent. It can be hoarded. This is what J.M. Keynes very clearly explained, and called the “marginal propensity to save”. With hoarding the positive economic impacts are gone. But the rich of the world did not leave it like that. Even worse, they used the idle surplus capital to lend it to working people at teasing interest rates. They got in trouble, and demanded bailouts from the governments, so they lend to governments. The wealthy have created a racket for themselves, and every one else should suffer from this arrangement.
The other underlying problem facing humanity is environmental change. So far my analysis has focused on the socio-economic problems that are entirely confined within the sphere of social relations. But an added layer of difficulty is to assess environmental impacts on human existence and human survival. We know that the sea levels and temperatures have been rising, and that drought, floods, tornadoes, hurricanes and tsunamis have become more frequent. This has to do with human activities, mainly our industrial lifestyle, requiring the burning of an enormous amount of fossil fuels, which releases a lot of CO2 that traps the heat on the earth’s surface. In relation to this trend, we have had challenges with transforming our energy supply from oil and gas to renewable energy such as solar and wind technologies. China and Germany are the two countries that have massively increased research funds to these new technologies, but it takes further refinement to make it useful to us as comprehensive sources of energy. It will also be a matter of political will whether the entrenched forces of the status quo, the natural gas and oil industry, can be overcome in the interest of creating new energies. The gas discovery in the US due to fracking will, unfortunately, give another lifeline to archaic energy forms, while disrupting communities where fracking is taking place. Some people have advocated for the expansion of nuclear energy, because it does not produce any CO2. However, since the Japanese Fukushima accident it is becoming obvious that nuclear energy can never really be made secure. Safe storage of nuclear waste has also been left unresolved.
Overall, the energy challenge is confounded with environmental change, because only if renewable energy is developed can the harmful impacts of oil, gas and coal be reduced, as their use should decline. In terms of the change in the energy supply I am actually fairly optimistic, because it just becomes clearer that these investments in renewable energy become unavoidable. Only a few stubborn countries like the United States might delay renewable energies into the longer term future. The major source of concern should remain our ability to contain environmental damage, and that will have a lot do with whether we are capable to live within our means and reduce the requirements for unfettered economic growth.
In the final section of this paper, I will focus on discussing some solutions as I see them fit. I have already described many solutions previously, and it will, therefore, be worthwhile to emphasize on some of those points, while discussing things I have not yet addressed. There are a set of pragmatic solutions that need to be addressed right away. As the governments are grappling with enormous debt that was incurred as a result of saving the banks, they should be enormously cautious about how to resolve this debt crisis. The last thing that should happen is to make the poor and the middle class pay for the crisis, as is currently happening, and can only make the macroeconomic picture worse. The fairest way to resolve the crisis is to go after the culprits, the financial institutions themselves. Now, their balance sheets are also in a terrible shape despite of the central banks’ initiative to bail them out. The political economist, Mark Blyth, correctly argued that it would have been foolish not to bail out the banks, because we have over 70 million hand guns under private ownership in the US (this raises another moral and political dilemma that the NRA-lobby does not allow the country to resolve) and if the ATMs had not worked, there would have been enormous chaos and violence. But if the banks are too-big-to-fail and in some instances even too-big-to-be-bailed-out, then they should not be so big in the first place. My prescription would be to nationalize the big banks, and convert them into quasi-public utility companies. The government would still have to clean the toxic assets, but then the taxpayers should have a say over how the company is structured. The new banks should be used to hand out low-interest loans to businesses so actual jobs are created, making the banks the types of middle men in the economy they used to be. The reason why this solution is not discussed is because the bank CEOs have bought up the political system, so that we can only observe the circus that is played out in congressional hearings on C-Span. Members of Congress invite JP Morgan CEO, Jamie Dimon, to Congress and instead of grilling him about what he had done to the economy, they implore him to tell them what the members of Congress can do to make the business environment more friendly to the banks. “Here Mr. Dimon, you may have helped to wreck our economy and collect taxpayer handouts to clean up your mess. But please tell us what we can do for you.” The two-tiered justice system in the US becomes so obviously disgusting.
The second problem is what to do now about the government debt after the milk has been spilled. Here I have to resort to an even more radical proposal. It is clear that debt has played an incredibly important role in modern capitalism, because it is only the issuance of promissory notes, which are the claim of the future industry’s production, to put it in Marx’ words, that facilitates the continuous growth process of the economy. It would not have worked as smoothly without credit. But one should be cognizant about the fact that increasing debt in an economy primarily benefits the creditors, even to such a large extent that the borrowers are harmed by the injurious interests of the minority creditors. Income inequality has sky-rocketed in part due to the expansion of a credit economy. The 100 richest billionaires in the world now own $1.9 trillion in assets, and they are genuinely asking us whether we should want some more credit. The government debt problem has to be resolved by defaulting on the private creditors. Iceland, as a small country, set the example for this. Argentina did it too in the early 2000s. It just does not make sense to service a small group of people, who lend it back to us at even higher interest. What is at first sight used to stimulate the real economy now hurts the real economy, because the interest payments diminish the capital which we use to create real jobs for real people. One is reminded of the Bible prescription, where debt should be canceled after seven years. Now most economists should become furious when they hear this, because, as they say, where should be the incentive to lend money if you know that none of it will be returned to you after seven years? No credit will pass others hands and we will have anarchy. Now, this is a serious charge, but the question is how much more sustainable an economy can be if the creditors are so privileged and can shirk the needs of the society. A small debt burden for a country or even for individuals might sound tolerable, but a large debt burden only works for the few creditors. And even then it does not work for them, because if the majority of the people are suffering from this arrangement, then the economy can not prosper, and the basis of the wealthy, morally and economically, is undermined.
As I expressed earlier, one fundamental problem we have to resolve is how to diminish economic inequality, which has exacerbated over the last couple of years. It will be important to curb the ambitions of the very rich, and Gordon Gekko, the Wall Street guru in the famous movie, was evidently wrong, when he argued that “greed was good”. An important way to accomplish this is by raising the taxes on the very wealthy, who in some cases pay far less in proportion to their total income in taxes than some poor folks. Mitt Romney only paid 14% taxes for his $20 million dividend income. By taxing the very wealthy I do not have in mind small rate increases like Warren Buffett had in mind, when he said that the very wealthy should pay 35% in taxes just like most other working class Americans. His logic does not go far enough. Even though he understands the big picture, namely that a society that concentrates wealth at the top can not function well for long, he is too timid to ask for fundamental changes in the tax code. The right solution would be to reinstate the tax rates of the 1950s and 1960s, when the rich in America had to pay 91% in taxes. It was implemented in the 1930s under the New Deal, when F.D. Roosevelt needed a lot of money to finance his jobs programs, and later in the 1940s when the US went to war. It ended up being beneficial to businesses, because the CEO had no intention to take money out of his company by paying himself obscene bonuses. He had to keep the money in his company, and since there were capital controls in place up until the 1970s, American workers were sure to benefit from this system. I do not mean to suggest that a high tax rate on the wealthy will have so many magical long-term effects to the economy, but it plays an important role when needing to pay for social programs and have a balanced budget. From the government’s perspective we have to face it: spending has to be high, because a capitalist economy requires it. No one believes in Herbert Hoover’s small government anymore. The question is whether the government generates its funds by taxing the wealthy and benefiting society directly, or by having to go down the path of borrowing from the wealthy, which adds the predicted liability to taxpayers and which we are currently confronting. The government has to solve its fiscal problems, but not by raising taxes on working people, who are already under economic distress thanks to corporations screwing them over.
Now, there is a genuine objection to these high-tax plans aside from the fact that no millionaire and billionaire in the US would support that policy. The objection is that if one country raises its taxes on the rich to such a large extent that they will simply flee their country. France recently had to swallow the bitter pill. The socialist government had announced to raise top income tax rates to 75%, and suddenly the housing prices in London increased, as French millionaires’ euros gushed into Britain to purchase property. The actor, Gerard Depardieu, went as far as renouncing his French citizenship to take on Russian citizenship in order to avoid paying a higher tax. It is true that no one can demand any solidarity from wealthy people, who are desperate to protect their wealth and would abandon their country rather than give up their tax privileges. But those economists that will now argue that we have to subject ourselves to the demands of the wealthy by keeping their taxes down, while we can freely tax the middle class and the poor, who are not nearly as geographically mobile as the wealthy, are also foolish. The French example shows to me not how wrong it was for the French government to raise taxes on the rich, but that France should not be the only country to unilaterally impose higher taxes on the rich. All governments should raise their income and capitals gains taxes on the rich. There should be an international financial transaction tax to reduce the extent of speculation that has so brilliantly distorted our economy, making it into a casino, where the rich always win, and the rest frequently lose. Proposing such a policy, of course, opens up another can of worms that need to be addressed. How should we implement a world government?
This is not some idealistic question. This is a serious challenge. The reason why corporations in the world have massively increased their economic and political leverage is because they have been able to subvert their national governments. They have to show allegiance to no government, and prefer those that give them the best environment of low taxes and plentiful services. Outsourcing has been a major part of the game. It is, however, interesting to note that the corporate leaders do, in a sense, have an interest to establish a world government, but only if it is in their interest. This is the whole goal of those free trade agreements between countries. The most recent proposal about a Trans-Pacific Partnership about which there is not much discussion in the news media, because it has so many controversial provisions like reducing labor and environmental standards for businesses, shows that the corporations do want a world government, but only if it can benefit them and not the rest of the society. It is in the context of a corporate-dominated world government that I find working-class resistance so crucial, and local nationalism so useless. However, in most instances whenever the fear about the harmful impacts of globalization are highlighted, protectionist calls of local working classes are called into action, even though the battlefield has to be on an international stage. Yes, globalization and the movement toward a single world government now has become inevitable. The financial, economic and political relationships among countries have become too closely intertwined. The question is whether a political superstructure, to borrow from Marxian language, can be erected that can bring economic developments under democratic control rather than corporate capitalist control, which will see further attacks on environmental and labor standards on behalf of short-term profits. The scholar, Philip Bobbitt, rightly describes how political institutions historically had to adapt to the new circumstances related to technology. He depicted the transformation from princely states, kingly states, territorial states, state-nations, nation-states to market states. He argues that we are currently transitioning from a nation-state mode to the market-state, where state responsibilities become directly subservient to the needs of mobile capital (the mobility of capital derives from the technological innovations- the computer technologies). I would disagree with him to the extent that market-states can not be the genuine solutions to the challenges we are facing, because they prove to be socially harmful. There needs to be a different kind of social and economic arrangement.
I left my biggest proposal to the end, because so far I have only described the kind of moderate proposals that are in policy circles considered “realist”, because they leave intact the essential class structure that permeates our contemporary environment. Some might consider even those proposals I have so far enumerated as outlandish and radical. But those that think this way merely show to what extent they have been brainwashed by the right-wing rhetoric that blinds their sight to workable solutions. Closing our minds to even those moderate proposals that maintain some form of stability in society and the economy will only call about a collapse of the house of cards, which will hurt even more and become even more disorienting. The wealthy interests can not help themselves, but block reasonable solutions until they are finally pushed to the wall.
But what kind of proposal do I have in mind? It should be evident that most of the criticism that I have dealt out in this paper have to do with the nature of our economic system, capitalism. My criticism is directed against the unstable arrangement, in which working people are constantly exposed to the volatility and insecurity of the markets that are controlled by the corporate elite. Those capitalists can not help themselves, but ask for more and more wealth, and if the society can not fulfill it to them by real growth rates, then that surplus has to be directly stolen from the workers. And so it comes about that enormous riches are created in the world, but workers in the West are told that the pensions they used to enjoy are not affordable anymore. The phony reason they hear from the economists, who apologize for the decisions of the capitalists, is that due to the demographic trends the pensions can no longer be afforded. There is only a small truth to that, but a lot which is not mentioned. For example, productivity growth in manufacturing since the end of WW II has been so astonishing that enormous riches were created. This surplus could easily be used to diminish the share of work hours going to the working class. We are facing a glut in labor, which should be addressed by a decrease in working time. We need a 20 hour work week instead of 40 hours. We need to expand educational opportunities to the young (which luckily happened- in the US, however, on student loans). We need to send our old people earlier to retirement, not later.
But these humane decisions can only be undertaken if the framework of the economic system changes from the anarchy of the markets, which focuses on profits and growth for the few that control the economic enterprises, to the conscious control of the working class. This would mean an economic system, which abolishes the profit motive and a policy of zero growth, as David Harvey demanded. The resources that need to be commanded to facilitate the greatest satisfaction of the population can be limited so that everyone has what he needs, while the drain on environmental resources stays minimal. In a policy of zero-growth, no obstacles to human flourishing are really posed, and, in fact, I would argue that they are actually removed. It is in a framework of a capitalist economic system that all these phenomena of productivity maximization, credit expansion, government investments, tax breaks for large corporations, economic crises, unemployment, inflation etc. exist. When society’s resources are managed democratically, social needs are placed at the center, and the creation of a crisis are carefully avoided.
Now, it is difficult to make the argument that such a socialist system will work out the way it is promised to work. History shows us that the room for delusion is slim, because of the Soviet experience, which was dominated by authoritarian state socialism and steered most of the economic resources to military production rather than consumer goods. The Soviet experience also shows that complete central planning of the economy is unrealistic, because the central planners, as F.A. Hayek called them, can never know everything about what the economic needs of the society are. In the real world, some form of a market system needs to remain in place. However, the individual economic actors should not be geared toward maximizing their profits. The enterprises should produce what the society requires, and only push for expansion and profits, as you might call it, when the society urgently requires it. There would, of course, have to be a central administrative structure that coordinates economic activities. (This proposal is not as outlandish as one might think, because currently the government helps capitalist corporations with industrial strategies. This has been done over and over again to advance a nation-state’s firms. My goal is to have the government support non-capitalist corporations.) Without a world government there can be no discussion about a fair and equitable distribution of wealth, because some nation-states may still be pitted against the other. Competition in its purest form, while creating efficiencies on some level, create, in my eyes, the greatest inefficiency imaginable: suspicion, distrust and inequality. The real difficulty of a socialist system can, therefore, not be moral, it has to be practical. It is admittedly difficult to bring all the strong forces in society, the intelligent, the wealthy, under one umbrella.
There might still be some people, who think that despite of the downsides of economic growth, namely the social and economic instability that it frequently occasions, there are positive effects of growth, because more is always better. This idea falls well in line with the enlightenment idea of progress, where every new technological discovery breaks the borders of what we just until recently thought to be permanent. Arthur C. Clarke would accuse me of a failure of imagination, because I do not acknowledge the possibility that there could be more to come in the future, and that I should be disproved soon. But what is meant by more to come? Clarke had in mind the technological breakthroughs and breakthroughs in knowledge. We as a species should always attempt to know more than our parents, and they should know more than our grandparents etc. There is no fundamental challenge I will make to this proposition. But we are currently talking about economic growth and not technological breakthroughs. In my opinion, technological advancements should continue to occur; the labs should remain in place; and the investments in it should increase. The more we know how to make the work process easier and simpler, the more we can free people from the painful, dulling and annoying labor that has plagued most of our ancestors, and still plague us today (the latter in part due to the way capitalism organizes the workplace). This breakthrough can then, admittedly, be called economic growth, but most importantly it has tangibly benefited the lot of humanity. But this should be analyzed separately from the type of economic growth we observe in capitalism, where growth happens, because capitalists act according to the profit motive. It is only for the sake of the capitalist corporation that growth is pursued, not because the society has a desire to improve its living standards.
Some might now argue that it should not matter whether we distinguish between producing economic growth for the requirement of capitalist corporations or directly for the benefit of humanity. They might even quote Adam Smith, who spoke of the self-interest of the butcher and baker, who benefits everyone else with his invisible hand. It must first be noted that Adam Smith assumed that the capitalists would always prefer domestic employment over foreign employment, meaning that the selfish capitalist would funnel capital into his own community rather than use it abroad. This assumption is violated by the modern corporation that knows no national boundaries in the pursuit of profit. Aside from that, the historical experience of capitalism should have shown us by now that the distinction between the goals of the economic system are enormously important. Yes, real wealth has increased under capitalism, but that can take various forms. What we have seen over the last 30 years in most Western countries is that while in dollar terms GDP increased, real wages have stagnated, economic insecurity has increased among working people and economic turmoil has exacerbated. This is all because we produce economic growth on behalf of corporations, and not every one. If growth were to serve all of humanity, then the results of the current economic system would evidently appear crazy, and would by all means be avoided.
But even as I concede that some economic growth might be helpful, why do I still think from a large-scale picture that further economic growth is not helpful, and in some instances even harmful to us? There are two reasons, which requires careful consideration. First, there are statistics and surveys relating happiness to the wealth of a society (measured in GDP per capita) that simply reveal that up to a certain income threshold happiness in the society is increasing, and if a country is richer than the threshold, then the happiness impact leveled off. Surprisingly, the richest countries saw their happiness levels even decline somewhat. The economist, David Kahneman, argues that the cutoff threshold income for happiness is $75,000 a year beyond which happiness will not further increase. So, here we have all this stuff. We are materially better off than our ancestors, but we are not more happy. How can this be? At the beginning if one is very poor and becomes a little bit wealthier, then happiness goes up, because we add meat into our every day dish, as we can now afford it. Then we purchase a bigger apartment, some furniture, a car. We can even buy presents to make other people happy, which justifiably makes ourselves happier. So there is a real improvement in the living standard. But once we reached a certain threshold, namely all the goods which we need to survive and live comfortably are now attained, happiness levels off. I can not imagine that an I-Phone 4 can make one happier than an I-Phone 3. This is the type of wealth that I criticized. Culturally and socially, we can derive no advantage out of rising GDP figures, and most people in the wealthy countries are justified in not paying much attention to them. Of course, this logic only applies to the wealthiest countries in the world. For the currently poor and emerging countries it would be simply cruel to argue that they may not enjoy the same living standards as in the West. At a very high stage of wealth, if there is also a lot of economic inequality, then happiness might actually decrease, because keeping up with the Joneses makes us work harder so that we are not left out by others. But this can in no way mean that we have become happier as a result of it.
Culturally and economically, I also want to attack the kinds of phenomena that occur in very wealthy societies, namely what Thorstein Veblen called conspicuous consumption (he mainly meant the rich, but we can focus here on the wealthy society in general). Maybe during the initial stages of wealth creation, the emerging consumer dollars are used to purchase necessary items, such as apartments, clothing, food or transportation. But with increasing real incomes, it becomes quite evident that the country is in a dilemma, because all the surplus consumer dollars have no outlet for spending, just as the capitalist often faces surplus capital for investment. The solution was to implement what is called ‘planned obsolescence’. The manufacturer would deliberately produce debilitating products that would become dysfunctional after a short time period, forcing consumers to purchase the same item again. This forms such an enormous waste in our economy, because it wastes our environmental resources and our energy. The manufacturers defend themselves by claiming that this is the only way how to maintain profits and keep workers employed, but such can only be the short-sighted logic of an economic system that prefers to irrationally waste resources rather than use them wisely. If fewer resources are required by the community, then less will be produced. The smaller employment that results from an increase in economic efficiency should be solved socially by redistributing employment to workers who otherwise would not have attained jobs. This is how you solve jobs crises, not in the capitalist way, where labor productivity is increased by laying off workers and pressing down wages. It should be no surprise that workers under current configurations are made so fearful about their economic fate, that they immediately identify with what the capitalist has stipulated.
A further reason why economic growth is unreasonable is because the environment places certain constraints on what we should consume given the resources and raw material we have available, and given the state of our environment (rising sea levels and temperatures etc.). Saral Sarkar, a famous eco-socialist, basically argued that capitalism has the inevitable tendency to expand in terms of production and, therefore, strain the environment. It is, from his perspective, naive to believe that capitalism can be squared with the requirements of the environment. Yet, this is precisely the kind of discussion, which is led. Most of the time, environmental problems are ignored in public discourse, but if they are mentioned, then exclusively in terms of a new energy future. The most recent market solution has been cap and trade, for which I fell the first time I heard about it. Basically, the companies receive permits from the government how much NOX and SO2 they may produce. If they produce below the threshold, they have extra permits and can sell it to other companies, whose NOX and SO2 production is above the threshold. The punishment of the high NOX and SO2 producers gives manufacturers an incentive to reduce their emissions. The policy that was implemented in the 1990s in most western countries has worked out well. The major criticism leveled against cap and trade is that some cheating has occurred, where manufacturers that were close to the government got away with greater pollution. It also does not fundamentally address the problem of greater resource consumption, which is inherent in a capitalist economic system. The fundamental essence of the system is material growth at a time, when so much wealth is produced, which can not even satisfy most people anymore (while many others remain poor).
So ultimately my proposal consists of the realistic ones, namely raising taxes on the rich, nationalizing and transforming the banking system, reducing government debt loads, implementing a world government to regulate the most egregious aspects of corporate capitalism. They also consist of the currently still considered unrealistic solutions, but that will remove the ulcer out of our social bodies: the abolition of the profit system, the policy of zero economic growth, and the creation of a fair economic system, which places the needs of the society on top.