Politics

Chinese Capitalist Ventures in African Investment

4 December 2017

Chinese investment in the continent of Africa welcomes the updated narrative of neocolonialism based on capitalist practices that reap benefits to China while leaving Africans disenfranchised.

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The continent of Africa remains a resource pool divided by haphazardly drawn borders. With volatile states still recovering from the continued history of exploitation, Africans are left subject to the imperialists who once colonized them. This paper seeks to address the entrenchment of this colonialism through the capitalist practices of China on Africa. To make accurate judgements on this topic to discover who benefits, it is first vital to understand how capitalism’s entrenchment in Africa fomented incorrect assumption of the practice. Then, development practices in the African and Chinese context can be compared to see exploitation in the continent, demonstrating that Africans remain marginalized while the Chinese profit.

One is reminded that, when functioning as it should, capitalism delivers good things (Plessis 2016:1). With this in mind, it becomes apparent that African nations can enable the basic principles of capitalism as an economic system by implementing “free market competition, private ownership and investment of capital to make a return” (ibid). While ideal, this is not the case in Africa. The history of colonial exploitation is vital to assess why capitalism does not work in Africa. During European conquest, monopolies were given to powerful individual to extract valuable nation resources. This, according to Plessis “benefited small elites rather than the collective interest,” which fomented an incorrect case capitalism (ibid). Governments and people in the Africans circumstance thus believe that capitalism can only benefit the few.

With this understanding, it should become obvious that the diverse continent is easily exploited by politicians and investors. “The combination of Africa’s fertile land, abundance of natural resources, and governments that hope to benefit from foreigners’ investment” require technical expertise to maintain the benefits of any investment (ibid). From comprehending the origin of its exploitation, development practices in the African context can be understood.

African development can be assessed in regards to the continent’s appeal to FDI, or Foreign Direct Investment. Andrew Ross defines FDI as “investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy in an enterprise resident in an economy other than that of the foreign direct investor” (2015:4).  Through short discussion of how these practices work with Chinese interference, understanding African opinion on international cooperation becomes clear. With a focus on infrastructure advancement and a case study of FDI in Nigeria, recognizing the low benefit of Africans is discovered.

Due to the various marketable traits previously mentioned in Africa, investors’ interests are increasing in the continent. Similarly, Africa’s average ODA (Official Development Assistance) as a percentage of gross national income is declining steadily, from 5.3% in 2005, 4.2% in 2008, and 3.2% in 2012 (Mijiyawa 2015:392). These attractive moves toward a more productive system motivate investors, like China, to bring business to Africa. Hence, “GDP growth rate and trade openness can be used to improve the business climate for FDI” (ibid,394). Efficiency is crucial for FDI projects, where well-developed infrastructure and communication networks build up appealing market conditions (Ross 2015:9).

Similarly, FDI attractiveness is strengthened when regional integration boosts other neighboring countries. Mijiyawa notes that the “presence of FDI today in a country is likely to attract more FDI to that country in the future,” enticing government collaboration with investors (2015:400). Performing these practices can change perceptions about Africa, welcoming new investors to “consider the continent as a destination for their investments” (ibid). With this understanding, it is revealed why Africa is so appealing to China. The numerous FDI projects and decreasing necessity for aid mold Africa to be a beneficial investment.  However, given its competitive advantage, China considers FDI inefficient. They could care less about international trends and diminishing inequality. Rather, China’s desire to secure natural resources motivates the new hegemon to provide trade and development assistance (Ross 2015:7).

Despite a seemingly fail-proof plan, Africa lacks the infrastructure to support such rapid investment. As “Chinese investment is driven by access to natural resources,” there remains a need for the right range of physical and telecommunication infrastructure investment for resource extraction (Ross 2015:9,15). This is a severe problem for Africa’s quest in acquiring FDI because the continent’s institutional infrastructure is generally accepted to be very weak by international standards (ibid). Ross elaborates, stating “not only does quality infrastructure reduce transportation cost, but it also increases efficiency of operations, and good infrastructure should encourage FDI” (ibid,11). Therefore, countries that lack well-developed infrastructure will struggle to attract international investment.

African nations remain cognizant of China’s desire of efficient natural resource extraction. Unfortunately, they continue to be unaware of how to improve their infrastructure to be more appealing. Thus, host countries are easily exploited by adhering to China’s terms and conditions for the proper investment of infrastructure (ibid, 16).  This cyclical entrenchment of Chinese desires over African sentiment expands beyond sole IDF motivation.  Not surprising, Chinese investors utilize their own workers in infrastructure programs. Manero finds that “instead of giving local companies and citizens a vital opportunity to grow experience and capital, these contracts overwhelmingly benefit Chinese corporations and bringing massive profits” (Manero 2017:1). Thus, the FDIs relied on so heavily by Africans is further controlled by the Chinese. They have capitalized on their presence in Africa by changing public sentiment to ensure their economy benefit.

Despite this, a 2015 PEW study found that 70% of Africans had a favorable view of China, likely due to their engagement with African growth (Chen 2015:2). Diplomatically, China had a formal relationship with 49 of the 54 African countries, with direct investments in 48 of the 49 (Cheung 2011:3). China has also utilized a policy to support African countries in “developing their own special economic zones” for Chinese companies to then invest (ibid). Here, it is apparent that China’s aid is motivated by increasing its own economic prowess. Cheung points out that Chinese invested money in Africa fuels the economic incentives that revamp undesirable political and economic conditions (ibid, 6). To understand this, one must see that African governments need to address their investors’ concerns, such as infrastructure, security, and the previously alluded political stability (Shen 2015:104). Yet fueling governments with economic incentives to blindly follow Chinese investors ferments exploitative investment in the continent. This is seen through the “labor-intensive and low-tech manufacturing brought in by Chinese firms [that] probably provides a desirable first step” for African leaders eager to eliminate their citizens unrest (ibid, 105).  With this Chinese investment, African governments can transform from resourced based economies into more industrialized ones, where more FDIs are likely to follow. This can fuel a cycle of the wealthy paying themselves. This can easily be seen through a case study of Chinese investment in Nigeria.

Holding the largest economy in Africa, Nigeria was eager for Chinese investment. Nnanna recalls how both public and private Chinese companies developed economic zones to construct the proper infrastructure for greater resource extraction. New airports, roads, bridges and railways connecting major cities were funded by the Chinese (Nnanna 2015:41). Through exploiting the major port at Lagos, China increased exporting cheap goods that Nigerians can afford. This led to a .6% growth of the manufacturing sector’s contribution of GDP (ibid, 43). While this growth seems positive on the macro level, there are major limitations for microeconomic growth in regards to positives effects for Nigerians. With the rapid increase of foreign companies in Nigeria, local business owners have struggled to stay afloat. Chinese businesses that manufactured cheap auto parts, textiles, and building equipment caused Nigerian businesses to sink (ibid). Notably, over 90% of Nigerian-owned businesses were shut down because “Chinese firms were winning the price wars” (ibid, 46).

Even jobs are absent from foreign agreement. Chinese investors are expected to create jobs for local economies, but “many Chinese companies perfect using Chinese employees for administrative efficient, even if it means flying in a Chinese worker with the same level of qualification” (Timokhina 2014:9). Because Chinese businesses aim to maximize shareholder value, their investments disregard any micro-level effect on local communities. Due to the ambiguity in FDI and African governments’ drive for investment, there lacks any protection for current operations in effected industries. For Nigeria, there are no bilateral agreements, nor are there any economic or institutional safe-guard for local, micro-level business (Nnanna 2015:46). Therefore, while Chinese FDI seems positive holistically, it remains to be detrimental for the majority of society, whose work fortifies the elite’s power.

Recognizing African perspective for FDI is important when assessing overall economic benefit. Seeing how the capitalistic system appears to be beneficial and attractive for Africans, it is apparent that Africans are distracted. With this diversion, it remains an exploitative falsity, fueling the neocolonialist capitalistic practices of China. With this understanding, assessing Chinese motivation in foreign investment and development will foment the fact that African neocolonialism exists through Chinese capitalist practices that leave Africans disenfranchised.

With a growing population, China’s is depending on Africa to maintain its hegemonic power. As the world’s leader in manufacturing, China relies on a steady flow of natural resources from many Africans nations (Manero 2017:1). Specifically, “African has become China’s second largest engineering contract market” (Cheung 2011:5).  With a growing dependence on energy, China has relied on Africa to provide for its domestic energy consumption (Ross 2015:8).  From all of this, China’s focus on Africa is understandably large, even though it is still a small player in overall investment (Chen 2015:6). Not surprisingly then, the value of China’s relationship with Africa in 2014 totaled over $200 billion (Manero 2017:1). These statistics prove that China relies heavily on Africa.

If African nations knew the extent to which China needed their support, perhaps fairer negotiations and manners of conduct would persist. Nonetheless, China remains elusive to entrench their position as the greedy capitalist. In fact, China claims its goal in Africa has never been economic benefit. In 2011, Premier Wen Jiabao said “China had selflessly assisted Africa when itself was the poorest. We did not exploit one single drop of oil or extract one single ton of minerals out of Africa” (Timokhina 2014:6). Even more recently in 2015, Wang Yi, China’s foreign minister said while visiting Kenya “China absolutely will not take the old path of Western colonists, and we absolutely will not sacrifice Africa’s ecological environment and long-term interests” (Manero 2017,2).  Thus, China hides their necessity for foreign investment so they can set the rules of interaction. As Shen discusses “Chinese investment is frequently criticized for its lack of transparency and for bringing its own workforce from home, thus depriving the host economies of the benefits of job creation” (2015:95). Further analysis of Chinese behavior will prove these comments by leaders  to be then vague and deceitful.

China sets strict contracts with its African partners. To enforce these, African nations are forced to comply with two Chinese Policy Banks—The China Export & Import Bank and the China Development Bank (Cheung 2011:5). The contractors that manage the deals are employed by these banks. Thus, Chinese firms get control over project that include “building of highways and roads, bridges, schools, shopping centers, housing and office buildings, water conservancy, dams, and power plants” (ibid). Similarly, with influence in the developed and periphery worlds, China has “considerable leverage in the pursuit of its interests” with its seat on the UN Security Council and long involvement with Africa (Timokhina 2014:2). With this unique power, China has the ability to define the rules of the game for their own benefit. The hegemon seeks to grow its industrial trade and move up in the supply chain to foment China as the world’s most powerful economy. As Timokhina finds, “by relocating low-skilled jobs and labor-intensive industries to Africa, China seeks more capital-intensive, high-tech industries and jobs to improve its own development model and quality” (ibid,6). Therefore, China capitalizes on its control of information to hide their reliance on Africa to let them profit with every transaction they attempt to make.

Private Chinese firms also have a drastic effect on Africa. At the end of 2013, there were 2,282 Chinese investment projects in Africa, a majority of which with private Chinese businesses (Shen 2015: 86,102). This private participation is motivated through profits, or the self-interest of the Chinese, which rarely brings legitimate economic opportunities to a host country. Surprisingly, however, Shen notes that some private Chinese capital have some positive effect on local job creation. This is why the “host governments surveyed generally viewed Chinese investment as a positive happening in their countries,” as well as the aforementioned 70% approval rating of China (Shen 2015:103; Chen 2015). Nevertheless, it is apparent that China intentionally controls the market and information to ensure their domination over decisions in order to maximize their profit. Thus, with the effects of capitalism in Africa and China assessed, it becomes apparent how this refreshes a sense of exploitation in neocolonialism.

With this severity of evidence, it becomes clear that Africa remains subject to the desire of foreign adversaries. Effective capitalism requires a state that can function. This comes through rule of law, policies that enable entrepreneurship, and a strong civil society (Plessis 2016:2). As this paper has shown, African nations fail to provide these three vital factors. With weak central governments and vague law that is unevenly applied to its citizens, African nations remain subject to the imperialists that influence their economies. Demonstrating the flaws of capitalism then, it is apparent that difficulty ensues when driving infrastructure development (ibid). The benefits of capitalism thus are shared by a concentrated elite, controlling the produce and consumption of goods in the international economy.

To attempt to combat their exploitation, Tony Elumelu suggests adopting a policy he coins Africapitalism’. This is an “economic philosophy that embodies the African private sector’s commitment to the economic transformation of Africa through long-term investments that create economic prosperity and social wealth” (ibid, 3). As turning inward and becoming protectionist are counterproductive, Plessis expands on Elumelu, suggesting that “better governance, transparency, and a stronger rule of law” are the best ways for Africans to escape their entrenchment into an unfair system (ibid). Encouraging this domestic private sector investment can lead to long term benefits, which increases foreign capital. Thus, economic and social benefit can lead to opportunities for African business expansion (ibid,2).

This paper has made it apparent that China actively seeks to hide their necessity for African resources by power in the deal. Kandiero further explores this when looking at rent-seeking motives in Africa. Because foreign firms seeks cheaper labor and resources, Africa fits a desired investment. A potential market-seeking FDI “ideally involves foreign firms exporting or opening new markets in host countries in order to boost their sales” (2006:356). This continues the capitalist exploitative narrative because the sole motivation for investment is cheaper production. Similarly, FDIs like China can get around trade restrictions, such as high transport costs, by altering the rules of engagement, arguing that using a few countries will serve a larger market (ibid).  The key motives for efficiency seeking FDIs are then location, resource endowment, and government regulations (ibid). With awkward visa processes and contracts that block movement of labor, China removes the comparative advantage that Africans would have sustained. They do this through their strict contracts (ibid, 362). Realizing this, and the rest of the faulty practices in place in China discussed above, Kandiero suggests that Africa should adopt greater openness. “Even though opening the services sector seems to influence the FDI to GDP ratio more than opening the primary and manufacturing sectors,” an overall open economy will serve the continent better (ibid). While this paper discussed the severity of Chinese economic aggression against the African continent, Kandiero still offers a bit of positive advice on moving forward.

To conclude, it is apparent that the resource-rich continent of Africa is continually exploited for its cheap resources. In search of FDI investment, nations are eager to cater to foreign countries’ demands because they believe the increased investment and money flow will benefit their nation overtime. Contrary to this believe, China uses their power to control the terms and conditions of contracts, thus exploiting these nations. By using these rules, China sends its own workers to invest in infrastructure. As noted by Ross, Nnanna, and Chen, Chinese presence disturbs and even eliminates African business. Therefore, Chinese investment in the continent of Africa welcomes the updated narrative of neocolonialism based on capitalist practices that reap benefits to China while leaving Africans disenfranchised.

References:

Chen, Wenjie, David Dollar and Heiwai Tang. 2015. “Why is China investing in Africa?: Evidence from the firm level.” George Washington University.

Cheung, Yin-Wong, Jakob de Haan, XingWang Qian and Shu Yu. 2011. “China’s Outward Direct Investment in Africa” Hong Kong Institute for Monetary Research, working Paper No. 13

Kandiero, Tonia and Margaret Chitiga. 2006. « Trade Openness and Foreign Direct Investment in Africa. Sajems NS 9(3): 355-370

Manero, Elizabeth. 3 February 2017. “China’s Investment in Africa: The New Colonialism?” Harvard Political Review.

Mijiyawa, Abdoul’ Gaiou. 2015. “What Drives Foreign Direct Investment in Africa? An Empirical Investigation with Panel Data” African Development Review 27(4): 392-402

Nnanna, Joseph G. 2015. “Is China’s investment in Africa good for the Nigerian economy” Journal of Chinese Economic and Foreign Trade Studies 8(1):40-48

Pairault, Thierry. Chinese direct investment in Africa. A state strategy?. Région et Développement, L’Harmattan, 2014, 37-2013 (2), pp.259-284

Plessis, Du Wildu. 2016. “Rethinking Capitalism in Africa.” Without Prejudice: African Alliance Feature.

Ross, Andrew G. 2015. “An empirical analysis of Chinese outward foreign direct investment in Africa” Journal of Chinese Economic and Foreign Trade Studies 8(1):4-19

Shen, Xiaofang. 2015. “Private Chinese Investment in Africa: Myths and Realities” Development Policy Review 33(1): 83-106

Timokhina, Olga. 4 September 2014. « Chinese foreign direct investment in Africa in corporate social responsibility context » Maastricht School of Management, Working Paper No. 29.

The Myth of the American Dream

16 September 2017

Is the Free Market really free? In this conceptual piece, I argue, the help of Nobel Laureate Robert Reich, that the ‘American Dream’ is a myth to deter discussion from the authentic inequality America sees today. Written for a Contemporary Political Issues course at Loyola University Chicago.

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The American conversation on its capitalist economy is naïvely dominated with verbose debate on proper government inference with the ‘free market.’ Citizens are distracted by the pursuit of the American Dream, where with the right amount effort and passion, anyone can achieve financial success. This pipe-dream is entrenched in the minds of eager entrepreneurs, pulling focus away from the real mechanisms of capitalism.  In Robert Reich’s Saving Capitalism, one is reminded about the practically of government in creating the economic system through rules, regulations, and legislation. Therefore, the “myth” of the free market and its invisible hand is just “distracting the public from…the wealthy and muscular arm” that reigns with absolute power over the capitalist system (Reich 6). The real questions that need to be asked should be who benefits? Why aren’t we all prospering? Is capitalism truly beneficial for the masses? By examining the capitalistic components of property, monopoly, contracts, and bankruptcy in the American Capitalist system, along with their implementation and enforcement, the resulting inequality becomes evident in its political entrenchment.

Prior to deeper analysis of the establishment and reoccurring change of these capitalistic elements, a better explanation of capitalism’s appeal needs to be assessed. Adam Smith’s ‘pure’ capitalism has never been implemented in its ideal state. Its attraction is based on the idea that all can benefit and all have a choice in their livelihood.  Ideally, a democratic government implements rules to be fair, efficient, and ever-evolving economy. ‘Ideally’ here is the key word. If this was reality, there would be a level playing field where citizens’ desires would prevail.  But the rules are dictated by the elite. The rich possess the power and utilize their influence to modify the system to their financial benefit. The ‘free market’ is thus disguised as the “natural outcomes of impersonal market forces,” where the masses are subject to harsh policies enforced by the elite (Reich 10).  The blatant imbalance of power, both political and economic, demonstrates how Smith’s system is foreign to the one that persists today in America.  All ‘forms’ of capitalism stem from the idea of freedom of property, where personal desires motivate individual action.

Private property has long been considered a right of all men. Acting “rationally but selfishly,” humans work to perfect their land in efforts to profit off of their labor (Reich 16). The labor becomes a commodity to be traded, in order to attain a profit. The cycle continues, where growing profit becomes power. The ideas of what this property is have evolved from physical plots of land to ideas in academia. In the 1700s, humans were considered property, with over three-fourths of humans living in some kind of bondage (Reich 17).  With the industrial revolution introducing cheap and revolutionary technology, laborers moved from agriculture to industry as a means of compensation. As Reich explains, workers no longer owned their means of livelihood—they became laborers for manufacturing giants. Thus, these employees used the property of the factory for their own benefit, which made them too, assets of the factory owner. This custom evolved over time, where capitalists who invested and took a risk in a company owned the means of production. Reich elaborates that these companies were “in effect owned by everyone with a stake in how it performed” (Reich 18). Quickly, one can see how these stake holders, profiting off their property (labor of others and initial capital), then have the means to dictate how property should be handled.

Reich reminds his readers that “what looks like government regulation is sometimes better understood as the creation of a property right…they provide incentives to invest and innovate” (Reich 19,21). To exemplify this, Reich assesses patent politics and medicine in America. “The government,” he says “defines property rights, what that process entails, and who has the most power to determine its outcomes” (ibid). Patents give property rights to ideas and inventions, lawfully dictating rules of procedure and economic benefit. They “promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries” (ibid). For example, in 2013 Congress blocked an incentive that “would expedite the review of questionable software patents filed by big companies [IBM, Microsoft] to lay claim to vast areas of possible invention” (Reich 22).  This is a prime demonstration of how ideas, patents, have now been defined as property.

In a similar manner, the medicine industry provides insight to changing ideas of property. Reich exemplifies this claim with Pfizer’s total control of a vaccine in 2012 (Reich 23-24). The law is banned from coercing drug companies to lower cost, so drug prices soar. An estimated fifty million Americans did not fill their prescription in 2012 due to excessive costs. Pharmaceutical companies are legally able to pay doctors to recommend their brand drug. Likewise, the pay-for-delay agreements “generate huge profits both for the original manufactures and for the generic—profits that come from consumers, from health insurers, and from government agencies paying higher prices than would otherwise be the case” (Reich 25). These cost Americans $3.5billion/year, where profit is spent on advertising, entrenching this phenomenon. Defining absolute power of the property of medicine creates “higher corporate profits, higher costs to consumers, and less access for everyone” (Reich 27). As explained, the general idea of property as the means of wealth acquisition has mutated to complete hegemony of industry, often referred to as monopolies.

A monopoly is a conglomerate that maintains total control over an industry. Google, Monsanto and Walmart all fill the shoes of the model corporation. They control total market power, which “provides strong incentives to invest and innovate but also raises consumer prices” (Reich 29). The control of the steal, oil, and railroad industries by Andrew Carnegie, John D Rockefeller, and Cornelius Vanderbilt resemble today’s monopolists, “squeezing out rivals who threatened their dominant positions” (Reich 45). Comprised of a powerful CEO and elite shareholders, the corporation does all in its power to amplify their economic returns. With such a massive reward, monopolists must push their influence into the political scene to achieve their economic prowess. Reich elaborates, stating that “such economic power has simultaneously increased their influence over government decisions about whether such practices should be allowed” (Reich 30).  Before analyzing examples, it should be noted that some countries practice a form of capitalism with which Smith would be proud. In France, books, electricity, bread, and water are classified as ‘essential goods,’ forbidden to be modified in reaction to any market change (Reich 40). These commodities have been deemed crucial for human progress, and thus maintain their price throughout political change.

In America, however, corporations have invaded many institutions. Monsanto offers affordable corn and soy seeds from which many farmers profit. A contract stipulates that once signed on, farmers must only rely on Monsanto products. This would not be much of an issue, but the seeds are genetically modified to not produce their own seeds. Now contractually obligated, farmers must buy seeds from Monsanto who, after first harvest,  has risen the price (Reich 34). Monsanto hires lobbyists and pays for lawyers to protect this power. The US has banned imports of non-GMO seeds, sheltering Monsanto’s power over the farming industry (Reich 35).  As this big corporation uses its financial power to instill its desires in a legal way, so too do big banks operate in a similar way. Reich reports that banks “have become more politically potent,” where they become “major sources of campaign funds for both Republican and Democratic candidates” (Reich 41). The effects of this corporate political activism are quite frightening when comparing the much larger contribution of $16.6 million to Obama’s campaign than of McCain’s $9.3 million (ibid). Corporations and big banks prevail by their sheer economic dominance and resulting presence in politics.

Aspects of property and corporations effect the performance of the ideal capitalist economy. The establishment of these comes from contracts—the agreement and formation of rules and regulations. Ideally, a corporation will have a fair contract with its laborers on who owns and profits from what property. In the 1874 Supreme Court case of Trist v. Child, questions about corporations writing rules for their sole benefit were debated. The court ruled that:

“If any of the great corporations of the country were to hire adventurers who make market of themselves in the way, to procure the passage of a general law with a view to the promotion of their private interests, the moral sense of every right-minded man would instinctively denounce the employer and the employed as steeped in corruption and the employment as infamous” (Reich 51).

The case favored the many over the few, instilling the ideals of Smith’s capitalism. With the dominance of corporations growing, however, this rule has been manipulated away from its constitutional context.

Reich coins the reality of contracts as being “inherently coercive” because there exists no alternative to the terms being set (Reich 54). Corporate elites, entrenched in the politics of the market, set rules and regulations for their advantage.  Concisely, “political power is determining what can be traded and how” (Reich 52). Corporations and their elite possess the power to force promises and agreements with laborers because there is no alternative.  Facebook, like many other internet sites, forbids a person to use its services until they agree on the terms and conditions. Even though many skip over the reading altogether, agreeing to the terms is required for the use of the site (Reich 55).  There is no room for changes—the corporation has “locked up the market through its intellectual property, control over standards, and armies of lawyers and lobbyists” (Reich 54). The culmination of these contracts and their consequences can be seen in bankruptcy policy.

Bankruptcy was meant to protect individuals from the possibilities of market failure within the economic system. The idea is “shared sacrifice,” where creditors spread their losses equitably with backup from banks, continually “under the warful eye of a bankruptcy judge” (Reich 60). Therefore, investors are expected to share in the debt, just as they share in the profits. Over time, elites have cleverly changed the law to protect investments of personal property beyond the corporation if debt can’t be paid off. Reich exemplifies this with his assessment of American Airlines’ bankruptcy. The company called for shared sacrifice of debt, but the CEO secretly kept his executive retirement plan ($19.9 million) locked in a trust. After creditors paid off the final debts, “everyone came out ahead, expect for American’s employees, who, even [though] they retained their jobs, had lost much of their pay and benefits,” Reich continues, “so much for shared sacrifice” (Reich 62). Bankruptcy thus persists by leaving the “underlying mechanisms unexamined” and accepting the easy solution of letting one party fulfill its contractual obligation to the other (Reich 66).  The pitfalls of bankruptcy, and the other mechanisms of capitalism, can been seen through their enforcement.

Elites and the corporations they serve have entrenched their power through a practice called rent seeking. Previous examples (IBM/Microsoft, Pfizer, Monsanto, Facebook, American Airlines) have demonstrated how the wealthy can make laws, influence legislation, and even swing elections to get their way. Rent seeking defines the opportunistic methods elites take to ferment their power. By entering the political realm, corporations can quietly alter the laws of trade to benefit their desires. Reich states that the enforcement mechanism “is the most hidden from view because decisions about what not to enforce and not publicized” are often unpopular amongst the voting body of America (Reich 67). Behind closed doors, these powerful corporations implement rent seeking strategies to enforce their power. Reich describes one example, where defanging laws defund watchdog government agencies. “Wall street made sure that government agencies charged with implementing law did not have the funds to do the job,” Reich explains about the defunding of the IRS (Reich 71). Instead of fighting back, the government prefers to settle cases quickly, because agencies in charge of lawful enforcement cannot afford follow up (Reich 77). This fuels a larger public distrust of the entire capitalism system, which “depends on trust, without which, people avoid even sensible economic risks” (Reich 73). Even if an individual were to take up arms and file a lawsuit, the elitist corporation will hire wealthy lawyers to draw out litigation until the wronged cannot afford to stay in court (Reich 79). The wealthy have covered their tracks. Their control over law gives them room to sway any political fault. Reich states coldly, “economic dominances feed political power, and political power further enlarged economic dominance” (Reich 83).

It should be clear now why we all aren’t prospering. Through each function of the capitalist economy, the elite have entrenched themselves into the politics of the system. Inequality persists from the rent seeking practices utilized by wealthy corporations, which continually favor elites while trampling the working class. Whether it be IBM’s influence on Congress, Pfizer’s vaccine monopoly, Monsanto’s agricultural empire, Facebook’s concrete contracts, or American Airline’s corrupt leadership, the elite prevail. Wisconsin Supreme Court Justice Edward G Ryan asked, “which shall rule—wealth or man; which shall lead—money or intellect; who shall fill public stations- educated and patriotic free men, or the feudal serfs of corporate capital?” (Reich 45). We must recognize the elitist strategies used to protect their economic superiority. Reich reminds us that “the underlying issue is not whether the free market is superior to government but how government officials decide how the market is to be organized and which outside groups have the most influence over such decisions” (Reich 54). Debate on the ‘free market’ should not question the amount of government in the economy. It must be a question on who is changing the government, and who will that change benefit.

Determining one’s worth is a feat often flouted, promoting a capitalistic notion of wage comparison as means for identity. Individual uniqueness then exists simply as a response to the market, where income is the sole defining feature of one’s worth. In Robert Reich’s Saving Capitalism, the economic laureate states that “the prevailing assumption that individuals are paid what they’re worth is a tautology that overlooks the legal and political institutions defying the market” (Reich 94).  The role of power, according to Reich, is ignored by all. Rather than assessing individual worth, the idea that wage is the only accurate determinant of wealth persists. This is due to the economic elite, or powerful rich’s entrenchment of this idea. The falsity “lures the unsuspecting into thinking nothing can or should be done to alter what people are paid because the market has decreed it” (ibid). The elite instilled a cultural hegemony of income hierarchy that forces the vast majority to value themselves as agents of stored labor, rather than individuals. Analyzing capitalism’s effects on meritocracy, democracy, and justice can determine the perceptions of individual worth.

In a post-WWII America, capitalism thrived; it built up individuals’ small business and promoted natural, efficient growth in the economy. With the aid of worker’s unions, the average American thrived. Accounting for today’s inflation, the average salary in the 1950s was an average of $30/hour (Reich 89). The unions helped to fight for a competitive salary and promote worker rights.     Because of this support, people became accustomed to, in a naïve sense, that the market would reward them exactly what they’re worth. In this way, America was a meritocracy, where individuals were rewarded proportionally to their abilities and skills (Reich 91). Entrenched into the ‘American’ lifestyle, this ideal has persisted while capitalists have patiently and quietly changed the rules of the game to foment their power. The same ideal tells the rich that they “must be extraordinarily clever, daring, and superior” to be in their position, where allocating power ensures their place (Reich 90). The elite therefore influence the all aspects of the capitalist system- the rules of the market, property, contracts, bankruptcy, and enforcement to increase their profit and alienate workers away from institutions, like unions, that seek to protect the workers.  As Reich says, “[capitalist] innovations are financial and tactical—finding new ways to squeeze more money out of a given set of assets, including employees, or to expropriate the assets and incomes of others” (Reich 93). The wealthy have used their power and influence to manipulate the aspects of capitalism to entrench their power while leaving the average worker handicapped behind (see Walters 2017). To see more concrete example within democracy, investigating upper, middle, and lower class situations is required.

The underlying reason for capitalism’s pitfalls is the rich changing of legislation to further benefit themselves. Looking at CEO’s salary is a fantastic way to see these claims in practice. For corporations, conglomerates of specific industries, profit is the main goal. Owned by various shareholders, a CEO is tasked with maximizing the returns for the initial risk that these capitalists took (Reich 98). There is a caveat, however, because these employees fail to produce labor in the same way of the workers. Rather, they are compensated through corporate income taxes, stock, or pension plans, all of which are taxed at a lower rate that ordinary income (Reich 105). Oddly enough, their pay as dramatically risen, climbing 937% between 1978-2013, while a typical worker’s wage only increased 10.2% (Reich 97). Overtime with influencing the government, lobbying, and changing legislation, corporations have expanded their power. The economic policy institution estimated that over 55% of executive compensation was deducted from corporate earnings, meaning that the CEOs made money off the average tax payer (Reich 106). Corporations do not have to announce if they purchase their own stock, the 1982 SEC removed restrictions to manipulate prices of company profit, and in 1991, the SEC allowed for CEO to cash in stock without public disclosure (Reich 101).  IBM embodies these phenomena well; between 2000 and 2013, the corporation spent $108 billion buying its own shares on the market (Reich 103). The financial success of the company, and the subsequent salary of the CEO, is more about “financial engineering than actual performance” (ibid).  A CEO’s worth is then determined by their responsibility for the performance of their company—even though their pay draws money away from research, development, expansion, or improvement on higher wages (Reich 102).  The rich obviously have used their privilege in the democratic system to alter the laws, allowing themselves to further profit off the exploitations of others.

Understanding that the rich institute their power through every channel is paramount to witnessing how capitalism is serving only themselves. In businesses that hold a privileged place in the American political system, employees will receive higher compensation because the company has infiltrated the rules of the market to benefit itself (Reich 109). To look closer at the trading sector of the market, Wall Street has become a breeding ground for political clout.   Reich even says that “Wall Street accounts for such a large proportion of campaign donation to major candidates for Congress and the presidency of both parties,” thus controlling the profitable and cyclical relationship between government and the market (Reich 110). Here, Reich proves that the political elite are funded by the economic elite. Legislation created by these funded candidates instill the success of the wealthy. The symbiotic relationship is then covered up, and touted as a ‘free market’ system for ‘all’—yet this is far from the truth. The aforementioned meritocracy ideal that forms the ‘ideal capitalism’ remains justified but “does not match the reality that most of us live and work” (Reich 150). Accepting this bold fact is needed to witness the despairing reality in which the majority live.

For the less wealthy majority of Americans, perception of worth is often misguided. The productivity after WWII increased average compensation of American workers. Globalization and technological improvements, however, have left high levels of unemployment. These unavoidable factors, paired with the previously-mentioned corporate mission to maximize shareholder returns weakens the reality of a competitive salary.  The American workers who initially had valued themselves relative to their decent pay now have to settle for lower wages (Reich 124). In fact, one out of every five working American is in a part time job, and 66% of all American workers live paycheck to paycheck (Reich 125). This should be troubling for capitalists, because a decrease in purchasing power limits the sales of products. Nevertheless, capitalists claim this is efficient because resources have shifted to more practical application. Using Walmart as an example, Reich explains that employees cannot negotiate a better deal because they do not have a union. So, Walmart does not have to match union contracts, letting the CEO receive a higher wage concession while workers continued to be exploited—as a legal condition of their contract with the company (Reich 127). The workers thus cannot compete for competitive wages, yet know they are in an immovable place because the job they have is the only one that hasn’t be automated or outsourced. The steady decrease of the middle class’s power is often blamed on the natural workings of the ‘market,’ yet Reich reminds his readers that this is not the case. This growing divide between classes is the market since the 1980s is the wealthy intentionally reorganizing the market. As the wealthy’s “gains have continued to accumulate, so has their power to accumulate even more” entrenched their ideals into the system (Reich 132). Again, the wealthy use their resources to ferment their location at the top. The cyclical power consistently favors the wealthy, ever growing the poor.

The poor remain at the bottom of society—both perceptually and economically. Poverty was initially reserved to define those who did not work, yet recently the class has become undesirable. In 2014, Speak of the House John Boehner described the poor as people who think that have the thought that “I really don’t have to work. I’d rather just sit around” (Reich 134). This perception of the poor was created by the wealthy, yet the reality is the poor work often the most. Often with two or more jobs, over 40-hour work weeks, “America’s poor work diligently…yet their families remain poor” (ibid). Not surprisingly, the perception of the lazy poor, undeserving of government support programs, was engineered by the wealthy. Corporations seeking higher profits will outsource work or cut costs to increase CEO profit while leaving the poor to deal with the economic repercussions. Significantly, CEOs can force workers to accept lower wages through contract manipulation (Reich 134). Between 2010 and 2013, average incomes for the bottom 1/5 of Americans dropped 8%, while average wealth declined by 21% (ibid). Even more frightening, the effects of today’s economic inequalities will entrench future generations. Reich reveals the striking fact that 43% of children born into poverty in the US will remain there their entire lives (Reich 139). The consistently growing lower class makes a smaller middle class, which as previously mentioned brings less opportunity for all on the economic scale.

Reich discusses a common argument for combatting poverty—minimum wage. Many people that this would be detrimental to the free market, but in reality it would further disenfranchise the poor. “Any attempt to restore the real value of the minimum wage,” will make employers fire workers at the lowest level, because “workers would no longer be worth the cost” (Reich 135). The important factor in the minimum wage debate is there is no obsolete reaction. Getting rid of a wage lets employers pay the exact worth of an employee, which would eliminate unemployment. Or, a high minimum wage would give welcome more cash in the pockets of the poor, increases market activity and overall grow the economy (Reich 136). This debate is important to mention because, although the direct cause of capitalism’s pitfalls can easily be blamed on the elite, the solutions to the problem spark passionate debates. While the problem is easy to define, the possible outcomes remain unexplored.

With this broad analysis of the three tiers of economic distribution of the American social class, it is apparent that the democracy in which we live is not ‘for the people.’ With the rules set up over time by the wealthy, the majority are left with only their dreams of becoming on the few elites on the top. Politics and policy are the tools of the rich’s manipulation, constantly ensuring their power over others.  Reich describes this phenomenon in politics, where influence is “either direct through their own contribution and connections, or indirectly through their corporation’s trade associates and the managers of their financial portfolios” (Reich 144). Similar to poor families passing on their economy status to future generations, so too do the rich provide for their descendants. Reich highlights the majority of students at prestigious schools as members of wealth families. To save on expensive tuition costs, however, these expensive schools are subsidized by the government at an excessive rate. “The average annual government subsidy per student at a public university comes to less than $6000, about 1/10th  the per student government subsidy at Princeton,” Reich states. (Reich 149). This unfortunate statistic shows that American capitalism only favors the wealth. Said with prose, Reich says that “the playing field is tilted toward those who have had the resources and power to tilt it in their direction. And as they gain steadily more resources, it tilts further” (Reich 150).

Contemporary American capitalism effects all aspects of private and social life. Framed as the democratic savior to state systems, capitalism remains controlled by the elite while exploiting the vast majority. The rich cement their influence in a variety of ways—from funding political candidates to forcing unfair contracts—solidifying their control of perception. The worth of many is then determined by the few. Reich warns of this reality: “to ignore how the market has been reorganized since the 1980s, and by whom is to disregard the power of moneyed interests who have received a steadily larger share of economic gains a result of that power” (Reich 132). The rich use their power through cultural hegemony to carve the economic hierarchy based on their perceived worth. Controlling perception gives them ultimate control. While this meritocracy has been instilled, Americans can still respond in ways that spread “prosperity, enlarge the middle class, and provide avenues of upward mobility for the poor,” yet the country remains too distracted (Reich 150). Reversing the way things are is everyone’s responsibility.

References:

Reich, Robert B. “Saving Capitalism: For the Many, not the Few”. Alfred A Knopf; Penguin Random House.. 2015.

Can War Be Eliminated

23 September 2016

This is an opinion piece I wrote for a Political Theory class at Loyola University Chicago.

~~~

The link between human life and war is unbreakable; as long as there have been humans, war has continually existed. Merriam Webster defines war as “an organized effort by a government or other large organization to stop or defeat something that is viewed as dangerous or bad.” [1] War’s definition is not obsolete, however. Relating basic human behavior to state action in the proper context of the nature of war reveals the inescapable reality of battle. This then exposes the often hidden characteristics of war, changing its encompassing definition. “To begin a philosophical discussion of war draws one into a long and complex intellectual path of study and continual analysis,” [2] where one must first understand basic human nature and the context of war within the state. The nature of war then reveals the unfortunate reality of its permanence.

Many philosophers debate the true natural state of man. Immanuel Kant argues that “nature guarantees perpetual peace by the actual mechanism of human inclination.” [3] He believes that a solidarity human possesses an authentic peace. He continues, however, stating that men living together endure in a state of war, meaning “the state of peace must be formally instituted, for a suspension of hostilities is not in itself a guarantee of peace.” [4] Kant thus argues that, while men individually remain peaceful, cohabitation welcomes a natural tendency to hostilities.  Hobbes would agree with Kant, stating that “without an external power to impose laws, the state of nature would be one of immanent warfare.”[5]  While the individual interpretations of man’s nature differ between the two philosophers, both agree that the collective coexistence of man naturally promotes war. Peace cannot exist without some form of institution that mediates between the differing desires of men within a collective society.  This unified body of men, the state, then interestingly harbors a tendency for war.

The relationships between different collective bodies of man present many challenges. Michael Walzer even says “that international society as it exists today is a radically imperfect structure.” [6] Volatility and uncertainty arise from the constantly changing few of those who make up a state. War arises simply when one state’s views differ from another or are in conflict so states determine they must act in their best interest. States represent the will of their constituents, desiring to secure their most favorable outcome. This is a point of interest and issue. Rousseau argues that “states must be active (aggressive) otherwise they decline” and because of this, “war is inevitable and any attempts at peaceful federations are futile.” [7] In attempt to refute Rousseau’s view, Kant assumes states are solely motivated by their economic interests. He says that “states find themselves compelled to promote the noble cause of peace…in the spirit of commerce and financial power.” [8] To theorize and assume a state’s genuine motivations, however, would be difficult due to the variation that naturally exists within humanity. Kenneth Waltz argues: “While human nature no doubt plays a role in bringing about war, it cannot by itself explain both war and peace, except by the simple statement that sometimes he fights and sometimes he does not.” [9] Because of this, the solution to eliminating war (if even possible) does not lie in its actors, but in the nature of itself.

War is chaotic, to say the least. While patterns exist, presenting strategies to study and patterns to analyze, every war varies to some degree. Howard Zinn states that “war, by its nature, is unfocused [and] indiscriminate.” [10] No war’s reality can be compared wholly to another. The historical contexts, agency of aggression (weapons, fighting style), motivations for attacks, and conflicting actors prove the complexities of theorizing war. The Peloponnesian war differs immensely from the War of 1812, which exists as a binary to the Afghan War of recent years. Anthony Rapport says that “the main problem is that of recognizing that the war establishments no longer perform the function they may have once performed – that of protecting populations against aggression.”[11] He continues: “the war establishments of the superpowers have been fused into a single war machine; they do not compete, they cooperate in promoting each other’s growth.” [12] Rapport highlights the obvious changing nature of war, but enlightens the reality that now states rely on war for their mere progression. War motivates allies to be stronger, enemies to develop faster, and economies to be more marketable. To break this down, a state must compete through its economy and infrastructure for security on the international stage. The symbiotic relationship between allies dictates that both states have the agency to defend and support the other in times of strife or present danger. The need to remain stronger and more powerful than the enemy welcomes a continuous campaign of increasing arms. Economic dominance, too, demands states to harbor the most mercantile aspirations in order to benefit its citizens. Simply stated, “war resides in the institutions spawned by war, which, in turn, spawn wars.” [13]

Kant understood this reciprocal relationship, saying that “a state of affairs is essentially a state of war.” [14] Therefore, to simply hold sovereignty on the international stage requires a state to exist in constant preparation for, even fear of, war. The nature in which a state exists is war, so can there be a solution to war? As Brian Lehrer states, “there are no preconditions to abolishing war.” [15] This essentially defines the problem with war; the international system cannot exists without it. Lehrer does, however, present an advantageous solution to halt war. He states: “most people who even flirt with the idea conclude that certain things need to happen first: almost all nations need to become democracies, the gap between rich and poor nations must greatly diminish, women must have half the political power in the world.” [16] These requirements might seem achievable to someone overly optimistic, but the actuality of completing these requirements is impossible in the current state of modern state existence.

Due to the reliance of war fueling state adaption and growth, war cannot be eliminated. The constant requirement to defend a state’s citizens and their constantly changing views against another state’s citizens and their changing views welcomes the reality of war.  While the nature of man remains debatable based on context, the nature of the state endures. The sovereign personality does not just welcome war, it needs it. Conflict is natural, and war is conflict in its extreme form, therefore it cannot be eliminated.

References:

[1] “War.” Merriam-Webster.com. Accessed November 14, 2016. http://www.merriam-webster.com/dictionary/war.

[2] Moseley, Alexander. The Philosophy of War. The Internet Encyclopedia of Philosophy, ISSN 2161-0002, http://www.iep.utm.edu/.  13 November 2016.

[3] Rosen, Michael, and Jonathan Wolff. 1999. Political Thought.  p. 157-263. Oxford: Oxford University Press p258.

[4] ibid p257

[5] Moseley

[6] Rosen p260

[7] Moseley

[8] Rosen p257

[9] Moseley

[10] Zinn, Howard. 2001.  A Just Cause, Not a Just War. The Progressive. http://ontology.buffalo.edu/smith/courses01/rrtw/Zinn.html. 12 November 2016.

[11] Rapport, Anthony. 2009. Can Humanity Eliminate War?. Anatol Report: Systems, rationality, and peace. http://www.anatolrapoport.net/node/6. 10 November 2016.

[12] ibid

[13] ibid

[14] Rosen p258

[15] Lehrer, Brian. 25 June 2012. Could we End war, All war? The Guardian. https://www.theguardian.com/commentisfree/2012/jun/25/end-war-brian-lehrer. 10 November 2016

[16] ibid