There seems to be a popular belief that unbridled capitalism somehow allows the invisible hand to level the playing field through competition, that government regulations are strangling the economy.
This notion is so prevalent that even people I respect are repeating this meme.
Let’s get this straight. If capitalism is defined as unfettered, unregulated competition, then only the strong will survive. There will be many losers for every winner. Wealth will accrue to the few over the long run.
Nature doesn’t play fair. In this context, the current economic problems are to be expected because the economy is mature. Take China for instance. After 5,000 years of Darwinian competition, everyone knows the name of the game is to do what you have to do to get what you can as quickly as possible. Then leave town:
Shadow Bankers Vanishing Leave China Victims Seeing Scams
To live out his retirement years, He Zhongkui was counting on steady income from an investment that promised interest payments five times higher than what he could earn in a Chinese bank.
Now He, a 62-year-old former municipal official in Wenzhou who rides a rusty bicycle, is cutting back on food and gasoline, having found himself one of a growing number of victims of China’s nebulous world of shadow banking. A “friend,” who he said had been paying him 2,400 yuan ($379) a month after He gave him one-third of his 600,000-yuan life savings to invest in real estate, suddenly disappeared. So did the payments and principal.
“I called, but the number was no longer in existence,” said He, who worked for the Water Resources Bureau in Wenzhou, a city of 9 million people on China’s east coast. “I went to his home, but nobody was there. “I was even invited to his daughter’s wedding, for heaven’s sake. It was all a scam.”
China’s slowest economic growth in three years and a slumping property market, where many so-called shadow-banking investments are parked, are squeezing millions of Chinese who have invested the money of friends and acquaintances chasing higher yields to honor those payments. The slowdown also is putting pressure on the government to rein in private lending to avoid a spate of defaults that could increase the number of victims and lead to social unrest.
This sounds pretty much like what happened in the West with banks, doesn’t it? Yet somehow, people over here have bought into the idea that less regulation, less everything will somehow curtail “crony” capitalism and allow the little guy’s subsistence small business to thrive. My answer? What is your competitive edge against Walmart?
Smart investors know that corporations are driven solely by profits. With profits come power. Increasing regulation and competition is against their self interest. This is just the way it is. During periods of economic stagnation, game theory dictates that the winners will do what it takes to survive, even if it means encouraging policies that redistribute wealth from the poor to the rich, from the old to the banks, from the young to the old.
The system isn’t broken. It’s just capitalism. And why we must own stocks in order to catch the crumbs that fall off the table.