Capitalism On The Brink

Watching Stocks Fall


Back in 1997, I had a conversation with my old man about the Dow Jones. The gist of it had to do with whether it would break 10,000 by the millennium. It didn't even take that long. In the last day, it has fallen to 1997 levels. One of the things that lent it a great deal of in-credibility was the fact that the share prices were rising in spite of the fact that dividends were not.

The point of investing in shares as a proper capitalist venture is that you expect to share in the venture's profits. Dividend are those annualised share of profits. This is capitalism in its purest form. Forget what the new paradigm might be or what bonds traders might say, the point of the share market is to connect investors with the right ventures. The fact that share prices kept climbing in spite of the fact that they weren't paying a great dividend didn't seem to matter, and the company bosses insisted that the rise in share value reflected their good work; and that the investor should be the one to benefit equally for having the share price rise, left my father incredulous in 1997.

That is to say, my father would have much preferred getting the 6% in dividends rather than in the increase in share value. Since then, we may have seen a continued bubble on shares, thanks to the need for funds handling Superannuation monies to park investments *somewhere* and why not put them in shares? Those rises in share prices we've seen since 1997 may have had nothing to do with good corporate management, or innovations being rewarded, but just a blunt sum result of people's superannuation money building into a momentum with nowhere to go.

Let's face it, it's actually hard to do the proper capitalist thing. It takes hard work from all involved. It's easier to cut costs than to develop a new profitable venture. In the rush to create apparent profits, first world industries have been farming out manufacturing to places with cheap labor, thus cutting out the option of being competitive in the long term. Now that times are tough, there's not much in the way of management that can save those firms. What good is a company whose share prices have collapsed and their dividends are still only giving at best 1% return?

It's even more dire than that for capitalism itself. Thanks to the stopped flow of credit, the Detroit 3 are on the brink of elimination, taking with them a whole armada of sub-contractors. Whatever its ills and misdeeds, the US automotive industry represents one of the few last lines of manufacturing in America. If those 3 companies go down, and the suppliers who make parts go down with them, just how much manufacturing power is going to be left in the USA?

Yes it's true they've been making cruddy cars for years and years and have only themselves to blame as they inch ever closer to oblivion, but you have to think somebody has to prop them up. Like who? Try the oil companies. After all, it was the automotive industry's tacit alliance with the oil money that made them deny global warming, or not pursue alternative energy sources or fuels, to essentially lollygag all the way into this millennium without addressing fundamental issues about just what a car is in the scheme of life. When you think about it, the oil companies ought to be the ones who fork out the money to prop up their old allies-in-global-warming-denial. However, that is a side issue.

Here's the thing that really irks me in all of this Global Fried Chicken thing. What if all the major manufacturers of most anything simply go under? What if all the car manufacturers of America, Japan, Europe and Asia simply vanish? What then? And when administrators come in to sell off the assets, who is going to be there to buy them that can make a better car than the existing manufacturers? And what if it wasn't just car manufacturers, but computer manufacturers and chip manufacturers and electronics manufacturers and anybody nd everybody that actually assembles anything gets hung out to dry by the failing financial system?

Is it possible? Probably not, but then I didn't think what we're seeing now as probable.

So going back to the capitalist thing... this is where I think we've run into problems. We've mistaken speculators for capitalists. The definition of a capitalist isn't somebody who speculates on the prices of things. That's a speculator. The middle man who buys low and sells high - the distributor in most instances - is a mercantilist at best. The True Capitalist is the guy who goes and secures the capital to assemble the means of production. That's it. It doesn't matter whether it's Apple, Nike, GM or Microsoft.

When banks foreclose on these guys, while themselves getting bailed out by the government for their bad debts, this isn't just some crisis of confidence. This is the moment on which the whole premise of what capitalism is, and was, and ever should be is put at risk by all the speculating punters, all the parasitic middlemen, all the bond-traders and day-traders and short-sellers and 'financial engineers'. All that stuff should get a new and separate term: Financialism.

True Capitalists make stuff - and sells them for a profit. They should print Tee-shirts with that slogan, just to remind people. It's not a bad thing. It's very creative, and challenging. It's by no mistake that Nintendo is posting record profits even in these times. They make some seriously good stuff. True Capitalism is a good thing that brings much wealth to many people.

And you know what? As a film maker and sometime musician, I am more of a capitalist than a guy who has been pulling down a job in the finance sector. This is why I get really really angry at the way things are going. Governments are giving banks too much credit for being banks and not enough to manufacturers. It's amazing things have gotten away from the original concept so far. Maybe when the shares bottom out, people will get the proper perspective back. You want to be capitalists? First, you gotta make good stuff, second, sell them for a profit, and third, payback the investors, and only then collect your profit. That's the only way. The rest is all just 'Financialism'.