The UNwealth of Nations: Adam Smith Betrayed by Capitalism

passes as a corporate capitalist political economy falsely attributed
to The Wealth of Nations is, in reality, the UNwealth of Nations: Adam
Smith betrayed.

The interest of the dealers, however, in any particular branch of
trade or manufacture, is always in some respects different from, and
even opposite to, that of the public. To widen the market and to narrow
the competition, is always the interest of the dealers. To widen the
market may frequently be agreeable enough to the interest of the
publick; but to narrow the competition must always be against it, and
can serve only to enable the dealers, by raising their profits above
what they naturally would be, to levy, for their own benefit, an absurd
tax upon the rest of their fellow-citizens. The proposal of any new law
or regulation of commerce which comes from this order, ought always be
listened to with great precaution, and ought never to be adopted till
after having been long and carefully examined, not only with the most
scrupulous, but with the most suspicious attention. It comes from an
order of men, whose interest is never exactly the same with that of the
public, who have generally an interest to deceive and even to oppress
the public, and who accordingly have upon many occasions, both deceived
and oppressed it (Smith, The Wealth of Nations, p. 278).

Adam Smith
posited that profits are often highest in nations on the verge of
economic failure. While he granted several causes for this, his main
cause related to profits obtained by indebting the economy —the same
kind of indebtedness we now see in Wall Street’s speculative shell
games. For Smith didn’t measure wealth in terms of gold and silver but
rather in terms of labor.

As a philosopher of the Enlightenment period, Smith penned The Wealth of Nations
before the advent of capitalism—a 19th-century concept, so he never
used the word capitalist, nor did he ever discuss capitalism as a
political economy. What he did provide were two arguments —the first one
against state-sponsored monopolies formed at the behest of the merchant–manufacturing class; and the second one for
free markets that exist under the theoretical conditions of perfect
liberty. Yet if this were all we knew of him, we would know nothing of
Adam Smith, because he also recognized that “perfect liberty” would never be a reality and that people do not act solely in self-interest.
Though the butcher, baker, and brewer might be motivated by
self-interest when providing you with dinner, when that same butcher,
baker or brewer jumps into a lake to save you from drowning, it is out
of sheer benevolence.

People often cite Smith on the division of labor, which is unarguably
a major topic in The Wealth of Nations. They also cite his now infamous
invisible hand.
But rarely is it revealed that Smith despised the grotesque outcomes
inherent in the division labor. Nor is it acknowledged that he believed
free markets that go unchecked are immoral and susceptible to
corruption. During the period Smith was writing, the merchants and
manufacturers within the British government were the chief architects of
policy. As such, they made sure their needs were attended to. Although
Smith lacked modern statistical data, he was certain that the actions of
the merchant class in government were devastating not only the southern
colonies such as India but the general citizenry of Great Britain as
well Smith also believed that the merchants and manufacturers, by
capturing the British government, were unintentionally compromising the
idea of a sustainable commercial society. Sound familiar? Suffice it to
say, what passes as our current corporate capitalist political economy
would appall Smith. And the claim that he is somehow the “father” of
that system is disingenuous at best.

Let us also deride the notion that multinational corporations are
being contained by some sort of moral-good-producing “invisible hand.”
The neoliberal notion of free capital flow
as a panacea is an illusion. The resulting race-to-the-bottom pay
schemas and exploitation of cheap foreign labor are the exact opposite
of what Smith advocated. Smith envisioned the invisible hand working to
keep investment local. He thus denounced the powerful East India
Company, one of the first to offer limited liability to its
shareholders, as a burdensome monopoly responsible for the horrific
massacres in Bengal. 

Modern Perversions of Adam Smith’s Views

Today’s multinational corporations follow in the footsteps of the
East India Company. are cross border interactions really forms of free
trade, or are they some sort of perverse rendition of a command economy
in which the control is handed over to a corporate oligarchy? NAFTA, the
daddy of all these agreements, has proven to be a net exporter of both
jobs and capital. It has further been destructive to the states it was
supposed to lift up. The bill of goods we were sold when NAFTA passed
never came to fruition. NAFTA supporters hyped an increase in exports
while remaining silent on the ill effects of increased imports. Why?
Because imports supplant goods that otherwise would be made in the
United States by domestic workers, thus displacing jobs and defeating
their hype. When George H. W. Bush proclaimed in 2002 that NAFTA had created two million jobs, he failed to mention how many jobs were lost.

And what is seldom acknowledged is that many parts of NAFTA were a form of protectionism, designed to benefit the 1%, our modern version of Smith’s masters of mankind. Buried in the NAFTA agreement were complex rules of origin
that distinguished goods originating from member countries from goods
originating from non-member countries. The sourcing restrictions
included in these rules wholly distorted “free” trade. At the same time,
no protections were afforded to either labor standards or the
environment. Instead, NAFTA weakened collective bargaining rights,
suppressed real wages, and decimated the fringe benefits of workers.

Between 1994, the year NAFTA was implemented, and 2000, unemployment
fell to record lows. But early in 2001, it took an abrupt turn and began
to rise. According to the Bureau of Labor Statistics (BLS), 2.4 million
jobs were lost in the domestic economy between March 2001 and October
2003. These losses were concentrated in the manufacturing sector, which
experienced a total decline of 2.4 million jobs.

And how did corporate profit and executive pay fare in the same time
frame? The United State Department of Commerce reported that pretax
corporate profits grew 26% from 2001 to 2003, and corporate federal
income taxes fell by 21%. And according to the Producer Price Index (PPI),
CEO pay, adjusted for inflation, increased a whopping 937% from 1978
to 2013. The CEO-to-worker compensation ratio grew to 122.6-to-1 in 1995
and peaked at 383.4-to-1 in 2000.

It has now been more than 25 years since NAFTA was implemented, and
the report for the last month of 2017 isn’t the healthy and promising
account of our economy that the Trump administration is making it out to
be. It certainly bears little relation to their recent actions, as it’s
too soon for such actions to have affected anything. According to the
report, the economy added 148,000 jobs and the unemployment rate remained steady at 4.1%.

But should these numbers be viewed in isolation? I’d argue they
should not, since nominal wage growth remains far lower than it should
be in a healthy economy. According to the BLS, the national unemployment
rate in December of 2007, at the beginning of the great recession, was
5%. But by June of 2009, it had climbed to 9.5%. Wage data was not much
better. Wage increases for private sector employees from 2007 to 2009
slowed to a paltry 1.3% in December of 2009 from a year earlier. From
2016 to 2017 nominal hourly wages increased a mere 2.5% by December and
continue to remain below levels constant with the Fed’s target inflation

Under NAFTA, income inequality has escalated. Going into 2018, the
richest 1% control close to 40% of the wealth—truly an example of
Smith’s “masters of mankind.” And, as we have witnessed over the past
few decades, corporate profits have continued to reach record highs
while the wages of average workers have stagnated. Any notion that this
will change given the recent cut in the corporate tax rate would be
intellectually dishonest since wages are tied to neither tax rates nor
corporate profits. Wages increase when employers need to compete for
more workers – an assumption that seems unreliable given globalization
and our race to the bottom.

Can These Problems Be Solved?

So what are some possible solutions? We have established that a truly free market does not exist. Nor does trickle-down
prosperity. The questions we should be asking therefore are: How much
inequality are we willing to tolerate, and what groups should benefit
from our regulatory and tax policy? It is clear that since the early
1970’s the “masters of man” have been the main beneficiaries. This has
led to historic income inequality, regulatory capture,
and a population swayed by reflexive nationalistic tendencies. None of
this bodes well for the nation. The decreases in expendable income and
inherent consumption will eventually adversely affect the greedy 1%.
They should stop and realize this. 

But given how unlikely that is, I propose readjusting the scales. 

We should increase tax rates on higher income earners. We should
eliminate loopholes that allow corporations to pay close to nothing in
taxes. And please spare me the discussion on marginal tax rates, as it
is the effective rates that matter. How about also eliminating carried
interest? How about increasing tax rates on corporations that have
excessive CEO-to-worker pay disparities? How about we end revolving
doors between corporations and political appointments? And most
importantly, how about we rein in the excesses of Wall Street once and
for all. Glass-Steagall should have never been overturned. I am talking
to you, Bill Clinton.

In the words of Smith:

No society can surely be flourishing and happy, of which the far
greater part of the members are poor and miserable. It is but equity,
besides, that they who feed, clothe and lodge the whole body of the
people, should have such a share of the produce of their own labour as
to be themselves tolerably well fed, clothed and lodged (Smith, The
Wealth of Nations, p. 33).

Using Format