zero growth capitalism is possible

Discussion in 'Business & Economics' started by dixonmassey, Mar 18, 2006.

  1. dixonmassey Valued Senior Member

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    for some time at least. From what I understand, classic capitalist economies must grow or die because the peculiar process of the wealth generation involved. In two words, a capitalist (it could be some kind of formless entity) get a credit from the financial sharks, which he must to repay with interest > than inflation rate (usually). Thus, thinking globally, capitalists must create value greater than the value of the loans they get. This necessiates growth in the consumption of goods and services. No growth = no money to repay loan = bancruptcies etc.

    However, this is true only for classic, I would call it productive, capitalism. Most Westerners live uder another system, which I would call speculative capitalism. This kind of the system is much more flexible, it can produce additional value (meaning cash) for big guys to keep their all increasing scores with little or no growth in the consumption of tangible goods and services among the mere mortals. I'm not a financial guru, but I'm guessing, under current system, there are quite a few ways to bypass pesky "money-goods-money" sequence. I'm so ignorant of the financial matters, I'm not going even speculate about those ways.

    One thing which come to my mind, could it be that "rich get richer, poor get poorer" scheme is a necessity for the financial capitalism to exist under conditions of the modest to nonexistent growth of the "real" economy? After all, if a capitalist isn't able to extract more value by expanding his output, he may extract more value by squeezing his underlings more, invest fraction of the extracted value into media, prepaid think tanks, etc. to create an illusion of the all encompassing growth, so those who are not squeezed yet kept their consumption patterns unchanged (at least). Obviously, "squeeze" will gradualy get in touch with greater and greate number of peoples until some tipping point. Then, something big is going to happen.
     
    Last edited: Mar 18, 2006
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  3. TruthSeeker Fancy Virtual Reality Monkey Valued Senior Member

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    You should talk a little about how you can do that. Why should anyone believe you?

    Are you talking about financing and other stuff the bank does? Or stocks? Or what?
     
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  5. Light Registered Senior Member

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    Not necessarily so. And also, you have what I believe is a major misunderstanding of what a capitalist is. It very well could be the little old lady living next door to you. It would also be you if you own a single share of stock in any company.

    And the reason I said your presentation isn't necessarily true is simply because all a company has to do is make sufficient profit to pay it's stockholders (the real owners of the company) a rate of return that they deem worth keeping their money invested for.

    In simple terms, here's how "no-growth capitalism" can work. Let's consider a utility company - in fact, make it a gas company that operates within a city.

    They have expenses - things like buying the gas from a distributor, employee's pay and benefits, upkeep of plant and equipment, taxes, etc. And they have income from selling the gas to their customers.

    Since the expenses are subject to inflation, so will the price they charge for their gas. They can pass those increased costs directly on to the consumer.

    As long as their income stays far enough ahead (and they can make constant adjustments) of expenses to clear enough profit to give their stockholders what they consider a reasonable rate of return on their investment (the value of the stock). There are MANY people and financial investment companies (like banks and insurance companies) that are quite happy to stick with a company like that that pays a solid, competitive dividend each quarter as opposed to stocks that are bought for growth (increase in stock price/value).

    And in fact, many utilities operate in just that way. Many have a limited but captive market. Yes, they will slowly add customers due to things like population increases but not what is considered "growth" that results from things like introducing a new model car that takes the world by storm, or by expanding their product line.

    The same CAN be true of any business but it's much more difficult. That's why I chose the model I did for this example. Other businesses face real competition for customers and aren't granted any rate of return. The type I just described IS given a fixed rate of return which is established by state and city Public Utilities Commissions (or similar equivalent name).
     
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  7. dixonmassey Valued Senior Member

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    Selling futures 100 times over before the due date can create some serious cash flow and zero output of tangible goods and services. Same goes with stock, comodity, etc. speculations. Consumer debt industry, speculations on credit card securities doesn't create much value either. Computers allowed to accelerate those transactions immensely. Thus, almost all $making action shifted into the financial sector. Financial sector doesn't need direct involvement of real good producers to create value out of thin air. Real goods producers are on the losing side of the $race. Isn't it ironic that GM and Ford are marginably profitable only due to the contribution of their financial subdivisions financing purchases of vehicles, etc? So I've heard.
     
  8. Mosheh Thezion Registered Senior Member

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    PROBLEM IS.... when economies collapse... and depression hits...

    the banks.... still make money...

    so... WHY should they be concerned if everyone is in debt?
    they own all the debt... and if people cant pay.. they take everything.

    -MT
     
  9. one_raven God is a Chinese Whisper Valued Senior Member

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    1.) What good is owning everything when no one can afford to buy anything from you because they are all bankrupt?
    2.) Everything they own is essentially mortgaged. If people pull their money out, the banks can't afford anything. Everything they "own" is purchased with customer's money.

    Then banks need prosperous consumers to flourish, not dead-beat defaulters. It is in their best interest to do business with successful people and companies.
     
  10. Light Registered Senior Member

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    You paint a far too simplistic picture. In the 1950s in the the U.S., there was a long, sharp drop in the economy. One bank I was familiar with, First National O Columbus in Dublin, Ohio, had to foreclose on over 250 home loans. Yes, they took the houses - but couldn't sell them because no one was able to buy. They had to maintain them (houses deteriorate if not kept up) for over three years before finally selling most of them - and all sold at a loss even then. When all was said and done, they lost over $3.5 million.

    And during all the meantime, they were only making a few small loans because, again, people didn't have jobs and couldn't afford debt.

    So who says they made money? Some banks during the same period of time also had to go out of business.
     
  11. perplexity Banned Banned

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    A while ago I tried to work with the Green Party of England and Wales,
    with zero growth as a moot issue,
    conference motions etc.

    But I never saw how such is possible without monetary reform,
    a political control the money supply,
    the creation of money by usury,
    a proposition that the Greens were controvesially shy of.

    People naively pepetuate the illusory notion that governments regulate the money supply.
    The opposite is actually the case:
    The suppliers of money control your government.

    ---
     
  12. dixonmassey Valued Senior Member

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    most stocks are owned by few richest people. With her few shares a little lady has no any means to affect any business decision unlike a guy with 30% of shares, for example. Thus, a lady is not a capitalist; she is, excuse my French, a totally powerless rentier, a partial one to boot. How many old ladies are living exclusively on their investment dividents? I thought so

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    Letting old ladies with their crumble$ into the big boy$' game have much more to do with social control than with anything else.

    First, company needs to be established. Building a profitable modestly sized business requires lots of $. In the modern fast paced age, washing an apple, selling it for $.05, buying two apples selling them for $.1 and so on to build up capital doesn't cut it anymore (I greatly doubt it cut it much in the past too). In two words, life is too short, average incomes are too small, start up costs are too high for the mere mortals to accumulate start up capitals on their own. Gathering start up capital by issuing shares of very dubious value is rather rare (that requires some mighty trust and/or lots of the related blood). In most of the cases people borrow capital in one way or another to start up .

    Second let's assume company is well established and it manufactures a product X. To produce X it needs to purchase raw materials, energy, labor, maintain equipment and so on. Certainly all those costs are eventually paid by buyers. However, company doesn't keep all the proceeds, it keeps only mark up. Usually, mark up is far less than the capital needed to purchase all that good stuff to manufacture X again. thus, there are essentially two options: for company to accumulate sufficiently large capital and to become its own banker or to borrow $ from financial markets, issue stocks, etc. Add there market fluctuations, necessity to expand production, launch a product Y, keep plant working when sales are down, and so on. I'm not a capitalist, obviously those people can count their money much better than I can speculate about them counting it. Thus, if majority "producer" capitalists borrow capital instead of becoming their own bankers, it must have certain cost advantages.

    From a shareholder point of view, paying an interest on the borrowed capital is just a cost of business. Alternatives seems to be less attractive $ wise.
     
  13. Light Registered Senior Member

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    Sorry, but your perception of reality is off quite a bit. First, it's extremely rare for a single individual to own anything like 30% of any major company. The biggest owners of record are finacial companies (banks, insurance companies and fund managers - which in turn are owned by tens of thousands of individual stockholders.

    And then this statement: "However, company doesn't keep all the proceeds, it keeps only mark up. Usually, mark up is far less than the capital needed to purchase all that good stuff to manufacture X again."

    If that were true for any length of time for any particular company, I can show you a company which would quickly fold. If the price of goods sold does not exceed operating costs (and with a profit left over) that company will go the way of the do-do bird.
     
  14. dixonmassey Valued Senior Member

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    How do you imagine stock deinvestment? Stocks are bought already, company got its $, stock holder may sell his stocks on the market at his luck. However, company isn't responsible financially for the fluctuation of its stock price. Company is legally responsible to repay its debt + interest though. Now you see why issuing stocks (in the amount not endangering the ownership rights of the main stockholders) is much more preferable cost wise. Stockholders are not members of an egalitarian indian tribe. Not all stockholders are made equal

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    Plus, there are still lots of privately owned companies. They borrow capital too.

    Nice example of a heavily subsidized/regulated monopolist. But maybe you are onto something, maybe monopolism is a way to zero growth too. Local monopolism, as in case of a utility company, isn't an answer though. Because indirectly it partakes of the surrounding growth. After all, customers and/or taxpayers must come up with additional dough to pay for the blown transformer, for example. New transformers are still made in the competitive environment. Thus, utility company is a middleman extracting $ out of its customers to pay for the debts incurred by transformer manufacturer.
     
    Last edited: Mar 19, 2006
  15. dixonmassey Valued Senior Member

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    Nice try. However, top 5% hold more (59%) wealth as bottom 95%, top 20% own 80% of wealth. It's reasonably to assume that top 20% owns 80% of shares, at least. Thus, all those mutual/pension funds where lil old lady keeps her investments simply cannot own much of the action despite the impressive number of shareholders it has. There are quite a number of investment firms managing $ of the richest ones. That kind of companies owns most of the stock market. Banks, financial companies are also facades for the rich and powerful.

    The only segment of the population that experienced large gains in wealth since 1983 is the richest 20 percent of households. Significant portion of that wealth was generated in the stock market. Stock market didn't help much everybody else. I'm not connoisseur of behind scene dealings among members of old boys network. However, it's quite obvious that not all shareholders are born equal

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    even if it appears so.

    Well, English, as you've noticed, isn't my native language so I may have used wrong terminology. I didn't say that price of goods doesn't exceed operational costs. I said that Price of goods = operational costs + mark up (or whatever the right term). After business cycle is over, goods are sold, suppliers, labor and uncle Sam are paid, company keeps "price of goods minua operational costs = mark up (added value maybe is more proper term)=profit. For well established industries mark up is quite small (3-10% of the operational costs). Thus, to repeat business cycle "one cycle" profit isn't enough. The rest must be borrowed in one way or another unless company has an accumulated operational capital. Yes, company can grow slowly accumulating its own capital little by little. However, there is always a possibility that competitors will borrow, grow faster and put slow growing company out of business. As W Mart have done with thousands of his former Ma and Pa peers. In a competitive environment flooded with financial capital, borrowing is a must, unless one produce/sells unique, hard to dublicate (fat chance of that) product or serves some kind of undesirable/low return on investment location/field. You know, there are very few Wal-Marts in the rural South Carolina. No, it's not because locals are anti Wal-Mart zealots, it's because they are poor and rural areas are sparsely populated.
     
    Last edited: Mar 19, 2006
  16. TruthSeeker Fancy Virtual Reality Monkey Valued Senior Member

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    Yeah, I know that. That's why I'm not creating a manufacturing business.

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  17. madanthonywayne Morning in America Registered Senior Member

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    Who wants zero growth anyway? In this world it's grow or die. A zero growth economy is a dying economy. I think Cuba has a zero growth economy. Also, North Korea. Lovely places to live.
     
  18. TruthSeeker Fancy Virtual Reality Monkey Valued Senior Member

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    Zero growth of production is different from zero growth economy...
     
  19. Mosheh Thezion Registered Senior Member

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    IM not saying the banks.... want a depression...


    all i am saying... is that they profit off of it...

    that much should be clear...


    what do they care??? they are already rich....??

    and if everyone tries to pull the money out.... they realise...




    there is no money.... its all hypothetical bullshit.

    -MT
     

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