Is Capitalism Failing – the Von Kleise Manifesto (Part III) by David Blond

Heinrich von Kleise, in my novel The Phoenix Year, makes much the same arguments for why he and his friends have acted as they have. The current system will, by its very nature, with its independence of planning and thought, lead to the collapse of the economies on which companies must depend. Without a growing and increasingly wealthier circular flow of money between workers and final demand, then economies will run down, inertia will set in. The Phoenix Year explores the paradox of globalization and technology as they are pushed further and faster than individuals, workers, can adapt. Failure of education and socialization lead to this poor result Keynes paradox of thrift (where excess savings dooms growth leading to recession or worse, social collapse) can be used to discuss the Paradox of Technology where companies drive productivity gains at the expense of the need for workers so that the main beneficiaries of this higher level of productivity achieved by outsourcing (globalization of intermediate supply) and new labor saving technologies are shareholders and company senior managements, not the few workers who remain. This eventually depresses the circular flow of money on which economies depend.

Marx saw that the capitalism that emerged at the end of the 19th century was self-destructive. Substitute technology for capital in his massive treatise on what was wrong with English capitalism, Das Kapital, and you can adopt its warnings for today. Marx concentrated his analysis on the role of new, labor saving machines, capable of creating supply without insuring sufficient demand for the new production. To pay for this new investments, wages were forced down leading to a lack of consumption, over production, and the resale of the capital below costs. This downward cycle allowed new entrants to the already choked markets. Essentially capitalism would fail as entropy sets. A slow, inevitable decay, due to the greed of capitalists themselves was what he predicted. Out of this comes Socialism; and eventually, in Marx’s mind, the ultimate in altruistic states, Communism.

Von Kleise is not a Marxist, but he diagnosed the problems of capitalism in its more modern form that he calls “Managerial Capitalism.” No longer was it owned by founders or capitalists, it was now shared out among a group of wealthy investors – private individuals acting collectively often through mutual funds, insurance companies, or pension plans. It had evolved to be larger than anything that a single person or family could control, and yet these growing, global power houses were being controlled loosely by chosen managers who were not, by and large, real owners of the companies they controlled. Their interests were tied to short-term goals as they were over compensated for the skill they brought to managing the company. Manager’s time horizons are short as they needed to get their stock options above their strike prices in order to get paid the huge bonuses they negotiate with overly tame Boards of Directors. One or two bad quarters can doom a CEO, so time is short to insure success. With their eye firmly fixed on “shareholders value”, they will cut costs, drive unreasonable bargains with unions, and shutter quickly money losing plants rather than invest in them.

The Phoenix Year is available now!