Separation between state and capital

Source: AxelS | 256 views

I’d like to expand further on an earlier post about the three priorities of a well run democratic government: Education, Infrastructure and Law. I made a short statement about separation of state and capital.

In recent year I saw quite some interesting posts about ‘separation between state and economics’ or ‘separation between state and economy’. Well first of all i see “economy’ as the mirror of how we conduct business and how business can flourish in a given society. Economy or the economics of a nation is a result of a carefully interwoven and networked interaction between capital or the business owning part of a society and the government with it’s responsibility to take care of ALL of its citizens. Hence I believe it is better to say “Separation of state and capital”. With this approach we will also see a major conflict right away in a political form that is called capitalism.  Capitalism basically fuses capital and state in one unit that has eventually the same problem than communism. In a capitalistic world less and less people control more and more assets to a point where there is no difference to communism from an economic point of view.

When capitalism becomes an economic communism

Let’s look into the United States today, end of 2013. The largest part, approximately 80% of the population works in large global enterprises. They are all public companies. Public companies means the public participates in the economic success of those companies, very much like in communism. The company leadership including the ‘real investors’ however work very closely with the government and have a huge influence in the government’s decisions. When we look at the investor structure of the food industry which is still the most essential industry to mankind, the 350 ‘individual brands’ in the US are owned by approximately 10 large enterprises and only a few people like Warren Buffet have a large stake in those companies. At present time, less and less people control more and more assets and build and incomprehensible wealth – while an unhappiness 99% seeing the chances to become rich rapidly vanishing away.   Some predict that there will be the first Trillionaires in the next two generations.

Unlike the idea of free competition – as seen by Wesley Gant – and a well self balanced economy, capitalism allows an uncontrolled gravitational force that allows one company gets acquired by another until there is no competition left and we experience monopolies that are not only as bad as communism, it’s actually worst. AT&T, Comcast Cable, Microsoft, Ford and GM, General Electric, super market chains are only a few of those examples. The US had once 26 world class auto makers and have been considered the world leading auto industry. A sales pitch from GM telling other companies that ‘economy of scale’ will crush them and they better merge with GM worked well enough to buy most of the car makers, creating an unmanageable behemoth, that was eventually unable to compete on the world market. Ford and Chrysler did the same and the US ended up with three brands, so inflexible and lacking of innovation that international brands took over and crushed the US auto industry. In just 16 years the US lost all it’s leadership, no more the leading auto industry, no more the leading home appliance industry, no longer the leading aerospace industry, no longer the best education, no longer a self sufficient energy producer, no leadership in environmental technologies, renewable energy, health care….

The end of the american dream? The end of the land of opportunities? It is certainly just a few seconds before 12 and when you see billions of US$ flow into countries like Africa and revolutionize the African infrastructure, you know that a large portion of that gigantic wealth is leaving the country.

Is separation of economics and state an illusion?

One of the very related and controversial discussed movies is Atlas Shrugged from Ayn Rand. The story was written in 1953 and the third movie of that trilogy is currently in the making. Also Ayn is a big proponent for a free and uncontrolled capitalism and is mentioning the separation between economics and state – as she is migrating from Russia to the fast emerging US. But now – 60 years later, where are we? There is no separation between economics and state and capitalism is at risk to collapse. Replacing “economics” with “capital” isn’t just semantics but a significant difference.

I believe capitalism and communism are both idealistic and extreme forms of an ideal world, described by people who would like everybody adopts what is ideal for them. As such I trust neither one will ever work. All too often freedom for one is a limitation to another. We need to recognize and respect that a peaceful coexistence requires compromises. And compromises need to be democratically decided and then respected (one may not agree but will commit).

Separation of state and capital

The government of a society needs to look at the entire population and be not guided by the capital. That a company such as GM can buy and destroy public transportation in the interest to sell more cars, should never be possible in a democratic and capital independent government. That a government supports the weapons industry to a degree that the arsenal is able to destroy the plant 60 times and sell weapons to countries that are simply unpredictable just to fuel war for their own business interest should never be possible. Infrastructure that is part of the foundation of a society’s success should not be privatized unless it can be insured that there are at least three independent competitors. Patent laws should be in the interest of an inventor not in the interest of the capital. Trade laws should be in the interest of all independent trader and need to be predictable.

In today’s technological very demanding world education is not only a base right but a responsibility of the government to provide the best possible education to its society. That responsibility includes motivation why such education is so essential. Unlike in the US education system where higher education is almost in-affordable for an average family, the state need to ensure that all talented citizens are motivated and have access to the best possible education, including political education to grow a nation that is mentally able to execute their democratic rights and can contribute to the evolution of such a democracy. Political education also needed to ensure a society can maintain their democratic rights so that at least a large part of the society is able to comprehend the evolution of the law and rules and regulation the society is governed by. Since there will always be talents that come out of circumstances unable to afford first class education, it is the states responsibility to support those in the interest of the entire society.

From history we can learn that infrastructure has always been a keystone for prosperity. First cities in Egypt were build at the river Nile, where the river was a key transport medium. Harbors became the strategic infrastructure for prospering nations for thousands of years. Later on trading hubs emerged inland if good roads where available, expanded by trains and lately airports to be connected to air traffic. Public transportation systems are key in large cities to provide fast transportation within those cities. Phone connections, Internet, mobile phone infrastructure are the latest examples for key strategic infrastructure elements. Obviously handing those over to private businesses seemed to make a lot of sense, but the economic interest and the interest of a society as a whole are colliding also here. European countries for instance responded to those essentially just different monopolies with state regulations to ensure service needed for a prospering country. Germany, one of the most healthy economies, for instance took it even a step further and followed the principle to have communication managed by the department of traffic and infrastructure. Traffic, communication and energy are so critical to a nations success that it may make a lot of sense to make those carefully watched and co-managed by the state.

Obviously one of the most essential responsibilities of the sate is to create, maintain and enforce the law for its society. In particular maintenance of a law is a big challenge for most modern societies, that have still rules and regulations that are more than hundred years old and are completely outdated. Yet as one rule builds on previous ones it is very difficult to remove such outdated laws. More importantly is the need to create new rules for new behaviors, often triggered by new technologies. While the law is the foundation of today’s democratic society, all too often is the society not participating to execute their democratic rights by virtue of not even understanding what the law is for and what permutation it may have (see education).  I rising issue in the developed world is to understand and navigate business development. In today’s capitalistic societies it is easily possible that financially dominant groups can easily overpower less powerful groups for their own benefit but not for the benefit of the economy. For instance Microsoft was able to deliver Internet Explorer for free and killed innovator Netscape. This example is in particular valuable as one school of thought will suggest that any intervention of a government is negative for the economy and if the government would regulate at that level, where will it end? The other school of thought may argue that destroying innovation not in a competition of innovation but in a competition of capital is not in the interest of a thriving society and we need to find ways of fair competition in the base of the matter – in this case innovation. Obviously I’m not writing this to make a suggestion but to raise the issue and show the challenges that lay ahead of us.

In all of the above core elements, a well run government has deep connection between state and economy, yet not necessarily a need to have state and capital be as closely connected as it is today in many societies.

Economy, being “the wealth and resources of a country or region, esp. in terms of the production and consumption of goods and services” in accordance to Google, it would be hard to believe to decouple economy from state but separating state and capital as only one of the players of a nation seems to make a lot of sense.


Market Watch, 11 Trillionaires in 2 generations
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Wesley Gant – separation of economy and state
Any Rand – principles of a free society
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