Everything You Ever Wanted to Know about Capitalism (But Were Too Afraid to Ask)

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If you’ve ever found yourself feeling skeptical about capitalism (or the idea that its current iteration is the best and only economic system worthy of our attention), this episode is for you. 

My guest, Grace Blakeley, recently published a book called Vulture Capitalism in which she tees up what we fundamentally misunderstand about capitalism and knocks down the many half-truths that enable the status quo’s most powerful narratives.

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Our show is a production of Morning Brew and is produced by Henah Velez and Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is President of Morning Brew content and additional fact checking comes from Scott Wilson.

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Mentioned in the Episode

• Grace Blakeley on Current Affairs

• Index fund which only owns companies that spend the most on lobbying outperforms the S&P 500

• Tesla reports on net income in 2024 (SEC)

• Boeing to cut 17,000 jobs (Reuters)

• Boeing charged with conspiracy to defraud the FAA (Justice.gov)

• Ford as a bank

• The Lucas Plan (Tribune Mag)

• The 2023 Cost-of-Thriving Index (American Compass)

• Economist Isabella Weber

• The Transition from Feudalism to Capitalism (Hilton and Hill)

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Grace Blakeley:

If you were a serf living in the 1300s, you would’ve thought that was it for the rest of human history. You wouldn’t have even really had a conception of human history beginning or ending. It would just go round and round in circles. And here we are now looking at powerful systems, but in terms of the inequality of power, we have much more leverage than we think we do. Because these systems rely on our votes; they rely on our labor; they rely on our participation; and if we all stop obeying, that’s it for capitalism.

Katie:

Grace Blakeley is an English economics and politics commentator, columnist, journalist, and author. She’s about my age; scary. She’s one of the clearest communicators about the pitfalls of modern capitalism. I discovered her thanks to an interview in Current Affairs, and so much of her commentary felt fresh and distinct that I knew I needed to have her on this show.

If I had to distill the thesis in her book Vulture Capitalism to one sentence, it would be this: Our surface level definition of capitalism, which usually involves something like competition or free markets in modern life fundamentally misunderstands and underestimates the role of central planning from the state. And that misunderstanding means we are often unable to think clearly about a better way forward. Okay, that might’ve been two sentences.

I’ve been on a bit of an accidental deconstruction journey over the last few years as I have stumbled upon some of the things that Grace writes about in other books, or honestly observed them in my own life or in real life. I used to consider myself a staunch capitalist, but now that feels a little bit like admitting that the wool had once been fully pulled over my eyes and that I had internalized a lot of beliefs about the way the world must work that weren’t necessarily true. Much of that discovery process has been documented on this very show. You have heard me grapple time and time again with this existential question of what does it mean to participate in a system when my very participation further entrenches the need for it?

I’m not really sure where I stand now. And the feedback on this has been hilariously split. Usually it’s the same words, but with a very different tone. It’s either you’re talking about socialism, like come on, say more, or you’re talking about socialism (derogatory). And isn’t it funny that something as dry as an economic system is essentially a four letter word in the US that’ll immediately get you laughed out of the room?

It’s funny that I feel almost nervous to use that word on this show, let alone invite an economist who identifies as a socialist for a conversation about capitalism. But from a young age, I was taught that this is a belief system that I shouldn’t even discuss or entertain. In theory, you’ll often hear people call themselves anti-capitalist today, but it’s far less common for someone to come out and say they are a socialist, which is at least partially what being anti-capitalist would imply, right? Of course, there is a loaded history that we’re going to get into today, but at the end of the day I wanted to know why is that? And more importantly, what is the result of that aversion? What conversations are we just not having because we feel like we’re not really allowed to have them? What if most of the talking points we associate with free markets and competition are just that empty talking points?

Grace points to the popular ideological commitment to free markets as the highest good, also known as neoliberalism, that which says it wants to shrink the state and have small government so markets can run free and clarifies that what that really reflects is a desire to quote, “Do away with politics, the arena in which we find deliberation about justice and other common goods. Contestation over values and purposes, struggles over power, pursuit of visions for the good of the whole.”

So welcome back to The Money with Katie Show. I’m Katie Gatti Tassin, and today I’m assuming a disclaimer: I think these conversations can be a little exhausting sometimes because the more I learn about the way things work, the more demoralized I feel, and it’s really tempting to crawl back into Individual Solutions land, throw on the rose-colored glasses, and focus on my own little balance sheet and ignore everything else. But despite that urge, there is something else that feels a little exciting about unpacking all of the half-truths that undergird the way our society is organized. And I think what you’re going to hear from Grace today isn’t a message of exhaustion but one of hope.

It’s my belief now that the better understanding we have of how modern capitalism works, like the finer points of it and how the state serves to advance its interests, the more power we all stand to gain. The less gullible we’ll be to politicians and CEOs on either side of the political aisle purporting to represent our interests. The more likely we’ll be to the power we possess together instead of deferring that power to the already rich and the already powerful. After all, the government is not some fully autonomous layer separate from and resting on top of society. It’s not possible for the state to act as a neutral enforcer of the rules of the game.

Instead, inevitably as capitalism advances, every state is doomed to plan predominantly in the interests of the best organized and the most powerful groups. And in capitalism, who is that?

So let me unpack Grace’s core thesis before we get to our conversation. One core tenet of what makes capitalism work is theoretically the presence of competition. I think about competition as the fundamental underlying force of capitalist logic. If you ask somebody, hey, what is capitalism all about? They’re probably going to say something about competition. But Grace points out that as capitalist economies mature, it becomes more and more expensive to compete with incumbents. Powerful firms develop relationships with the state which they can then exploit. We’re going to talk about a couple prominent examples of that today. They can lobby policymakers to make it harder for competition to enter the market. They can get bailed out when things go wrong and when market forces would otherwise kick them out of the competition and make it harder for antitrust legislation to do that job.

Since competition is the mechanism by which prices are lowered in capitalism, when you see weakened competition, you generally see higher prices, worse products and profits that are not channeled into increasing productive capacity because they don’t have to. Instead, profits distributed to shareholders and executives and things become increasingly financialized and therefore more unequal and more precarious. Think 2008, a consulting group created an index fund that only owned companies that spend the most on lobbying and it outperformed the s and p 500 by 5% per year. And I just know my free market enthusiasts and the audience are rubbing their palms together and looking up a ticker symbol as we speak. A lot of what we’re going to talk about today can be boiled down to that my profits, our losses meme, and I think Tesla is a powerful illustration of this idea. So Tesla is rather famously only profitable because of government funding in the form of tax credits and rebates.

Tesla reported 1.1 billion in net income for Q1 of twenty twenty four, four hundred and forty 2 million of that 1.1 billion of net income came from federal carbon credits. Hundred and 86,000 Teslas were sold in Q, one of which the vast majority were eligible for the $7,500 federal EV tax credit. It is in part public funding that has made Elon Musk a billionaire. This is classic my profits, our losses, the public, the taxpayer who has footed the bill from the jump has not made a dime on Tesla. All of those profits accrued to effectively one person, and of course Tesla shareholders. This is precisely why it is disingenuous to describe our current system as a free market economy fending off pesky interference from an inefficient state. Tesla would not exist were it not for the largest of the federal government. Now, I am selfishly using parts of this conversation with Grace to press her on things that I still can’t quite make sense of as well as being upfront about the parts of capitalism that I find myself having a really hard time parting with because who knows, maybe there are certain regions of economic theory in which we just aren’t giving capitalism enough credit. I’m open to anything, baby. I hope you enjoy this wide ranging conversation with Grace Blakeley right after a quick break.

Alright, we’re starting with a little history lesson, the Cold War. Grace, welcome to the jungle. Capitalism as it actually exists in reality, but your definition is a hybrid system between markets and planning. And you point out that the theoretical concept of capitalism is this meritocratic system of pure anarchic markets wherein competition and free trade dictate winners and losers is a naive view of how it works in real life. So how does it actually work?

Grace Blakeley:

So a lot of capitalism’s defenders will try to portray this as a system which is based on freedom and democracy. And so they say that the reason that we need to have a capitalist economy is that it’s a very efficient way of producing and distributing resources because it uses this market mechanism, which basically means that nobody has to be in control of telling people what to produce or telling people what to buy because the market equilibrates supply and demand, it allows lots of individual producers to trade with each other. And in doing so, it creates these things, prices that facilitate the distribution of resources and the production of resources across society.

That’s contrasted with this idea of centralized planning, which is something that was practiced in the USSR among other places. And the idea is in those kinds of systems, the government decides who gets what tells everyone to do et cetera, and all kind of ideology and mythology of capitalism is that you have the US which is this nice free market system on the one hand, and then you have the USSR, which is this horrible authoritarian status system on the other hand.

And the USSR uses planning and the US uses markets, and that was the battle that underpinned the Cold War. But we still kind of have it to this day in the sense that we have this idea in our heads of capitalist societies as market societies. And what I show in my book is that actually, existing capitalist societies are based on this balance between markets and planning. So we don’t actually live in free market systems. We don’t have these kind of nice decentralized systems through which lots of small producers are interacting with one another and the government stays out of the economy. Instead, we have these massive multinational corporations and those corporations are able to plan themselves because they have so much power and so much scale that it allows them to do that.

And then we have governments that do have a massive role to play in the economy, but they generally use that role to prop up the interests of those big businesses. So you have this kind of oligarchic centralized capitalist system where big businesses work with governments and also financial institutions, international organizations to maintain their position at the top and maintain this kind of inherently unequal system.

Katie:

I would love if you could tell me a little bit more about the role of the state in such an arrangement. What might we expect to find? What would you point to as like, see, this is a crucial example of the state’s interference in the so-called free market.

Grace Blakeley:

Yeah. Well, the example that I like to use to illustrate this point about both the state’s role in the economy, but also the kind of domination of the economy by massive corporations is the example of Boeing.

Katie:

I will say I feel badly because Boeing often catches strays on this show, but since the news recently broke that they’re laying off 17,000 people to cut costs, I’ll allow it. So proceed.

Grace Blakeley:

Recently, one of the doors blew out of its planes mid-flight. It’s been kind of beset by engineering failures, management failures. Its leaders are being hauled in front of Congress now workers are going on strike in the organization. It’s had a really chaotic few years. And that came on the back of the 737 Max disasters that took place in 2018 and 2019 when two Boeing 737 Max jets fell out of the sky.

And in the wake of these disasters, Boeing basically tried to blame the pilots, said that this was the fault of the people flying the planes. But later investigations revealed that it was a flaw with the Boeing planes themselves. And I write all about all of the kind of whistleblowing that took place in my book, but suffice it to say that Boeing’s executives knew about the flaws in this plane that caused it basically to nose dive out of the sky.

It was effectively a piece of software that had been put in the plane to stop the plane from stalling, caused the nose to tilt down without really notifying the pilots and without allowing them to rectify the issue. So the idea was that this system would be put in place, the pilots wouldn’t really be told about it. They wouldn’t have to be trained on it. This would just be an automatic thing that would be put through. So all of it was basically about saving money. And indeed, the whole idea behind the design of the 737 Max was that it should be delivered extremely quickly and at very, very low costs. The CEO of Boeing issued workers with an ultimatum saying, you have to deliver this plane really quickly and at really low cost.

Now, all of that sounds like, oh, it’s just a standard failure of corporate management, right? It’s just a case of corporate greed. But there are a number of features of this market and Boeing’s relationship with the state, which show why what happened within Boeing had absolutely nothing to do with free markets and everything to do with the way that capitalism works outside of those markets.

Katie:

How so?

Grace:

First and foremost, Boeing exists as basically part of a duopoly. That means when there’s two major companies that dominate an industry. So there’s Boeing and there’s Airbus. Boeing is a US company, Airbus is the European company. And each of the various kind of states or international institutions that headquarter these companies see it as their role to kind of boost those companies and to give them lots of defense contracts and to generally keep them within their orbit. So these companies are able to exert a huge amount of control over their industry because there’s only two of them, and they’re also always able to rely on supports from governments.

Now, in the case of Boeing, what this meant was that the firm was basically able to regulate itself for quite a long time. In the US, the FAA, the Federal Aviation Authority had been moved to a philosophy of self-regulation, which the same kind of philosophy that underpinned how the banks were regulated in the run up to the financial crisis. So Boeing was being regulated by a unit of the FAA that sat inside Boeing and whose workers were being paid by Boeing. So all of that was being overseen by the American states. It had tons and tons, and still has tons and tons, of defense contracts with various different parts of the US state. It’s an integral part of the military industrial complex.

In 2018, Boeing was the largest recipient of corporate welfare. That means it got tons of tax breaks, tons of subsidies. The idea was the government was basically creating the conditions within which this organization could thrive because the US government had become dependent upon this organization for equipping it for all sorts of different kinds of contracts. So it’s receiving basically corporate welfare from the government. And bear in mind, we hear so many arguments against welfare for people made by people who call themselves free marketers. And yet there’s this huge amount of money being funneled into the pockets of executives in companies like Boeing.

Katie:

So the government and this public company are interdependent. Why does this create a problem?

Grace Blakeley:

So there’s this symbiotic relationship between the government and these big monopolistic corporations that allows them to work together. But what’s also is that the whole idea behind the free market is that there’s supposed to be a process of creative destruction. So when you screw up as a firm, the risk is on you, and that is what encourages you to run a good firm that has low costs and is efficient and doesn’t screw up basically.

But what happens in the case of most big businesses, most kind of monopolistic corporations, is that when they’re under threat, the government basically says, you are too big to fail. I’m going to step in and bail you out. And that’s exactly what happened with Boeing. So at the same time as there were all these cases that were going on against the company, basically accusing it of negligence, and it eventually was charged with a criminal conspiracy to defraud the United States because it had kept all of these secrets about the problems with these planes away from customers and regulators at the same time during the COVID-19 pandemic, when the airline industry was suffering quite a lot, Boeing was able to take advantage of a massive amount of government support.

So it was getting another bailout through the back door from the American government. This effectively meant that even though it had emerged that these Boeing planes had basically been found to be unsafe at a number of different cases, it was still getting money funneled into it through the US government. And that support has continued, and the US government has continued to basically fight for Boeing’s ongoing existence to continue to give it contracts to make sure that this aerospace company continues to exist because it sees interest, its interest as tied to the interests of Boeing senior executives. And you see this in so many different sectors.

Obviously we saw it in the banks in the wake of the financial crisis where governments stepped in to save those at the top from the consequences of their own decisions. But we also see it in pharmaceutical, in pharmaceuticals, in retail, in chemicals, all these really big sectors of the economy that are dominated by a small number of extremely powerful firms that you probably won’t ever have often heard of because they are producing machines, technology, equipment, et cetera that go into the running of the economy.

These firms are not really operating in a free market at all. They have so much power, so much influence. They’re able to basically set prices, set conditions for workers, often set their own tax rates basically, and the government just lets them get away with it. Because again, capitalism isn’t this free market system where there’s separation between what’s going on in the state and what’s going on in corporations. It is, as you very rightly mentioned, and as I say in the book, a system where those at the top basically work together across all the boundaries that divide them to protect their interests.

Katie:

And I can imagine someone listening to this and being like, ah, well then we just got to do capitalism, correct? We just got to actually do capitalism then. Why is that not a thing? Tell me why. The pushback of like, oh, okay, well if we’re just doing state capitalism, then we just got to do real capitalism. Why doesn’t that work?

Grace Blakeley:

So two reasons. One of them hinges on the nature of monopoly and corporate power under capitalism and the second hinges on the relationship between the state and big business. So when it comes to polies, these kind of emerge fairly naturally over the course of the development of capitalism. And if you think about it, there’s a very obvious reason for that. If you look at an industry like aerospace for example, it’s not like a kind of plucky startup could come into that sector, raise the vast amounts of money that would be required to start an enterprise in that sector, get access to all the technology, the political relationships that are required to develop contracts. It is essentially an industry with massive barriers to entry.

And as capitalism develops and technology becomes more complex, those barriers to entry tend to increase, particularly in those sectors I was talking about that are dominated by those big monopolistic corporations, the ones that produce all of the stuff that all of us really need to survive. And that makes the global economy go around. So because you need more capital, more technology, more power, basically to start a business, as technology becomes more advanced, you get this tendency towards monopoly. At the same time, you also get this tendency towards what I’ve written about before, which is called financialization.

Katie:

Okay. So this is a system that as it progresses, inevitably trends toward monopoly and financialization. Why is that?

Grace Blakeley:

Now, if you did want to start a big company that was going to be a threat to someone like Boeing, you would need a lot of money. Where would you get that money from? You would potentially go to a bank, maybe you would go to a bank for a loan, or maybe you would ask for some assistance in raising money from investors. And so that process of the need to raise more and more money leads to this ever closer relationship between big financial institutions and big companies. And what then happens as those companies grow is that they get these vast pools of money, these huge amounts of profits, and then they have support and help from those financial institutions to decide what to do with that money and where to invest it, how to invest it, et cetera.

Often they’re just literally doing things like investing in financial markets, buying land, acting like banks themselves. So this is all a process as well that comes to see, we’re not just talking about the merging of corporations in the state. We’re also talking about the merging of both of those with the interest of finance as well. And that’s a really, really important point. So that’s the kind of tendency towards monopoly and financialization, and that is really not something that you could change by doing a different kind of capitalism. It’s not like we could ever really live in a world where big planes would be manufactured by tons of tiny little small enterprises. And that model of free market capitalism only really works when you have that much more rigorous competition.

So that then raises the question, right? Okay, so how can we live in a world where we can produce things that are very sophisticated and require these big organizations, but where there’s still accountability? But my argument is basically we need democratic corporations.

Katie:

Yeah. I’m struck that it feels we’ve reached a bit of an impasse, like some sectors need big firms, but corruption also seems inevitable. So is it just Pollyanna to suggest we could, I don’t know, just clean things up a little bit?

Grace Blakeley:

A lot of people say, well, if we could just clean up money in politics, if we could create this divide and make it much more clean, then we would have a real capitalist system because the state would be meddling in businesses and business wouldn’t be meddling in the state.

What I talk about in the book is that you can’t see states governments as just these kind of self-contained institutions that can exist on their own without any input from the rest of society, because what happens within our governments basically reflects who has the power in our society. If you think about times in the past where society’s been more equal, it’s been because workers have had more power, there have been labor unions that have been strong, so they’ve been able to make demands of in the US state government and federal government and say, we want higher taxes on big business. We want to higher wages, et cetera. So that’s created a more equal society.

But the society that we live in is one in which corporate power dominates and financial power dominates. So in that kind of society, it’s inevitable that those institutions with all the power, with all the influence, and whether that is through direct lobbying, through their influence within think tanks, media institutions, educational institutions or whatever, the balance of power in a capitalist society is always going to be in favor of those big corporate interests. And those big corporate interests are always going to be able to influence what happens within governments. You can try and insulate governments from that power, but you are never going to be able to do that completely, which is why even in countries like the UK where you don’t have as much money in politics as you do in the US, politicians still consistently, constantly, even when it doesn’t benefit them personally, just make policy that is in the interest of big business of landlords, of big financial institutions because the way that our society works means that everyone thinks that what’s good for big business is good for the economy as a whole, and that’s just going to be inevitable in any kind of capitalist economy.

These are the people that control the stuff. You can’t just try and get rid of monopoly through antitrust reform, and you can’t try and separate the state from what’s going on in the economy, because the whole idea of a distinction between those two things is a bit of a fallacy. And because of that, you can never get a pure free market system other than maybe a market that exists literally in your local town. That’s the only real example that you could ever find of a pure free market system.

Katie:

Interesting. So then you mentioned the merging of big business and financialization. I want to bring up another example of how this happens because you also write about Ford in the 20th century, and how Ford recognized at some point, again to this point about financialization, that it’s, oh, hey, it’s actually more profitable for us to become a bank to start extending credit than it is to produce and sell cars. That’s hard work, that’s capital intensive. But extending credit now that we have all this money is actually quite easy. But the problem is when things go wrong that the company does not, it doesn’t bear responsibility on the downswing as you would expect in a true free market, to your point, because they get bailed out.

Grace Blakeley:

And what’s funny about finance is that this kind of downside risk just doesn’t really exist. Basically the thing that makes a bank a bank is the fact that it has such a close relationship with the central bank of a particular government that as long as that government is credit worthy, that bank is always going to be bailed out.

So whether that’s the fact that its depositors are bailed out, or whether it’s the fact that the actual bank itself and the institution is bailed out, there are systems and mechanisms in place to make sure that a big bank will never go under. And that is in some ways that’s necessary to the functioning of a modern capitalist economy. If people were scared that banks could go under, we could not have the level of lending investment and therefore production and consumption that we have in the economy today because people would be constantly taking a little bit back out of everything that they were doing to set something aside for risk. So the integrity of our financial institutions is critical for the functioning of modern capitalism, and it’s all based on the knowledge that everyone shares that the government is never going to let a bank go under.

And actually at the level of the global economy, that means that it’s not just that no government is going to let a bank go under, it’s that the American state is going to come to the rescue of its allies as it did after the 2008 financial crisis and pump dollars into their economies to get their financial systems going again. So the whole global economy and global finance basically rests on this assumption that the American state will always swing in and come to the rescue whenever there’s a crisis that threatens the integrity of global capitalism basically. And that’s something that everyone would basically admit. If you talk to even mainstream economists, it’s not something even that most free marketers would say is a bad thing. They’ll say, yeah, it’s unfair. It creates what they call moral hazard, which basically means where you get—my favorite example of this is when in the TV series, Friends, Joey gets health insurance and then gets Phoebe to hit him repeatedly over the head with a bat where he’s wearing a helmet because he has health insurance. He’s taking loads of risks with his health because he’s like, I’m not going to have to pay for them anymore. This is the same thing with the financial system.

Katie:

Clearly, he doesn’t understand how health insurance in the US works because baby, you’re still paying for it. Yeah, I need, you’re still going to be paying a lot.

Grace:

You’re still going to be paying a lot for it.

Katie:

We’ll continue after a quick break.

Grace Blakeley:

The idea is, yeah, that if you’re insulated and protected from risk as the financial system is, then you can do whatever you want. And the banks knew this in the runup to the financial crisis because it had been shown previously in the crisis that took place in the 1980s when you’d also had these bailouts from the government. Then you had this massive global international bailout that took place after 2008, and suddenly everyone was like, wow, okay. So after Lehman Brothers, when people were like, oh my God, maybe the government actually won’t step in to save the financial system, and that caused a complete and utter panic.

So the government was like, okay, actually no. It was interesting the ideology behind that because the governments at that time had really bought into this idea that their job was to promote free markets. So the whole letting Lehman Brothers go under thing was like, well, no, the government can’t possibly step in to save the banking system. And then suddenly they realize the way that capitalism actually works has nothing to do with free markets, and instead rests on the fact that those at the top have to protect each other. And when other people at the top, so Lehman brothers go down, they thought, oh shit, the government isn’t going to come and protect me anymore. The government doesn’t have my back.

So that caused the whole system to break down, and it meant that eventually help did cut, and we’ve seen it again during the pandemic, and that wasn’t just to financial institutions. That was unbelievable sums of money pumped into the economy to benefit businesses of all kinds, astonishing levels of fraud in the US; you had tons of money going to businesses that applied for loans. The owners of those businesses were sitting Congress people, and then those businesses donated to the campaigns of those sitting Congress people. So it’s just like crazy levels of corruption.

And again, it’s about these people at the top kind of having each other’s back and making sure that when the economy is in trouble, the people with the money, the people with the resources, the people with the wealth are always protected.

Katie:

Yeah. Naomi Klein’s 2007 book Shock Doctrine discusses this idea of disaster capitalism in more detail, like the way catastrophes are exploited for profit and pretty predictably. So who ultimately the cost of those bailouts then because someone is?

Grace Blakeley:

Right, as you say, there’s no downside for them, even though they get all the upside during the boom times. Instead, who is forced to pay for the crises caused by the reckless greed of those at the top? It is everyone else. It is people who are on low wages, people in insecure housing in the UK for example, we have a public healthcare system, the NHS, but successive governments have been taking money out of that saying There’s not enough money left to pay for your healthcare, but there’s plenty of money for us to distribute to big corporations and pump into the finance sector. So again, everything that happens within our economies within a capitalist system is shaped by these power dynamics. Who has the power? Who has the power to say, you have to do what I want, or I’ll shut the economy down today, it’s the wealthy.

But there have been times in history where it’s been workers who’ve been able to say, I’ll shut the economy down if you don’t give me higher wages. And actually the reason we got this shift to kind of what was called free market economics, but was actually about governments and big corporations working together very closely.

Katie:

So something that I think happens when we have conversations like this one, because I can imagine a ultra capitalist, ultra free markets person hearing that and being like, yes, see, the state sucks at spending money. It spends so much money, it spends things on bank bailouts.

It does things that I think regular people, to your point, I mean in my head always what I think about when we talk about who bears the risk and who actually experiences the downside, I just think about all the people who lost their homes in 2008 and in the aftermath of that, I mean, they didn’t get multimillion dollar bonuses, they lost their home. So someone is bearing the downside effects of these decisions and these risks being taken. But the thing is, we talk about how the state spends money to prop up power or to prop up capital, and then we feel angry about it, and then that anger is in turn used to strengthen the very same politicians who claim to support free markets.

They go, yeah, see, the state sucks. Look at the state. You don’t want the state in charge of things because the state does a bad job. And that feels very, very important because I see this logic all the time. It’s disapproval of state spending ends up reinforcing the idea that all government is necessarily inept, that public goods are always going to suck, that free markets are always the best way, but as we know, as we’ve established, free markets are propped up by the power and the money of the state, a free market. You can’t get a new aircraft manufacturer out of a truly free market that doesn’t work in the stage of capitalism that we’re in.

And the difference is, okay, but whose interests is that state being wielded to serve? And so neoliberal dogma says the purity of free markets, they’re more efficient, they’re more naturally equitable than the corruption of state planning. Do you think that that’s a fair representation of neoliberalism? How else is this word we hear all the time neoliberal? How else is it connected to an accurate understanding of capitalism?

Grace Blakeley:

Yeah, really good question. I want to come to your first point there about how this anger about government leads into neoliberalism. It is kind of how we got here in the first place, and it’s kind of why I wrote the book really. The neoliberals constructed their argument on the basis of saying the government, the state has gotten too big. It’s spending too much money that is creating undemocratic and inefficient outcomes in the economy. So we need to shrink the states and create more space for the market.

Now, the argument in my book is that what has happened with the neoliberal turn, so with all the changes in policy that we started to see in the 1980s is that the state has not shrunk. It has gotten bigger. It has gotten bigger. For some people, it’s gotten smaller for other people, neoliberalism has not been associated with a smaller state. It’s just that it’s associated with a state that does not do good things for working people, that does a lot of good things for powerful people, and that uses, its really still quite immense power to crush the resistance that comes from generally the kind of marginalized, if you try and fight back against the state, the state is very big. If you’re a banker that needs a bailout, the state is very small if you’re a working mother who’s just lost their home.

So this whole narrative about big states, small state, it doesn’t work. The state size overall on pretty much any measure in the US hasn’t changed. It’s gotten bigger under neoliberalism. So this was never about shrinking the state. What it was about was changing who gets to make decisions in the state who has control, right? And this is why I don’t actually think that this markets versus states dichotomy is a good way to understand anything. So this is why we have to kind of change the terms of the debate because as you say, if we think, oh, the government is really corrupt, it’s just helping big businesses, then sometimes that feeds into this idea of, okay, well when we just need to shrink the government even more and create more space in the market.

But again, what you are seeing when you look at a capitalist economy is not governments on one side and businesses on the other. It is a fusion of public and private power at the top, and then everyone else cut out of decision-making processes of institutions and left to fend for themselves.

Katie:

Yeah, I’ll note here that the lip service of democracy of like, well, you get to vote, but federally, you’re really voting for one person every four years. You have to pick a side and then get on board with everything that side thinks, and the people don’t really have meaningful power beyond that, and this is an area where I think it’s super clear that politics and the economy are inextricably connected.

Grace Blakeley:

So the dichotomy isn’t states versus markets. It’s kind of oligarchy versus democracy.

And you can see this because you can say to a neoliberal, okay, great. You think that shrinking the size of the state is going to cut corruption and boost efficiency, but actually if you look at the economy and if you try and separate what is going on in the economy from what’s going on within politics, even then you have massive multinational corporations that have huge amounts of power and are able to control and dominate human beings in much the same way as the state does. We have this really significant divide in our own heads between state power and corporate power. But at the end of the day, states are powerful because they can force you to do things.

Multinational corporations are also powerful because they can also force you to do things, whether that’s as a worker, where your conditions, your wages, the very activities that you do on a daily basis are being set by a bunch of corporations at the top of that system, whether it’s as a consumer, because the goods that you face on the shelves, the kind of innovation, the innovations that you see, the technology that you see, the prices that you face, those are decided by those big corporations, not by this decentralized market mechanism or whether it’s just as a citizen.

Because again, these massive corporations are responsible for the vast majority of say, greenhouse gas emissions. They don’t pay their taxes. They determine so much of the society in which we live and they have no democratic accountability. So if you say, we’re going to shrink the state and live in a world of corporate power instead, that again, doesn’t do anything to expand or deepen people’s freedom, you’re just taking power away from one side of this oligarchic mess and giving it to someone on the other. And the real divide that I think we need to look at this in terms of it’s not states versus markets. It’s basically corporate and governmental power on the one hand, and then true democracy on the other hand.

Katie:

I see. So it sounds like the terms of the debate right now are what’s wrong. The general premise on which we are hashing this out in popular conversation and discussion is flawed, and we need a new premise. So what should we be asking instead?

Grace Blakeley:

So rather than saying, how do we shift the balance between the state and the market, the question we have to ask is how do we bring democracy into everything we do? How do we make the economy democratic? How do we force firms to listen to their workers? How do we make government genuinely democratic? How do we bring people’s voices in to every stage of the policymaking process? How do we make finance democratic? How do we make sure that communities are able to determine where the investment is going in their transport infrastructure or in their community, their budgets? How can we make international economics more democratic? How can we ensure that it’s not just a few very powerful states determining who gets what the level of the global economy? All of these things just completely change the terms of the debate. And the example I like to use to contrast with the example of Boeing is something called the Lucas Plan, which was tried in the UK a long time ago, where basically a bunch of workers came together within another aerospace company that was failing and said, we are going to take this firm over the state, couldn’t step in and save it.

It couldn’t be nationalized. The firm couldn’t run it because they weren’t making enough profits, but the workers said, we could take over this aerospace company and instead of producing weapons, we’ll produce wind turbines, kidney dialysis machines, things that are useful for society. Why will we do that? Because we are not motivated by profit. We want a job. We want a satisfying standard of living. We want to feel like we’re giving something to the world, that our lives are meaningful and have purpose. We want to feel connected to our communities and we want to have autonomy and freedom and a sense that the things that we are doing on a daily basis are within our own control. And on that basis, we can take this firm over and use it to produce things that will actually be useful for society. And they developed this massive plan that was going to basically say, we can change the way that this firm works.

Margaret Thatcher, who was our kind of Ronald Reagan-type figure, stepped in and shut that all down because it was so threatening to the people at the top, the idea that even the workers in one company could take that over and run it themselves because it completely shatters the illusion upon which our societies are based, which is that the managers are there to control everyone, and the workers are there to do as they’re told because they’re too stupid to be able to organize things on themselves. So they couldn’t allow this experiment to work. They had to shut it down, and they did so successfully.

But that contrast shows the real choice that we face. It’s not between more market or more state, it’s between big corporations controlled by greedy executives who don’t care about the welfare of their workers or their consumers or democratic corporations that are governed by the people who work with them, with input from consumers, from citizens, from governments, and that exist to serve the public good.

Katie:

It’s funny because you and I guess occupy such different levels of the conversation. I feel like you’re looking at it from up here, and much of my work in the personal finance world is happening down here as a response to all of the conditions that you’re describing. And so the solution that we offer in personal finance is like, okay, well, you as an individual need to play this game as well as you can, and here’s how you manage your individual financial life so that you can live a good life. And so

Something that jumped out at me in your book, you wrote, in place of groups engaging in collective struggle, we find atomized individuals subtly categorized into winners and losers based on how much they earn what they own and what they do. Changing one’s lot in life requires using the resources at one’s disposal to play the game as well as one can through hustling and entrepreneurialism, unlike guilty, not working with others to change the rules, the catch is of course, that someone has to lose, and while its architects would forcefully deny it, the game has been designed, planned to ensure that the same people lose over and over again. So something that seems clear to me in your observations is that part of why this has maintained such an effective cultural hold on society?

Again, it comes back to narrative. It’s because we have transformed from thinking of ourselves as collective owners of public assets into thinking of ourselves as many capitalists who are charged with managing our own portfolios of assets and liabilities. That’s another quote from you. So I want to pose a hypothetical question to you if everyone could do that. Well, let’s say everybody became a good little mini capitalist. We’re all really good at managing our balance sheets. Well, okay, would we all be better off? Is that even possible? Is it possible for everyone to be a winner?

Grace Blakeley:

No. And if you think about it, that’s inherent to the way that capitalism works because what are the things that you would need to be considered a winner, let’s say it is determined by what you do for a living and the things that you own. You’re considered a winner if you are in control of other people’s work, i.e., if you are a CEO and executive, someone who has started a company, someone who is at the top of this hierarchy, and what puts you at the top of the hierarchy is the fact that there are people under you is the fact that you are directing people and telling them what to do. So obviously, not everyone can be in that position, but even when we think about it, just in terms of resources, so you are a winner if you own loads of stuff.

If you have a really fancy expensive car, someone is always going to be making that fancy expensive car, and the person making the fancy expensive car is never going to be earning the same as the person buying the fancy expensive car. If you just think about it in very simple terms, right? Let’s say a really rich person feels really rich and happy. If they can spend loads of money paying a Deliveroo driver to bring them or an Uber Eats driver to bring them food constantly so they never have to leave the house, their ability to do that is based on the fact that there’s always going to be people who feel desperate enough to take their two or $3 to be able to bring them food. And the lower that person’s wages are, the cheaper it is for you to get an Uber Eats the richer you feel. Because you’re able to get more Uber Eats drivers because they’re poorer and they’re being paid lower wages. So your wealth is basically determined by how much of someone else’s labor you can exploit. That’s like an inherent part of the way that capitalist system works. Some people are able to exploit the labor of others and get very rich from that, and other people just have to sell their labor because they have no other choice otherwise it’s starvation.

So there’s this inherent inequality baked into this system, and it’s an inequality that comes from the very fact that there’s this divide where some people own everything and other people don’t. So if everyone owned everything, we wouldn’t be able to exploit each other. You wouldn’t be able to say, Deliveroo driver, go and bring me my food because otherwise you’ll be out on the street. They’ll be like, no, I’ve got a house. I’ve got enough to eat. I’ll be fine.

Capitalism is the system, as I said, that’s based on the ability of some people to dominate others. And that means we will never live in a world where everyone gets to be happy and have all the cake that they want and we’re all equal.

Katie:

It seems like a system that’s that bad for most people would be pretty obvious, and I don’t know, easy to get rid of. So why has this narrative of it being the best thing for the most people been able to persist, I guess to quantitatively constitute what I mean by bad? For most people, the top 10% in the US owns almost three times as much wealth as the bottom 90% combined. So when I say it’s bad for more people than it’s good for, that’s kind of what I mean.

Grace Blakeley:

This really successful thing about capitalist systems has been the way that they have hidden that inherent inequality. The first and most obvious way is that most of the people whose labor we’re exploiting don’t live in the same countries as us. So it’s extremely poor hyper exploited workers in China and Africa, wherever. So we don’t see it. We don’t see the labor that goes into making our phone. We don’t see the labor that goes into making our clothes. So it’s easy to convince ourselves that actually that just comes out of nowhere.

But the second thing is what you were talking about is individualism. Because what you do, I imagine can for you and for a lot of the people around you be quite disempowering, right? Because you realize I’m trying to play this game really effectively in this system that’s rigged against me, and I feel so powerless because no matter what I do, nothing seems to get better. I’m doing a bit more saving. I’ve done a credit transfer to get better interest rates. I’ve done all these little tiny things to try and make my financial situation better. I’ve really worked really hard and tried to get a raise at work, and yet I’m still not at the top. I’m still not even in the middle. I’m scraping just to survive. That must mean that I’m a loser, that I am not clever, that I’m not working hard, that I’m not worth as much money as those at the top. So you internalize that guilt, that fear, that shame. You say, if I don’t get better, I’m going to lose my house. I’m going to lose my family. I’m not going to be able to afford to pay for healthcare. So you are terrified. You’re blaming yourself, and what does that make you do?

It makes you fight even harder against all the people around you. And that’s exactly the way that this system was designed because the only time in history where workers have been even close to taking on the interest of those at the top was when they didn’t think like that. It was when they thought it’s all of us against them.

And if we come together and form a union and demand higher wages and say you are going to have less profit so that we can have higher wages, that will be a big step forward for us. It will mean that rather than going home and realizing that we can’t afford to put food on the table and then blaming ourselves and fighting with each other, we say, oh, all of us can’t afford to put food on the table. There’s something wrong with this system, not there’s something wrong with me. There’s something wrong with the world. So it’s very important for the maintenance of this economy that we don’t learn that we have these interests in common and that we can work together, we can fight for them.

Katie:

It’s so interesting the way, I don’t want to use the word self-fulfilling prophecy, but that is to some degree, I think what you just described in so far as I’m working so hard and competing so hard and I’m not getting any closer to the top, and therefore I must work even harder and be even more competitive with the people around me because I’m not getting ahead. But that’s like you’re just kind of burrowing deeper into the problem.

The individualist mindset is something that I think really fascinates me, or it has become an object of fascination for me in the last couple of years because I think that everything about the way our society and the culture around us and our economy is structured puts us into that mindset. The other thing that I want to talk about now is you write about how orthodox models of the economy overlook often the existence or the prominence of lending and borrowing, and that banks’ ability to create money out of thin air. You’ve kind of referenced this already. The relationship between private banks, big banks, and the central bank means that these banks, the financial sector of our economy possesses such an enormous amount of power over who receives what they need and who doesn’t. It basically has the power to determine which businesses succeed and which do not because businesses need capital to operate.

And so you point out that this reality of the situation is not really well captured in most economic models that dictate how things should work, the rules or the science of economics that this is kind of ignored. So how does this work in practice, and what would you say we misunderstand about the role of debt in our lives?

Grace Blakeley:

Really good question. And the kind of overlooking of the dynamics of finance is something that is really important in kind of professional mainstream economics. So the models that economists built, particularly before the financial crisis, just didn’t account for the dynamics of debts. And there’s a lot of complicated reasons why that’s important. One of the most important has to do with how human beings behave under conditions of uncertainty, basically. And it’s very hard to bring uncertainty into your models. And finance is all about managing uncertainty.

When a bank invests in a company or an investor invests in a small company, say they’re not just taking a risk, they’re betting on something that the outcome of which is fundamentally uncertain. They just don’t know what the future is going to look like. It’s not just that they’re taking a calculated risk as to whether this particular business will grow or fail.

They are engaging in a system that’s subject to fundamental uncertainty. So that’s both the nature of the business. Will that succeed? Will that fail? Maybe it’s a new technology. Will that technology be viable? They’re also making about the future of the economy. Will there be enough growth to sustain this business in the future? All of these things are subject to massive uncertainty. And what that means is that the decisions that they make are a lot to do with emotion, because emotion and intuition is how we gauge and make decisions in the context of uncertainty. We don’t have all the information, so we have to go on our instinct basically.

And that is what leads to these big swings because behavior and emotions tend to go in groups, they tend to go in cycles. So when everyone’s feeling really optimistic and excited, suddenly you have this big financial boom that then drive these really unpredictable dynamics in the rest of the economy.

And equally, when everyone’s feeling pessimistic, the opposite happens. So these cycles that drive finance and drive investment are really, really, they underpin all sorts of bubbles that we’ve seen in housing recently, cryptocurrency, and they’re not really very well accounted for in mainstream models of the economy. And that is really important. It’s important as a factor that explains why economists were unable to predict the financial crisis, for example. But it’s also important because the role that financial institutions play in managing uncertainty, it helps to create the future because if there’s so many different options that anything could almost happen, not anything, but a lot of wide variety of things can happen.

The bets that banks make help to bring certain futures into being. So if I think I’m really confident about this new technology that’s come about, I don’t know, electric cars or whatever, and I’m going to tell all of my friends in finance about it, and we’re all going to make big bets on companies that are producing electric cars, that then leads to the creation of more electric cars because these businesses are able to get access to finance.

And you see this today, you must see it all the time with small businesses. A small business has a really great idea for something that will change their community, make the world a better place, but they can’t get access to finance because the banks are all saying, we have to put all of our money in AI or this one particular thing that’s the subject of this trend at the moment. So money follows these trends, and in turn, it basically makes the predictions of the people who control the money come true. And the predictions of the people that control the money are often kind of self-serving, certainly not in the interests of communities and even economic growth and productivity after time. So that role is really, really important and it’s kind of overlooked in a lot of capitalist economies.

Katie:

You write about the role of central banks in our economy and how even these banks exist to protect capital’s interests, which I think is interesting because we usually discuss the Central Bank as a totally independent entity. But you point out that if a country doesn’t really tax corporate profits, they must then raise interest rates in order to combat inflation, which makes borrowing more expensive for everyone else. But I wanted to unpack that line of reasoning a little bit more because it stuck out to me when I read it, and I could imagine someone listening to that argument and going, okay, but wait, how do massive untaxed profits increase inflation? Wouldn’t higher taxes on those profits just be passed on to the end consumer in the form of higher prices? And that would be similarly inflationary.

Grace Blakeley:

Yeah. So when we’re thinking about inflation, you’ve got to think about it on a macro level. So not just thinking about what’s driving price rises, let’s say the rising price of your food, for example, because rising food prices don’t necessarily have to feed into an economy wide inflation. If there are offsetting factors that are, say food prices rise, but fuel prices full, you have to look at what’s going on in the aggregate. And when we’re doing that, what we’re doing is we’re comparing the demand for goods and services in the economy, and we are contrasting that with the total potential supply of those goods and services in an economy.

So when we start seeing price rises in a particular area, whether it’s food or fuel or whatever, it tends to be, because there’s this mismatch between supply and demand. Lots of people are demanding food and fuel, obviously because they need it to live and produce things, but for one reason or another, climate breakdown geopolitical conflict, those things have become more scarce, which pushes up prices. And that then has an impact throughout the rest of the economy because say workers demand wages that are higher in order to buy more food, and that leads to higher prices throughout the rest of the economy because workers are being paid more. When we are thinking about what’s happened over the course of the pandemic, we need to look at the real mechanisms that have transformed a shock in a couple of different particular areas. So areas like food and fuel, certain resources,

Logistics and transportation for example, and what has allowed those shocks to reverberate throughout the rest of the economy. Now, a lot of economists, the standard argument is to just say, when inflation becomes embedded, it’s generally because of workers, right? So workers have seen that prices are rising, so they’ve gone to their bosses and they’ve said, I want to higher wage. The boss is then forced to pay them a higher wage. So then the sector, those workers are working in prices rise in that sector, consumer prices rise, et cetera. And the argument is that that can then become mutually reinforcing because it creates this upward spiral of price expectations and price rises. Those start to become embedded in lots of different ways.

Katie:

Right? Yeah, I’ve heard that argument before or I’m familiar with that line of reasoning.

Grace Blakeley:

Yeah. The only issue is that it’s not really true in this context. Is it? Because, I mean, if you just think about that logically, I don’t know how many of your listeners will be part of a union or feel able to go to their boss and say, I want a wage increase to manage the impact of rising prices. It’s not that common for workers to feel powerful enough to really be able to say to their bosses, it’s on you as a company to deal with these inflationary pressures. What’s actually happened, and we’ve seen this when it comes to the cost of living crisis when it comes to real wages. So workers’ wages measured against inflation, particularly when adjusted for purchasing power. Those have fallen in lots of places over the course of the cost of living crisis and the period that we’ve seen high inflation, because workers have actually not been able to demand wage increases in line with inflation. They’ve had to take that hit. So when costs have risen, their wages have stayed the same and they’ve absorbed that hit in the form of rising prices. That’s true of most workers. It’s not true for those in the very top of the economy, those with higher incomes, they have been able to go to their bosses and say, give me a higher wage because inflation has gone up.

Katie:

Right? And the 2023 Cost of Thriving Index studied this because another common counterpoint here is that wages when adjusted for inflation have risen faster than inflation. So you think, okay, cool. Everyone should be better off. Everyone should feel better off. But when you segment the costs for a middle class family of four, you look at food, healthcare, housing, transportation, and I believe education, the turn of the century was the point at which median incomes were growing slower and becoming insufficient. So we’ve kind of just been on that trend line ever since. Wage increases for the average worker have been deficient for a long time.

Grace Blakeley:

These kind of abstract economic ways of understanding, well, these abstract ways of understanding what’s going on in the economy, they don’t account for power or politics. They kind of reduce everything that’s going on in the economy. They reduce all economic activity to a series of numbers that can be modeled by looking at a kind of representative agents treating firms as though they’re black boxes where you don’t understand what goes on inside the firm. You just plug these numbers into your model and then you see what pops out.

But what we know is that economics is political. The question of who bears the costs of rising prices is a political question because it depends on who has power, who gets what, who can demand what. And over the course of this inflationary period, workers haven’t had very much power, and this is a trend that goes back for a long time, but corporations do have a lot of power, particularly the largest corporations.

We’ve seen a big increase in monopoly power, for example, with a small number of extremely large corporations dominating most big sectors of the global economy, whether that’s tech or pharmaceuticals or finance or agricultural food, whatever. These are all dominated by some really, really big, powerful corporations. And what has happened actually in reality over the course of this inflationary period is that it’s been corporations that have actually been pushing up prices and exaggerating the impact of inflation because they’ve used their market power to basically kind of tacitly collaborate and collude with one another to raise prices more than they need to. Effectively, what’s been going on is a lot of business leaders, people who are setting prices, have looked at this inflationary environment and they’ve thought, well, our customers knows that there’s a cost of living crisis and the prices are rising,

Now’s a really good time to actually increase our prices even more than our costs are increasing because most consumers aren’t going to question that, and we don’t have to worry about competition because they’re mostly in pretty uncompetitive sectors. These questions of power are really, really important when we’re thinking about how the economy actually works, and that’s how inflation has become embedded this time around. It hasn’t been workers demanding higher wages. It’s been corporations putting up prices more than they need to. And this phenomenon has been called lots of things, sellers, inflation, greedflation, excuseflation…

Katie:

Excuseflation.

Grace: Yeah, I know. Named by this German economist, Isabella Weber, who’s really good, and I encourage people to look her up.

Katie:

I’ve heard both of those arguments before. The idea that it’s this wage price spiral driven by workers. I’ve heard the greed, deflation thing in the past as well. So if we were to take the greed, deflation thing and to flesh it out, I assume that that means maybe we have a selection of companies that we would say fall into this bucket of, okay, there are big corporations, there are corporations that have a lot of power that are not really having to compete in their sector because there is either a semi monopoly situation going on, monopoly in practice or a duopoly going on.

And so we’re assuming that there’s some tacit collaboration or collusion between them. We would probably expect that they would have record profits since the inflationary period began, because if they’re raising their prices by more than their costs are increasing, then I think it would follow logically that their profits would be bigger than ever. Is that what we’re seeing?

Grace Blakeley:

Yes. So there is basically, yes, there is a lot of evidence, particularly in certain sectors of record profits. I mean, you just have to look at the fossil fuel industry itself to see how those record profits have been generated. You can also see finance sectors of tech. The issue is, is that particularly now, there are lots of countervailing trends running in lots of different directions. So particularly for highly financialized corporations where they’re very, I implicated with financial markets, so maybe they invest cash in financial markets or maybe their performance is just incredibly closely tied to what’s going on in those markets.

There have been some serious ups and downs, mostly driven by speculation, which have potentially dented that picture one way or another. But certainly if you look at that period over the course of 2021-2022, there are some really big performers there that come out and have done really, really strongly when it comes to profits.

The other part was basically the government and central banks pumping tons and tons of money into the economy and giving many of these corporations and financial institutions massive bailouts that effectively just went to, a lot of them were just distributed straight to shareholders through dividends or used to buy back their own shares. So there are other factors that will always complicate this picture when it comes to profits, but there has been a lots of evidence just when you look at headline profits in some of the sectors where there’s the most market power, and B, there’s some empirical research that’s been done by economists including Isabella Weber looking at how this works and showing some evidence for it.

And they’ve not just looked at profits themselves, they’ve also looked at earnings calls with senior executives from these big corporations. So once every quarter, the leaders of a corporation will have to talk to shareholders and say, this is what we’re doing with the company. And what she found by analyzing those calls is basically senior executives admitting that this was what they were doing. Obviously they weren’t saying we are hiking prices monopolies, but they were saying there’s an inflationary environment, so we’ve been able to increase costs, et cetera. And so there’s lots of evidence that this has actually been happening.

Katie:

Interesting. That’s funny that it’s kind of saying the quiet part out loud on the earnings calls. That has seemed to be a trend I think in some of the conversations I’ve had recently about this topic is it’s like, well, if you want to know what they’re doing, just go listen in on what they’re telling Wall Street, because a lot of this stuff gets bragged about pretty openly, like, oh, we’re going to lay off $10 million of headcount and that’s going to increase profitability by X, Y, Z. And someone wrote in and was like, this is how I found out that my consulting firm was doing a layoff. I was listening to the earnings call and we didn’t even know about it yet.

Grace Blakeley:

That’s a really good point because you have to think about who those earnings calls are for. They’re not for the employees, they’re for shareholders and what a shareholder’s going to be looking for. They want to see the leadership of a company basically doing everything to maximize their profits, so they’re going to be very blunt about what they’re doing.

Katie:

Yeah. Well on the tax thing too, before we move on, I want to ask you specifically about the corporate tax issue because this is something that in the US at least is, it’s a popular topic that I think has maybe more consensus than the approach to capital gains taxes or personal income taxes where people are really all over the board and some people are very anti-taxation of personal income, but I find that you start to see moderately more consensus around the idea that corporations should be paying taxes on profits, though the kind of classic economic counterpoint to that is this idea that we’ve kind of talked about of they will pass that cost on to the end consumer. They’re not just going to absorb the cost of the tax, it’s just going to make things cost more.

And so to your point about power and who has the power and who gets to decide who gets what in the current kind of regime or the current paradigm, do you think that that counterpoint is actually presently true that a corporation would just pass on the taxes? What would be the most reasonable or solution oriented approach here from a corporate tax standpoint? Is taxing them more something that would help, or is the counterpoint valid?

Grace Blakeley:

So all of this really depends on these questions about competition. Now, if we had truly competitive markets, a lot of these issues wouldn’t be a problem because if corporations tried to raise their prices above what was necessary, incumbents would come in and undercut them. And so that’s what a competitive market looks like. That’s what if you go to your local market, that’s the kind of environment that you’ll find. It’s kind of cutthroat competition where you can’t afford to hike your prices because consumers are savvy, they’ve got lots of options and they’ll shop around for the best offers. The issue is that our economy, and this is basically what I write about in my book, has become so concentrated. So many of these markets are just subject to very little competition, and even when there is competition, there’s very strong evidence that even if there’s a number of firms in that sector, they very frequently collude either actively or passively to key crisis higher than they would otherwise would have because—

Katie:

Because that benefits all of them.

Grace Blakeley:

Exactly. How are you going to do that in aerospace? In pharmaceuticals and tech? You need so much money to be able to get into those sectors. Where would you go to get the money to compete with those embedded companies? A bank? There are not that many banks, and most of those banks are already funding one of the companies in that industry. So why would they allow you to enter into that industry and disrupt it, reducing profits overall? This is a really concentrated and kind of corrupt way to organize an economy basically.

And what that means is that if you want economic justice, you have to find ways of tackling that concentrated power. Now on its own taxation won’t do that because you’re right, all these companies are just going to come together and be like, well, why should we pay these taxes? We don’t have to. We’re too powerful. But that’s why we need a bunch of different policy solutions that can work together to decrease corporate power increase competition. What we’ve been seeing with the antitrust movement at the moment in the US has been big on that front.

Katie:

Something that you’re clarifying for me right now is that oftentimes, I think when we talk about wanting people to pay more in taxes, it’s like tax becomes the shorthand that is most accessible to us as regular civilians to basically express a desire for these groups to be less powerful.

So we look at billionaires, we look at corporations, we say, why aren’t they paying their taxes? It’s not that the literal solution, step one and done answer is just raise the tax rates. It’s that the spirit of that commentary, we think that these groups should have less power. We think that these groups are too powerful, and so the mechanisms by which we’re going to strip them of that power and recalibrate the economy in a way that actually works for everybody might be, actually, we should be fighting for antitrust. We’ll worry about the taxation later. The taxes right now aren’t going to do anything. We have to do these other things first.

Grace Blakeley:

Yeah, I mean, it’s a great way of putting it. This is again, a big part of the argument that I always make, which is that policy comes after power.

So the kinds of policies that you get are a reflection of the balance of power in your society. So in a society where fossil fuel companies are some of the biggest lobbyists, you are not going to get action on climate breakdown, even though it’s those societies where you are more likely to need greater action on climate breakdown, you’re not going to get it because those big companies are basically to a greater or lesser extent, controlling what legislation is passed and what people think about a lot of different issues. What you have to do if you want to get legislation on climate breakdown is to build a popular movement and build mechanisms of accountability that can outweigh or at least start to challenge the power of those fossil fuel companies.

So if you think about how they exercise their power, firstly, political donations, lobbying, how can we outweigh that by making politicians, I like to say we should make politicians as scared of the people voting for them as the ones giving them the money. We need to be organized enough so that they know that they can’t just get away with anything. There’s also things like often out in the media, funding research, funding influencers, people to push their agenda. So how can we think about outweighing that through our campaigning and our organizing,

All of these things are required to shift the balance so that we can then do the work of saying, right now, this policy is going to be implemented and it’s going to get through Congress because we’ve done this

groundwork of making sure we have this support that can counteract the support of the fossil fuel lobbyists, which is a very big ask, and it’s really, really challenging, but it’s also why grassroots campaigns are so important. It’s often easy to think about in the US you have the Sunrise Movement or campaigns to elect Congress, people that are supportive of the Green New Deal. Those campaigns can kind of seem almost like really far away from the policy outcomes that we want to achieve because we are here and we’ve got to go through all these steps to get to there.

But they’re so important because without those movements, basically the most powerful people in society, the ones with the most money, the most connections, the most influence, they can just use all of those resources to set the policy agenda themselves.

Katie:

Before we broaden our scope here and go global with the effects of American capitalism beyond the United States, I want to drill down a little bit on that idea of grassroots movements of coming together. Because you write that you don’t need to surrender your power to a state for protection or a market that is controlled by powerful corporations, that we don’t have to give away our power to either of these institutions or groups or systems that we can work together to build the future that we want and that we can achieve something that you call a truly democratically controlled society. And so I’ve been dying to ask you, do you see democracy and capitalism as fundamentally at odds with one another?

Grace Blakeley:

I do because of the way I understand democracy, the way I understand democracy is where people have power and control over the most important decisions that affect their lives

Or looking at it from the other direction, from the top down where there is real accountability for those in positions of political and economic power. Now, the issue is today, firstly, we don’t have true political democracy because those mechanisms of accountability are completely broken. Either they don’t exist in the case of, for example, allegedly independent institutions like a central bank which are separate from government, but actually just that doesn’t mean that they are completely independent. It means that there’s no democratic popular pressure that can be exercised on them, but there’s lots of kind of pressure from vested interest that can be exercised on them or the fact that all of our electoral systems are broken, yours is ours, is there’s too much money in politics, et cetera.

But there’s also this big challenge of the fact that we don’t have economic democracy, so we have this limited form of democracy in the political realm and then zero democracy when it comes to the management of the economy. So basically massive, powerful corporations that don’t have any competition. Competition is supposed to be the democracy of the market. Basically. It’s supposed to be what embeds accountability, and we don’t have that anymore.

And the way that we often in the past have struggled towards greater levels of economic democracy has been through the labor movement. So it’s been workers coming together and not just demanding higher wages, but demanding power and influence within their organizations. And that has again been crushed. So all of these mechanisms for accountability for those at the top have been cut one by one. It’s harder than ever to vote out a congress person or an MP who has done something that you disagree with. It’s harder than ever to make your preferences known to your local metropolitan authority or in local government. It’s extremely hard to exercise your voice within a corporation to kind of tell those at the top how you think that corporation should be run, what a fair wage would look like for you. There are no real mechanisms for creating, not just accountability, but even just basic communication between leaders, the powerful and everyone else. And it is creating this two speed society where those are the top thing we can do what literally whatever we want, and get away with it, and everyone else is just stuck living in a world that those people have created for them.

Katie:

I often hear from people who write in, and I’d say the responses are on a spectrum When we have conversations like this one, granted, this is the most in-depth conversation that we’ve ever had on this show that is looking directly at capitalism as a system and really trying to pull it apart and understand it in this way. But most everybody will concede that there are problems. It just varies the extent to which people are willing to imagine, get imaginative and think bigger about the solution set. So it kind of ranges from things are mostly okay and we just have to make a couple of tweaks or we just got to change a couple little things and then we’re going to see a lot of improvement to the other end of the spectrum, which is like burn it all down. The system itself is rotten.

What I think you would say is that this is just the state that all capitalist societies will eventually drive toward. This is the inevitable outcome of the system that we have because this is what all the incentives drive us to. Is that a fair representation?

Grace Blakeley:

Yeah, exactly. And it’s kind of inevitable that if you get a really advanced capitalist society where you’re producing lots of stuff and you have a complex state that’s managing production and managing financial institutions, it’s going to get really centralized. And that’s why we need to start thinking differently about what accountability looks like and realizing that you can’t just rely on the market because it’s going to be corrupted by politics. It’s going to be corrupted by monopoly. We need other ways of making sure that those with power use it in everyone’s interests, not just their own.

Katie:

That’s where I think the democracy, the true democracy, the wisdom of crowds comes into it. And so to zoom out a little bit and to go global, you take your discussion a step further than I have seen in other arguments of this kind. It was, I think the first time that I had really given a little bit more thought to the connection between US imperialism and capitalism or the US enforcing capitalism abroad in what you call peripheral societies, which you describe as being stuck in a US induced cycle of dependence and kind of the mythmaking that happens around these types of communities around the world.

And so I believe, if I’m remembering properly, you describe it as we push the labor offshore, but then we reshore the profits to the US and that what’s creating this cycle of dependence? How does this work and why do these economies get stuck in this cycle?

Grace Blakeley:

Yeah, so the way to think about this is to think about the timing of development and the geography of development. So if you think about the UK for example, that was kind of where industrial capitalism was born. So you had lots of big factories producing the stuff that was being produced at that time, like commodities, machinery, fabrics, et cetera.

Katie:

And what timeline are we talking here?

Grace Blakeley:

We’re talking 1800s.

Katie:

1800s.

Grace Blakeley:

Early, early days. Yeah, not—a long time ago.

So when that capitalist society was developing, you had capitalists in the UK who were using the labor of British workers to produce goods that would then kind of lead to further industrialization. A lot of them were exported, a lot of them were used at home, but the economic model was pretty nationalized. And what that meant was you had the development of this system workers realizing, oh, we’ve got loads of power. If we stop working, if we come together and say we are not going to work for you, if don’t increase our wages, then we can basically put a stop to this entire system of production.

And that meant that for a while, those workers were able to demand wage increases that allowed them to benefit much more from this system of production. At the same time as this was basically based on colonialism. So workers got more money, bosses got lots of profits, and that was based on kind of extraction from the rest of the world in one way or another. But you can see how the rights that we came to enjoy in social democratic countries that have made us rich, that gave us a middle class, that gave us a minimum wage, that gave us healthcare. Those came from this different balance of power between bosses and workers when the conditions of production meant that it was a more national thing.

You had the same sort of thing in the us There was a lot of expansion that took place in the US economy, but it was expansion outwards towards the frontier. And so there was still these centers of production where workers, Chicago, New York, where workers could band together and demand wage increases. So we hadn’t had this fully globalized system yet. What started to happen from really about the sixties, the fifties, sixties onwards, it really started to happen in a much bigger way, was you had the end of formal colonialism.

So that was where the UK was able to command entire countries and France and other countries all had these similar sorts of systems where they had formal control over parts of Africa, parts of Asia, et cetera. We had decolonization. But what also happened was that those capitalists in the rich world in countries like the US and the UK started thinking, right? So we’ve got all these workers here that are basically using their power to demand concessions from us. If we just took the jobs that we have here and move them to somewhere where workers don’t have any power, we could massively increase our profits. And there were lots of things that went into that. There was technological change. Logistics became much more easy to move things around the world. It became much more easy to manage a big enterprise because you had revolutions in information technology, communications, et cetera.

But what all that meant was that rather than having this kind of national economy, you have labor move to places where labor is cheap. So Sub-Saharan Africa, China, et cetera, and then the bosses still being located in those rich countries, and you start to see the move towards this globalized system of production where rather than having bosses, managers and workers all contained within one economy, you now have economies comprised almost entirely of bosses and managers, and then economies comprised almost entirely of workers.

So we start to see this stratification, this division of global production where the people who own all the resources and the people who manage a globalized production process live in the US and the UK and the people doing the work actually producing these goods and commodities live in very, very poor countries. Now, there was an interesting trade off here, and you’ve seen this in the transformation of our own economies as well, whereas before you had bosses and workers and those workers had some rights and they were able to kind of make demands of bosses. There’s been this shift towards what we call the rise of the middle class, right?

And this really represented a kind of division of that group of workers where the ones with slightly better educations, the ones with a little bit more power. They were given these kind of professional managerial jobs in finance and marketing and operations in tech where their job is in one way or another to manage this globalized production process, and they get higher wages from doing that. So that’s the creation of the middle class.

It’s actually just like the concentration of management, finance, operations, et cetera, in a few economies where there is this middle class, the rest of that working class ends up working in the service sector providing basic services, healthcare, hospitality, cleaning, et cetera, to the people at the top of that economy, and then everywhere else in the global economy is producing all the stuff that makes it work. Now, the reason I’ve got into this kind of long-winded explanation is because it’s really important to understand that this model, it can’t be replicated in other countries because this whole system is globalized now. It’s not like we’re going to see—

Katie:

It’s like they’re at the bottom of a pyramid scheme. Exactly. You got no one, you’re in the MLM at the bottom, and there’s no one else to recruit.

Grace Blakeley:

That is an extremely good analogy.

Katie:

Oh my gosh. So that’s the cycle. That’s why you get stuck in the cycle of dependence is that Exactly. Once this genie is out of the bottle, once you’ve already stratified the global economic order in that way, if you’re at the bottom, you cannot pull yourself up by your bootstraps and do the same thing the successful people at the top did basically.

Grace Blakeley:

Exactly. Okay. The only way that we would start to see a shift in this would be if the same sort of thing that happened in the US and the UK with workers started happening on the global level.

Katie:

I was going to ask if all they’re concentrated, could they all do the same thing?

Grace Blakeley:

Exactly. The issue is is that there is millions if not billions, like a couple of billion of them spread across different countries, living under ruthless authoritarian governments that rigidly crash strikes and which are supported by the United States where all the big companies are headquartered who don’t want the workers in their supply chains to go on strike. So the government supports other governments that crush strikers and sends bombs and everything that is required to make sure that those kinds of worker regimes don’t get into power. So this whole system is very, very strongly policed by those at the top, by those who benefit from it, which makes it so much harder to imagine the kind of mass work or organizing that you did see in our own economies a couple hundred years ago.

Katie:

To reshore us back to the US for a second, I noticed something when you were going through the solutions at the end of your book, and it reminded me of an article that I read a couple months ago from someone that we had recently on the show, Hamilton Nolan, who’s an American labor journalist, and he basically was writing about rather than giving people public money so that they can go out and buy privatized for-profit versions of the things that they need, it would actually be better to commodify the things that everyone needs and make them public goods.

And it connects kind of nicely with this point that you made at the end of the book about it surprised me actually, because I think there’s a lot of common progressive support for the idea of a universal basic income, and you kind of pointed to the universal basic income and you said that is not going to actually move us closer to this ideal that we’re describing because it’s kind of just furthering this idea of we’re going to hand out public money so that you can buy these private goods that you need, and that’s kind of just like a furtherance of, or a continuation of this status quo in a way.

And I just would love to hear more about how you got there and what you think about maybe where the UBI falls short or where you might caution us.

Grace Blakeley:

Yeah, totally. I think the issue with this comes down to two things that I’ve mentioned a lot already, power and democracy, how does UBI versus what I would call universal basic services. So instead of universal basic income, universal basic services, so basically everything that you need to survive is provided, subsidized or free at the point of use. So that means free healthcare, subsidized food for those who need it, subsidized childcare, very cheap housing costs, et cetera. So that, as your other guest was saying, the things that you need to survive are commodified, universal basic income.

When we think about power, this is something that’s being given out from those at the top to everyone else. And generally it’s done as you saw during the pandemic on the basis of the impact it will have on the economy. So the arguments for other that it increases demand, the arguments against those other increases inflation. But the whole argument is based on what are these payments going to do for the economy? And what that means is that it’s basically about making sure that there’s enough demand to keep things going, to boost growth, to boost corporate profits, et cetera. The actual fundamental reason for it isn’t really anything to do with supporting people on low incomes.

I also think that that relationship that’s created by basically just being given stuff by a government that you don’t really trust is something very different as compared to organizing within the state and within politics to, for example, determine how your local budget is spent in your local community. That requires you to get together with other people and make demands collectively rather than just having this individualized, quite isolating relationship between citizen and state.

And yeah, the second thing is also democracy. So again, when you have just the state giving stuff out, again from this kind of position of inequality, there aren’t those feedback mechanisms that I was talking about as to how are those people who are giving the money, how are they going to be held to account? Now obviously we live in democracies, so there’s that, there’s elections, but for all the reasons that we’ve talked about, it’s not an ideal way of holding the powerful to account. Whereas if you have something like universal basic services, we are talking about, as I said, free healthcare. We’re talking about elderly care, we’re talking about childcare for those who need it, education, higher education included in that cheaper housing than what we have at the moment. All of these things free or highly subsidized, so they’re much cheaper than what you would have them at.

Now, that is a really powerful mechanism to make people feel kind of much more powerful basically because if you’re not under threat of losing your healthcare or losing your home, when you lose your job, then you’re much more likely to join a union. But it’s also a way of engaging people in democracy because what if that system wasn’t just like the government giving you stuff, it was you participate in a community land trust that owns all the housing in your local area, it’s all the land in your local area and runs that housing in a cooperative way. What if it’s like the healthcare system is run based on input from local communities, from doctors and nurses, from experts, and we have this collaborative stakeholder based model of thinking, how do we spend money? What are our priorities for our local community? All of these sort of things.

And you see this already happening in things like the participatory budgeting movement where communities come together and say, we want this amount of money spent on healthcare, we want this amount of money spent on infrastructure. And what you see is that groups that are generally marginalized and underrepresented, their voices come to the fore in those kind of discussions because they’re the ones that have the most to gain often. So it can be really, really progressive. So basically on those two points, power and democracy, I think this model of democratic universal public services is superior to the UBI model.

Katie:

Yeah, that’s a perfect segue for the last thing that I want to ask you today, Grace, because I am in what I would classify as a years-long journey of deconstruction and discovery.

Grace Blakeley:

We all are.

Katie:

Of, honestly, curiosity. I think I can look around and see these issues and I hear about them every single day. And I think that when we start talking about and trying to imagine a better way, and in this concept of a reimagined system wherein the things that we all need, the things that are useful and important for human flourishing are not something that you need to go out and compete with your fellow woman to get, but it’s something that we can actually harness the collaborative and cooperative power of humanity to come together and make it better for everybody.

There is this kind of overarching question that feels like it hangs over my head as I engage with these ideas, which is there a role for private wealth ownership in that system? It is so easy for me to imagine why publicly owned banks that offer low interest rates and function to serve the communities rather than Wall Street, which is trying to extract from these communities.

It’s easy for me to imagine why de commodified housing and cooperatively, collaboratively owned housing, food, healthcare, transportation, that these things would make society better and more seamless and honestly just less stressful. But I think when I take that final step and go, okay, so how does that, not just how do we get there, but it is so difficult for me to imagine a world without private ownership of wealth. That’s where things start to break down for me and where I’m like, well, that feels suboptimal. So I’m like, how do you think about private ownership in your conception of this, what I’m going to call post-capitalist world?

Grace Blakeley:

Sure. I don’t think we need to think of an end to private ownership. That’s not the aim here. It’s not like nobody should be able to own a house or have nice things. What I think we need to put an end to is firstly the private ownership of the things that are required for everyone else to live.

And then also when we do have private wealth, the end to the idea that the sole purpose of that wealth is to generate more wealth, which is the idea that we have at the moment. So you can have a good amount of money and that will never be enough. There will constantly be people advertising to you to say, and you know this better than anyone, how do you invest your wealth? How do you manage your money? How do you make sure that that money is being put to work to maximize its productivity as you yourself are forced to maximize your own productivity as something that you are a source of capital and you have to put that capital to work to generate returns?

What if that wasn’t the aim? What if the aim was living in a good society so you have some private wealth and you want to return on that private wealth, but you don’t want the maximum possible return on that private wealth if it means investing in an oil company that’s destroying the planet, maybe instead you think, I’m going to lend this money to a local cooperative enterprise that is profitable and distributes a small amount of money to shareholders, but keeps a lot of that and reinvest it in the company, creates jobs locally and makes my community a better place to live in.

Maybe you think I’m going to lend that money to the local government and they’re going to invest in social housing, which means that there’s going to be rents coming in to that local government in return for that housing so that they can start paying back that debt. There are lots of different ways of thinking about investment that have to do with collaboration and about thinking about what kind of world you want to live in. And that isn’t just thinking about how you solely use that money to create more and more and more money. And that’s the issue that we have today. Rather than us owning stuff, it is this mindset of just more, more, more.

Katie:

There is a quote in your book, an Ursula K. LeGuin quote: “We live in capitalism. Its power seems inescapable. So did the divine right of kings. Any human power can be resisted and changed by human beings. Resistance and change often begin in art in very often in our art, the art of our words.” Tell me why you wanted to end the book with that quote.

Grace Blakeley:

Because when you look at a system like capitalism, and particularly the way I present in my book, which is that it’s so powerful, so big, so all encompassing, you think, how is anything ever going to change? And I think that quote is really nice in a lot of ways because it shows that these are human systems that we’ve created ourselves, but it also points to the fact that systems that seemed much more cohesive and much more powerful and controlling have fallen in the past.

Whether that’s empires or whether it’s the whole system of feudalism, right? If we think that we’re controlled and dominated today by capital which we are, imagine what it would’ve been like to be a peasant living in a medieval economy working the land. You get up every day, you work the land. Some of the produce that you produce goes to the Lord of the manor who lives in this massive house.

While you live in this kind of hovel, the inequality to power is so huge. You are literally tied to that land. You are tied to the landowner. You have this institution, the church, which is justifying everything, saying, if you work hard, you’ll have your reward in the next life. The government is basically just made up of the Lords that own you. If you looked at the system as a peasant in that time, you would’ve been like, this is going to go on forever. And that’s what everyone was saying. It would go on forever because that was the natural order of things. The kings were at the top and then the priests and then the lords, and then all the way down to the bottom with the peasants. That’s the natural hierarchy of the world, and things will always be that way. And yet it crumbled remarkably quickly and almost everywhere at similar sorts of times because there was this class of people who came together and said, this system isn’t working for me.

Now, that class of people was actually the industrialists, the capitalists who said, I need workers. I don’t want ’em all to be tied to the land working for the Lords. I need them to work in my factories. So that we had the birth of liberalism and liberalism in the original sense, which is like limited governments, free markets, those Adam Smith, the kind of original political economic thinkers, basically pushing this idea that we needed to break up the power of the landowners, free people from their connection to the land build up towns have different ways of organizing government, these huge projects that basically upended an entire social order driven by this political organizing and also the development of the economic system. We’re at this point now where the development of the economic system is pushing us really clearly towards a different way of organizing things. We cannot continue as we are on any level.

Whether you look at the sustainability of the economy, of the planet, of just human health and inequality and the threat that it’s posing to democracy, there are so many pressures that are pushing us towards adopting a different kind of system. But what it needs is that same organized, powerful group of people standing up and saying, we are going to get to that next stage. We’re going to push through and dissolve this social order step by step to bring around something new.

And I think that quote, it just shows that if you were a serf living in the 1300s, you would’ve thought that was it for the rest of human history. You wouldn’t have even really had a conception of human history beginning or ending. It would just go round and round in circles. And here we are now looking at powerful systems, but in terms of the inequality of power, we have much more leverage than we think we do because these systems rely on our votes. They rely on our labor, they rely on our participation. And if we all stop obeying, that’s it for capitalism.

Katie:

Thank you so much, Grace, for spending several hours with us at this point. That was so fun, so enlightening, and I just really appreciate the clarity and precision and even the level of kind of optimism and can do attitude that you bring to this problem. Because you’re right, it is very entrenched and it is very powerful, but it’s not impossible.

So what do you think? Are you ready to revolutionize? I learned so much from her book and from this conversation, and I hope it was similarly enlightening for you. It feels especially relevant in the midst of a presidential election as we are all reflecting on the role of power in our lives. So thank you for listening to this episode of The Money with Katie Show. We’ll see you back here in two weeks for a conversation with a financial therapist about what it means when your money anxiety actually increases as you earn more.

Our show is a production of Morning Brew and is produced by Henah Velez and me, Katie Gatti Tassin with our audio engineering and sound design from Nick Torres. Devin Emery is our chief content officer. And additional fact checking comes from Scott Wilson.