Capitalism and Donald Trump

February 15, 2018

Capitalism has been extraordinarily successful. Combined with the Industrial Revolution and wealth has exploded (granted, over hundreds of years--compound a 2% growth rates in productivity over centuries and success is almost guaranteed). The elites benefit the most; based on many factors (such as democracy, property rights and other rule of law benefits, the rise of organized labor) almost everyone is better off. Fairness is not that important to economics.

 

Capitalism has characteristics: it is based on self-interest (Adam Smith made that clear) and amoral (virtue and ethics are external values to capitalism). Democracy is not required, although stable government (e.g., political order) probably is. Several Asian countries have successful capitalist system without being particularly democratic. China has become a successful  (state) capitalist country while being a police state. 

 

Failure is fundamental to capitalism and a bankrupt company can often be disposed of quickly. Failure is usually to be avoided, although getting rid of a bad subsidiary (at the lowest possible cost) might be beneficial. During a rough patch such as a business downturn, considerable effort (lawyers and accountants can be highly-paid advocates) can be made to stay afloat (obfuscate, borrow money, put off creditors, manipulate earnings).

 

The economics of western capitalism follows a neoclassical model with specific characteristics. Markets are sacrosanct and should involve little if any government interference. The major players are corporations, with the main goal of maximizing profit. (Conveniently, economists have econometric models to optimize stuff, with profit being predominant.) Corporations operate in the best interest of their stockholders. Major public corporations are global and have little if any allegiance to any country. Many factors that can be considered important to communities and countries (such as pollution) are externalities to corporations. Because profit maximization is all important, costly externalities should be ignored if at all possible.

 

This brings us to Donald Trump, superstar and master capitalist. He ran a private empire, therefore, his maximize profit efforts benefited mainly himself and family. Granted, he doesn't have the managerial talents of John D. Rockefeller, but he does have the impresario skills of a PT Barnum or Buffalo Bill. He developed a unique and brilliant long-term strategy for success in Manhattan, based on branding the Trump name. This required karisma and aggressiveness.Trump's 15-year run on the Apprentice reality show sealed the deal and made him a nation-wide celebrity. 

 

Shady dealings are part of the mix, but this is not a violation of capitalism (presumably, staying out of jail might be). His connections to power-lawyers, corrupt unions and perhaps organized crime are well-known, as are his regulatory and court battles with contractors, government, and assorted others. Trump-onomics is on the illicit fringe, but his success demonstrates the viability of a "big talk" [questionable follow through] business model. Great lawyering seemed to build in the potential for failure, as his many bankruptcies demonstrate. (The great showman does not have to be a great businessman.) Trump may be one of the few entrepreneurs making money from bankruptcy. As stated by Jubilee Jim Fiske when testifying before Congress (Fiske refused to pay up when his gold-corner scheme collapsed in 1869): "nothing lost, save honor."

 

A key point is he runs a private corporation or more accurately dozens or hundreds of them. This is the wild west in terms of oversight. Private companies do not have to practice generally accepted accounting principles or be audited (note that regulatory bodies may require one or both), or report much of anything publicly--a boon for hidden manipulation and (plausibly deniable) questionable practices. Dealing with corrupt, autocratic regimes proved lucrative, with hotel deals a (and likely massive money laundering). None of this is much of a problem in a generic capitalist model.

 

The amazing  superstar tale was running for president: a TV celebrity claiming to be a self-made multi-billionaire with no Washington experience (and no intention to learn). Brilliant for the brand and the ego. The unexpected part was winning--perhaps the result of the damned Russians. New strategy. The success of Trumpocracy is an open question.

 

 

 

 

 

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© 2016 Gary Giroux

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