"Unbridled Capitalism Will Lead to Very Real
Harvard economist Kenneth Rogoff discusses the dangers of
unbridled capitalism, the greed of corporate CEOs and a
fundamental problem with the United States economy.
Professor Rogoff, the US economy is surging
forward, while President Bush celebrates high growth rates. But
most Americans believe they are living in a recession. Who is
Rogoff: I too have asked myself whether people have
gone crazy. But the fact is that the share of wages in total
growth is shrinking.
SPIEGEL: In other words, most people are not
benefiting from the recovery and are justifiably disappointed?
Rogoff: The working population's share of national
income remained constant for 100 years. That's why Marx's theory
that only capitalists benefit from capitalism and workers are
exploited was completely wrong. Nothing could have been further
from the truth. Workers earned more as economies grew.
SPIEGEL: Is this no longer true?
Rogoff: There has been a noticeable decline in the
labor factor in all wealthy countries in the past 20 years. The
rich are getting richer, but those at the lower end aren't
moving ahead as quickly as the capitalists.
SPIEGEL: So Marx was right after all?
We're still a long way away from that. Workers
are not being exploited. But if their share of growth doesn't
increase, this could be a potential cause of social tension
worldwide. The point is that so far attempts to reverse this
trend in the US have failed. Boeing employees achieved barely
anything by going on strike (editor's note: last autumn
Instead, the workers are now in a weaker position -- both in
aviation and in other industries.
SPIEGEL: Meanwhile, corporate CEOs and Wall Street
bankers are cashing in on record bonuses.
Rogoff: There has never been a better time to get
rich. It's quite astonishing how much money people make in the
hedge fund business and in the private equity field, and how
well-off affluent families really are. Given these
contradictions, it comes as no surprise that average Americans
have a different perception of the economy than (US President)
George W. Bush and his friends. They can play around with
statistics as much as they want, but it's clear that we have an
unfair distribution of wealth.
SPIEGEL: That hasn't seemed to bother anyone, as long
as the dishwasher-to-millionaire dream still exists.
Rogoff: I tell my children that a man like Bill Gates
has a personal fortune of $100 billion. They can't even
comprehend that. Then I explain that he has more money than some
countries. If we have these extremes, I can't understand why we
should get rid of the inheritance tax. It hasn't harmed the
economy, and it has evened out the distribution of income across
SPIEGEL: Billion-dollar tax cuts for the super-rich --
such as eliminating the inheritance tax -- are meant to generate
growth for all. Conservatives like to say that a rising tide
lifts all boats.
Rogoff: The New Orleans disaster made it painfully
clear what happens to people in deep poverty: they don't even
have a boat. Even more tax cuts are the wrong approach, as long
as we don't even have universal health insurance for children. I
think that's outrageous.
Are these injustices the price for lower
unemployment and strong growth in the United States?
Rogoff: This unbridled capitalism in the United States
can't be sustained socially. It leads to tensions. If we
experience another five years like the last five, we will start
seeing greater social friction. After all, people aren't looking
at how they're doing, but rather at how their neighbors are
doing and at their own place in society. These huge inequalities
are not a particularly desirable characteristic in our society.
SPIEGEL: Are Western corporate CEOs driven
by globalization, or do they themselves use the situation to
Rogoff: We react to market forces and we try to
protect jobs -- that's the image many managers have of
themselves. They have no idea why people are so furious with
them. Look at corporate takeovers where outgoing CEOs get a $50
million settlements and 5,000 workers are let go. That kind of
thing happens all the time. On the one hand, it shows that we
have a flexible economic system and we permit change. On the
other hand, it's completely na´ve to think that this doesn't
SPIEGEL: But don't companies and countries that oppose
globalization end up hurting themselves?
Rogoff: There are no easy answers. Of course it would
be suicidal to nationalize our industries, for example. But
those who say the economy is growing and everything's just great
are simply unwilling to acknowledge these cracks in the system.
Incidentally, this gap is much bigger in China. It's the 21st
century along the coastline, but if you travel to the interior,
where two-thirds of all Chinese live, you'll experience the 18th
century. These are incomprehensible inequities. They have an
extremely raw form of capitalism.
SPIEGEL: According to the 19th century English
economist David Ricardo, free trade is good for everyone.
According to his theory, the wealthy industrialized nations
would simply have to concentrate on becoming even more
technologically advanced to make up for their outsourcing losses
in certain industries.
Rogoff: Ricardo was never right. Sure, there are more
winners than losers, and winners profit to a greater extent than
the losers suffer. But the assertion that everyone benefits
simultaneously from free trade is simply incorrect.
SPIEGEL: Protectionism ...
Rogoff: ... is not a solution. We can't turn back the
clock. But unbridled capitalism will lead to some very real
problems. We will see that ever-increasing deregulation can lose
political support among the population in the long term.
SPIEGEL: If entire industries are shifted to the Far
East, how can new jobs be created in the West?
Rogoff: Our high-tech industries are raking in
tremendous profits, but for 50-year-old steelworkers or people
in the aviation industries, it's difficult or impossible to
improve their situations. The problem -- at least in the United
States -- is not that people can't find jobs. The problem is
that they're no longer finding jobs that provide them with
dignity and decent social status. This tremendous downward pull
for unskilled laborers has been around for a long time. But now
outsourcing is also beginning to affect people in mid-level and
higher-level jobs -- those who had felt secure in their
Are you saying that not even a first-class
education can protect against competition from the Chinese?
Rogoff: You know, I was a chess pro in my younger
days. Back then, the best player in New York could earn a pretty
good living. But now the Indians and Chinese have become
brilliant chess professionals. They get on a plane and play all
over the world. This has led to dramatic pressure on incomes.
Nowadays, the best chess player in Argentina can no longer make
a living playing chess.
SPIEGEL: What's Germany's place in the globalized
Rogoff: Even if your economy grows a little this year,
the trend is pointing downward. You need reforms in the labor
market, in the tax system, in the area of corporate governance
and in the education sector. Your school system is very good
compared with the US, but your universities are not competitive.
SPIEGEL: You've already written off one of the world's
Rogoff: Please don't misunderstand me. If Berlin would
finally enact some decisive reforms, it could surpass the United
States in growth for 20 years. Germany has such incredible
wealth --with its culture, its education and its highly
qualified population. It would just have to flex its muscles a
little to achieve growth rates of four to five percent in the
coming years and turn itself into an economic miracle, as it did
in the 50s and 60s. But that won't happen as long as you have
this political paralysis.
Interview conducted by Frank Hornig
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