Monday, April 28, 2008

Developing the New "Capitalists' Man"

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By Dean Baker

In the wake of revolutions in Russia, China, Cuba, and elsewhere, there was talk of creating a new type of person with a socialist mindset. The idea was that people in the prerevolutionary capitalist societies had been educated to be individualistic and greedy. The post-revolutionary societies would instead educate people to be socially minded and to consider the collective good in their actions.


I’ll leave it to others to debate the merits of these efforts. The reason that they are suddenly relevant is that our political leaders now seem concerned that people have not been adequately educated for their vision of a capitalist society.


This came to light recently when Treasury Secretary Henry Paulson insisted that people who are underwater in their mortgages still had an obligation to pay off their loans. Mr. Paulson is concerned that, because of the collapse of the housing bubble, many people now find themselves owing more than the value of their house and are simply walking away from their debts.


For example, in some of the rapidly deflating bubble markets, many homeowners are in situations where they owe $400,000 or $500,000 on a home that today is worth $100,000 less than the amount of their mortgage. In this situation, homeowners can effectively save $100,000 if they stop paying the mortgage and let the bank foreclose on the house.


Tens of thousands of homeowners are opting do exactly this. They calculate that it makes more sense for them to let the bank take the house than to repay the mortgage. Businesses have even opened that show people exactly how to "walk away" from their mortgage and explain the potential consequences.


As a committed capitalist, we might expect Mr. Paulson to applaud people taking initiative and acting to improve their plight. Instead, he is insisting that these homeowners should ignore their self-interest and act in the interest of the banks. In other words, he wants homeowners to keep making payments on their mortgages even if it is a bad deal for them. Apparently, individualistic behavior can go too far when it affects bank profits.


Mr. Paulson isn’t the only capitalist who wants people to put aside self-interest. The entertainment industry is also struggling with the fact that people acting in their self-interest are unlikely to pay copyright protected prices for music, movies and video games when they can get the material for free over the web. To try to discourage people from acting in their self-interest, the Recording Industry Association of America (the trade association for the music industry) has developed curriculum for grade school, high school and university level courses that are supposed to instill in children the proper respect for copyright. Instead of debating the most efficient mechanism for financing creative work in the Internet Age, we are getting propaganda courses on copyright protecti
on.


Of course, no industry has a more urgent need for people to act selflessly in support of their profits than the pharmaceutical industry. Their profits depend on being able to sell drugs at prices that can be hundreds or even thousands of times the actual production cost.


With few exceptions, drugs are cheap to produce, but the industry can charge very high prices because it has a government-granted patent monopoly. The absolute highest prices are associated with drugs for diseases like cancer that can literally mean life or death for patients. The cost for a year’s prescription of these drugs can run into the hundreds of thousands of dollars.


If people act in their own self-interest, they will seek out unauthorized copies of high-priced drugs, either from foreign countries or from gray market producers in the United States who will step in the fill the need. (There are more efficient ways to pay for pharmaceutical research than the patent system.) Unless the government becomes ever more repressive in enforcing patent protection, the pharmaceutical companies will not be able to sustain its current business model, since people will not pay tens of thousands of dollars for drugs that cost a few dollars to produce.


But the problems of the pharmaceutical industry, the entertainment industry and the mortgage industry can all be solved if we can just perfect the new capitalists’ man - a person who willingly subordinates his own needs to the greater need for corporate profit. There is an obvious name for this new man: "sucker."

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