I'm Roger Hurst from Real Vision.
And today, we're going to be interviewing
Jonathan Tepper of Variant Perception.
We met Jonathan earlier in 2018 when he was
still writing his book, The Myth of Capitalism.
Today, he's now finished and publish that
book.
He's a great believer in capitalism, but he
believes that in the US and in other parts
of the world, it's becoming a little bit deformed
and a little bit bent out of shape.
He's going to discuss what's been going on
in capitalism, what the issues are, potentially,
what the remedies are, and whether it can
actually change itself from within.
So I'm very much looking forward to picking
up again on the conversation that we had earlier
in 2018.
Jonathan, welcome back to Real Vision.
Thank you so much.
I think we last had you on, I think it was
March, April of 2018, when you'd been working
on-- you're quite a long way through the sort
of basic framework of your book, The Myth
of Capitalism.
That got published I think, at the beginning
of December.
And so we're going to have a discussion, a
chat about where you think capitalism maybe
has gone wrong.
But first, I'd just like to sort of go into
kind of the thing that's in the front of your
book, where you say that first of all, capitalism
is the greatest economic system in history.
You are a great believer in capitalism.
So before we go into where it's gone wrong,
can you maybe just outline how it works, or
how it should work?
What capitalism should really be?
Certainly.
So one of the quotes that I use in the book
comes GK Chesterton.
And he said the problem with capitalism is
not too many capitalists, but too few.
And I think the real problem that we see right
now is essentially, that we don't have enough
capitalism, meaning there is not enough competition.
People have said that capitalism itself is
at fault.
So Piketty, for example, says that capitalism
has within itself an internal contradiction.
And when growth is low, returns on capital
are high.
And this creates inequality, and potentially,
revolutions.
If you look at it, capitalism is by far the
best system that we've seen in terms of generating
wealth and progress.
And when we have seen open, competitive markets,
what we've seen is a lot of innovation.
And the argument that I make in the book is
the title, Myth of Capitalism itself comes
from the idea that this current system that
we're seeing is indeed, capitalist.
I argue that in many industries, there actually
is very little competition.
So you could say that capitalism has two central
elements.
One is private property.
So Marxists define themselves in opposition
to private properties.
They want all property to be owned by the
state.
And that battle broadly was won in 1989 with
the fall of the Berlin Wall.
Even China, which is supposedly communist,
in fact, does have large elements of private
property, and that's one reason why it's been
a success.
And then if you look at the other element
of capitalism is competition.
And the reason that competition is important
is that you need to have clear price signals
that would be able to induce changes in supply
and demand.
And that side, in many industries, I argue,
has been deteriorating, if not disappearing.
And after I finished writing the book, fortunately,
it hadn't yet gone to press, and I was able
to get it to my editor.
I found this wonderful quote by a Polish economist,
Michal Kalecki.
And he and he did some great work on essentially,
national accounts.
And he was writing it at the same time as
Keynes.
So even though he was neo-Marxist, he was
a great mind.
But he said while perfect competition may
be useful as a starting point, in fact, the
capitalist system tends towards monopoly.
And competition itself is a myth.
And I thought this was a great quote to put
in there.
And it's essentially the loss of competition
that creates the problem in capitalism.
So it's not capitalism itself, it's what Stiglitz
calls ersatz capitalism.
It sort of looks like capitalism, but isn't
quite.
So what went wrong?
What has gone wrong with capitalism?
Sure.
So one of the big problems that you see in
the United States in many industries is that
over the last 40 years-- it really started
in 1982 with the change of the merger guidelines
under the Reagan administration.
Companies were allowed to buy each other.
And so you ended up with a system that was
fairly open and competitive.
And if you think of the World Cup or think
of the Sweet 16 in the US, you start out with
16 players, you go on to eight, and then four.
So many industries now basically have fewer
and fewer players, and fewer that matter.
So for example, the beer industry the United
States is now dominated by two companies.
If you look at airlines, for example, we've
gone down to four.
But actually, if you look at what are known
as the fortress hubs, there's almost no competition.
So American will have Charlotte, United will
have Houston, and Delta has Atlanta.
And so they've basically been carving up the
US.
And if you're looking at cable and high speed
internet, 75% of Americans don't have any
choice at all, so it's a local monopoly.
And then the US health care system basically,
if you're looking at over 20 states, you essentially
have a duopoly.
You know, there's only real really two companies
that you can buy from.
And so in many of these big decisions about
spending, the average American actually has
no real competition that they can then choose
from.
You mentioned the competition and the sports
analogy.
And it isn't competition always going to have
a victor?
And surely, if you have competition, shouldn't
the victor reap the spoils?
And so where does that contradiction in terms
of we want competition, but we don't want
perfect competition, we want something slightly
less-- how is that going to sort of build
into this?
So the question is a very important one, and
I think it ties into one of the reasons why
there is quite a lot of dissatisfaction, and
why a broken economy essentially creates broken
politics.
So if you have a company, and you're doing
very, very well.
I'm going to be attracted to the earnings
that you have, and I'm going to want to go
in and compete with you.
And so in theory, you shouldn't necessarily
have one victor.
Most industries don't have extraordinarily
high barriers to entry.
Most of them are not natural monopolies.
Yet what we're seeing essentially is monopolies
and oligopolies, even in industries that should
have competitors.
And the reason is that often you end up with
what I call crony capitalism and essentially,
regulation and legislation that supports unnatural
monopolies, or unnatural oligopolies.
In agriculture in the US, a classic one, where
there's no reason why for example, three companies
should control 80% of the potato chip and
potato markets, right?
The main reason that that's done is one, to
be able to have market power over the farmers.
To be able to have power relative to supermarkets.
But I can go industry after industry, pointing
out if or if you look at, let's say local
regulations regarding funeral homes, right?
Many of them are local monopolies held by
Service Corporation.
There are laws basically, that would prevent
you and me from going into these industries
to compete.
Same thing is true for a broad variety of
industries.
I talk about Moody's and S&P in the book,
right?
It's easier to raise an armed militia in the
US than it is to start a rating agency.
You have essentially an act, which created
a special category called the NRSRO, the Nationally
Recognized Statistical Rating Organization,
that if you don't have that, you can't then
rate bonds.
And those ratings essentially go to sort of
how the Fed and other government entities
look at risk.
And so much of these barriers to entry that
essentially are created are through regulation
and lobbying.
And a lot of that is obviously, crony capitalism.
But I have no problem with a company acquiring
a monopoly by being the best.
But generally, what happens is they merge
to get bigger.
And then two, they corrupt the political process
essentially to erect regulatory barriers around
the industry.
