Armenians Need to Lose Their Faith in the Free Market

23:20, February 7, 2015
By Markar Melkonian

In a best-selling book, the late Nobel-laureate economist Milton
Friedman wrote that, “…if inequality is measured by differences in
levels of living between the privileged and other classes, such
inequality may well be decidedly less in capitalist than in communist
countries.” (Milton Friedman, Capitalism and Freedom, p. 169.)

Friedman built his career on confident pronouncements like this.

A quarter of a century ago, a generation of intellectuals in Yerevan
seized on such statements, which became articles of a Free Market
faith that seemed new and exciting at the time. They hoisted the
banner of capitalism high above their heads and waved it around
furiously. Since then, they have had many cold winters to reconsider
the claim that capitalism would narrow the gap between rich and poor.

Armenians, of course, have not been alone in their disillusionment.
According to a recent report by the international relief organization
Oxfam, “In 2014, the richest 1% of people in the world owned 48% of
global wealth, leaving just 52% to be shared between the other 99% of
the adults on the planet.” Almost all of the remaining 52% of global
wealth, the report claims, is owned by the richest 20%, leaving only
5.5% of global wealth to the remaining 80% of the human population of
Earth. (Deborah Hardoon, “Wealth: Having It All and Wanting More,”
Oxfam G.B. for Oxfam International, January 2015, p. 2.) The eighty
percent at the bottom, presumably, includes the population of the
Republic of Armenia.

Oxfam reports, furthermore, that the wealth of the poorest 50% of the
human population of Earth is less in 2014 that it was in 2009, while
the wealth of the richest eighty individuals doubled in nominal terms
between 2009 and 2014.In fact, “The wealth of these eighty individuals
is now the same as that owned by the bottom 50% of the global
population, such that 3.5 billion people share between them the same
amount of wealth as that of these extremely wealthy 80
people.”(Hardoon, pp. 2-3.)

The Oxfam report is just the latest of a long series of reports and
studies that point to a huge and growing gap between the super-rich
and the rest, both in the former Soviet republics and across the
globe.These reports come as no surprise to some of us, but they
plainly contradict the claims of Friedman and the Free Market
faithful, from Washington to Yerevan and beyond. The American
journalist and former hedge-fund manager, Jim Cramer, summarized the
lesson: “The only guy who really called this right,” he said, “was
Karl Marx.” (Time magazine, “Ten Questions for Jim Cramer,” May 14,
2009.)

There is much evidence that within the wealthiest and most powerful
countries, too, the gap between the richest and the rest is growing.
A quick way to fathom the dimensions of that gap is to examine the
American Profile Poster, a graphic representation of a large amount of
data collected from the U.S. Census Bureau. (Stephen J. Rose, Social
Stratification in the United States: The American Profile Poster, The
New Press, 2007.)

The figure at the very top of the poster’s main chart represents
190,000 individuals with the highest reported incomes in the United
States. The chart is evenly calibrated and the poster itself measures
about one meter in height. If it were to represent the 20,000
individuals with the highest income as a separate figure, the chart
would have to extend twenty stories above the poster! That is the
distance that separates the income of America’s super rich from the
rest of the country.

(The latest edition of the poster was published in 2007, using data
collected before the Great Recession. If anything, the recession has
further skewed the trends registered in that edition. Every indication
is that an updated chart will represent an even greater gap between
the super-rich and the rest.)

The Occupy activists of a few years back denounced “the 1%” of the
wealthiest Americans. In fact, the super-rich in the United States
make up less than one-one hundredth of one percent of the population
of the country. Indeed, according to U.S. Census Bureau data, the 400
richest Americans control more than 38% of the country’s wealth, and
10% of the population of the U.S.A. controls 70% of the wealth. No
wonder, then, that even the current administration in Washington D.C.
publicly expresses alarm at the growing gap.

The United States of America enjoys huge advantages that Armenia will
never enjoy. A vast country of 316 million people, with immense
natural resources and thousands of miles of coastline, the United
States dominates its own hemisphere–and most of the rest of the
globe, too–economically, culturally, and militarily. And yet forty
percent of the U.S. population has a net worth of zero; they have no
assets. If it were not for social security, tens of millions of these
Americans would be destitute.

This is the country that the leaders of the counter-revolution in
Yerevan twenty-five years ago looked to as a model.

But perhaps the past quarter of a century of poverty and misery is
just a passing phase. Perhaps, under more propitious circumstances
and in the even-longer run, Free Enterprise might yet narrow the gap
between the super rich and the rest, as Milton Friedman claimed it
does. Perhaps, despite appearances to the contrary, Armenian is on
the way to a natural equilibrium state in which the markets will work
their magic happily ever after.

This is a claim one hears these days, as it has become clear that
capitalism has failed to make good on its promises. The economist
John Maynard Keynes once noted that “in the long run” we are all dead.
This observation becomes worse than ominous in the case of Armenia, in
view of the long-term economic, strategic, and security consequences
of its dramatically diminished population.

But even setting that consideration aside, the facts of capitalism
wipe out the “passing phase” article of faith, too. Thomas Piketty’s
much-discussed book, Capital in the Twenty-First Century, has shown
that, over the course of the last two centuries, the rate of return on
capital has exceeded the rate of economic growth.

Piketty’s book, a popular presentation of exhaustive research, shows
that in the West no less than in Armenia, capitalism left to its own
“free market” devices leads to greater and greater disparities of
wealth. Without state intervention, the rich get richer and the poor
get poorer, even as productivity soars. For all of his confidence,
then, Friedman was clearly wrong: even in the long-run, capitalism
left to its own devices leads to greater and greater inequalities.

But this would hardly come as a shock to most residents of the
Republic of Armenia today.

If by now Armenia’s Free Marketeers have not seen the error of their
ways, they never will. Indeed, why should they? The leaders of
Armenia’s counter-revolutionary generation have by now safely
squirrelled away their loot and either left the country or ensconced
themselves in mansions, behind gates. Capitalism certainly has worked
for them.

But what about Armenia’s wage-earners, the unemployed, the
under-employed, those on fixed incomes, and the poor? These people,
together with their dependents, make up the larger part of the
population of the Republic of Armenia.

People who care about Armenia had better hope for a generation of
working-class Armenians who will break with the delusions of their
parents and grandparents as thoroughly as the counter-revolutionary
generation twenty-five years ago blotted the lives and hopes of their
Soviet Armenian predecessors.

We had better hope for a generation that will recognize that the guy
who really got this right was Karl Marx.

(Markar Melkonian is a nonfiction writer and a philosophy instructor.
His books include Richard Rorty’s Politics: Liberalism at the End of
the American Century (Humanities Press, 1999), Marxism: A Post-Cold
War Primer (Westview Press, 1996), and My Brother’s Road (I.B. Tauris,
2005, 2007), a memoir/biography about Monte Melkonian, co-written with
Seta Melkonian)