In the previous post, we looked at financialization and how it hollowed it out. We also looked at stocks illusory store of value: they disappear into thin air when crises, like pandemics, strike. In the post, we look at how stock markets have eroded the economic resiliency of the average person.

How do stock markets destroy the resiliency of the average person?

Through IPOs, companies can raise enormous amounts of capital. With this capital, they can buy out the competition. This was Tyson Foods "Expand or Expire" strategy that Don Tyson adopted to become the farming conglomerate his company is today:

"Tyson couldn't get bigger just by adding more farms or slaughterhouses. If the company expanded its own operations, it would put more chickens on the market inevitably leading to oversupply. But buying a competitor neatly solved two problems with one move. Tyson could expand without boosting the overall supply of chicken. Tyson simply bought out its competitor's market share without adding one bird to the market."

Of course, it’s not just Tyson Foods. According to Wenonah Hauter, author of Foodopoly, 4 companies control 80% of beef and 60% of poultry production. It’s also companies like Wal-Mart who have a reputation for devouring businesses and then leave communities high and dry.

A study found that the introduction of Wal-Mart employs 150 less than the pre-existing network of small businesses that previously existed in that county. This translates into 2.7% less employment and "declines in county-level retail earnings of about $1.4 million, or 1.5 percent”.

How is this relevant to the issue of COVID-19?

Instead of one large chicken processing company that brutalizes chicken farmers, you may have had many independent farmers like in the good old days. In the US, they employ largely immigrants and undocumented workers. Specifically, In 1820, before the domination of IPOs, bonds, debt-financing and other corporate finance schemes – 80% of people were self-employed. And after? Only 20% claimed the title in 1940.

So, just as financialization ate through the ability for people to save, big business financed through the issuance of stocks destroyed the ability to be an independent small business. In fact, “unemployment” was unknown in pre-civil war America as everyone was self-employed. What happened when hard times hit? People relied on their “land and tools, not to speak of common rights to woodlands and grazing areas, and the ability to hunt and fish.” In other words, Big Capital replaced an economy of entrepreneurs with a society of employees. This depleted the ability of communities to organize local entrepreneurs to weather these economic storms.

Supply-chain and the problem of “market monocultures”

The other issue that this pandemic has unearthed is the unsustainability of the massive supply chains that crisscross the planet. Corporations – financed through IPOs – were able to outsource manufacturing to China, Mexico, India, etc. to make massive profits by exploiting this cheap labour.

However, this has resulted in two problems that have come back to haunt us in this Coronavirus Crisis. Firstly, the local labour movement was destroyed, which reduced the ability for the 99% to collectively bargain, getting better and save for days like these. Also, it allows American companies to exploit immigrants and undocumented workers. According to Hauter, “if they push for protections, if they push for a fair wage, the meat industry works with ICE to come in and deport those workers“.

The other problem is that of “market monocultures” and the lack of business diversity. It’s one of the ironies of Capitalism: “free markets” are closed markets. Yes, as discussed above, it eliminates entrepreneurs. However, the problem here is one of resilience: if the mother-ship-of-supply-chains goes down, it's hard to relocalize in times of pandemics. For example, a number of meat plants had to shutdown due to COVID-19 outbreak at these plants, which is “pushing the United States “perilously close to the edge” in meat supplies for grocers“.

Also, consider why Canada has to import N95 masks. Canadians source these strategically sensitive goods from the US (which Trump attempted to block) and China (Huawei is expected to deliver 6,000,000). But why is the manufacturing located outside Canada in the first place? Big Capital. IPOs or bond issuances that have created these large companies – which can exceed the size of countries – that can maintain these giant logistical networks.

Contrast this to an economy that follows the Islamic rules of partnership. Since there are no Wal-Marts, Tyson foods or 3Ms, many small businesses need to exist to fill the needs. Consequently, there is a network of small but local companies that can fill the need. Even if some of these businesses close, others can pick up the slack because of this natural resilience built into the economy.

Fiat money owns some of the blame as well

The other factor that enabled the globalization of these supply chains was Nixon’s decision to go off the gold standard in 1971. This has led to a situation where now China is lending the US over a trillion dollars. China gets this money the exports they sell to the US and others. So, if the US had stayed on the gold standard, would the US send boatloads of gold or silver to China, Mexico, Saudi or India? Absolutely not because this would transfer real geopolitical power to these countries. Consequently, the use of the bi-metallic, as mandated by Islam, would prevent this type of globalization. This, in turn, would require states to keep manufacturing in-house, so they can hold on to the physical medium of exchange and keep commerce flowing.

In sha Allah, in the next installment, we will take stock of the bailouts, helicopter money and other assistance that the system is throwing at the COVID-19 Crisis.