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Capitalism


NOTE: This entry was crossposted from my blog.

Since the earliest entries on this blog, I’ve had in mind to write something about why I’m an anti-capitalist, and in what sense. I’ve written before several times about aspects of my opposition to capitalism (here, here, and here amongst other places, and also about parecon, an alternative to capitalism), but never attempted to do it comprehensively. Incidentally, that word “comprehensively” should be a sort of warning – this entry is long.

Defining capitalism is tricky because it is a very general concept, and means very different things in different places and at different times. So this entry will be necessarily somewhat nebulous, as it attempts to address the concept of capitalism without defining a specific conception of it. So it won’t be a strict argument against capitalism, but rather some ideas which might be useful in thinking about it, and also a guide to criticising me (being as it is, a summary of my own reasons motivating my opposition to capitalism).

In the broadest possible terms, I have two fundamental problems with capitalism: it creates inequality, and it forces us to pursue ends that are other than the ends we would choose of our own free wills. The relevant underlying principles are fairness and freedom. Although I state these two problems separately, they are really quite intertwined.

Fairness

Before I go on it might be worth saying  a few general things about fairness and freedom since they are key to my criticisms of capitalism. If you’re happy with these principles, you might want to skip this section and the next as I ended up going on and on for longer than I intended.

It might be objected that fairness is not important, that in the face of the enormous positive benefits that capitalism has brought the world, the fact that some groups consistently do better out of it than others is of marginal significance. I would agree that fairness as a principle doesn’t have the same level of support as freedom, for example. And I can understand why. Although freedom can be (in my view somewhat crudely) defined simply as the lack of explicit interference in ones affairs, fairness involves a comparison of the lot of one individual with the lot of all the others. On the basis of an individualistic view of the world, how better or worse of others are shouldn’t really effect anything. Supposing there are aliens on another world that are all living incomparably wealthy lives in comparison to ours, we shouldn’t feel hard done by. Similarly, it seems we shouldn’t feel badly done by if our neighbour is doing better than us through no merit of his or her own, the only difference being that we see the neighbour every day but we never see the incomparably wealthy alien.

So I can understand doubts about fairness as a principle, it doesn’t have the same uncomplicated status as the simple notion of freedom as lack of interference, but in my view it is still significant. I might go into why in more depth in another entry, but for the moment I’ll just make a couple of observations. First of all, things do change depending on what we know about. If the aliens landed on Earth and started visibly enjoying their wealth, even if they weren’t harming us by so doing, I think we would be within our rights to want part of that. Of course we couldn’t demand it in any incontestable way, after all we did nothing to deserve it – they developed the technology, found the resources, etc. But then, probably most of those aliens did nothing to deserve it either, most likely they just made small improvements on what their ancestors had done (and not even that in many cases). The application of this line of thought to the purely human situation should be obvious.

This leads me to my second observation, that criticisms that amount to criticisms of fairness as a principle come down to saying that there is no incontestable reason to choose the principle of fairness, it is not a “natural” and unavoidable principle and indeed in a “state of nature” there is very little of it. I would agree, but you could say the same about any principle, they are all matters of choice (see my earlier entry on arationality). It comes down to deciding what sort of world we want to live in, not what sort of world we ought to live in. Ultimately then, I choose to value fairness, and I would hope that others would choose likewise.

Freedom

Next I want to say something about freedom. It is often characterised “negatively”, particularly by right wing thinkers, as freedom from explicit constraints. And there are good reasons to be dubious about the “positive” version of liberty, because it seems to imply duties on someone to provide these liberties, in an unspecified way that can be taken to suggest the necessity of a strong central authority whose duty this would be. The philosophical debate about this is ongoing and complex (see the Stanford Encyclopedia of Philosophy entry on it). I tend more towards the “positive” version, but not straightforwardly.

We live in modern states whose functioning in practice cannot be ignored. Thousands of years ago, when someone who didn’t like the way his society was organised could leave, find some unused land, and set up his own, a purely negative conception of liberty would have made more sense than it does now. Nowadays, we’re not faced with the choice of whether or not to live in the society we find ourselves born into, we must live within the institutions that actually exist, and these inevitably circumscribe our liberty. This is a particular issue when these states have enormously extensive conceptions of property that include property in land as well as property in objects, and even go so far as to extend into property in ideas. Property is enforced by the state, and assuming that this is being done, the state already has power over an enormous part of our liberty. It is worth noting that some right wing thinkers would like the function of the state to be only one of protecting property rights. Despite their being apparently motivated by liberty, they fail to give due consideration to the extent to which liberty is circumscribed by the institution of property.

So although we can talk about simple negative liberties, any choice of institutional arrangement of society also defines, by the way in which it circumscribes our liberty, a positive conception of liberty as well. We can choose not to talk about that bit, but the choice of institutions and the functioning in practice of those institutions makes a choice whether we recognise it or not. Given that, I prefer to be explicit about the positive components of liberty as well as the negative ones. In particular, I want to draw attention to how a capitalist state, through its support of property, provides more positive liberties to some groups rather than others. In a nutshell: in building good roads, a state provides freedom to travel faster and more safely, but only to those who can afford a car and fuel to run it. In providing a police force that enforces property, it stops people from having the fruits of their labour taken away, but this service is enormously more valuable to those who have wealth to be stolen than those living from day to day on what they can earn.

Inequality

My first objection to capitalism was that it creates inequality. The questions are: why? and what of it? I’ll start with the second question first. A society of unequal wealth is first of all unfair. We all rely on the correct functioning of the state for the vast proportion of what we have. I don’t just mean that we’re paid by the state, although many are, but that if the state didn’t exist the circumstances in which we work wouldn’t be able to exist either. We need the rule of law, enforcement of contracts, property, etc. (I don’t say we need all of these in an absolute sense, but that we have them and if we couldn’t rely on them in this particular society we wouldn’t be able to profit from our work in the way we do.) If someone like me, tinkering around with equations in a comfortable situation, can earn hundreds of times what someone doing really demanding and unpleasant work can earn, then something is wrong (for what it’s worth, I don’t earn hundreds of times what anyone else earns, but as someone with a mathematical background I probably could if I chose to, or at least I could have if I had chosen to at the appropriate point in my life).

One criticism of this viewpoint is that capitalism does not make value judgements about the importance of the work that people do, the prices for different sorts of labour are set by the market. Strictly speaking that’s true, and it is indeed a good thing that there isn’t some governing body that decides the value of different types of work, but if the mechanism (the market) produces outcomes that are obviously crazy and in no sense fair then it can be criticised. We don’t need absolute inequality, we don’t have to have a principle that says that all sorts of labour are equally valuable, but we should use our common sense and point out that it is in no sense fair that people doing work that they enjoy in comfortable circumstances should be enjoying wealth that is hundreds of times that of people who are doing unpleasant work in difficult circumstances. Again, this comes down to a matter of choice, but it is emphatically not the case that capitalism represents a lack of choice or a natural choice. The state is making all of this wealth possible, and so if it makes more wealth possible for some and less for others, that too is a choice. We can’t look at inequality and shrug our shoulders and say “that’s the way it goes” – that’s not the way it goes that’s the way we make it go, and we could choose to do otherwise.

There are more reasons to be dubious about inequality than just the unfairness of it. For example, inequalities of wealth tend to produce political inequalities too. In a democratic capitalist society, political parties need funds to operate and they have to get these from somewhere. Wealthy individuals have more to give and so have more power than the poor. This is a problem that could be solved if there were political will to do so, which is not entirely impossible although the current system mitigates against it happening. There is a second mechanism by which economic inequality creates political inequality. When an individual or group of individuals can affect the entire economy by their own private economic decisions, everyone, including the government, must act in such a way as to stop them from making decisions which would hurt the economy generally speaking. In a society in which there were not huge concentrations of wealth, this wouldn’t be so significant (but then, the dynamic of capitalism is to increase inequality so to some extent this seems inevitable). This problem is aggravated by globalisation and hyper-mobility of capital, a point I’ll return to later. The result can be clearly seen today, all successful political parties are largely funded by the wealthy and work largely in the interests of the wealthy, and they cannot do otherwise. The only difference is the extent to which they are in favour of policies which mitigate the worst excesses of capitalism, and this is something which they have increasingly little control over (which again, I’ll return to later).

Now on the first question, which is why does capitalism cause inequality and is this inevitable? My answer is that the basic dynamics of capitalism tend to increase inequality but that these can be mitigated to some extent (by for example, social welfare programmes). First of all, the existence of wealth tends to create inequality in it. If there is any disparity at all, then those who have more are in an advantageous position, all other things being equal, to those who have left. The most obvious application of this is borrowing and lending. The wealthy lend money to the poor (indirectly through the institution of banks), and the poor then have to pay back the money loaned at interest. When an economy is growing, everyone can profit by this in absolute terms, but the wealthy profit by it hugely disproportionately to the poor, so inequality increases (or at least, never decreases). But there are other mechanisms too. For example, the wealthy can afford private education which gives them a competitive advantage even when employers make purely meritocratic decisions. Also, those with (possibly inherited) wealth have more freedom to choose between jobs because they can survive for a period without a job, whereas those who have nothing must take a job immediately, forcing them to take worse jobs where their prospects will not improve. (This is the aspect that can be mitigated by a social welfare programme.)

Those are some specific mechanisms by which capitalism causes inequality, but there is an overriding meta-reason too. Basically, in a competitive system some will get more than others, and all things being equal having more to start with must be an advantage. Assuming the advantage grows with the amount of extra wealth, over time the effects of these advantages must produce even larger disparities, and so on. This could probably be mathematically formalised, I expect someone has done it.

Profit

My second objection to capitalism is that it makes us pursue ends other than the ones we would choose to pursue. To some extent, this is inevitable. If I want to pursue a career in interpretative dance like Marty in The Big Lebowski, then I need to either find enough people who feel this is worth it, or pursue some other career which isn’t the one I would choose. Proponents of capitalism would say that this all there is to it, that although you may not like the collective choices we as a society make through our individual purchasing decisions, they more accurately reflect people’s real wishes than the prejudices of socialists and academics. Although I like the unsentimentality of the argument, and there is probably some truth in the attack on prejudiced ideas about what people really want, I think it rests on the unfounded and inaccurate notions that people can express their wishes through purchasing decisions, and that the mechanisms of capitalism aggregate these individual decisions into collective ones in a satisfactory way.

We clearly cannot express all our wishes through our purchasing decisions. For a start, there are many things that cannot be bought such as clean air, beautiful countryside or parks to walk in, etc. Economists recognise this problem of “externalities” (factors which are external to the market mechanism), but the capitalist way of dealing with the problem is to bring everything into the market and create new forms of (private) property. This is summed up in the classic economists’ treatment of the problem of the tragedy of the commons. But it exacerbates the problems of inequality mentioned above (imagine if clean air was something to be purchased, as in Ben Elton’s play “Gasping”).

More than our individual desires though, we cannot express our desires about the sort of world we want to live in through our economic decisions. We can express them through our political choices (who to vote for), but in politics, economics trumps everything else. The reason for this is that in a capitalist society, all aspects of the economy, and by extension all aspects of life because everything relies on a reasonably functional economy, are redirected towards the production of short-term profit. Capitalist society makes it much more difficult to implement a policy or take an action that favours a long term goal or the improvement of our lives through an “externality” in preference to short term profit.

Suppose a government wanted to increase taxation to spend on doing many things that people desired, such as better parks, health care, education, and so forth. The most logical way to do this would be to increase taxation on the largest concentrations of wealth, the companies and the rich. A government that chose to do this though, would risk a capital flight – the sudden movement of capital out of one country (where there is a perceived economic risk) to another which offers safer or better investment prospects. As the case of the Labour government from 1974-1979 shows, capital flight can be truly devastating to the whole economy (there’s an interesting analysis of this on the Anarchist FAQ). In other words, under capitalism we cannot choose to live in a society that doesn’t give priority to the interests of the largest concentrations of wealth without undermining our whole economy.

This sort of phenomenon is endemic to capitalism at every level – the interests of wealth, and in particular short term profit, are always absolutely prioritised over everything else. In a global capitalist system, different countries compete against each other to provide the most congenial environment for investors. This means that low taxation is forced, and consequently low state expenditure. This in turn means that public goods will be undervalued, and because social welfare programmes are so expensive they would also have to be limited in scope, and therefore inequality gets worse. As capitalism becomes more globalised, and wealth can be transferred even more quickly at lower cost, this effect is getting stronger and stronger, so that previously successful mixed economies are now struggling too, and are being forced to respond to the needs of capital and reduce taxation and spending.

The same mechanism of competition between countries, or even between different cities or regions means that regulation of companies tends to reduce. If one country offers its workers legal rights to compensation if they are injured at work, and another country doesn’t, all things being equal in a global economy the company will set up business in the country with less regulation. This works at every level, and the effect is that regulation of economic activity for reasons that serve human interests must inevitably decrease over time. This is bad for individuals, but it is also potentially unstable because regulation of economic activity can be good for the economy as a whole. For example, monopolies and oligopolies stop free markets from working correctly, but regulation is very weak. This may well be because big businesses who might be in danger of anti-monopolistic actions would move their capital out of a country that proposed stronger anti-monopoly laws.

At a smaller level, the same phenomenon can be seen in individual companies. In order to be successful, they must pursue short term profit over anything else (even their own long term profit). If they don’t, then another company will, and investors will move their money to the other one, destroying the one with a longer term plan before it could come to fruition. Recently this has been demonstrated with the subprime mortgage crisis. Here we had a situation in which all the people involved knew that it couldn’t work in the long term, but that because it was so profitable in the short term they had to keep doing it to keep up with their competitors.

There are certainly situations in which the pursuit of (short term) profit leads to beneficial effects. For example, the refinement of already existing products and technologies which capitalism excels at. However, because of the emphasis on short-term profit to the exclusion of all other things, the “invisible hand” of the market does not work towards the ends that we would choose, andis even self-destructive (perhaps a Marxist analysis could kick off here… another time).

To a certain extent, the same logic even applies to individuals although we are at slightly more liberty to choose our own paths (for example, we can choose to “buy” more leisure time by working at less high profile jobs). Nonetheless, in a world where the pursuit of profit, and more particularly short term profit, is fundamental in all organised economic activity, that must affect the way we see the world. More straightforwardly, if the whole economy is geared towards short term profit, then we are not free to pursue activities that are not also geared towards this. The problem therefore goes beyond that addressed by the hypothetical critic earlier in this section, it is more than just that we must do work that is valued by someone, we must do work that produces short term profit.

You’re almost at the end

I wanted to explain why I think capitalism is a bad idea, and hopefully the reasons above do that. I’ve mostly focused on the present, but perhaps a word or two on the past and on the future. After all this criticism of capitalism, it would seem reasonable to respond that capitalism has done a great deal of good too. As Adam Smith says in the first chapter of Wealth of Nations, capitalism has allowed everyone to live better than kings of the past did (I’m paraphrasing here). I think that’s true. One might question whether or not that could have been achieved more expeditiously, but it’s in the past and the question is whether or not we can do better in the future. The Marxist (and some anarchists) would say that how you should organise society depends very much on the level of wealth. A rich society can in principle choose to organise itself in a much more egalitarian way than a poor one can. As our basic needs are provided for to a greater extent, we can stop worrying about living from moment to moment, and focus our attention on reorganising society to be more like how we wish it would be.

Experiments with Communism in the past largely failed for political reasons (democracy is essential), but also because countries that tried it hadn’t reached the point where basic needs were met, and because central planning was an inefficient mechanism (the planners didn’t understand the effects of their actions well enough, nor what was needed). I believe that the time may have come, or at least will quite soon come, when we will have the necessary means (basic needs satisfied, better understanding of economics, decentralised planning mechanisms such as those of parecon or otherwise) to do better than capitalism.

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