I got into a debate on Twitter earlier that helped me to sift through a lot of the reasons I have for thinking the way I do about the economy and ethics in general. The main point, I believe, is that human selfishness and competition are simple facts and that we must decide how we can manipulate those factors in order to produce a better system. The failings of past systems were the result of human nature and the way we responded to social structures, so we need to design a social structure that reduces the likelihood of unfairness or injustice or what have you.
I doubt I need to delve into feudalism or mercantilism to explain why they were bad systems. They were bad because they were less efficient and they distributed the fruits of labor unjustly (I’m vastly oversimplifying the case). With that in mind, we should analyze the history of capitalism against the criteria of it being just and fair and efficient. Volumes have been written on this subject, so I intend to provide a very summary view of what I think are some of the most important critiques of capitalism and how they relate back to the title of this post.
For anyone that has taken even only a single economics course, capitalism sounds fantastic. It distributes goods efficiently and people are rewarded for work in such a way that it is perfectly in fair with regards to the rest of the market. However, it seems to fly over everyone’s heads that these sorts of results are only possible under conditions of perfection: perfect information, perfect competition, etc. It should be no surprise to anyone that we have nothing like perfection in reality. People and corporations lie and there is hardly perfect competition anywhere in the market. In fact, it seems that there is vastly more competition among buyers than there is among sellers. There is vastly more competition among employees than there is among employers. Not only do we lack perfection, but the ratio of power leans heavily against the average individual.
What results from this? Unjust distribution of wealth. People lie and manipulate to make sure the die is cast in their favor. People group together to form corporations and use their combined power (reduced competition!) to prevent those whom they employ from grouping together also. By necessity it seems, there must be fewer businesses than there are people. Therefore, there is less competition among businesses than there is among individuals. As buyers of labor, employers therefore hold more power than the potential employee, the seller of labor, because while there are only n businesses, there are some 2n (or whatever the number may be) people who could potentially fill that job. The idea here is, “If you don’t work for $7.25 an hour, I guarantee the next person in line will.” This creates a race to the bottom, resulting in incomes for people that are lower than what their work is actually worth. In other words, you are paid less than your production value to your company. Conversely, when a product is sold to you, it is sold with profit margin. That means that while you, in terms of productivity, are being shortchanged, the businesses and their owners are getting more than what they put in. This is all due to the competition mismatch and guarantees that without some sort of outside intervention, the economy will tend towards a polarized distribution of wealth with workers on the poorest end and capitalists on the richest.
It should come as no surprise that workers, historically, have revolted against this pattern in capitalism (cue the populist response to the Industrial Era). From this we get government intervention and labor unions. Governments come in and attempt to distribute some of the profit back to workers who were unfairly paid (and, later on, we get more welfare). Labor unions attempt to unite workers as one entity in order to reduce competition among them, thereby decreasing the buying power of the employers. Cue the prosperity of the middle class.
All I’ve done is described with extreme brevity what happened in history. Yet people look back on the policies of the Industrial Era with some sort of twisted nostalgia, as though it was those policies that brought on the middle class. Such is not the case, as history has shown. As I’ve explained, it is impossible for a middle class to exist for long when competition among the workers causes accelerating, increased profit margins at the end of the employer and reduced wages on the end of the employee. There is a fundamental mismatch of competition between employers and employees and there is no way around it. To pretend as many seem to want to do that we can live in this system is to think very shortsightedly. With outsourcing, automation, and other labor-saving devices combined with decreased government regulation and regressive taxation, the economy is once again chugging right along in the direction of polarization. It is inevitable by the logic of capitalist theory itself.
That’s not to say that I’m not optimistic. I’m not sold on alternate theories quite yet, as I’ve yet to see one that produces the vast amounts of wealth that capitalism does. All that said, it seems readily apparent that Marxist-socialist critiques and ideas should be fused with the current state of things. One of my favorite economists, Richard D. Wolff, has a book that I like to recommend to people that advocates for a lot of socialist reforms that could coexist with a capitalist structure. His concept of worker-directed enterprises is particularly interesting and I think it should be a major point of reform going forward. Read that or watch some of his videos if you’re at all interested in the idea of a more just economy. It’s inspiring during a time when the news is rarely good for anyone who isn’t in the top one percent.