Wednesday, 28 November 2012

It's the System, Stupid. Review of After Capitalism, part 2.2

Welcome to Part 2.2 of your quick guide to capitalism and its ruinous consequences. I can see the next immutable feature of capitalism itching to reveal itself so let’s draw back the curtain and begin …


Yes, welcome unemployment. Or perhaps not. Full employment, as Schweickart says, is, outside of wartime, a textbook fantasy. The guilty secret is that unemployment is desired by the rulers of our society. Full employment leads to large wage rises (a seller’s market), which eat into profit as well as causing inflation, as the much lower unemployment rates in the 1960s and ‘70s, showed. Capitalists know this and they want the discipline of potential unemployment so employees are never completely secure in their jobs. “Economics is the method,” said Margaret Thatcher. “The object is to change the soul.”

But there is another reason for unemployment which Schweickart doesn’t talk about. Regardless of its usefulness in disciplining workers, there is a structural reason for unemployment. The Conservatives in Britain have made immense political capital from proclaiming the existence of a ‘structural deficit’ – government over-spending that is over and above the extra spending resulting from the economic downturn. But they – and all mainstream political parties – are silent about the structural character of much unemployment – the joblessness that would be there even without a recessionary economic climate. This is a feature they can never admit.

In the UK, from 1950-73, unemployment averaged 1.6%. Post-1980 it has averaged 7.8%, and frequently been higher. Even at pre-crisis levels, unemployment was high enough to have fatally wounded governments in the ‘60s and ‘70s. Now it is seen as fact of life, when in reality, it is a fact of capitalism. John Maynard Keynes spoke about technological unemployment as early as the 1930s, and technological development, spurred on by the desire to reduce costs and increase profit, has rendered, under this system, a significant proportion of the population economically superfluous.

The economist Harry Shutt has written about this systemic problem. The scarcity of the means of subsistence, he says, has greatly diminished since the Industrial Revolution, but the scarcity of work opportunities has correspondingly grown. “Yet it remains true,” he writes, “that for the vast majority of the world’s people the sale of their labour is their only potential source of income”.

The Obama economic adviser, Laurence Summer, has said that high levels of unemployment are now a structural feature of the US economy, regardless of the presence or absence of economic crisis (which seems to be the new normal anyway). “No matter how hard we try, the current economic system needs fewer and fewer of us,” says the writer Dan Hind.

The structural nature of unemployment results in a situation where a majority of people work very hard, but a significant minority don’t work at all, or are under-employed, and live in poverty. The employed are employed because they contribute to profit, the remainder do not. Under capitalism, employment largely depends, not on meeting social needs, but being needed to generate profit. A great many jobs are, under any rational judgement, socially useless.


Here we confront a paradox of the system. Capitalism is technologically prolific. It produces a wondrous variety of commodities and this explains a large part of its appeal, an attraction we will consider in the next part. But the technological advances the system makes, while theoretically reducing the need for toil and promising to ‘save labour’, actually makes work more intense.

“A visitor from another planet would be perplexed to discover that in a purportedly free and rational society there are millions of people who want to work more, living in close proximity to millions who want to work less,” writes Schweickart. “The visitor would be even more perplexed to learn that new technologies allow us to produce ever more goods with ever less labour, and yet the intensity of work – for those who have work – has increased.”

Working hours have increased in the US and Britain in the last twenty years, despite technological advance. Between 1998 and 2005, the number of people in Britain working more than 48 hours a week more than doubled. And one in six now works more than 60 hours.

In 1999, research by the Joseph Rowntree Foundation found that nearly two-thirds of British workers had experienced an increase in the speed or intensity of work over the previous five years.

Some great minds of the recent past thought that technological advance would have precisely the opposite effect. John Maynard Keynes believed that people in the first half of the 21st century would work 3 hour days and fifteen hour weeks. Keynes, one of the most famous economists in history, was grossly mistaken.

According to the theory of conventional economics if people desire more leisure, they will automatically get what they want, trading income for more free time (Conventional economics is all about desire – if you want a coffee-maker the market will provide one). But, in practice, it doesn’t work like that. Work hours are set, or implicitly set because they are required to get work done and employees can rarely negotiate more leisure, despite the rhetoric of ‘work-life balance’.

The reason, as Schweickart points out, is that consumption is the lifeblood of business but leisure is often its antithesis. “Any kind of cultural shift that emphasizes leisure over consumption bodes ill for business,” he writes. “To be sure individual businesses [like an airline] catering to the increase in leisure that people would have might profit, but if this leisure comes at the expense of income, overall aggregate demand will fall, profits will decline, the economy will stagnate or slip into recession.”

It can be argued that overwork is not an immutable feature of capitalism. Work hours declined, because of government and trade union action, in the latter part of the nineteenth and for much of the twentieth century. In France, a 35 hour week was introduced in 2000. Theoretically, the EU has a 48 hour week. But these external restraints on capitalism have proved very hard to make stick. The French 35 hour week has been incrementally eaten away at since its introduction.


This last feature is not one included by Schweickart, although in the latest edition of After Capitalism, which I don’t have, there is a section on instability.

Anyway, capitalism is a peculiarly unstable economic system, and its instability is generated internally, not by uncontrollable outside factors. All the talk pre-2007 about an “end to boom and bust”, “the Great Moderation” and the “Goldilocks’ economy” (everything just right, not too hot or too cold), proved to be errant propaganda. In the UK, prior to the Great Recession, there were two severe economic downturns in the last thirty years (1980-82 and 1990-92). Millions of people were made unemployed, thousands of business collapsed, home repossessions and evictions soared. And now this.

Ha-Joon Chang in 23 Things they don’t tell you about Capitalism has shown that the number of countries experiencing a banking crisis shot up after the beginning of the 1980s. 20% of countries experienced a banking crisis in the mid nineties, and 35% did following the 2007-8 global financial crisis.

If, for whatever reason, investors lose confidence, says Schweickart, they will stop investing, businesses will stop selling goods and the economy will slump. What we are experiencing now is a chronic loss of confidence in the ability of businesses to sell products as shown by enormous pile of money, estimated at £750bn in the UK, that corporations are sitting on and not using.

Keynesian economists, Chang included, would argue that, while instability is a feature of capitalism, it can be overcome. Restraints on finance and banking, exchange controls which don’t allow capital to leave countries, and encouraging labour to receive more of a share of profits, can achieve this. The economist Hyman Minsky said in 1982: “The most significant economic event of the era since World War 2 is something that has not happened: there has not been a deep and long-lasting depression.” But actually, the Keynesian era did end in a recession, in 1974. So Keynesianism was not able to eradicate capitalist instability.

Many economists now believe that another financial crisis is just waiting to happen

The consequences of this recurring instability can be seen in interrupted careers, destroyed relationships and life chances, evictions, home repossessions, and social unrest. The economic historian Karl Polanyi, writing during the Second World War, described capitalism’s strange ability to create “unheard of material welfare” but a simultaneous “catastrophic dislocation of the lives of the common people”.

The systemic instability of capitalism is the cause of the current and prolonged economic downturn and government budget deficits. “Capitalism went into the toilet” is how the American economist Richard Wolff expressed the situation in very technical language. It is not the result of poor people being profligate, immigrants, government over-spending, the EU (although the Euro may have exacerbated the problem) or selfish human nature in general. But while capitalism is the cause that cannot be seen as the cause, for the consequences of that cause and effect equation are unacceptable to the rulers of our society, other culprits have to be located. Hence this

This element of capitalist instability is quite apart from the everyday instability it involves: the speculation, for example, that pushes the price of essentials, such as cereals, beyond the reach of ordinary people in poor countries and causes hunger.

The best of all possible worlds

The above characteristics provide a corrective to the constant drip of capitalist celebration to the effect that the world we live in is the best imaginable. But others, not simple capitalist apologists, claim that capitalist amounts to the best achievable world and is far better than any humanity has experienced before.

John Lanchester in his book about the financial crisis, Whoops!, says he believes that western liberal democracies [all capitalist after all] are best societies that have ever existed, “which is not the same thing as saying they are perfect. Citizens of those societies are, on aggregate, the most fortunate people who have ever lived.”

The foundations of this belief will be examined in the next part. With capitalism, does the good ultimately outweigh the bad?

Friday, 16 November 2012

Why capitalism can't save us. Review of 'After Capitalism'. Part 2.1

2.6 billion people are living on less than $2 a day, many major cities are surrounded by sprawling slums of misery, carbon emissions are rising faster than they were in 1990, Arctic sea ice is melting more rapidly than anyone anticipated and unemployment and poverty are rife in many countries. A list of bad things happening in the world is not difficult to compile. But why are these manifestations of present and future suffering the responsibility of the economic system – capitalism – now predominant across the globe? Are they not, as is commonly argued, regrettable but inevitable facets of life arising from flawed human nature?

You can’t persuasively criticise capitalism by waving your arms and saying how awful things are. As Schweickart says, to be convincing you have to show a causal connection between the structures that define capitalism and these bad features. “A serious critique,” he writes in After Capitalism, “must show that these negative features would not be present or would at least be far less prominent, if certain structural elements of capitalism were altered and that such alterations would not have other worse consequences.”

I want to examine five such negative features of capitalism that Schweickart highlights in his book. I will add a sixth. The features are examined from the point of view of some living in a developed, democratic capitalist country. That’s not intended to pass over the often far worse circumstances of poorer countries. It’s simply what I know most about and have experience of.

I also want to talk about the positives of capitalism. Why, beyond the quiescence of careerism or powerlessness, it still commands a grudging adherence. I was going to do that in this post but it would be too long, so it will appear in a following post, shortly.

Here is Schweickart in debate (and he does, as the presenter says, have amazing eyebrows):

First, the negatives.

1 Inequality

This feature would not, perhaps, have occupied such a stellar position twenty years ago. It was once believed that eventually everyone in the world would live like a middle class American, says Schweickart. “No-one believes that now.” Now, not even middle class Americans live like middle class Americans. In 1960, the US, the average pay of chief executives compared to all workers was 42-1. In 2007 it was 344-1. At Walmart, the US’s biggest employer, it’s 900-1. In the 1970s, Britain was one of the developed world’s most equal countries, now it is one of the most unequal. Inequality between rich and poor countries is even more extreme and worsening.

Capitalism has always involved great economic inequality. After the Second World War this characteristic was restrained, in western countries, by high taxation of wealth and collective bargaining. But both those elements have waned.

Schweickart asks a basic question. What’s wrong with inequality? Let all the children grow tall and some taller than others, Margaret Thatcher used to say. A rising tide lifts all boats was the mantra of the Right in the ‘80s and ‘90s. The trouble is that the tide isn’t rising. It is, literally rising, but not in a wealth sense. Wages have been stagnating in the US for 30 years and have been dropping in the UK since 2003.

The problem, says Schweickart, is that the structures that generate this inequality also generate desperate poverty and compromise democracy. Great and concentrated wealth at the top of society enables those that have it to skew the political process in their interests.

But we can add that inequality has two other effects. One is that, as the book The Spirit Level showed, problems, such as mental ill-health, incarceration, obesity and violence, increase in intensity the more unequal a society becomes. Secondly, inequality played a big part in causing the economic paralysis afflicting the US and Europe. A “wall of money” at the top of society has been used for destructive speculation. While inadequate income in society at large has both caused the crisis (the original credit crunch was precipitated by Americans not being able to meet mortgage repayments) and made exiting recession very difficult.

2 Democracy (lack thereof)

We, in the West, have free elections and a choice of parties to vote for. If enough people want to form anti-capitalist parties and seek votes, no-one will forcibly stop them. In France they have them in name. Therefore, we live in democracies.

Not so fast. The formal accoutrements of (representative) democracy does not mean we have democracy in content. Schweickart says we live in polyarchies.

A polyarchy exists where a country has free elections and a multi-party system but one class is dominant and its view and needs predominate. These views are propagated through party funding, lobbying, and the use of think tanks that create and mould public opinion.

But there is a deeper reason for the constrained democracies we live in. That is the formidable economic power of the owners of the economy and everyone else’s material dependence on maintaining their confidence. “A capitalist economy is ingenuously structured,” says Schweickart. “Almost everyone has an interest in maintaining the spirits of its ruling class …. So long as the basic institutions of capitalism remain in place, it is in the rational self-interest of almost everyone to keep the capitalists happy.”

And when the capitalists aren’t happy they can indicate their displeasure in very powerful ways. In August 2012, UK Conservative chancellor George Osborne reversed a £2 billion tax rise on the oil industry after companies responded to the rise by cutting production by 18%, and thus revenues to the UK Treasury. 

The writer Dan Hind has said the public is only audible when it echoes governing assumptions. If people think unemployment benefits are too high, they entrench government policy. But if they think tax should not be cut for the rich, they are instantly mute.

Even at its theoretical best, capitalist democracy only applies to the political system. The economy can only be influenced indirectly. Under Schweickart’s plan for worker controlled enterprises and social control of investment, democracy is extended to the workplace.

3 Environmental Degradation

“Only a madman or an economist could believe that exponential growth can go on forever in a finite world,” so spoke the late economist Kenneth Boulding who is quoted in After Capitalism. But capitalism believes, if it 'believes' anything, just that.

This is the inherent environmental flaw in capitalism. It grows. “Capitalism is enormously productive,” says Schweickart. “Every year, enormous quantities of commodities are produced that, when sold at anticipated prices, generate enormous profits, a large fraction of which are reinvested back into the economy in anticipation of still greater production and still more profits.”

The ever increasing consumption required by this process has been made possible in recent decades by consumer borrowing. Of course, as we are painfully aware now, capitalism doesn’t automatically grow and this tendency, in its environmental implications, will be considered shortly. But the significant point is that capitalism is a system without internal limits. In 2007, a British professor of engineering worked out that, based on an economy growing at three per cent a year, we would consume resources equivalent to all those we have consumed since the emergence of humanity by 2040.
This growth is manifested through the gradual exhaustion of natural resources, the steady encroachment of physical development into rural areas (happening now in the UK through the erosion of the “green belt”), and the release toxic by-products of production and consumption such as carbon emissions and nitrogen-based fertilisers used in farming.

What would defenders of capitalism say to the charge that the system is ecologically unsustainable? Firstly, and very loudly I imagine, they would point out that the environmental record of capitalism’s historical rival was terrible. Pollution under Communism was chronic. In the early 1980s, northern Bohemia in Communist Czechoslovakia had the worst air pollution in Europe. By 1983, 35% of all Czech forests were dead or dying and one third of all Czech watercourses were too polluted even for industrial use. Though the main environmental bane of Communism, it should be said, was pollution, not growth.

Secondly, a pro-capitalist would argue that, through capitalism’s association with liberalism and free elections, environmental activists can, externally, bring capitalism under control and make environmentally destructive behaviours unacceptable. Think of the film Erin Brockovich.

“Thanks to the efforts of determined environmental activists in virtually every advanced capitalist country, air quality is better now than it was two decades ago and rivers and lakes are cleaner,” writes Schweickart. “Environmental protection laws have been passed and “green” taxes and imposed in many countries.”

There are several points to make in response to the belief that capitalism is compatible with a flourishing environment.  Firstly, environmental activism can’t alter capitalism’s integral growth dynamic, it’s “grow or die” impulse, as the social ecologist Murray Bookchin put it. As a result the best environmentalism can do is ameliorate the worst effects. “Things getting worse at a slower rate”, is how the late environmental activist, Donella Meadows, described the situation.

Secondly, in the low or no growth world we are entering, environmental priorities are being sacrificed to meet the short-term need to revive growth. “We can’t be ambivalent about growth,” is how the UK government’s “planning” minister, Greg Clark, justified reducing regulations to make it much easier to approve building development in the countryside.

Thirdly, many polluting practices in western countries that have become culturally unacceptable have been exported to poorer countries, where people have less power to make their objections count.

Lastly, the experience of the 21st century has shown that when environmental activism directly confronts huge capitalist industries like oil, automobiles and mining, it does not win. The 1987 Montreal Protocol was the last successful international agreement to change capitalist behaviour. The protocol called for strict restrictions on chemicals that deplete the ozone layer (chlorofluorcarbons) and the results have been impressive. But, says Schweickart, the industries affected had substitutes to hand, and the protocol “should not lull us into thinking capitalism can accommodate all sensible environmental solutions.”

With climate change and carbon emissions it has been a very different story. There are cleaner ways of generating energy than burning oil and cleaner way of transporting people than using cars, says Schweickart. “But it is hard to envisage the transition to these cleaner modes that preserves the status and income of these giant industries,” he says.

But the problem goes deeper than corporate resistance, he argues. Phasing out chlorofluorcarbons did not affect consumption habits. “A transition away from carbon-based energy almost certainly would”.

The consequence of the conflict between environmental sanity and profit has been that many capitalist countries – most notably the US – have been unable to change course to ameliorate climate change. Not only this, a political culture has developed that denies the existence of climate change even when its effects become harder and harder to ignore.

This seemingly intractable problem is intimately related to the fake democracy examined in section two. In a 2011 report, the head of Greenpeace International, Kumi Naidoo, said that governments don’t take action on climate change because they have “captured” by corporations responsible for it.

These polluting corporations often exert their influence behind the scenes,” the report said, “employing a variety of techniques, including using trade associations and think tanks as front groups; confusing the public through climate denial or advertising campaigns; making corporate political donations; as well as making use of the "revolving door" between public servants and carbon-intensive corporations.”

Finally, what of the prospect that dysfunctional capitalism, an economic system that produces low or no growth, may, in an unintended way, be beneficial to the environment? Less destructive than a healthy capitalism that achieves growth of 3 or 4% a year. In 2009, because of the dramatic drop in economic activity, carbon emissions fell for only the fourth time in 50 years.

Less destructive, perhaps, but not less destructive enough. What western capitalist countries need, for ecological sustainability, is de-growth, not spluttering growth or GDP flat-lining. They need to reduce their consumption. And while growth proves elusive, politicians obsess about its resuscitation. Thus, environmental considerations lose any priority they possessed.

But equally significant is that a dysfunctional capitalism not sustainable. It was the end of economic growth in the 1980s and economic stagnation that doomed Soviet Communism. “If rich countries cease to grow,” writes Schweickart, “their own economies will implode – so will the economies of poor countries, increasing the level of poverty, increasing the level of environmental degradation that poverty entails, and decreasing the amount of funds available for environment damage control.”

Enough already

I realise this is enough for one post. In part 2.2, I will consider three other basic features of capitalism: Unemployment, overwork and instability.

In 1930, a very famous economist predicted that, in 100 years, inhabitants the US and Europe would work three hour days and fifteen hour weeks. Their main preoccupation would be how to occupy their abundant free time.

Friday, 9 November 2012

Some American myths in the month of November

So the American people will have four more years of “socialism”. However will they cope? Some aren’t taking it well at all, such as Donald Trump who came over all Benito Mussolini and called for a “March on Washington”. In the interest of historical accuracy, it is only fair to point out that Benito Mussolini was actually invited to march on Rome in 1922 and bring to power the world’s first Fascist government.

Do you feel, consciously or not, a sense of relief that Obama won? Do you suffer from guilt about feeling relieved? Have I just hit upon a new psychological state – relief guilt? Given the absurdly constricted nature of the choice, you can debate endlessly whether it was right to vote for Obama or shun the whole corporate charade. Some, like Noam Chomsky, have confronted that dilemma.

But, from an international perspective, I don’t think voting or not voting is the main problem. It’s fundamentally irrelevant. The enduring problem is that the American Presidential election campaign puts out so many myths that possess a stickiness that attaches them to the cultural landscape. Before you know it, the elusive reality bird that you worked so hard to track down has flown away.

So here are three myths that urgently need dispelling.

Myth 1
Laissez-faire bad/Government intervention good

Obama spent $14 billion bailing out General Motors. Romney would have let the company go bankrupt. Whether the latter is actually true is highly questionable given that George W started the enormous bail out of corporate America. But the General Motors’ bail-out was presented as a victory against the ideological denseness of pure laissez-faire and for the United Auto Workers Union.

But it was a strange kind of victory. Post bail-out, the UAW signed a deal with General Motors in which, aside from its existing members getting a below the cost of living pay “increase”, also ensured that new car workers would be hired at half the pay rate, $16 a hour, that their predecessors received. This result of government intervention is not good. It’s not loitering on the outskirts of good. It’s very bad.

The General Motors bail-out exemplified 21st century government intervention in which corporations are saved from their own mistakes through gifts of taxpayer money, while their workers and customers get the discipline of free markets. And this happens while the tax burden continues to be shifted away from corporations and the rich and onto the shoulders of the majority.

Anti-austerity but pro-capitalist economist Ha-Joon Chang has shown how General Motors’ failure was preceded by dabbling in every conceivable corporate fad over the last 30 years – shareholder value, buying other car firms and creating a highly profitable finance arm. But when it came to the state saving the company from bankruptcy, “the US government”, says Chang, “deliberately took shares that do not have voting rights (albeit priority in dividend payouts) – so that it would not have any say in the management of the company.”

Chang has noted the same reticent government intervention in Britain, where the government has legally nationalised two large banks, but does not control them."This is not even capitalism anymore," he says. “What is the point of owning a bank, when you have to negotiate hard, or (one suspects) even beg, in order to set the pay of your employees or make it lend more in the way you want?”

The original bail-out of the banks was, in scale and expense, the supreme example of “not laissez-faire” dwarfing all others. But was it a good thing? It saved the economy from collapsing at the time and saved the banks at massive taxpayer expense, transferring a large proportion of their debt to the public. This was followed by a huge infusion of quantitative easing which they used to recapitalise themselves. But they are still indebted. Bank of England Governor, Mervyn King said recently that advanced economies won’t be able to escape “their current predicament” without more write-downs of debt by banks and more recapitalisation. So what began in 2008 is not over.

Just possibly, in 2008, the banks should have received a classic dose of laissez-faire and been allowed to go bust along with their debts. Then new public, debt-free, banks could have been created, as suggested by, among others, Joseph Stiglitz. The “pain” would have been more intense in the short-term but not prolonged.

But our governments “intervened” the make sure this didn’t happen and we are living with the consequences.

Thomas Frank quotes a line from the 1930s American socialist, Norman Thomas, in his book, Pity the Billionaire. “There is no Socialism at all about taking over all the banks which fell in Uncle Sam’s lap, putting them back on their feet again, and turning them back to the bankers to see if they can bring them once more to ruin.” But there’s quite a lot of capitalism about it.

Myth 2
The middle class is the bedrock of a strong economy, democracy etc

Obama clothed his campaign in the need for a “strong middle class”. Romney vowed to “protect the middle class”. But like the fabled word “community”, the larger the middle class looms in political rhetoric, the more it disappears in reality.

According to US census research, published in September, the gap between rich and poor has widened to its highest level since 1967.  “The gains from economic growth in 2011 were quite unevenly shared as household income fell in the middle and rose at the top,” said Robert Greenstein, President of the Center on Budget and Policy Priorities, about the data. Average incomes fell for the bottom 80% of earners and rose for the top 20%. The top 1% of households experienced a 6% rise in income.

The income of the median American family is lower than it was in 1998. In a 2011 article about the disappearing American middle class, the US journalist Paul Harris said, “I do not care if you are a Tea Party activist or a Socialist party USA organiser, you should be able to agree on one thing, at least: this is unsustainable. Something has to give. But no one in the current political system looks like they have an answer.”

In Britain, as Ed Miliband’s rhetoric about the “squeezed middle” shows, the political class are having to come to terms with the new reality but are equally clueless about what to do about it. In Britain, on current trends, the entire bottom 50% will be poorer by 2020. The Trades Union Congress in the Britain thinks companies should be encouraged to raise the average wage. Well, that could work. In another galaxy.

As far as the vanishing middle class in the US is concerned, it’s plus ca change, no matter who lives in the White House.

Myth 3

“Equal Pay” is more achievable under Obama than Romney

Ok, so maybe this myth is a bit of a cheat, but language speaks volumes, if you’ll pardon the tautology. To keep referring to “equal pay” in the context of contemporary America and Britain is akin to waxing lyrical about “human rights” in a Roman coliseum at lion time. Pay in both countries is staggeringly unequal and getting worse. And neither Obama, nor Romney, had he been elected, will do anything about it. Obama clearly didn’t in his first four years, as the above census data shows. This is not meant to justify any kind of gender pay discrimination or retarded Republican views on abortion or contraception, but the “equal pay” mantra gives the impression of railing against privilege when, in reality, it does nothing of the kind.

In order to even begin addressing pay inequality the debate needs to move on from just talking taking about discrimination to understanding and, acting upon, exploitation: the remuneration workers get in compensation for their contribution to profit, the two elements of which are wildly out of sync. This, in turn, needs to expand to look at who decides pay levels, and thus the economic autocracy we live under will come gradually into focus. This is a mammoth intellectual shift which, as the Presidential election campaign showed, the political mainstream is incapable of making.

As the American writer Walter Benn Michaels has said, the ostensible Left in the US is little more than the “human resources department of the right". It is, despite what Donald Trump believes, not dangerous to the status quo.

The Czech dissident and later head of state, Václav Havel, developed the concept of “living in truth” as a means of defying the Communist regime in Czechoslovakia. It entailed, in part, a refusal to accept the lies of official propaganda. It is becoming a principle that is applicable to living in western, “democratic” countries. Whether one votes or not.

Thursday, 1 November 2012

Wealth creation for dummies. A review of 'After Capitalism' by David Schweickart. Part One

What exactly is capitalism? That might appear a strange question to ask, fifty-plus posts into a blog about, erm, capitalism. But if you’ll forgive the tardiness, this is an inquiry that needs to be pressed.

While capitalism is a noun that attracts adjectives in abundance (crony capitalism, free-market capitalism, and now the oxymoronic humane capitalism), the noun itself remains largely uninterrogated, an unexamined presence. Everyone is supposed to understand what capitalism is – it’s all around them after all – but it’s remarkable that something so taken for granted is seldom defined. I’m convinced that many people who define themselves as anti-capitalist have only an intuitive sense of what they are against.

Perhaps you can be too close up to something to fully grasp it. Maybe you don’t really know the people you’re closest to.

David Schweickart is an American mathematician and philosopher who published a book in 2002 called After Capitalism. Aside from elucidating an alternative to capitalism, he attempted to define it and describe its consequences. After Capitalism isn’t a howl of outrage against “the system” but a rational effort to go beyond TINA (‘there is no alternative’)

Reviewing Schweickart’s book is therefore a good way to look at capitalism in the cold light of day: To examine what it is (which may be very different from how it is commonly perceived) to look at its faults, to say what’s good about it and what the alternatives to it are. There is, I believe, an unconscious and very prevalent fear, that interfering too deeply in the workings of the mysterious capitalist machine will lead either to the government controlling everything, with lethal consequences for freedom, or, alternatively, plunge us into a technological dark age and anarchistic chaos. Refusing to be awed or intimidated by what is, after all, an economic system that humanity has rejected for the vast majority of its history is a path to confronting those fears. The review will be in three parts.

Here is Schweickart speaking (with others):

Say cheese! The C-word in focus

Schweickart gives a three part definition of capitalism. Firstly, he says, the bulk of the means of production (offices, factories that produce goods and services) must be privately owned, either by corporations or individuals. This was traditionally called by the Left ‘private property’ which is unfortunate, Schweickart says, because it implies that homes, cars and toothbrushes will all be confiscated and “communalised” in any revolutionary change (think of John Lennon’s Imagine). These things were, to someone like Karl Marx, not ‘private property’ but ‘personal property’ and would not be seized by anyone.

Secondly, products are exchanged in a market. “Individual enterprises compete with one another in providing goods and services to consumers, each enterprise trying to make a profit,” says Schweickart. “This competition is the primary determinant of prices.” The state owning all enterprises and deciding that to produce by means of a plan, as in the old Soviet Union, is not capitalism. Neither is it capitalism when the local community owns most of the economy, as with social ecology.

But, says Schweickart, it is an “ideological distortion” to use “market economy” as a synonym for capitalism. They are not the same thing. Enterprises within a market economy can be organised differently. They can be controlled by their workforce. This is significant because, when it comes to imagining a “post-capitalist economy”, Schweickart says it will be populated by worker-controlled firms operating in a “decentralized market economy,” a system he calls “economic democracy”. This is contentious on several levels and I will critically examine Schweickart’s proposals in Part Three.

Lastly, he says, capitalism, to be capitalism, has to be based on wage labour. This means that most people, of working age, have to rent themselves out to others, who own the “means of production”, in order to gain the resources to survive and consume. “It is a crucial characteristic of the institution of wage labour that the goods or services produced do not belong to the workers who produce them,” says Schweickart, “but to those who supply the workers with the means of production.”

It is this reliance on wage labour, says Schweickart, that gives capitalism its susceptibility to crisis, its downturns and booms. Economic health, under capitalism, is based on what Keynes called “effective demand”: the purchasing power of the millions of wage labourers. But this demand is formed from wages or salaries, the consequence of what is negotiated from employers for whom wages are just another cost. If that happens, private investors can lose confidence and companies do not spend the profits they have amassed.

This, says Schweikart, is one of the “central contradictions” of capitalism. An in-built conflict, you might say. “Wages are both a cost of production and an essential source of effective demand,” says. “Capitalist firms are always interested in cutting costs, expanding markets and developing new products. But to the extent that the first of these goals, namely cost cutting, grows in importance relative to the other two, effective consumer demand will tend to be depressed – and hence also those “animal spirits” of investors. This can mean a stagnating economy and rising unemployment, perhaps on a global scale.”

So, if most assets are privately owned, economic exchange takes place in a market, and most people are wage labourers, a society is capitalist.

But, within these parameters there are different kinds of capitalism. The twentieth century had quite a varied palette of capitalisms. Post-war Japan and later, South Korea, were examples of one version where the state directed investment to certain favoured parts of the economy and had a bias towards exports (a type of capitalism the economist Ha-Joon Chang is enamoured by). After the Second World War, Western Europe and the US had for many years a form of managed capitalism, based on collective bargaining and the state ownership of some parts of the economy. West Germany went in less for state ownership and instead practiced ‘co-determination’ – workers were elected to company boards. After 1980, this changed, especially in the US and Britain, in that trade unions were “zapped” and much of what the state did was privatised.

This has morphed into a strange economic constellation where the rich and corporations are subsidised by the taxpayer while the rest of the population is subject to the discipline of free enterprise.

Perhaps this is just an extreme manifestation of a state of affairs that was there all along. “I watched with incredulity as businessmen ran to the government in every crisis, whining for handouts or protection from the very competition that has made this system productive,” wrote one William Sutton, Treasury secretary under US President Richard Nixon in the 1970s.

The point is that real-world capitalism can, and invariably does, radically depart from the textbook “free market” model, but it’s still capitalism.

Love me, I’m a wealth creator

We can see from this definition there is one conspicuous absentee – the “entrepreneur”. In conventional justifications of capitalism, the entrepreneur looms very large indeed, especially during economically tough times. In fact, in conventional explanations, the entrepreneur is capitalism. In the UK, Conservative business minister, Michael Fallon, says we should salute entrepreneurs as “Olympic Champions” who deserve adulation for creating wealth and jobs.

But conservatives are not alone in celebrating the entrepreneur. The left-wing economist Stewart Lansley, author of The Cost of Inequality, differentiates between the deserving and undeserving rich. One of his favourite examples is the industrial designer, James Dyson, who merits his wealth, says Lansley, in contrast to someone like Philip Green who makes money from taking over existing businesses. Dyson creates wealth, says Lansley, but Green merely transfers it to himself.

But Schweickart says both these understandings are ideological distortions. He does not deny that entrepreneurs exist or they merit a reward for their contribution, although frequently they merely copy what has gone before (new coffee shop anyone?) Any society needs people who invent new products or technologies. But what Schweickart does deny is that entrepreneurs are capitalists.

From Marx, Schweickart gets the insight that all wealth derives from labour. “As any economist will confirm,” he says, “unless labour costs are less than the value added by labour, there will be no profit.” So entrepreneurs create something and ethically are entitled to a reward. Workers literally produce goods and services. Managers supervise production. They all contribute something.

But what do capitalists do? The answer, says Schweickart, is very little. They have an entirely passive role. They watch their wealth compound by virtue of the fact that they have quite a lot in the first place. “In a capitalist society, enormous sums are paid to people who do not engage in any entrepreneurial activity or take any significant risk with their capital,” he writes.

As an example consider the National Express Group, which operates buses and trains in the UK. The major shareholders in, and therefore owners of, National Express are the Cosmen family, a Spanish family who “first entered the transport industry, in a horse-and-carriage operation, in 1728”, a hedge fund called Elliot Partners who very persistently pursue very high returns for the immensely rich people who invest in the hedge fund and an investment company called M&G. None of these investors are entrepreneurs.

We are now in the ideological belly of the beast. An entire economic system is justified by virtue of its vital role in creating wealth when it is primarily about the receiving of wealth by a small minority that other people create.

To be a capitalist, says Schweickart, you must own enough productive assets to be able to live comfortably on the income they generate. In the US, he says, and he wrote this in 2002, this comprises about one per cent of the population. Sound familiar?

The investment game

So why does putting money in the capitalist investment game, in normal times, yield results? Why do stock markets, bond markets, investment banks and currency markets produce positive returns? Most pensions are invested on the stock market and charitable foundations derive their income for grants from endowments in shares. “One gets something for nothing because someone else gets nothing for something,” explains Schweickart. “Investment income, the reward to those who have “risked” their money by channeling into financial institutions … is possible only because those who produce the goods and services of society are paid less than their productive contribution. If capitalist distribution were really in accord with the principle of contribution (as is often claimed), the investor would get nothing.”

Two things follow from this. One is that share dividends are, in Schweickart’s words, “a tax on enterprise” and should be abolished and replaced with a capital assets tax. The second is that the real problem is not the stupendous consumption of the very rich but what they do with the money they don’t consume, the money they invest. Control of investment should pass from the capitalist class to society as a whole. He calls it “social control of investment”. I will look at this in detail in part 3.

In the next part, I will examine Schweickart’s take on how far the problems of society, such as environmental degradation, a hollow democracy and poverty, can be laid at capitalism’s door. But I also want to look at the appeal of capitalism and why people are so scared of moving beyond it.

“Most workers, especially those in rich countries, have far more to lose now than just their chains.”