The most fortunate people that have ever lived? Capitalism and its contents. Review of After Capitalism, Part 2.3

It’s an amazing state of affairs when you stop and think about it. Almost everyone in the West enjoys lives which would be envy of any Roman Emperor or Pharoah of ancient history, remarks John Lanchester, in his book about the financial crisis, Whoops!  Whether we appreciate it or not, we live in the best societies that have ever existed.

Because of our wealth, we are the most fortunate humans that have ever lived, says Lanchester.

Do you feel lucky, punk?

Anti-austerity journalist Polly Toynbee was a mere seven years ago eulogising current society as an overlooked golden age. There has never been a better time to be alive, she said, despite the mood of pessimism. Supermarkets were “modern miracles of splendour and choice … Unimaginable luxuries and choices are now standard - mobile phones sending pictures everywhere, accessing the universe on the internet and iPods with all the world's music in your ear.”

In previous centuries, most children died before they reached maturity, epidemics and malnutrition were rife, most people did not survive past forty and women bore so many children, they were used up and exhausted by their thirties.

Larry Elliot, economics editor of the Guardian newspaper, recently told the same story in economic terms. “Before new and more efficient production methods for agriculture and industry were developed in the 18th century, per capita incomes in the west had risen at a glacial pace for more than 1,000 years,” he wrote. “Modern industrial capitalism generated surpluses and it was this that differentiated it from the subsistence model.”

Is not, therefore, modern industrial capitalism responsible for our “unimaginable luxuries” and the blessings of wealth? Should we not be thankful?

“The reality of the world resists us”

If you are searching for a reason why a pervasive sense of dissatisfaction has not led to a more widespread alienation from capitalism, I think it’s because of an unconscious fear of killing the troublesome goose (and its incurable troubles were laid bare in Parts 2.1 and 2.2) that lays the golden eggs.

As an example, take foreign holidays. More and more people, and young people in particular, experience them as a matter of course. In the 1970s neoliberal think-tanks in the UK asserted that secretaries flying off on holiday to the Greek islands was a standing refutation of the Left. In the film La Guerre Est Finie Yves Montand, a Spanish Communist, says, “14 million tourists vacation in Spain every year. The reality of the world resists us.”

Here is the appeal of capitalism in all its seductive glory, its ability to achieve technological advancement and satisfy consumer desires. Yes the same ability is inescapably linked to its faculty to eat up resources and destroy the natural environment. Capitalism's failings may bring it down and “us with it” said investment manager Jeremy Grantham last year.

Consumerism was and still is the glue that binds people most tightly to the system. Everyone, says US economist Richard Wolff, from economists, to advertisers, business, the media but also trade unions and left movements bought into this idea. Modern economics was built on the assumption that labour was the burden for which consumption, enabled by wages, was the compensation.

Rising wages became the gold standard for what they could buy but consumerism has been entrenched at the expense of other, possible advancements of human freedom and welfare. Roads, not less traveled, but not traveled at all. Wolff describes consumerism as a deal. Though he is speaking of the US, what he says is true of any western country.

“The deal might have collapsed at any time if US workers rebelled against the organization of production in the US. This could have occurred if rising wages did not suffice to make them ignore the growing inequality of US life, or if they rejected subordination to ever more automated, exhausting work disciplines, or if they refused to deliver ever more wealth to every fewer corporate boards of directors of immense corporations ever further removed from them in power, wealth and access to culture.”

Of course, now, one part of the consumerist deal – rising wages – is falling apart. The golden age seems definitely over. Young people may be able to fly to Barcelona but they are also sinking further into debt to in order to pay for the education to get jobs that don’t exist.

Yes the glue has retained most of it stickiness up to now.

You can’t always get what you want

But I want to argue that capitalism’s ability to deliver utility, to provide satisfaction to consumers – the choice of multi-national food, the EasyJet flight to Prague for the cost of a pub lunch is (setting aside externalities like climate change) more than matched by its capacity to create dis-utility. And both come from the same source.

It’s almost a truism to note, although still worth noting, that capitalism’s ability to satisfy consumer desire is a by-product. “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest,” said Adam Smith. You are not given the choice to buy a new Smart Phone by the pure, unadulterated desire of Apple to enhance human communication, but by that corporation’s need to make a profit.

But, just as intrinsic to capitalism, although less frequently observed, is that it is an accumulative system. “Every year,” writes David Schweickart, “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.”

For capitalism to function smoothly, this money must find somewhere to go. That it can’t find somewhere to go – corporations in the UK are sitting on £750bn – is one reason why it’s not functioning smoothly. But the use and re-use of money is at the heart of capitalism. That’s why it’s called capitalism – money becomes capital by virtue of the fact that it is employed to make more money. This explains why it grows but also why there is unrelenting pressure to find outlets for investment. An alternative name, given by one economist to capitalism, is 'the profits system'.

There is no conscious choice in this. It is why Apple don’t respond to consumer desires so much as think of products and then try to get consumers to want them (which they seem to be very good at. Steve Jobs, said one journalist “anticipated technological desires you didn’t even know you had”).  The idea of voluntary choice is the basic error of writers like Lanchester. He argues that, despite the credit crunch, he could discern no general desire to slow down. Actually I think this desire does exist but it can’t be translated into tangible action.

If you feel like you are on a treadmill, that’s because you are.

I can’t get no satisfaction

This inherent characteristic of capitalism, its machine-like ability to create profit which then needs to be re-invested to create more money, explains why it manufactures dis-utility as much as utility.

The credit crunch and subsequent economic depression are a prime example of dis-utility. Banks seeking profits lent to consumers who eventually couldn’t pay back. Those same banks created asset-backed securities as a means of making more money, thus spreading the credit crunch around the world. “The crisis was generated by the system itself,” in George Soros’ words. The same system that generates Tesco and Ryan Air.

The fact that now many businesses cannot get credit from the institutions – banks – that in any rational economic arrangement are supposed to supply credit as a matter of course, is another example of mammoth dis-utility.

The pharmaceutical industry is another case of dis-utility. In France, it has been estimated that over half of prescription drugs are either useless or dangerous. Why is this happening? Because of the overriding need of pharmaceutical companies to use their profits to produce more drugs for sale. The consumer – which capitalist genius is to suppose to satisfy – does not benefit from this need. The opposite is true.

Public services are now a major destination for private investment and thus dis-utility. The director of the British Confederation of British Industry, John Cridland, states in one breath that only business can create jobs, and in the next that a third of public spending should be opened up to competition from business.

In other words, public services should provide an outlet for the investment of private funds.

That this will create spiraling dis-utility is shown by recent history. In Britain, the Private Finance Initiative has seen new hospitals built by private companies, which they then own. It has resulted, on average, in a 30% drop in the number of beds in PFI hospitals compared to ordinary public hospitals. Thus, there has been a large increase in the ‘through-put’ of patients using the reduced number of beds, a major cause of the spread of the lethal MRSA virus. Capitalism in health services has resulted in mammoth dis-utility for “consumers” of hospital services, as well as being more expensive for the taxpayer.

The management theorist, Peter Drucker said in 1939 that the Great Depression revealed capitalism as a system that didn’t serve any purpose but it’s own. That is becoming increasingly apparent again.

Virtuous consumerism

Is it possible to have an economic system that does not spurn consumer desires as inherently worthless and strives, within reason, to satisfy them, but one that avoids the glaring systemic flaws and downsides of capitalism?

David Schweickart would say that you can – through a largely market economy made up of worker, not capitalist, controlled enterprises. He argues you can have a market without that becoming a capitalist market and that makes all the difference in the world. But thinkers throughout history, from Aristotle to Karl Polanyi and Murray Bookchin, have criticised markets as inherently destructive of human solidarity and the environment, and the ‘market economy’ is frequently used as a synonym for capitalism. It is to this question of markets, good or bad, that we turn in the last part of this review.

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 …

Unemployment

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.

Overwork

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 21^st 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.

Instability

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?