Arguments for capitalism, considered and refuted (part 3: the “fairness” of market outcomes?)

So far, we’ve discussed how the pro-capitalist story ignores history (which contains mind-boggling amounts of injustice) and various forms of discrimination that make people who should be treated equally into social unequals. We’ve talked about the ways that force, fraud, and injustice are baked into market transactions from the get-go (and that was without even discussing one of the original acts of force that founded modern capitalism: the forcible enclosure of the commons in England, which helped convert peasants who might have otherwise been able to rely on nature, and thereby avoid the market, into a ready source of labor with no other option but to work for capitalists).

If you agree with the points I’ve made so far, it’s pretty obvious that market outcomes (distributions of income and wealth) under capitalism are therefore very much NOT fair. They are tainted by all of the injustice that went and goes into them, even in the unlikely scenario that every person and corporation on the market obeys the rules of the market when they engage in transactions. And as we’ve already discussed, fraud is a live option for the profit-maximizing capitalist as long as they can get away with it.

At the risk of sounding like a broken record, I want to underscore once more that we can’t ignore how injustice contaminates every aspect of capitalist economic competition. People start off with different amounts of wealth and social capital (endowments, to use an econ term), countries have different levels of physical infrastructure and levels of economic development, and corporations have different market shares, and all of this is because of the past. There is no time zero to capitalist competition; it’s impossible to wipe the slate clean and start fresh. If the past was unjust, the present is too.

And this is purely as a matter of logic and reasoning, which is why I’m not trotting out enormous heaps of data. The current statistics for income and wealth distribution in the US, and around the world, are certainly “grotesque,” to use one of Bernie’s favorite words, and you’re welcome to look them up (Piketty and Saez have good data). But even if they weren’t, even if they were quite reasonable, they would still be unjust because the system itself is based on unjust principles and rules.

The “fairness” of market outcomes, then, is purely formal. It’s about whether or not a person or corporation followed the rules of the market. It doesn’t ask whether the market itself is just. It doesn’t consider the level of inequality that the market produces. It doesn’t ask whether it’s right that a baseball player gets paid thousands of times what a schoolteacher makes, or whether it’s right that the twenty-five highest-earning hedge fund managers in the world (that’s 25 people) make around $25 billion a year, or whether it’s fair that the top 20% of Americans hold around 85% of all wealth in the US (and growing). It doesn’t ask whether wage labor, which is essentially renting another human being’s time, mind, and body, is just. It doesn’t ask whether it’s just that, even as some people have billions, others have nothing and go hungry and sleep on the streets, in the cold. I’ll hold off on fully discussing the morality of capitalism until later. For now, it’s enough to say that market “fairness” relies on a very impoverished definition of what “fairness” actually means.

Inequality is a necessary outcome of capitalism. Because people differ in natural endowments (intelligence, beauty, athleticism, aptitude for various professions) and social endowments (education, family upbringing, social/cultural capital, family wealth) and are treated unequally because of their race, gender, sexuality, religion/ethnicity, abled status, and other identity categories, the market will always produce different outcomes. Because different professions are assigned different economic values, the market produces different outcomes. A professor, no matter how brilliant, isn’t paid the same as the CEO of a reasonably prosperous private corporation. Particularly ideological pro-capitalists welcome poverty and inequality as spurs to goad people into working or working harder; the fear of falling behind is one of the things, they believe, that pushes people to excel. At any rate, it’s a sure thing that capitalist markets create major inequality. That’s just how the system works.

It’s rare to come across fire-breathing libertarians so soulless as to deny that there should be any cushion at all to protect people from unfavorable market outcomes. Pro-capitalists (especially moderate liberals or neoliberals) are often in favor of the social welfare state, which tries to soften capitalism by redistributing income to the poor. That’s fine. In fact, that’s great – it shows that members of this subset of pro-capitalists have hearts and care to some degree about economic inequality. But, for a pro-capitalist, to support the social welfare state is to concede two key points: that the market isn’t God and that capitalism doesn’t work without help from the government. This is something that we already knew: we’ve discussed how the government writes the rules and laws that govern market competition, and we’ll talk later about corporate subsidies and the government-provided public goods which every market needs.

But it’s a disastrous thing for a pro-capitalist to admit, because their whole story starts falling apart as soon as they do. If the market doesn’t actually produce the best outcomes, then why should we trust that the common good is best promoted when everyone pursues their own self-interest? Maybe the “invisible hand” doesn’t work as advertised (typical: nothing seems to work as it’s been advertised…). If the economy needs the state to function properly, perhaps the hard division between “the government” on the one hand and “the economy” on the other is false. Economic activity taken by the government is then no longer “interference” or “intrusion,” but simply regular economic activity. In other words, once a pro-capitalist accepts the need for the social welfare state, the burden of proof is now on them to explain why markets should be given such huge scope if they can’t even generate good results.

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Arguments for capitalism, considered and refuted (part 2: market “fairness”?)

The second assumption underlying the pro-capitalist story is that the rules of the market are fair (that they treat everyone equally, and that there’s no fraud or force involved). Can this really be the case under a capitalist system? I think the answer is no.

As we discussed last post, individuals entering the marketplace are specific individuals, with specific features (race, gender, sexuality, etc.) that cause them to get treated differently. Could you theoretically have a market-based system that ignored race, gender, sexuality, and all other factors that cause discrimination? Yes, in theory, you could, although the specific form of capitalism we have today is entangled in a history of racism, sexism, homophobia, and colonialism, and it’s impossible to ignore that.

But even setting that aside, it’s impossible to have a fair capitalist market, even in the pretty limited sense of “no force, no fraud, equal treatment.” To see why, consider how laws are generally made in capitalist countries with formal democracy in place (‘formal’ as opposed to ‘substantive,’ or genuine, democracy; ‘formal’ in the sense that the barebones procedures for democracy are in the rules). Formal democracies have few official restrictions on the role that money can play in politics; there isn’t a particularly strong wall between economics and politics, if one at all.

Assume, as a “good” capitalist does, that corporations’ exclusive goal is to maximize private profit, irrespective of morality or any non-economic value. Since laws and regulations shape the marketplace, profit-maximizing corporations have every reason to pour money into politics and get the government to write laws that favor themselves and harm their competitors. (We’ll talk more about the impossibility of capitalism coexisting with a real democracy in another post.)

Corporations have every economic incentive to exploit the political process to rig the system in ways that enable them to accumulate as much market power and profit as possible. This means (and this isn’t an exhaustive list, by any stretch): (1) destroying or disobeying any regulation that threatens their profit margin (e.g., workplace regulations that require breaks for workers, regulations that restrict pollution or stipulate that corporations should pay extra for waste disposal, regulations that forbid hazardous chemicals from being used); (2) undermining the organizations, like the National Labor Relations Board, the EPA, the USDA, the FDA, and others, that are supposed to regulate corporations; (3) as much as possible, suppressing the possibility of cheaper, publicly-run competitors to private corporations; and (4) suppressing labor unions (because labor unions strengthen workers).

Corporations and the capitalists who control them don’t want equal treatment with workers, or citizens, or the government. They, like the Wall Street prima donnas who claimed they were “too big to fail,” want special treatment. So equal treatment’s not possible under a system that licenses amoral corporations to maximize their private profit.

Capitalism also fails the “no force” and “no fraud” tests. For one thing, maximizing private profit heedless of morality actually commits corporations to choosing the path of committing fraud whenever it pays (if the expected value of fraud is greater than 0: in other words, if the probability of getting caught multiplied by the penalty for getting caught is less than the probability of not getting caught multiplied by the expected profit from committing fraud). And lo and behold, that’s exactly what we see in the real world: Wall Street committed rampant fraud in the run-up to 2008. The fines were just a cost of doing business, and to a capitalist, all costs, regardless of their moral value, are financially the same.

Capitalism also uses force regularly, in at least three different ways. The first is the simplest. Capitalist corporations often use prison labor (which is essentially unpaid and coerced, especially in the US); slave labor (internationally); and child labor, both domestically (the fruit industry is especially notorious) and internationally (the chocolate industry is notorious).

The second form is also simple. If strikes, protests, or other actions which threaten a capitalist market break out, the government, pressured by corporations which can withhold their money in a “capital strike,” sends in soldiers and police to suppress dissent and anti-capitalist political activism by force. This has happened many times in the US, especially in the early days of the labor movement. Many corporations also have private security forces to do the same job. The US has overthrown democratically elected governments around the world because American business interests were supposedly threatened.

The third is more subtle and is usually called structural violence. Workers must work under capitalism to make enough money to live, since the means of production and distribution are privately owned. Unless they own their own land or some means of production that yields enough income on which to live, work isn’t a voluntary choice. It is something to be done, whether one likes it or not. This is a form of coercion – and it isn’t an exaggeration to call it violent, because the threat of bodily harm (from hunger, homelessness, lack of access to healthcare, and more) looms over the “free, voluntary decision” to sell one’s labor-power on the open market. Poverty and inequality are necessary products of capitalism, and they are also violent. They kill people. For many, many reasons, well-documented in the sociological, psychological, and economic literature, both poverty and economic inequality cause worse health and shorter lives.

Because capitalism countenances fraud, blesses the use of various kinds of force, and fails to treat people equally, it fails on its own terms. We’ll keep dismantling the pro-capitalist narrative in future posts.

 

Arguments for capitalism, considered and refuted (part 1: the myth of equal opportunity)

I’m going to run through the most common arguments in favor of capitalism and discuss why I think each one doesn’t hold up. To make things easier, since many of them are interrelated and often combined into one story, I’ll give that story its own paragraphs and then break things down from there. Because there are so many things to discuss, this will definitely require multiple posts.

The basic pro-capitalist story goes something like this: Societies are huge, complex, interconnected entities which need immense and ongoing flows of goods and services to successfully exist. A “free market” (there’s a good reason I’m using scare quotes, as I’ll explain in a bit) is the best solution to coordinating the production and distribution of resources. Production and distribution require work, either by human beings or human-created technology. A capitalist market uses competition and individual self-interest as an incentive for getting people to work and devise new technologies.

Capitalist markets generally feature firms (privately-owned corporations which employ individuals) that compete with one another and have the goal of maximizing their private profit. As Adam Smith first suggested, because of the magic of the “invisible hand,” people following their individual self-interest will end up maximizing the interest of society as a whole. Prices supposedly serve as the market’s “invisible hand”: they act as a decentralized mechanism which coordinates production and distribution on a large scale.

If the state doesn’t “interfere” (again, I’m using scare quotes quite intentionally), the market will efficiently maximize social utility. Guided by changes in price, supply and demand interact until they reach the most beneficial equilibrium, the equilibrium that yields the greatest utility for consumers (private citizens) and producers (private firms). Society is generally viewed as simply the aggregation of all private citizens and private firms. The boom and bust of the market, the shifts that drive businesses out and result in periodic crises which destabilize entire societies, is simply part of the process of “creative destruction” that capitalism requires.

The assumptions underlying the pro-capitalism narrative are all questionable. It assumes that people start with equal opportunity, that the rules of the market are fair (which means that they treat everyone equally, and that there’s no fraud or force involved), and that market outcomes (distributions of income and wealth) are therefore fair. A lot of hidden psychological assumptions are also smuggled into the pro-capitalism story: pro-capitalists assume that self-interest is one of the strongest (if not THE strongest) motives for human action, they think that competition brings out the best in people, and they assume that hierarchy is a good form of organizing people (since corporations are hierarchically structured).

Notice also the assumption that there’s a clear dividing line between economics and politics, between the state and the economy, and between domestic labor/the labor that goes into care-giving of various kinds and market labor. And notice that the pro-capitalist story is abstract, timeless, and completely devoid of any historical context. The “people” it talks about are featureless drones united only by their desire to make money. The amazing abstraction is a feature, not a bug, as I’ll argue.

Some ardent pro-capitalists would say that, because of markets’ supposed efficiency, every area of life should be governed by market principles. Most don’t go that far. But in any event, everyone in favor of capitalism agrees that markets are pretty much God’s gift to mankind.

There’s a lot to tackle here. I think it’s probably easiest to start with the assumptions behind the pro-capitalist story. I’ll discuss the myth of equal opportunity first.

Unfortunately, we don’t live in a world where people have equal opportunity. This is because of nature (genetics and the environment), culture, and history. People are born with different heights, weights, skin colors, levels of physical beauty and facial symmetry, intelligence, strength, athleticism, immune system strength, etc., etc. That’s just a fact of life. Unfortunately, because of culture and history, people are then taught to treat each other differently because of these natural differences. I’m an optimist, but I think people treating each other differently because of natural traits may unfortunately also be a fact of life. This is one of the many reasons why “equal opportunity” (at least in the way it’s usually meant) should not be the Left’s ultimate goal, and why it’s definitely not democratic socialism’s end-all-be-all.

A baby is born to a specific mother. Since we live in a very unequal world, the baby’s life chances will vary widely depending on where that baby is born and how rich the baby’s parent(s) are. The environment one lives in, one’s upbringing, and one’s education all shape one’s personality and life chances immensely. Rich parents can lavish attention, care, money, and other resources on their children and make sure they grow up in safe and healthy neighborhoods. Poor parents aren’t so lucky.

We live in a world with a history of racism, sexism, homophobia and transphobia, anti-Semitism, and colonialism/imperialism/neo-colonialism. This history has shaped the way the global economy has evolved. It’s not a mystery why Africa, the Middle East, South America, and Asia are generally poor and why Europe and North America are not. The current worldwide distribution of income and wealth is a function of the capital that was stolen from Africa, Asia, and the Americas by the United States and European colonial powers, taken by force.

Slavery, indentured servitude, sharecropping, and forced prison labor built immense fortunes for people, corporations, and banks in the United States and around the Western world. The wealth was literally a product of the blood, sweat, and tears of people – mostly of color – who were denied their freedom so that industrialists and plantation owners could live the high life. Especially because of how compound interest accumulates and the fact that there’s never been a major redistribution of wealth to counteract the results of slavery and colonialism, we can’t ignore the history of colonialism when looking at the modern economy.

We also can’t ignore the ways that the modern economy continues patterns of exploitation that began in the 1500s but hides them under new names and forms. Sweatshops are mostly concentrated in former colonies, environmental pollution and degradation plague poorer countries, and Western multinational corporations continue to devour the natural resources of former colonies, violating labor and environmental protections without remorse.

This history also shapes how our society is structured. The legacy of slavery, sharecropping, Jim Crow, and legalized racial discrimination, as well as the present-day scourges of police brutality, the structural racism of the War on Drugs, and mass incarceration explains the enormous wealth gap between blacks and whites in the US. Racism explains the wealth gap between Latinx people and whites and between Native Americans and whites in the US. The legacy of genocide against the Native American peoples – and the vast, unpaid debts the US government owes to the Native Americans for seizing their ancestral homelands – explains the extreme oppression of Native American people today. I could keep listing examples for other races. But the point should be clear.

Sexism, homophobia, transphobia, anti-Semitism, and Islamophobia also shape people’s life chances. History and its long, dark shadow, its continued presence in the present, determines so much of how we live. It determines where people live, who has to worry about violence on a daily basis, who gets a shot at a good education to begin with, how the police treat people, who gets considered for a job and who gets hired, whether capitalists violate the law and pay their workers unequal wages for equal work, and so much more.

Equality of opportunity is a myth. And while it might be a nice ideal in theory (although it accepts the importance of competition, which I deny), it’s extremely dangerous to pretend, as pro-capitalists do, that equality of opportunity accurately describes the world we live in today.

 

Demystifying democratic socialism: a very general sketch

We live in very dark times. The United States faces at least three interconnected and existential crises: global warming, economic inequality, and structural racism. These crises are all consequences of capitalism, a system which places profit and private property over people and the planet. The Trump presidency is a prime example of capitalism run amok; its policies are the perfect manifestation of capitalism’s dark underbelly.

Under capitalism, a tiny handful of obscenely wealthy people have immense amounts of power over everyone else’s lives. Because of their greed, self-interest, and lack of imagination, they abuse this power for personal gain. As a direct result of capitalism, billions of people around the world suffer unnecessarily, condemned to lives which break their spirits and squander their potential for love, joy, and flourishing.

Homelessness; hunger; poverty; preventable diseases which go untreated; for-profit prisons; for-profit healthcare, with absurd prices; people forced to do meaningless, alienating work even after we’ve attained a level of technological development capable of solving all these problems; political corruption and oligarchy; budgets which give billions to the military-industrial-pharmaceutical complex and chump change to programs that make citizens’ lives better…these are the curses of capitalism.

Food, water, shelter, healthcare, education…everything has a price, which means that some people are denied basic human rights because they don’t have the money for them. And even if saints were in charge and everyone’s basic needs were met, capitalism would still be unjust, because they would have unjustifiable amounts of power over everyone else’s well-being. In other words, the problem is with the system itself, not just with individual capitalists – although people like the infamous Pharma Bro and the CEO behind EpiPen price hikes do make the skin crawl.

The answer to capitalism’s barbarity. inhumanity, and injustice is democratic socialism, an economic and political system which makes good on liberalism’s commitment to freedom, equality, democracy, and justice for all by giving economic and political power to society as a whole. Democratic socialism is our best hope for revitalizing our democracy, saving the planet from the worst of global warming, and freeing people to, at long last, enjoy life and pursue their happiness.

This was a broad outline, and probably unconvincing to readers who aren’t members of the proverbial choir. In future posts, I’ll delve into the details much more. Stay tuned!