This blog is based on a paper entitled: Critiques of Capitalism. It is second of five parts in a series that takes a long, hard look at the economic system we have in modern America. [Part 1 is available HERE]. The purpose of the bold-face type is that it represents my main arguments.
Whether it goes by the descriptor free-market capitalism, laissez-faire capitalism, neoliberalism, classical liberalism, libertarian economic philosophy, or its illegitimate children – crony capitalism, supply-side economics, or trickle-down economics – the economic theory that America is based on has a long, significant, storied past. There are, however, many critiques of capitalism, based both on theory and on actual results. This blog is the second in a series of four entitled Critiques of Capitalism, and represents my first argument against a wholesale reliance on free-market capitalism as the ideal economic system.
Perhaps most critically, capitalism and the free-market can be critiqued as being arbitrary rather than just. Corruption and unfavorable outcomes are evident. Wall Street and its bought politicians have created a breeding ground for immoral behavior and injustice. It is who has the money, connections, or inheritances that not only means an accumulation of money, but the political power that that money affords. In fact, a worker may work hard and not even be able to afford health insurance or a decent place to live, and yet a recipient of inheritance or an inventor of a highly-valued product might live in the lap of luxury and see their money grow simply because of interest on principal (Piketty).
One of the most vociferous and effective economists to offer critiques of capitalism, Professor and Nobel Laureate Joseph Stiglitz, Ph.D., labels this rent-seeking behavior, and, unregulated, it can lead to a permanent uber-class and an inescapable poverty for others. This is not based on merit (or lack of merit) nearly as much as capitalists would have us believe. Indeed, we have a system where the bourgeois and their bought politicians demean and exploit people for financial gain, power, and psychological reasons, tearing community ties asunder (Marx). We as a society are more divided, distracted, and tense than in recent memory, and social class plays no small role.
In the book Alternatives to Economic Globalization, authors John Cavanaugh and Jerry Mander astutely observe that “…a key flaw of the current dominant system is that markets respond to the wants of those with money and disregard even the most basic needs of those who do not have the means to pay. Extreme inequality in income and ownership distorts the allocation of economic resources, excludes all but the very rich from meaningful democratic participation, undermines institutional legitimacy, and creates social instability.”
If it is true that capitalism is but a stage in a progression from primitive to enlightened, as Marx indicated, we have a long way to go from our current system of “me-me-me!”, “winner takes all” and “dog eat dog.” “Recall also [Karl Marx’s] repeated criticism of the specialized labor processes that ‘mutilate the labor into a fragment of a man, degrade him to the level of an appendage of a machine, destroy every remnant of charm in his work and turn it into a heated toil…,” noted capitalism critic and supporter of libertarian socialism, Noam Chomsky.
How could an economic system that Marx and Chomsky would characterize as “wage slavery,” and which Stiglitz describes in the following way be considered enlightened?: “[o]ne of the ways that those at the top make money is by taking advantage of their market and political power to favor themselves, to increase their own income, at the expense of the rest.” As Joanne Baldine, a philosopher, noted: von Humboldt, Marx and Chomsky are of the opinion that “capitalism is an attack on personal integrity and destroys and undermines freedoms.” Perhaps statist Socialism isn’t the answer (a point I will come back to), but surely this is not in keeping with human nature and moral desert. Freedom, integrity, and justice are in question here.
Capitalism in practice allows the degradation from an aspirational, laissez-faire, market-based system that allocates societal goods fairly and proportionally (in theory) to a more problematic system in practice. This is often called crony capitalism. It is riddled with inefficiency. Inefficient means that goods are distributed according to processes that are not based on true merit (i.e., are just) but are based on other, more dubious factors. “…democracy is largely a sham when the industrial system is controlled by any form of autocratic elite, whether it’s owners, managers, technocrats, a vanguard party, a state bureaucracy, or whatever,” claims
Noam Chomsky. He uses the term manufacturing consent to refer to the idea that this behavior, though often seen in autocratic regimes, also functions in democracies because the powers that be mislead, distract, dominate, control, subvert, and craft the opinions and behaviors of the masses. Consider the poor turnout for elections or the slap on the wrist perpetrators of the 2008 financial meltdown received, despite overwhelming public outcry for such treatment.
Crony capitalism refers to a rigged, power-based allocation of resources, and is the domain of the wealthy (those wealthy who are interested in power and “the Beltway”, because not all are). Joseph Schumpeter let this definition of crony capitalism and oligarchy slip: “…the deciding of issues by the electorate is secondary to the election of the men who are doing the deciding.” Using absurd interpretations of “human being” and “rights” has allowed the Supreme Court (e.g., Citizens United) to cooperate with politicians and Wall Street to empower corporations to enjoy immense power, often unhindered by regulation, law, or national boundaries. We are experiencing that now, in spades. It has taken whatever innocence libertarians could marshal and put the lie to a deregulated economy and unbridled government. The astute editors of the book Alternatives to Economic Globalization, John Cavanaugh and Jerry Mander indicate that:
Since World War II, the driving forces behind economic globalization have been several hundred global corporations and banks that have increasingly woven webs of production, consumption, finance, and culture across borders. Indeed most of what we eat, drink, where, drive, and entertain ourselves with today are the products of global corporations. These corporations have been aided by global bureaucracies that have emerged over the last half-century, with the overall result being a concentration of economic and political power that is increasingly unaccountable to governments, people, or the planet and that undermines democracy, equity, and environmental sustainability.
The difference – transmutation? – from a relatively simple, clean, and fair system envisioned by Adam Smith and others can be seen clearly in this quote by University of Maryland professor and participant in the Clinton Administration, political economist Gar Alperovitz. He writes in his engaging book America Beyond Capitalism: “The truth is, various forms of manipulating the market are central to the operation of the current corporate-dominated political-economic system, not peripheral to it. They come with the territory, as everyone knows full well when they shift their gaze away from abstract theory to the real world of oil company lobbying, drug company political payoffs, Microsoft anti-competitive maneuvering, Enron corruption, and Andersen accounting complicity.” He also demonstrates the culture with this story: “Secretary of the Treasury under Richard Nixon, William Simon, remembered ‘…watching 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 so productive.’”
This is the second in a series of five entitled Critiques of Capitalism
Indeed, one of the main critiques of capitalism is that our actual system, crony capitalism, foments income and wealth inequality, which, in excessive amounts, result in a lack of true freedom and positive harm to millions of citizens (Reich). This is very difficult for the lower and middle classes to endure. “The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms,” writes Thomas Piketty in his influential book Capital in the 21st Century. The wages of the middle and lower economic classes have largely been stagnant for many decades, and yet, the income and wealth controlled by the top 1% of individuals is up, up, up. That cannot be explained without resorting to a crony-capitalistic explanation.
Inequality is bad, and getting worse. “No country not experiencing a revolution or a military defeat with a subsequent occupation has probably ever had as rapid or as widespread an increase in inequality as has occurred in the United States in the past two decades” (Lester Thurow). Piketty notes that “[t]he idea [behind capitalism] was that inequalities increase in the early phases of industrialization, because only a minority is prepared to benefit from the new wealth that industrialization brings. Later, in more advanced phases of development, inequality automatically decreases as a larger and larger fraction of the population partakes of the fruits of economic growth.”
That isn’t how it has worked out. Piketty uses language that is ominous: “the past devours the future in the following passage: “…wealth accumulated in the past grows more rapidly than output and wages. This inequality expresses a fundamental logical contradiction. The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labor. Once constituted, capital reproduces itself faster than output increases. The past devours the future.” He is quick to point out that: “[i]nequality is not necessarily bad in itself: the key question is to decide whether it is justified, whether there are reasons for it.” However, we in the United States have a jaw-dropping level of disparity in wealth between the social classes. He notes that no longer is the U.S. the land of opportunity, and that there is a greater chance of experiencing social mobility in Europe! He points out that: “in the most inegalitarian countries, such as the United States in the early 2010s…, the top [10%] gets 35 percent of the total [available wealth], whereas the bottom [50%] gets only 25 percent.”
Piketty notes that access to affordable education plays a major role in inequality: “Consider first the mechanisms pushing toward convergence, that is, toward reduction and compression of inequalities. The main forces for convergence are the diffusion of knowledge and investment in training and skills.” The child of a wealthy person who turns in an average academic performance is likelier to go to a top school than a high-performing, poor child. This is fundamentally unfair.
Beyond the moral or freedom-based arguments, there is a very practical one that dovetails with it. Billionaire Tom Steyer discloses this: “Unrigging the system will require us to acknowledge that the American middle class enjoyed its strongest period of growth from 1950 to 1970 — a time when the effective tax rates for the wealthy were above 40% and the U.S. took unrivaled leadership in the global economy. It will require that we think of investment not as something done solely by the private sector, but as a category that encompasses public spending.”
In fact, it appears that it is not that we are currently engaged in the best, most efficient, most reasonable politico-economic system for functional reasons, but more fundamentally, because the constituencies of the two main political parties – especially the GOP – have engineered it to be so. Capitalism hasn’t evolved naturally to this point where it can function well on its own for the majority of citizens, it is handicapped along and maintained constantly. Think of AIG, the massive insurer which, in cahoots with Wall Street, inept or “captured” regulators, and the corrupt ratings agencies such as Moody’s, absolutely tanked in 2008: it got an instant $150,000,000,000 infusion of taxpayer dollars in the form of a “bailout.” “Too big to fail,” allegedly. That is anything but “survival of the fittest.” That is life support.
Crony capitalism and unregulated markets occur when government is neutered, asleep, “hands off,” or starved of needed revenue (Stiglitz; Charles Ferguson). “Roughly speaking, I think it’s accurate to say that a corporate elite of managers and owners governs the economy and the political system— at least in a very large measure,” Noam Chomsky says. Piketty adds: “Whenever one speaks about the distribution of wealth, politics is never very far behind, and it is difficult for anyone to escape contemporary class prejudices and interests.” The richest people in America are very very rich and they do not want to sit by and let politicians who can be legally bribed vote in ways that do not benefit them personally (and the wealthiest 400 individuals own from $89 billion to at least $2,000,000,000 – in other words, being a multi-millionaire doesn’t make the Forbes 400 List any longer). Noted magnates Tom Steyer, Warren Buffett, and Nick Hanaeuer have come out and asked to be taxed more because both fairness and fiscal soundness are at issue. Talk about legitimate and verifiable critiques of capitalism!
Joseph Stiglitz, the Nobel Prize-winning economist and author of The Price of Inequality, points out that good governance, political congeniality, and a functional democratic republic is not the goal of the power-mongers. “…[W]hat they really have in mind is something else— a set of rules that benefits them and increases their advantage over workers. The threat of capital outflow, should workers get too demanding about rights and wages, keeps workers’ wages low. … There is a broader ‘race to the bottom,’ trying to ensure that business regulations are weak and taxes are low.”
Stiglitz writes that one of the main themes of his stellar book is that “…[w]hile there may be underlying economic forces at play, politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest.” He goes on to call the system “a vicious nexus between politics and economics.”
One technique used by fiscal conservatives to reduce the role of the government in society has been termed “starve the beast.” It is a cynical and antisocial way of undercutting the ability of the government to function well on behalf of citizens. When one sees the GOP send soldiers off to fight in ill-conceived and dubious wars, and then hears Bernie Sanders, then the Chairman of Senate Veterans Committee, asking his colleagues how they could send these young men and women off to war and inadequately fund their care when they return in various states of health, it is a head-shaker.
Bernie Sanders lays it bare: “It is an extraordinarily cynical “two-step” process. First, Republicans are looting the Treasury. They are stealing trillions of dollars from the American people in order to give huge tax breaks to billionaires and large corporations. Second, as their tax breaks increase the deficit by $1.4 trillion, they will come back and, in the name of “deficit reduction,” propose major cuts to Social Security, Medicare, Medicaid, education, nutrition, affordable housing and other programs desperately needed by the shrinking middle class.”
This is what Joseph Stiglitz says about this absurd method of governance: “The fact that tax cuts for the rich and increased the deficit and the national debt substantially has another effect: it has created pressure to reduce government support for investments in education, technology, infrastructure.” Indeed, the government is neutered, in effect, which makes it incapable of providing services to the public competently, thus driving needed functions toward private enterprise. It is called privatization, and it reached incredible levels under the George W. Bush administration. We now have for-profit prisons, soldiers, and schools.
But private companies provide better services more competently and often for less money, right? Not according to Stiglitz: “When I was chairman of the Council of economic advisers, we assessed the average social returns on government R&D, and it turned out to be well in excess of 50%, far higher in other areas of investment (including private sector R&D).” Indeed, the Internet, space exploration, human genome research, highways, many universities, and many other socially-relevant developments were pioneered by government agencies. When private enterprise then benefits from such advancements and infrastructure, it takes advantage of the public in a way. Think of the for-profit universities such as The “University” of Phoenix – they saddle students with debt but don’t provide the kind of education that is of consummate quality. Thus, private enterprise is drinking from the public trough.
This is the second in a series of five entitled Critiques of Capitalism.
Needed social services can be sapped in this predatory process. Stiglitz offers this example: “With the onset of the Great Recession, government revenues plummeted, and the nations deficit and debt soared. They cry soon when out in the United States and Europe that deficits had to be brought under control as soon as possible, typically by drastic cuts in expenditures— in programs referred to as austerity.” At the same time that capitalists who engineer these kinds of failures of the market “exaggerate the failures of government, they exaggerate the strengths of the markets,” notes Joseph Stiglitz. These men (with the occasional woman) enjoy private gain and are able to socialize their losses. They claim, he shows: “…that any government attempts to correct market failures – such as the proclivity of firms to pollute excessively – cause more harm than good.”
One of the severest critiques of capitalism is that the modern American system simply “pay to play” – that it is accessible only to the well-heeled. Should the 99% just get back to work and try to make ends meet in a very lopsided economic system? Is it fair to seek rents while others toil? In fact, a society ought to make justice and freedom primary and prized. Hard work should be considered meritorious (Piketty). Outcomes should be just, not just based on entitlement (Reich). “One of the darkest sides to the market economy that came to light was the large and growing inequality that has left the American social fabric, and the country’s economic stability, fraying at the edges: the rich are getting richer while the rest were facing hardships that seemed inconsonant with the American dream” notes Stiglitz.
With many of the best and brightest students attracted by the glitter and the power of Wall Street, there is a vacuum that draws students to business schools, where ethics is usually conspicuously absent from the curriculum. Instead of paying teachers, soldiers, and firefighters a living wage or one commensurate with the social services their work engenders, Wall Streeters wreck the economy and use tax dollars to pay bonuses, often in the hundreds of thousands of dollars. Meanwhile, the fat-cats who run the show at Goldman Sachs and other “financial services” industries take pay that is 300, 400, 500 times the average worker. Something is rotten in Denmark. Actually, ironically, Denmark is relatively prosperous and democratic; it is the United States that is behaving more like a banana republic run by railroad tycoons. He shows that “[w]hen the norms of a society change in a way that so many have lost their moral compass, it says something significant about the society. Capitalism seems to have changed the people who were ensnared by it.” As well:
If struggling poor families get our sympathy today, those at the top increasingly draw our ire. At one time, when there was a broad social consensus that those at the top earned what they got, they received our admiration. In the recent crisis, however, bank executives received outsize bonuses for outsize losses, and firms fired workers, claiming they couldn’t afford them, only to use the savings to increase executive bonuses still more. The result was that admiration at their cleverness turned to anger at their insensitivities (Joseph Stiglitz).
Perhaps justice and freedom and hard work are virtues, but, as Stiglitz claims: “[m]odern capitalism has become a complex game, and those who win at it have to have more than a little smarts. But those who win at it often possess less admirable characteristics as well: the ability to skirt the law, or to shape the law in their own favor; the willingness to take advantage of others, even the poor; and play unfair when necessary.”
New York Times columnist and center-right commentator on PBS Newshour David Brooks says this about democracy: “…a healthy democracy requires a certain sort of honorable citizen – that if we’re not willing to tell the truth, devote our lives to common purposes, or defer to a shared moral order, then we’ll succumb to the shallowness of a purely commercial civilization; we’ll be torn asunder by the centrifugal forces of extreme individualism; we’ll rip one another to shreds in the naked struggle for power.” That is one of the consequences – if not the very goals of laissez-faire adherents and the owning class in America – they really don’t care about the social fabric; they “have theirs” and public goods are of little concern. It is truly like a modern version of Dickens’ A Tale of Two Cities. Indeed, a Greek proverb says that “A society grows great when old men plant tress whose shade they know they shall never sit in.” We need to inculcate in our children the desire to serve. “Concern for the public good must become the animating force of our economic order,” warns Senior Fellow at The Democracy Collaborative, Marjorie Kelly. These are devastating critiques of capitalism, in my opinion.
Considering all these grave limitations to free-market capitalism, the conclusion is that as an economic system, capitalism is relatively unjust and immature and reform is desperately needed. The reasons are both fairness-based and efficiency-based. Fairness seems to have been established in prior paragraphs. As to immaturity that is marked by inefficiency, Stiglitz writes: “Widely unequal societies do not function efficiently, and their economies are neither stable nor sustainable in the long term. When one interest group holds too much power, it succeeds in getting policies that benefit itself, rather than policies that benefit society as a whole. When the wealthiest use their political power to benefit excessively the corporations they control, much-needed revenues are diverted into the pockets of a few instead of benefiting society at large.”
Economist and New York Times columnist Paul Krugman offers this: “Extreme concentration of income is incompatible with real democracy. Can anyone seriously deny that our political system is being warped by the influence of big money, and that the warping is getting worse as the wealth of a few grows ever larger?” Noam Chomsky bluntly characterizes our system thusly: “What is called ‘capitalism’ is basically a system of corporate mercantilism, with huge and largely unaccountable private tyrannies exercising vast control over the economy, political systems, and social and cultural life….”
Much depends on this reformation. “An imbalance between rich and poor is the oldest and most fatal ailment of all republics,” noted Plutarch. Material conditions (e.g., child poverty) makes people less able to be productive (Marx). Comedian Bill Maher contributes this: “We have a Bill of Rights. What we need is a Bill of Responsibilities.” It is quite a shame to have millions able-bodied Americans wanting full-time work but they lack proper education, have records, or are unable to find it. Or the millions of families where two parents work, but there is not enough money to make ends meet. It is rumored that just like the housing bubble ruined the economy (in the direct sense), a student loan crisis is next on the horizon. We also face the real possibility of environmental devastation from which there is no return. If capitalism cannot distribute its benefits more evenly, then it must be reformed. Politics and government are the levers of change in that regard.