Capitalism has long been the subject of seemingly endless intellectual dialogue. While Capitalism has endured extensive criticism and support throughout history, it seems that among younger generations, the tides of intellectual normalcy are shifting drastically.
According to a study by the Victims of communism memorial foundation, the majority of young people favor socialism over capitalism. This seemingly new development certainly comes as a surprise to many Americans, who grew up learning about the horrors of the gulags and the socialist soviet union. What could account for this shift in ideological norms? Is there any validity to this new found opposition to the capitalist system?
The truth is, while there is no denying that the invention of capitalism was an extremely beneficial development which pulled millions out of poverty and has accounted for numerous innovations, capitalism is riddled with inherent contradictions and instabilities which are present to the point of unworkability if left unmitigated. Furthermore, I contest that while capitalism has been present in an environment which has allowed it to flourish up to this point, environmental circumstances are changing at a historically unparalleled rate, and are headed in a direction which cannot be met with an outdated and unstable framework such as capitalism.
How Capitalism Works
To lay out the basis of my critique of capitalism, I must first provide a brief overview of how our current capitalist system functions. Under capitalism in the US, the activity of workers is dictated by a board of directors. Furthermore, this board of directors is voted on by shareholders. So, how do you acquire shares and, subsequently, influence over the operations of the working class? Quite simple, by having money. In the US, 84 percent of stocks are owned by the richest 10 percent of Americans. One of the key contradictions of capitalism, as observed by famed German philosopher and economist Karl Marx, comes in that it establishes a power dynamic in which the employers are incentivized to exploit the employees to the greatest extent possible, and are given the power to do just that. In our capitalist society, the worker creates value, and in response the employer compensates that worker for some of the value that worker creates. However, so long as the overarching motive is the accumulation of wealth, the employer is incentivized to compensate the worker as little as possible for as much value as possible. The employer maximizes his own profit by minimizing the profit of the worker, which breeds instability in a system where the key incentive is the maximization of profit. To recap, under capitalism, the working people are ruled over by a class of people who directly benefit from exploiting the working people, and are given free reign to do so. What this contradiction leads to is fairly obvious: corporations will do anything in their power to minimize the profits of the workers, be that outsourcing jobs, crushing wages, offering minimum benefits, etc. However, the contradiction lays in the simple fact that when the wages of the workers are crushed and they have too little money, there is then nobody to consume what the employers are producing, causing both parties to collapse.
Capitalism and Democracy
There is only one system which the American public values perhaps even more than capitalism; This being, of course, democracy. The relationship between these two beloved systems, however, is shaky at best. For years, politicians have been in the pocket of billionaire business executives due to excessive corporate campaign financing, the result of which is a government which does not operate to serve its people, but rather to serve its corporate donors. The root cause of this decay of our democracy is rather simple when you examine it: The incentive of any politician is to garner as much power as possible. The incentive of any entrepreneur, on the other hand, is the accumulation of wealth. Under our current system, corporations strive to accumulate more wealth, which they are able to do largely through modifying legislation. Politicians, on the other hand, strive to accumulate power, which they are largely able to do through acquiring more money to finance campaign ads and such which bolster said politicians name recognition. Given these premises, it seems to be an inevitability that corporations will end up donating money to politicians to bolster the power of the politician, so that the politician can then modify legislation which works in the interests of the corporation that donated to them; This is a mutually beneficial relationship which fulfills the core motivation of both parties, it’s a win-win. The only loser when it comes to corporate control of our government, is the people. As established earlier, corporations maximize their own profits via minimizing the profits of the middle class. Therefore, when corporations are able to modify legislation through campaign finance contributions, this leads to legislation which is detrimental to the general populas, whether that be de regulating the fossil fuel industry, de regulating wall street, preventing sensible minimum wage/mandatory benefit laws, etc. A democracy in which the government (whose job is to represent the general population) is owned by a class of people who benefit from the exploitation of the general population, I contest, is no democracy at all. In conclusion, implicit to unmitigated capitalism is the inevitable erosion of our democracy.
The Climate Catastrophy
According to a recent report conducted by 13 federal agencies and released by the US government, the US economy is expected to lose hundreds of billions of dollars-possibly over 10 percent of its gdp- due to climate change by the end of the century. It is undeniable that the environment has for years been decaying at extreme rates directly due to human activity, and that if we don’t act soon, the consequences will be apocalyptic. What is to be held accountable for this catastrophy? Well, given the topic of this essay, it should come as no suprise that the answer is, in part, capitalism. I’m certainly not proposing that capitalism is the cause of climate change, although it would be foolish to pretend that the profit incentive under capitalism which leads many company’s to do things like drill up excessive amounts of oil for the sake of profiting off of its exchange value doesn’t largely exacerbate the problem. It seems increasingly apparent that the profit incentive of capitalism not only inevitably incentivizes the exploitation of the worker, but also the exploitation of our natural resources. The contradiction here lays in that while capitalists strive to grow their businesses and accumulate more and more capital through the exploitation of natural resources, the resulting environmental damage will lead to economic collapse so extreme that their business will not be able to survive in the long term. Evicence is overwhelmingly clear that the free markets have failed to disincentivize actions which contribute to the increasingly dangerous threat of climate change. For this reason, I regard our current environmental crisis to be a massive failure of capitalism, which can only be mitigated via the heavy hand of regulation.
Overproduction And Economic Collapse
Under capitalism, a worker cannot be compensated for all of the value he creates. If you have ever worked for a company, it is important to know that you have inevitably worked several unpayed hours. The reason for this is simple. Company’s have to make a profit, so they hire workers who create value, however, if a company were to compensate the worker in direct proportion to what that worker contributed, the employer wouldn’t be able to extract surplus value, and subsequently, wouldn’t be able to make a profit. Because workers are not compensated in proportion to what they contribute and create, it is an inevitability that under capitalism, more is produced than what the working people have the capacity to consume, leading to overproduction. When production exceeds consumption, which again, is an inevitability given the power dynamic and incentives of capitalism, company’s which rely on people consuming their goods will collapse. In order to avert this collapse, businesses, in an attempt to get people to consume more, stock the people up with credit. Loading people up with credit, however, does not avert the crisis, but merely exacerbates and prolongs it, because when the people cannot pay it back, the economy collapses to an even more severe extent. Nearly this exact situation happened in 2008, in fact, when we went through one of the most extreme recessions in American history, which we are still feeling the affects of in the form of crippling debt. My point here, is that these massive economic collapses which destroy millions of lives and load us with debt are not defects, but an inevitability of the capitalist system. Though these collapses haven’t killed the economy yet, it’s important to remember that we are over 21 trillion dollars in debt, and many economists suspect another economic collapse by 2020 largely due to the stagnant buying power of the middle class and the rising prices in the housing industry among others, which would put is in even more severe debt, which we absolutely cannot afford. To restate my point, cyclical economic collapse is an inevitability under unregulated capitalism, and when these collapses pile up, we begin to accumulate debt, which is unsustainable in the long term.
As previously explained, the employer-employee power dynamic established within our current capitalist system leads to the employer being incentivized to exploit the worker to the greatest extent possible. Because the rich have complete influence over the working people, and because the rich profit off of exploiting the working people to the greatest extent possible, there are massive disparities in income present in our country. For reference, in the US, the top one tenth of one percent owns nearly as much wealth as the bottom 90 percent of the population. Furthermore, as Thomas Piketty points out in his book “Capital in the 21st century”, because the rate of return on capital in the US exceeds the rate of economic growth, wealth tends to concentrate heavily in the hands of the already wealthy, causing perpetual income inequality. “So? What’s the problem with economic inequality? Is economic inequality not necessary to incentivize work and innovation? What’s the issue with inequality even if the bottom of the food chain has it well off by global standards?” Well, hypothetical reader, yes and no. Yes, a certain degree of income inequality is necessary, but excessive unmitigated income inequality is largely damaging to economic growth and the social fabric. A recent OECD analysis found a “negative and statistically significant” correlation between income inequality and economic growth. The analysis found that the 3 Gini point rise in inequality that was the average for OECD states over the last 20 years lead to 0.35 percent less economic growth per year for the same time, or a total 8.5 percent GDP loss in that period. Furthermore, as evolutionary biologist Bret Weinstein points out, as we were evolving, even if we had sufficient crops, if our neighbor had twice as many crops as us we would assume that they know something we don´t, which leads to hierarchical instability. The evidence that this negative response to inequality still exists is plentiful. For example, Nobel Prize winning economist Gary Becker released a paper titled “Crime And Punishment: An Economic Approach” which concluded that there is an undeniable correlation between income inequality and crime rates. Therefore, if we wish to have a stable society and a stable economy, there must be some regulation or form of redistribution because if left to its own devices, the economy will drift naturally towards perpetual inequality, as it has been for the past few decades.
Technology And Market Failures
All free markets have what economists call “market failures”. Market failures often come in the form of public, non excludable goods in which price doesn’t align with value due to the inclusive nature of the good. Because of the disparity between price and value which is present in these goods, they have to be paid for collectively. The problem however, comes in that as technology advances, these public non excludable goods are bound to take up a larger and larger percentage of all goods, as software has the tendency to take physical, excludable goods and turn them into non excludable files. This is a major issue, as it threatens to throw the price to value ratio way out of whack, thus destabilizing the entire system. Going along with the theme of technology, there will inevitably be a point in the near future in which the need for human labor, which capitalism has relied on throughout history, will be completely destroyed. In the past, machines have done simple jobs and replaced low quality occupations with better jobs. However, as technological advancement goes, technology over time gets more and more advanced, meaning it can perform more and more complex tasks. If you take the exponential development of technology to its logical conclusion, you will find that it is inevitable that there will be a point in which technology can perform tasks at such a level of complexity there will be no need for humans to do anything. When this point arrives, which may be sooner than you think (AI has recently advanced to the point of being able to beat humans at GO and Jeopardy), the very foundation of capitalism crumbles.
The majority of pro-capitalist talking points are predicated on this one concept: Competition. Competition is incredibly useful because when company’s compete, in order to out compete one another they are incentivized to create the best product possible for the lowest price possible. However, what free marketers don’t mention is that when there is competition, there is often a winner. When a company does so well that they eliminate the competition (and have the power and money to absorb/eliminate any emerging competition), they then hold a monopoly. When this happens, because there is no one to compete with said business, that business can control prices, abuse workers, exploit the consumers, etc. to any extent they want without repercussion. For example, right now in the US farmers are suffering because 1 company alone (Monsanto) owns the key genetic traits to over 90 percent of soy beans planted by farmers in the US, and 80 percent of the corn. The food processors which the farmers sell to are also consolidating and have so much concentrated market power that they can cut the wages of the farmers. The four largest food companies control 82 percent of beef packaging, 85 percent of soy bean processing, and 63 percent of pork packaging. Furthermore, 70 percent of toothpaste sales go to just two companies. The existence of monopolies enable large scale exploitation, and are terrible for anybody who isn’t financially attached to said monopoly. Furthermore, monopolies are inevitable and very much present under capitalism.
Worker Co Ops: A Possible Solution
I believe, for the most part, I can boil down the majority of my critique of capitalism to this one concept: under capitalism, the interests of the working people are in direct conflict with the interests of the employer. The incentive of the employee is separate from the incentive of the employer. This power dynamic creates a plethora of problems including perpetual inequality, overproduction, economic collapse, etc. However, if the interests of the employer and the employee wasn’t separate, these issues wouldn’t be a problem, at least not to the extent they are now. Precisely, if the employees ran their businesses democratically, they would not be incentivized to outsource their own jobs, or crush their own wages, or give themselves bad work environments to minimize cost, or exploit themselves in any way. The result would be fairer wages, better standards of living for the working class, significantly lower levels of overproduction and collapse, etc. Of course, this doesn’t solve everything. There will still have to be an efficient state to set regulations on things like climate change, to set quality standards, to harness the power of automation so we can more smoothly transition to accommodate technological development, prevent monopolies, etc. However, if we could transition to a worker co op run market economy, many of the problems and contradictions which plague our current system could be alleviated. Furthermore, because workers would not feel alienated from the products of their labor, the people would be much more fulfilled and content with their work and with life in general. However, the question remains, are worker co ops efficient enough to build an economy around? Short answer, yes. For example, it’s been observed that as a startup, worker co ops are 3 times more likely to be successful than their non co op counter parts. Moreover, one London School of business study found that worker co ops are 9-19 percent more productive than traditionally run businesses. The reason for this, largely, is because when the workers feel that they have a stake in what they are producing rather than just being a cog in some machine, they feel more motivated to actually contribute and keep their business afloat. Furthermore, one of the biggest businesses in Japan, Mondragon, is a worker run co operative. When the Japanese economy went into a recession, this very company, Mondragon, was effected significantly less than other businesses because the workers were more flexibly able to deal with the collapse by lowering each of their wages slightly and taking other maneuvers which mitigated the damage. In conclusion, while not a magic anecdote to all of the problems contained within capitalism, transitioning to a worker co op system would be more stable and beneficial on a macroeconomic level, and would provide a much more gratifying society on an individual, human level by giving the working people a stake in what they produce.