C.10 Will "free market" capitalism benefit everyone, especially the poor?

Murray Rothbard and a host of other supporters of "free-market" capitalism make this claim. Again, it does contain an element of truth. As capitalism is a "grow or die" economy (see section D.4.1), obviously the amount of wealth available to society increases for all as the economy expands. So the poor will be better off absolutely in any growing economy (at least in economic terms). This was the case under Soviet state capitalism as well: the poorest worker in the 1980's was obviously far better off economically than one in the 1920's.

However, what counts is relative differences between classes and periods within a growth economy. Given the thesis that free-market capitalism will benefit the poor especially, we have to ask: can the other classes benefit equally well?

As noted above, wages are dependent on productivity, with increases in the wages lagging behind increases in productivity. If, in a free market, the poor "especially" benefited, wages would need to increase faster than productivity in order for the worker to obtain an increased share of social wealth. However, if this were the case, the amount of profit going to the upper classes would be proportionally smaller. Hence if capitalism "especially" benefited the poor, it could not do the same for those who live off the profit generated by workers.

For the reasons indicated above, productivity must rise faster than wages or companies will fail and recession could result. This is why wages (usually) lag behind productivity gains. In other words, workers produce more but do not receive a corresponding increase in wages. This is graphically illustrated by Taylor's first experiment in his "scientific management" techniques.

Taylor's theory was that when workers controlled their own work, they did not produce to the degree wanted by management. His solution was simple. The job of management was to discover the "one best way" of doing a specific work task and then ensure that workers followed these (management defined) working practices. The results of his experiment was a 360% increase in productivity for a 60% increase in wages. Very efficient. However, from looking at the figures, we see that the immediate result of Taylor's experiment is lost. The worker is turned into a robot and effectively deskilled (see section D.10). While this is good for profits and the economy, it has the effect of dehumanising and alienating the workers involved as well as increasing the power of capital in the labour market. But only those ignorant of economic science or infected with anarchism would make the obvious point that what is good for the economy may not be good for people.

This brings up another important point related to the question of whether "free market" capitalism will result in everyone being "better off." The typical capitalist tendency is to consider quantitative values as being the most important consideration. Hence the concern over economic growth, profit levels, and so on, which dominate discussions on modern life. However, as E.P. Thompson makes clear, this ignores an important aspect of human life:

"simple points must be made. It is quite possible for statistical averages and human experiences to run in opposite directions. A per capita increase in quantitative factors may take place at the same time as a great qualitative disturbance in people's way of life, traditional relationships, and sanctions. People may consume more goods and become less happy or less free at the same time" [The Making of the English Working Class, p. 231]

For example, real wages may increase but at the cost of longer hours and greater intensity of labour. Thus, "[i]n statistical terms, this reveals an upward curve. To the families concerned it might feel like immiseration." [Thompson, Op. Cit., p. 231] In addition, consumerism may not lead to the happiness or the "better society" which many economists imply to be its results. If consumerism is an attempt to fill an empty life, it is clearly doomed to failure. If capitalism results in an alienated, isolated existence, consuming more will hardly change that. The problem lies within the individual and the society within which they live. Hence, quantitative increases in goods and services may not lead to anyone "benefiting" in any meaningful way.

This is important to remember when listening to "free market" gurus discussing economic growth from their "gated communities," insulated from the surrounding deterioration of society and nature caused by the workings of capitalism (see sections D.1 and D.4 for more on this). In other words, quality is often more important than quantity. This leads to the important idea that some (even many) of the requirements for a truly human life cannot be found on any market, no matter how "free."

However, to go back to the "number crunching" that capitalism so loves, we see that the system is based on workers producing more profits for "their" company by creating more commodities than they would by able to buy back with their wages. If this does not happen, profits fall and capital dis-invests. As can be seen from the example of Chile (see section C.11) under Pinochet, "free market" capitalism can and does make the rich richer and the poor poorer while economic growth was going on. Indeed, the benefits of economic growth accumulated into the hands of the few.

To put it simply, economic growth in laissez-faire capitalism depends upon increasing exploitation and inequality. As wealth floods upwards into the hands of the ruling class, the size of the crumbs falling downwards will increase (after the economy is getting bigger). This is the real meaning of "trickle down" economics. Like religion, laissez faire capitalism promises pie at some future date. Until then we (at least the working class) must sacrifice, tighten our belts and trust in the economic powers that be to invest wisely for society. Of course, as the recent history of the USA or Chile shows, the economy can be made freer and grow while real wages stagnant (or fall) and inequality increase.

This can also be seen from the results of the activities of the pro-"free market" government in the UK, where the number of people with less than half the average income rose from 9% of the population in 1979 to 25% in 1993 and the share of national wealth held by the poorer half of the population has fallen from one third to one quarter. In addition, between 1979 and 1992-3, the poorest tenth of the UK population experienced a fall in their real income of 18% after housing costs, compared to an unprecedented rise of 61% for the top tenth. Of course, the UK is not a "pure" capitalist system and so the defenders of the faith can argue that their "pure" system will spread the wealth. However, it seems strange that movements towards the "free market" always seem to make the rich richer and the poor poorer. In other words, the evidence from "actually existing" capitalism supports anarchist arguments that when ones bargaining power is weak (which is typically the case in the labour market) "free" exchanges tend to magnify inequalities of wealth and power over time rather than working towards an equalisation (see section F.3.1, for example). Similarly, it can hardly be claimed that these movements towards "purer" capitalism have "especially" benefited the poor, quite the reverse.

This is unsurprising as "free market" capitalism cannot benefit all equally, for if the share of social wealth falling to the working class increased (i.e. it "especially" benefited them), it would mean that the ruling class would be worse off (and vice versa). Hence the claim that all would benefit is obviously false if we recognise and reject the sleight-of-hand of looking at the absolute figures so loved by the apologists of capitalism. And as the evidence indicates, movements towards a purer capitalism have resulted in "free" exchanges benefiting those with (economic) power more than those without, rather than benefiting all equally. This result is surprising, of course, only to those who prefer to look at the image of "free exchange" within capitalism rather than at its content.

In short, to claim that all would benefit from a free market ignores the fact that capitalism is a profit-driven system and that for profits to exist, workers cannot receive the full fruits of their labour. As the individualist anarchist Lysander Spooner noted over 100 years ago, "almost all fortunes are made out of the capital and labour of other men than those who realise them. Indeed, large fortunes could rarely be made at all by one individual, except by his sponging capital and labour from others." [quoted by Martin J. James, Men Against the State, p. 173f]

So it can be said that laissez-faire capitalism will benefit all, especially the poor, only in the sense that all can potentially benefit as an economy increases in size. If we look at actually existing capitalism, we can start to draw some conclusions about whether laissez-faire capitalism will actually benefit working people. The United States has a small public sector by international standards and in many ways it is the closest large industrial nation to laissez-faire capitalism. It is also interesting to note that it is also number one, or close to it, in the following areas [Richard Du Boff, Accumulation and Power, pp. 183-4]:

  • lowest level of job security for workers, with greatest chance of being dismissed without notice or reason.
  • greatest chance for a worker to become unemployed without adequate unemployment and medical insurance.
  • less leisure time for workers, such as holiday time.
  • one of the most lopsided income distribution profiles.
  • lowest ratio of female to male earnings, in 1987 64% of the male wage.
  • highest incidence of poverty in the industrial world.
  • among the worse rankings of all advanced industrial nations for pollutant emissions into the air.
  • highest murder rates.
  • worse ranking for life expectancy and infant morality.
  • It seems strange that the more laissez-faire system has the worse job security, least leisure time, highest poverty and inequality if laissez-faire will especially benefit the poor. Of course, defenders of laissez-faire capitalism will point out that the United States is far from being laissez-faire, but it seems strange that the further an economy moves from that condition the better conditions get for those who, it is claimed, will especially benefit from it.

    Even if we look at economic growth (the rationale for claims that laissez faire will benefit the poor), we find that by the 1960s the rate of growth of per capita product since the 19th century was not significantly higher than in France and Germany, only slightly higher than in Britain and significantly lower than in Sweden and Japan (and do not forget that France, Germany, Japan and Britain suffered serve damage in two world wars, unlike America). So the "superior productivity and income levels in the United States have been accompanied by a mediocre performance in the rise of those levels over time. The implication is no longer puzzling: if US per capita incomes did not grow particularly fast but Americans on average enjoy living standards equal to or above those of citizens of other developed nations, then the American starting point must have been higher 100 to 150 years ago. We now know that before the Civil War per capita incomes in the United States were high by contemporary standards, surpassed through the 1870s only by the British. . . To a great extent this initial advantage was a gift of nature." [Op. Cit., p. 176]

    Looking beyond the empirical investigation, we should point out the slave mentality behind these arguments. Afterall, what does this argument actually imply? Simply that economic growth is the only way for working people to get ahead. If working people put up with exploitative working environments, in the long run capitalists will invest some of their profits and so increase the economic cake for all. So, like religion, "free market" economics argue that we must sacrifice in the short term so that (perhaps) in the future our living standards will increase ("you'll get pie in the sky when you die" as Joe Hill said about religion). Moreover, any attempt to change the "laws of the market" (i.e. the decisions of the rich) by collective action will only harm the working class. Capital will be frightened away to countries with a more "realistic" and "flexible" workforce (usually made so by state repression).

    In other words, capitalist economics praises servitude over independence, kow-towing over defiance and altruism over egoism. The "rational" person of neo-classical economics does not confront authority, rather he accommodates himself to it. For, in the long run, such self-negation will pay off with a bigger cake with (it is claimed) correspondingly bigger crumbs "trickling" downwards. In other words, in the short-term, the gains may flow to the elite but in the future we will all gain as some of it will trickle (back) down to the working people who created them in the first place. But, unfortunately, in the real world uncertainty is the rule and the future is unknown. The history of capitalism shows that economic growth is quite compatible with stagnating wages, increasing poverty and insecurity for workers and their families, rising inequality and wealth accumulating in fewer and fewer hands (the example of the USA and Chile from the 1970s to 1990s and Chile spring to mind). And, of course, even if workers kow-tow to bosses, the bosses may just move production elsewhere anyway (as tens of thousands of "down-sized" workers across the West can testify). For more details of this process in the USA see Edward S. Herman's article "Immiserating Growth: The First World" in Z Magazine, July 1994.

    For anarchists it seems strange to wait for a bigger cake when we can have the whole bakery. If control of investment was in the hands of those it directly effects (working people) then it could be directed into socially and ecologically constructive projects rather than being used as a tool in the class war and to make the rich richer. The arguments against "rocking the boat" are self-serving (it is obviously in the interests the rich and powerful to defend a given income and property distribution) and, ultimately, self-defeating for those working people who accept them. In the end, even the most self-negating working class will suffer from the negative effects of treating society as a resource for the economy, the higher mobility of capital that accompanies growth and effects of periodic economic and long term ecological crisis. When it boils down to it, we all have two options -- you can do what is right or you can do what you are told. "Free market" capitalist economics opts for the latter.

    Finally, the average annual growth rate per capita was 1.4% between 1820 and 1950. This is in sharp contrast to the 3.4% rate between 1950 and 1970. If laissez-faire capitalism would benefit "everyone" more than "really existing capitalism," the growth rate would be higher during the earlier period, which more closely approximated laissez faire. It is not.