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<title>C.10 Is "free market" capitalism the best way to reduce poverty?</title>

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<h1>C.10 Is "free market" capitalism the best way to reduce poverty?</h1>

<p>
It is far to say that supporters of "free-market" capitalism make the claim
that their system not only benefits everyone, but especially working class
people (indeed, the very poorest sectors of society). This was the position 
during the so-called "anti-globalisation" protests at the turn of the 21st 
century, when the issue of global inequality and poverty was forced to the
front of politics (for a time). In response, the likes of the Economist
portraying itself and the big businesses seeking lower costs and higher
profits as the real champions of the poor (particularly in the third world).
</p><p>
In this perspective growth is the key to reducing (absolute) poverty rather
than, say, redistribution, struggle for reforms by means of direct action 
and popular self-organisation or (heaven forbid!) social revolution. The 
logic is simple. Economic growth of 1% per year will double an economy in
70 years, while 3% does so in just over 23 years and 5% growth takes a
mere 15 years. Thus the standard right-wing argument is that we should 
promote "free market" capitalism as this is a growth machine par 
excellence. In fact, any form of redistribution or social struggle is 
considered counter-productive in this viewpoint as it is harms overall 
growth by either scaring away capital from a country or blunts the 
incentives of the elite to strive to "produce" more wealth. Over time, 
wealth will (to coin a well-worn phrase) "trickle down" from the wealthy 
to the many.
</p><p>
What to make of this claim? Again, it does contain an element of truth. 
As capitalism is a "grow or die" economy (see <a href="secD4.html">section D.4</a>), 
obviously the amount of wealth available to society increases for <b>all</b> as the economy 
expands. So the poor will, in general, be better off <b>absolutely</b> in any 
growing economy (at least in economic terms). This was the case under 
Soviet state capitalism as well: the poorest worker in the 1980s was 
obviously far better off economically than one in the 1920s. As such, 
what counts is <b>relative</b> differences between classes and periods
within a growth economy. Given the thesis that free-market capitalism 
will benefit the poor <b>especially,</b> we have to ask: is this actually 
true and, of so, can the other classes benefit equally well? This means
we need to ask whether the assumption to concentrate on <b>absolute</b> 
poverty or inequality rather that <b>relative</b> values makes more sense. 
Similarly, we need to question the assumption that "free market" 
capitalism is the growth machine its supporters assert and whether 
the benefits of the growth it produces does, in fact, "trickle down." 
Questioning these assumptions is essential.
</p><p>
The key problem with evaluating such claims is, of course, the fact
that an economy, like a society, is a very complex system which 
evolves through time. There are few opportunities for "controlled 
experiments" with which to test differing analyses and theories. 
This means that any attempt to analysis these claims must be based 
on looking at different countries and time periods in order to 
contrast them. Thus we will look at the same countries at different
periods (the more social democratic post-war period to the more
neo-liberal post-1980s and more neo-liberal countries with those 
in which free-market "reforms" have not been pushed as far). As we
will show, the track record of "free(r) market" capitalism has been,
at best, distinctly unimpressive and, at worse, significantly poorer.
</p><p>
However, this appeal to reality will not convince many supporters of
capitalism. For the true believer in the capitalist market, this kind 
of evidence does not create doubt in their ideas, only the conviction
that the experiments did not go far enough. Thus, for the ideologue, 
freer market capitalism handily tell us nothing about free market 
capitalism -- unless, of course, they can be portrayed as an "economic 
miracle" (regardless of the facts). For "advocates of the market," 
the sanctity of private property and private contracts is held as an 
inalienable natural right. To refute charges that this Will simply 
benefit the already wealthy they spend much time arguing that 
unfettered capitalism is also the only economic system which will 
produce the greatest benefit for the greatest number. In other words, 
that absolute capitalist markets and private property rights coincides 
<b>exactly</b> with personal interest. A clearer example of wishful 
thinking could hardly be asked for. Yet it is not hard to see what 
function this plays. Few people will be persuaded by their assumptions 
on property and markets, given the common sense objection that free 
exchange between the weak and the strong will, obviously, benefit the 
latter more. Yet more people may be convinced to go along with "free 
market" proposals by considerations of economic efficiency and the hope 
that the poor will see their living standards improve over time 
(particularly if "experts" with economics degrees are involved as 
people often assume they know what they are talking about).
</p><p>
Now, the empirical track-record of what is called capitalism is 
decidedly mixed. There are three courses of action open to the 
market advocate. The first is to embrace the property-rights argument 
wholeheartedly, and say that we should adopt pure capitalism even if 
it hurts a large percentage of the population because it is the right 
thing to do. This would be unconvincing for most people as economic 
austerity and serf-like working conditions in return for protecting 
the power and property rights of the few who actually own the wealth 
would find few (sane or disinterested) supporters. Then it could be
argues that the empirical track-record of "actually existing" 
capitalism should be ignored in favour of economic ideology as 
reality is simply not pure enough. That, again, would be unconvincing 
for the obvious reason that we would be being asked to have faith in 
the validity of economics (as we have noted before, this would not
be wise given its surreal assumptions and non-scientific nature). 
This would have one positive side-effect, as doing this would mean 
that that "market advocates" would have to stop claiming that all 
the good things we have are due to something (capitalism) that does 
not exist. So that option is unlikely to have many supporters or 
convince many. Finally, it could be argued that contrary to 
appearances capitalism really <b>does</b> benefit everyone. While this 
option is not compatible with intellectual honesty, it is by the far 
the most popular within the ranks of "market advocates." This is 
undoubtedly because the wealth and corporations are always willing 
to pay well for people happy to defend their power and profits 
against the reality they produce.
</p><p>
So what of the claim that capitalism is the best way to help them poor,
that capitalism will especially benefit working class people? To make
sense (i.e. to be more than simply a rhetoric assertion), it must rest 
on two basic notions. Firstly, that "free market" capitalism will have 
a higher growth rate than alternative forms of that system (such state 
capitalism or regulated capitalism). Secondly, that inequality will be 
less and share of wages in the national income more in "free market" 
than in other systems (this must be the case, otherwise "free market" 
reforms do not <b>especially</b> help working class people). We will discuss 
the first claim here, before discussing the track record of neo-liberalism 
in the <a href="secC10.html#secc101">next section</a> followed a 
discussion of the history of capitalism
and free trade in section <a href="secC10.html#secc102">C.10.2</a>. We 
then analysis the failings of the 
equality defence in section <a href="secC10.html#secc103">C.10.3</a> 
before ending with a discussion on the 
limitations of looking at income and growth in evaluating how capitalism 
benefits the working class (<a href="secC10.html#secc104">section C.10.4</a>). 
As we show, there is 
substantial evidence to suggest that the standard defences of "free 
market" capitalism are not up to much. Let us be clear and state there 
is generally a positive correlation between economic growth and the 
income of the poor. We are not attacking economic growth as such but 
rather asking whether neo-liberalism's own defence actually stands up.
</p><p>
Looking at the historical picture, then, yes, capitalism does produce 
much more economic growth than previous social systems such as slavery 
and feudalism. However, defending capitalism on the basis that it better 
than a slave based economy is hardly a strong foundation (particularly 
when capitalists are happy to locate to dictatorships which have 
slave-like labour conditions). The more substantive argument is based 
on the assumption that "free market" capitalism produces faster economic 
growth than other forms of that system and that growth of the economic 
pie is more important than how it is distributed. In other words, the 
same (or even smaller) share of a bigger pie in the future is better 
than a bigger share of the existing pie. This means we need to look at 
the economic performance of capitalist economies, comparing the 
neo-liberal ones to regulated social democratic ones. We would expect 
the former to be performing significantly better than the latter in 
addition to being more dynamic <b>after</b> reforms than before. The reality 
hardly matches the claims. 
</p><p>
The attempt to compare and contrast economies can be found in,
say, the works of Milton Friedman to show the superiority of his
beloved "free market" capitalism. However, as economist Thomas
Balogh notes, to prove that <i>"socialistic policies"</i> had crippled 
Britain's economic growth since 1945 Friedman began <i>"by 
misrepresenting the size of the public sector . . . he chooses 
a ratio which, though irrelevant, gives spurious support to his 
thesis."</i> Equally, Friedman compares post-war Britain to post-war
Japan and West Germany, conveniently failing to note that both 
hardly had minimal states (for example, West Germany had approximately
the same level of state spending as the UK and Japan had the social
planning of its Ministry of Industry and Trade). As Balogh notes, the
<i>"consequences of socialism are then illustrated by reference to the 
weak economic performance of Britain in comparison with Japan and 
Germany since 1945. This is an odd comparison to choose when judging 
the impact of 'socialism' on Britain. Surely what we need is to 
compare the British performance during a period of sustained boom 
under 'Friedmanism', e.g. in the period 1900-13, with the record 
under 'socialism,' say 1945-75."</i> However, to do that would mean 
noting that the average annual rate of growth per head of GNP 
between 1900 and 1913 was a mere 0.2%, compared to 2.2% between 
1948 and 1975. Even taking other starting dates (such as the slump 
year 1893) produces a smaller rate of growth that the post-war 
period. [<b>The Irrelevance of Conventional Economics</b>, p. 181]
</p><p>
Nor do things get better when we look at the Friedman influenced 
Thatcher government which turned the UK into a poster-child for 
neo-liberalism. Here, yet again, the facts do not really support 
the claims in favour of "free(r) markets". As Ian Gilmore, a moderate 
conservative MP at the time, points out <i>"[d]uring the Thatcher years 
growth was lower than in any period of similar length since the war."</i>  
He notes <i>"the vast discrepancy between what the Thatcherites claimed 
for their policies and what actually happened."</i> Unsurprisingly, there
was an <i>"unparalleled rise in poverty,"</i> as <i>"relative poverty grew 
significantly during the 1980s,"</i> from a nearly a tenth in 1979 to 
nearly a fifth in 1987. In 1979, the poorest fifth had just under 
10% of post-tax income and the richest fifth had 37%. Ten years 
later, this had fallen to 7% and risen to 43% (<i>"The rich got rich, 
and the poor got poorer"</i>). <i>"Not only did the poor not share in the 
limited growth that took place between 1979 and 1990, the poor were 
relatively poorer than they had been on 1979."</i> [<b>Dancing with Dogma</b>, 
pp. 83-4, p. 87, p. 142, p. 138 and p. 172] we will return to this
issue in <a href="secC10.html#secc103">section C.10.3</a>.
</p><p>
Things did not get any better in the 1990s. Growth in GDP per capita 
was steadily decreased in the UK, from 2.3% per annum between 1950 
and 1970, to 2.1% between 1970 and 1979 and to 1.9% between 1979 and 
1997. For the US, a similar process was at work (from 2.0%, to 2.3% 
to 1.5%). At best, it can be said that the growth rates of Germany 
and France between 1979 and 1997 were worse (at 1.7% and 1.4%, 
respectively). However, before 1979 their growth was much higher 
(at 5.1%/4.5% between 1950 and 1970 and 2.8%/3.3% between 1970 and 
1979, respectively). Growth in labour productivity per hour worked 
is hardly impressive, being 2.3% between 1979 and 1997 compared to
0.8% for the US, 2.4% for France and 2.2% for Germany. This is well 
below the 1950-1970 figure of 3.0% and only slightly better than 
2.1% during the strike bound 1970s. In 1979, the UK was 9th of 15 
EU members in OECD measures of prosperity. By 1995, it was 11th 
before rising back to 10th in 1999. In summary, <i>"the idea that 
Britain has a clearly superior economy to the continent is a 
delusion."</i> [Adair Turner, <b>Just Capital: The Liberal Economy</b>, 
p. 200, pp. 199-200 and p. 196]
</p><p>
The best that can be said of Thatcherism is that during the 1980s, 
<i>"Britain put an end to three decades of relative decline and caught 
up some lost ground versus continental leaders . . . But Britain's 
absolute productivity and prosperity performance is still below the 
European average and its pace of catch-up has been slow."</i> Combine
this with longer working hours compared to the rest of Europe, we
have a situation in the UK where <i>"too many companies relying on low 
wages and a flexible labour market to remain competitive, rather than 
on investment in capital equipment and technique."</i> Looking at the 
historical picture, it should be stressed that the UK has been in 
decline since the 1880s, when it remained the only developed nation 
to embrace free trade and that between the 1950s and 1970s, the 
<i>"absolute growth rates per capita . . . compared well with the 
inter-war years and with the period of British leadership in the
nineteenth century."</i> This lack of success for neo-liberal reforms
can also be seen in New Zealand. The economic results of its 
liberalisation project were just as poor. Between 1984-98 per 
capita income grew only about 5.4%, or 0.4% per annum, well below 
the EU average and one of the lowest rates of increase among the 
OECD countries. [Turner, <b>Op. Cit.</b>, p. 196,  p. 212, p. 199 and 
p. 240fn] Needless to say, be cause the rich got richer and 
rebellious workers controlled, both the UK and New Zealand were
proclaimed "economic miracles."
</p><p>
This lack of dynamism is not limited just to the UK or New Zealand.
As left-wing economist Andrew Glyn notes, the <i>"fact that there was no 
general improvement in growth in the 1980s could be explained away by 
the fact that the . . . policies . . .  were only picking up steam. 
But the real puzzle is the 15 years since 1990. Why [have these 
free market policies] . . . failed to bring an increase in the growth 
rate."</i> In fact, growth per year has steadily fallen since 1973 with 
1990-2004 the lowest rate yet for the USA, Europe and Japan. This 
applies to other economic indicators as well. <i>"The fact that output 
per head has been growing more slowly since 1990 than it did in the 
turbulent period 1973-9, never mind the Golden Age, must be a severe 
disappointment to those who believed that unleashing the free market 
would restore rapid growth."</i> He summarises the evidence by pointing
out that <i>"economic performance overall has been unspectacular."</i> 
[<b>Capitalism Unleashed</b>, pp. 130-1 and p. 151]
</p><p>
As Chomsky summarises, <i>"neoliberal-style programs began to take shape 
in the 1970s"</i> and since then real wages <i>"for the majority have largely 
stagnated or declined . . . the relatively weak benefits system has
declines as well. Incomes are maintained only be extending working hours 
well beyond those in similar societies, while inequality has soared"</i> (as 
has personal debt). Moreover, <i>"this is a vast change from the preceding 
quarter century, when economic growth was the highest on record for a 
protracted period and also egalitarian. Social indicators, which closely 
tracked economic growth until the mid-1970s, then diverged, declining to 
the level of 1960 by the year 200O."</i> [<b>Failed States</b>, p. 211]
</p><p>
The assumption is that producing free(r) markets and a pure(r) capitalism
will result in higher growth and so rising living standards. <i>"So far,"</i>
note two experts, <i>"the promises have not been realised. As trade and 
financial markets have been flung open, incomes have risen not faster, 
but slower. Equality among nations has not improved, with many of the
poorest nations suffering an absolute decline in incomes. Within nations, 
inequality seems to have worsened . . . the trend to towards more 
inequality."</i> In the two decades after 1980, <i>"overall income growth slowed
dramatically."</i> For example, the rich countries saw annual per capita 
income growth fall from 4.8% (1965-80) to 1.4% (1980-95). Medium countries 
saw a fall from 3.8% to 3.1% (excluding China, this was 3.2% to 0.6% as
China rose from 4.1% to 8.6%). For the poorest nations, there was a rise 
from 1.4% to 2.0% but this becomes 1.2% to 0.1% when India is excluded 
(India saw a rise from 1.5% to 3.2%). In fact, income dropped by -0.4% 
a year between 1980 and 1995 for the least developed countries (it had 
risen 0.4% a year between 1965 and 1980). <i>"In more advanced countries 
. . . income growth was lower in the 1990s than in the 1980s. Over the 
entire post-1980 period, it was substantially below that of the 1960s 
and 1970s."</i> In America, for example, annual growth of per capita income
has dropped from 2.3% between 1960-79, to 1.5% between 1979 and 1989
and 1.0% between 1989 and 1996 (per capita income growth up to 1998 was 
1.4% per year, still less than the 1.6% per cent between 1973 and 1980 
and 1980s and about half the growth over the 1960 to 1973 period). Given 
that income equality improved during the 1960s and 1970s, before worsening 
after 1980 for most countries, particularly the USA, this means that even 
these most increases flowed overwhelming to those at the top of the income 
hierarchy. In America, the working hours for a middle-class family has 
increased by 10.4% between 1979 and 1997. In other words, working class
people are working more for less. In most advanced nations, there has <i>"not
been a sizeable increase in poverty,"</i> the <i>"exceptions [being] the USA and 
the United Kingdom, where poverty grew, respectively, by 2.4 and 5.4 
percentage points between 1979 and 1991."</i> [Jeff Faux and Larry Mishel, 
<i>"Inequality and the Global Economy"</i>, pp. 93-111, Will Hutton and Anthony 
Giddens (eds.), <b>On The Edge</b>, pp. 93-4,  p. 96, p. 97, p. 98, p. 101, 
p. 102 and p. 100]
</p><p>
This lack of rise in growth is a definite feature of neo-liberalism. The
promises of the "free market" capitalism have not borne fruit:
</p><p><blockquote>
<i>"Growth did not accelerate. It slowed down. During the 1960s, the average 
rate of growth of world GDP per capita was 3.5% per annum . . . The 
average rate of growth of world GDP per capital was 2.1% per annum during 
the 1970s, 1.3% per annum during the 1980s and 1% per annum during the 
1990s. This growth was more volatile compared with the past, particularly
in the developing world. the growth was also unevenly distributed across
countries . . .
</p><p>
"Economic inequalities have increased in the late twentieth century as the 
income gap between rich and poor countries, between rich and the poor in the
world's population, as also between rich and poor people within countries,
has widen. The ratio of GDP per capital in the richest country to GDP
per capita in the poorest country of the world rose from 35:1 in 1950 to
42:1 in 1970 and 62:1 in 1990. The ratio of GDP per capita in the 20 richest
countries to GDP per capita in the poorest 20 countries of the world rose
from 54:1 during 1960-62 to 121:1 during 2000-20002. The income gap between
people has also widened over time. The ratio of the average GNP per capita in 
the richest quintile of the world's population to the poorest quintile in 
the world's population rose from 31:1 in 1965 to 60:1 in 1990 and 74:1 in
1997 . . . Income distribution within countries also worsened . . . Between 
1975 and 2000, the share of the richest 1% in gross income rose from 8% to 
17% in the US, from 8.8% to 13.3% in Canada and from 6.1% to 13% in the UK."</i> 
[Deepak Nayyar, <i>"Globalisation, history and development: a tale of two 
centuries,"</i> pp. 137-159, <b>Cambridge Journal of Economics</b>, Vol. 30, No. 1,
pp. 153-4 and p. 154]
</blockquote></p><p>
In fact, between 1950 and 1973 there was a vastly superior economic 
performance compared to what came before and what came after. If 
laissez-faire capitalism would benefit "everyone" more than "really
existing capitalism," the growth rate would be <b>higher</b> during the 
later period, which more closely approximated laissez faire. It is not.
As such, we should always remember that if anything is proclaimed an
"economic miracle" it is unlikely to actually be so, at least for the
working class. Looking at the American triumphantism of the late 1990s, 
it was easy to forget that in the 1980s and early 1990s, despair at the 
US economy was commonplace. Then people looked to Japan, just as they 
had looked to Europe in the 1960s.
</p><p>
We must also note that there is a standard response by believers on
"laissez-faire" capitalism when inconvenient facts are presented to them,
namely to stress that we have not reached the market utopia yet and 
more reforms are required (<i>"a feature of hard-line free-market analysis 
[is] that when liberalisation does not work the reason is always timidity 
and the solution is obvious. Complete the job."</i> [Glyn, <b>Op. Cit.</b>, p. 143]).
Another possible defence would be to stress that the results would have
been worse if the reforms had not been implemented. These are, of course, 
possibilities but given the rhetoric used by the defenders of capitalism 
on the wonders and efficiency of free markets, it seems strange that 
making them freer would have such negative effects.
</p><p>
Looking at the history of capitalism, it appears that social-democratic 
capitalism, with strong unions and a welfare state, produces not only 
more growth but also more equitable growth (as one expert notes, <i>"[i]f 
the 'welfare state' were abolished and taxes reduced accordingly, 
society would become a great deal more unequal."</i> [John Hills, 
<b>Inequality and the State</b>, p. 195]). Movements to more laissez-faire 
capitalism has resulted not only in lower growth but also growth which 
accumulates in fewer hands (which makes sense considering the basic 
anarchist insight that a free exchange benefits the stronger of the 
two parties). As such, based on its own criteria (namely economic 
growth), then neo-liberalism has to be judged a failure. Do not get 
us wrong. It is possible to still advocate laissez-faire capitalism 
on ethical grounds (if that is the right word). It is simply doubtful 
that it will produce the boost in economic growth (or employment) that 
its advocates suggest. It may do, of course, as "actually existing" 
capitalism is still far from the pure system of the textbooks but it 
is significant that movements towards the ideal have produced <b>less</b> 
growth along with greater inequality and relative poverty. 
</p><p>
This is <b>not</b> to suggest that anarchists support social-democratic 
capitalism rather than more laissez-faire forms. Far from it -- we seek
to end all forms of that system. However, it is significant that the 
more equal forms of capitalism based on strong and militant unions
produced better results than "free(r) market" forms. This suggests that
the standard right-wing argument that collective organising and fighting 
to keep an increased share of the wealth we produce harms the overall
economy and so harmful in the long run are deeply flawed. Instead, it 
is the <b>lack</b> of any struggle for equality and freedom that is correlated
with bad overall economic performance. Of course, such struggles are a
pain for the capitalist class. Rather than produce a <i>"road to serfdom,"</i>
social-democracy created the full employment environment which produced 
a rebellious population. The move towards "free(r) markets" was a response
to this social struggle, an attempt to enserf the population which has
proven to be somewhat successful. As such, Kalecki's 1940s prediction 
we quoted in <a href="secB4.html#secb44">section B.4.4</a> has been proven correct: the ruling class 
would prefer social peace (i.e. obedience) rather than higher growth 
(particularly if they get to monopolise most of the gains of that lower 
growth).
</p><p>
Finally, we should note that there is a slight irony to see right-wingers 
saying that "pure(r)" capitalism would benefit the poor especially. This 
is because they usually reject the idea that aggregate economic statistics 
are a meaningful concept or that the government should collate such data
(this is a particular feature of the "Austrian" school of economics).
As such, it would be near impossible to determine if living standards
had improved any faster than under the current system. Given the history
of "actually existing" capitalism, it is probably wise that many "market 
advocates" do so. Moreover, any subjective evaluation, such as asking 
people, which resulted in a negative response would be dismissed out 
of hand as "envy." Ironically, for an ideology which says it bases 
itself on "subjective" evaluations, economists are always ready to 
ignore any which conflict with their ideas. Needless to say, even if 
it could be proven beyond doubt that "pure(r)" capitalism did <b>not</b> 
help the poor but rather enriched the wealthy then almost all "free 
market" capitalists would <b>not</b> change their ideas. This is because, 
for them, the outcomes of the market are hallowed and if they result 
in increased poverty then so be it. It just shows that the poor are 
lazy and not worth higher incomes. That they sometimes utilise the 
rhetoric of social concern simply shows that most people still have 
concern and solidarity for their fellows, a concern which capitalism 
has not managed to totally remove (much to the chagrin of the likes 
of von Hayek -- see chapter 11 of Alan Haworth's <b>Anti-Libertarianism</b> 
for a short but relevant discussion of this).
</p>

<h2><a name="secc101">C.10.1 Hasn't neo-liberalism benefited the world's poor?</a></h2>

<p>
Until the wave of so-called "anti-globalisation" protests (a more 
accurate term would be "global justice" protests) erupted in the late 
1990s, there was no real need for the neo-liberal agenda to justify
its performance. When opposition could not be ignored, then it had
to be undermined. This lead to a host of articles and books justifying
neo-liberalism in terms of it helping the world's poorest peoples. 
This has meant denying the reality of 30 years of neo-liberal reforms
in favour of concentrating on absolute poverty figures.
</p><p>
This is understandable. As we discuss in the 
<a href="secC10.html#secc104">section C.10.4</a>, absolute 
inequality and poverty is a good means of making discussion of the
real issues meaningless. Moreover, as noted above, as capitalism 
must grow to survive wealth will tend to increase for all members of
society over time. The real question is whether "free(r) markets 
increase or reduce growth rates and how they impact on relative
levels of poverty and inequality. Given that the last few decades 
indicate how free(r) markets result in increased inequality, it is
obvious why defenders of capitalism would seek to focus attention on
absolute income. While denied by some, inequality has risen under 
globalisation. Those who deny it usually do so because the doctrines 
of the powerful are at stake. Some, in spite of the evidence, are 
that world-wide economic inequality has fallen thanks to global 
capitalism. 
</p><p>
At the forefront of such claims is <b>the Economist</b> magazine, which 
played its usual role of ideological cheerleader for the ruling class. 
Discussing <i>"Global economic inequality"</i>, the magazine argued that the 
claim that inequality has risen is false. Ironically, their own article 
refutes its own conclusions as it presented a graph which showed an upward 
relationship between economic growth from 1980 to 2000 and original income 
level for a large group of countries. This means that global economic 
inequality <b>has</b> increased -- as they admit, this means <i>"that the poor 
are falling behind, and that cross-country inequality is getting worse."</i> 
[<i>"More or less equal?"</i>, <b>The Economist</b>, 11th March, 2004]
</p><p>
However, this conclusion is ideologically incorrect and so something 
must be done to achieve the correct position in order to defend capitalism
against the anti-capitalist bias of reality. They did this by adding 
another chart which weights each point by population. This showed that 
two of the largest countries of their group, China and India, grew among 
the fastest. Using this data they make the claim that inequality has, in
fact, fallen under neo-liberalism. Once you look at individuals rather than 
countries then the claim can be made that world-wide inequality has been 
falling under "free(r) market" capitalism. While an impressive piece of 
ideological obfuscation, the argument ignores changes <b>within</b> countries. 
The article states that <i>"average incomes in India and China are going up 
extremely rapidly"</i> but not every person receives the average. The average 
hides a lot. For example, 9 homeless people have an average income of 0 
but add a multi-millionaire and the average income of the ten people is 
in the millions. On average, at the end of a game of poker everyone has 
the same amount of money they started with. As such, to ignore the fact 
that inequality increased dramatically both countries during the 1990s is 
disgraceful when trying to evaluate whether poverty has actually decreased
or not. And it should be obvious that if inequality is increasing <b>within</b> 
a country then it must also be increasing internationally as well. 
</p><p>
Significantly, <i>"where governments adopted the [neo-liberal] Washington 
Consensus, the poor have benefited less from growth."</i> [Joseph E. Stiglitz, 
<b>Globalization and its Discontents</b>, p. 79] The mantra that economic growth 
is so wonderful is hard to justify when the benefits of that growth are being 
enjoyed by a small proportion of the people and the burdens of growth (such 
as rising job insecurity, loss of benefits, wage stagnation and decline for 
the majority of workers, declining public services, loss of local communities 
and so forth) are being borne by so many. Which does seem to be the case 
under neo-liberalism (which, undoubtedly, explains why it is portrayed so
positively in the business press).
</p><p>
To be fair, the article does note the slow and declining incomes in 
the past 20 years in sub-Saharan Africa but rest assured, the magazine 
stresses, this area <i>"suffers not from globalisation, but from lack of 
it."</i> This means that this area can be ignored when evaluating the results 
of neo-liberalism. Yet this is unconvincing as these nations are hardly 
isolated from the rest of the world. As they are suffering from debt 
and western imposed structural adjustment programs it seems illogical 
to ignore them -- unless it is a way to improve neo-liberalism's outcomes 
by evading its greatest failures. 
</p><p>
Then there is the comparison being made. The Economist looks solely at 
the years 1980-2000 yet surely the right comparison would be between this 
period and the twenty years before 1980? Once that is done, it becomes
clear why the magazine failed to do so for <i>"economic growth and almost 
all of the other indicators, the last 20 years have shown a very clear 
decline in progress as compared with the previous two decades."</i> While
it is <i>"commonly believed that the shift towards globalisation has been a 
success, at least regarding growth,"</i> in fact <i>"the progress achieved in 
the two decades of globalisation has been considerably less than the 
progress in the period from 1960 to 1980."</i> For low and middle-income 
countries, performance is <i>"much worse . . . than the period from 1960 
to 1980."</i> <i>"Summing up the evidence on per capita income growth, 
countries at every level of per capita GDP performed worse on average 
in the period of globalisation than in the period from 1960 to 1980."</i>
[Mark Weisbrot, Dean Baker, Egor Kraev and Judy Chen, <b>The Scorecard 
on Globalization 1980-2000: Twenty Years of Diminished Progress</b>] In 
fact:
</p><p><blockquote>
<i>"The poorest group went from a per capita GDP growth rate of 1.9 percent 
annually in 1960-80, to a decline of 0.5 percent per year (1980-2000). 
For the middle group (which includes mostly poor countries), there was 
a sharp decline from an annual per capita growth rate of 3.6 percent to 
just less than 1 percent. Over a 20-year period, this represents the 
difference between doubling income per person, versus increasing it by 
just 21 percent."</i> [<b>Op. Cit.</b>]
</blockquote></p><p>
Nor should we forget that there is a <i>"gallery of nations whose economies 
soured shortly after their leaders were lauded by the global policy elite 
for pursuing sound economic fundamentals."</i> [Jeff Faux and Larry Mishel, 
<b>Op. Cit.</b>, p. 94] This process of proclaiming the success of neo-liberalism
before it implodes started with the original neo-liberal experiment, namely
Pinochet's Chile whose economy imploded just after Milton Friedman proclaimed 
it an "economic miracle" (see <a href="secC11.html">section C.11</a>). 
</p><p>
Latin America has suffered the most attention from neo-liberalism and its 
institutions so it would be useful to look there for evaluating the claims
of its supporters (<i>"the IMF talks with pride about the progress that Latin 
America made in market reforms"</i> [Stiglitz, <b>Op. Cit.</b>, p. 79]). Rather than
success story, there has been <i>"a long period of economic failure: for the 
prior 20 years, 1980-1999, the region grew by only 11 percent (in per capita 
terms) over the whole period. This is the worst 20-year growth performance 
for more than a century, even including the years of the Great Depression."</i> 
By comparison, <i>"for the two decades from 1960-1979, Latin America experienced 
per capita GDP growth of 80 percent."</i> In fact, <i>"using the 1960-1979 period 
as a baseline, the quarter century for 1980-2004 is dismal. Annual growth 
in GDP per capita registers a mere 0.5 percent, as opposed to 3.0 percent 
over the previous period. Countries that are now considered relatively 
successful are not doing very well compared to past performance. For 
example, Mexico registers 0.8 percent annual per capita growth for 
1980-2004, as compared with 3.3 percent for 1960-79. For Brazil, which 
one had one of the fastest growing economies in the world, per capita 
growth is only 0.8 percent annually for 1980-2004, as compared with 4.9 
percent for 1960-79."</i> For Latin America as a whole, real per-capita growth 
was 3.0% in the 1960s, 2.9% in the 1970s, -0.3% in the 1980s and 1.4% in 
the 1990s. This means that for 1980-1999, <i>"the region's per capita GDP grew 
at an annual rate of only 0.5 percent, a cumulative total of 11 percent for 
the two decades."</i> By comparison, <i>"from 1960-1979, per capita growth was 3.0 
percent, or 80 percent for these two decades."</i> [Mark Weisbrot and David 
Rosnick, <b>Another Lost Decade?: Latin America's Growth Failure Continues 
into the 21st Century</b>] Looking at Mexico, for example, since NAFTA per 
capita GDP growth in Mexico has averaged less than 1.0% annually. This 
is an extremely poor growth record for a developing country. Successful 
developing countries, such as South Korea and Taiwan have managed to 
sustain per capita GDP growth rates that have averaged more than 4.0% 
since the sixties. In fact, Mexico managed to sustain a per capita GDP 
growth rate of more than 4.0% in the period from 1960 to 1980, when it 
was following a path of import substitution. But, then, neither South 
Korea nor Taiwan followed the dictates of neo-liberalism.
</p><p>
Over all it is important to stress that neo-liberalism has failed its own
test:
</p><p><blockquote>
<i>"Economic growth over the last twenty years, the period during which 
[neo-liberalism] policies . . . have been put into place, has been 
dramatically reduced . . . to assume that the World Bank and the IMF 
have brought 'growth-enhancing policies' to their client countries 
goes against the overwhelming weight of the evidence over the last 
two decades . . . In short, there is no region of the world that the 
Bank or Fund can point to as having succeeded through adopting the 
policies that they promote -- or in many cases, impose -- upon 
borrowing countries."</i> [Mark Weisbrot, Dean Baker, Robert Naiman, and 
Gila Neta, <b>Growth May Be Good for the Poor -- But are IMF and World 
Bank Policies Good for Growth?</b>]
</blockquote></p><p>
As Chomsky summarises, the periods of fastest and prolonged growth have 
not coincide with phases of extensive liberalisation. In fact, neoliberal 
reforms have <i>"been accompanied by much slower rates of growth and reduced 
progress on social indicators . . . There are exceptions to the general 
tendency: high growth rates were recorded among those who ignored the 
rules (and with tremendous inequality and other severe side effects in 
China and India)."</i> Growth rates have, in fact, fell by <i>"over half"</i> 
compared to the preceding period of statist policies (particularly 
when measured per capita). [<b>Op. Cit.</b>, pp. 216-7] For most countries, 
growth was higher in the 1950s, 1960s and even the 1970s. This suggests 
that neo-liberalism fails even its own tests as noted by one economist
who compared the reality of successful development to the neo-liberal
myth: 
</p><p><blockquote>
<i>"the poor growth records of developing countries over the last two decades 
suggest this line of defence [i.e. it brings higher growth] is simply 
untenable . . . The plain fact is that the Neo-Liberal 'policy reforms' 
have not been able to deliver their central promise -- namely, economic 
growth."</i> [Ha-Joon Chang, <b>Kicking Away the Ladder</b>, p. 128]
</blockquote></p><p>
Then there is the issue of what the magazine fails to mention. For a 
start, it excludes the ex-Stalinist regimes in Eastern Europe. This is 
understandable for obvious reasons. If these nations were included, then 
their rising inequality and poverty since they became part of the global 
market would have to be mentioned and this would make its defence of 
neo-liberalism much harder (as would the fact life expectancies fell 
to Third World levels). As economist Joseph Stiglitz points out, the
neo-liberal reforms brought the ex-Stalinist countries <i>"unprecedented 
poverty."</i> In 1989, only 2% of Russians lived in poverty, by the late 
1998 that number had soared to 23.8%, using the $2 a day standard. More 
than 40% had less that $4 a day. Other post-Stalinist countries <i>"have 
seen comparable, if not worse, increases in poverty."</i> Overall, these
reform package has <i>"entailed one of the largest increases in poverty in
history."</i> [<b>Globalization and its Discontents</b>, p. 6, p. 153 and p. 182]
</p><p>
The GDP in the former Stalinist states fell between 20% and 40% in the 
decade after 1989, an economic contraction which can only be compared 
to the Great Depression of the 1930s. Of the 19 ex-Stalinist economies, 
only Poland's GDP exceeded that of 1989, the year transition began. 
In only 5 was GDP per capita more than 80% of the 1989 level. [Chang,
<b>Op. Cit.</b>, p. 129] Only a small minority saw their real wages rise; the 
vast majority experienced a spectacular fall in living standards. It 
took the Czech Republic, for example eight years until average real 
wages reached their 1989 level. Unemployment became widespread. In 
2005, Slovakia had 27% of its under-25s are unemployed while in 
Poland 39% of under-25s were without a job (the highest figure in 
Europe) and 17% of the population were below the poverty line. 
</p><p>
Overall, between 1985 and 2000, growth in GDP per capita was negative 
in 17 transition countries while the <i>"incidence of poverty increased 
in most countries of Latin America, the Caribbean and Sub-Saharan 
Africa during the 1980s and the 1990s. Much of Eastern Europe and 
Central Asia experiences a sharp rise in poverty during the 1990s."</i>
East, Southwest and South Asia did experience a steady decline in the 
incidence of poverty, but <i>"most of this improvement is accounted for 
by changes in just two countries, with large populations, China and 
India."</i> [Deepak Nayyar, <b>Op. Cit.</b>, p. 154, pp. 154-5 and p. 155] Hardly 
an inspiring result. 
</p><p>
And what of the actual economic regimes in China and India? One 
left-wing economist notes that <i>"in the early stages of China's high 
growth period there was an expansion of state employment, including 
in the dynamic and crucial manufacturing sector . . . in its most 
recent phase, private capital accumulation dominates the growth 
process in China, although the state still strongly influences the 
pattern of investment through its control of the credit system and 
its policy of creating 'national champions' in sectors such as cars 
and steel."</i> Not to mention, of course, its role in the labour market. 
There is no freedom to organise -- the country is, in effect, one big 
workplace and the state bosses do not tolerate freedom of association, 
assembly and speech any more than any other company. Unsurprisingly, 
labour discipline <i>"is very harsh"</i> and workers may find it difficult to 
change jobs and migrate to urban areas. [Andrew Glyn, <b>Op. Cit.</b>, p. 87 
and p. 94]
</p><p>
As one expert notes, in the case of both India and China <i>"the main 
trade reforms took place <b>after</b> the onset of high growth. Moreover, 
these countries' trade restrictions remain among the highest in the 
world."</i> In India, its <i>"trend growth rate increased substantially in 
the early 1980s"</i> while <i>"serious trade reform did not start until 
1991-93 . . . tariffs were actually higher in the rising growth 
period of the 1980s than in the low-growth 1970s."</i> Thus claims of 
<i>"the beneficial effects of trade liberalisation on poverty have to 
be seen as statements based on faith rather than evidence."</i> [Dani 
Rodrik, <b>Comments on 'Trade, Growth, and Poverty by D. Dollar and 
A. Kraay</b>] As Chomsky notes, there is a deliberate policy which 
<i>"muddles export orientation with neo-liberalism, so that if a 
billion Chinese experience high growth under export-orientated 
policies that radically violate neo-liberal principles, the 
increase in average global growth rates can be hailed as a triumph 
of the principles that are violated."</i> [<b>Op. Cit.</b>, p. 217] It should 
also be mentioned that both these states avoided the 1980s debt 
crisis by avoiding Western banks in the 1970s. They also maintain 
capital controls, so that hot money cannot flow freely in and out, 
and have large state sectors. 
</p><p>
At least the <b>Economist</b> itself notes that <i>"[n]either country is an 
exemplar of free market capitalism -- far from it."</i> That says it all 
about the defenders of free market capitalism; they defend their ideas 
by pointing to countries which do not apply them! 
</p><p>
It should be stressed that this praise for the "free market" using 
regimes which hardly meet the criteria has a long history. This has 
included both Japan and the East Asian Tigers in the 1970s and 1980s 
as <i>"the spectacular growth of these countries . . . is fundamentally 
due to activist industrial, trade and technology policies (ITT) by 
the state."</i> [Chang, <b>Op. Cit.</b>, p. 49] As an expert on these economies 
notes, <i>"the legend is not fully consistent with the way the 
governments have in practice behaved,"</i> namely adopting <i>"over a long 
period of time a much more aggressive, dirigistic set of industrial 
policies than free-trading principles would justify."</i> In fact, their 
<i>"governments were deeply committed to increasing and sustaining 
high levels of investment and to steering its composition."</i> He 
bemoans the <i>"assumption that only those features of economic policy 
consistent with neoclassical principles could have contributed to
 good economic performance"</i> and so explanations for such <i>"accordingly 
ignore non-neoclassical features."</i> [Robert Wade, <i>"What can Economics 
Learn from East Asian Success?"</i>, pp. 68-79, <b>Annals of the American 
Academy of Political and Social Science</b>, vol. 505, pp. 70-1, p. 72 
and p. 68] 
</p><p>
This analysis was proved right when, ironically, the praise turned to 
attack when the 1997 crisis erupted and all the features previously
ignored or denied where brought onto the central stage to explain the
slump (<i>"When their bubbles imploded, the same countries were denounced 
by the policy elites for something called 'crony capitalism' -- a 
year earlier, the term had been 'business-friendly environment.'"</i> 
[Jeff Faux and Larry Mishel, <b>Op. Cit.</b>, p. 94]). As Robert Wade noted, 
<i>"the perception shifted from 'miracle Asia' to 'Asian crony state 
capitalism' almost over night,"</i> a term used <i>"to convey a told-you-so 
moral about the dangers of government intervention."</i> [<i>"From 'miracle' 
to 'cronyism': explaining the Great Asian Slump"</i>, pp. 673-706, 
<b>Cambridge Journal of Economics</b>, Vol. 22, No. 6, p. 699 and p. 700] 
Ironically, Japan's 1990s woes and the 1997 crisis both occurred 
<b>after</b> those states liberalised their economies (as recommended
by, of course, economists and the IMF). Unsurprisingly, we discover 
Milton Friedman pointing (in 2002!) to the <i>"dramatic success of the 
market-orientated policies of the East Asian tigers"</i> as if they gave 
support to his ideological position of laissez-faire capitalism. 
[<b>Op. Cit.</b>, p. ix]
</p><p>
Then there is the issue of "economic liberty" as such. Milton Friedman 
stated in 2002 that the <i>"limited increase in economic freedom has changed 
the face of China, strikingly confirming our faith in the power of free 
markets."</i> [<b>Op. Cit.</b>, pp. viii-ix] Faith is the right word, as only the
faithful could fair to note that there is no free market in China as 
it does not have basic freedoms for labour. How much "economic freedom" 
is there for workers under a brutal dictatorship? How can it be claimed, 
with a straight face, that there is an <i>"increase in economic freedom"</i> 
in such regimes? It seems, therefore, that for right-wing economists that 
their <i>"faith"</i> in "free markets" is <i>"confirmed"</i> by an authoritarian system 
that obviously and constantly violates the freedom of labour. But then 
again, workers have never been considered highly by the profession. What 
has always counted is the freedom of the boss and, consequently, a regime 
that secures that is always praised (and we discuss in <a href="secC11.html">section C.11</a>, 
Friedman has a track record in this).
</p><p>
The selectively of the supporters of "free market" capitalists is truly 
staggering. Take, as an example, globalisation and anti-globalisation 
protests. Supports of the trade deals accused critics as being against 
"free trade" and, by implication, against freedom. Yet the deals they 
supported were based on accepting the current labour standards across 
the world. This means accepting the labour conditions of states, usually 
dictatorships, which habitually deny a free market (even a capitalist 
one) to its workers -- all in the name of the free market! Which makes 
the "free market" supporters of neo-liberalism utter hypocrites. They 
are happy to accept a "free market" in which the denial of freedom of 
workers to form unions is an intrinsic part. It also suggests that the 
much attacked critics of "trade" deals who demand that basic standards 
of freedom for workers be incorporated into them are those who truly 
support "free trade" and the "free market." Those who advocate 
unrestricted trade with dictatorial regimes (where workers are thrown 
in prison, at best, or assassinated, at worse, if they organise or talk 
about unions and protests) are engaging in the worse form of doublethink 
when they appropriate the term "freedom" for their position.
</p><p>
It is easy to understand why supporters of capitalism do so. In such 
regimes, capital is free and the many abuses of freedom are directed 
towards the working class. These suppress wages and the resulting 
competition can be used to undermine workers wages, conditions and 
freedoms back home. This is why neo-liberals and such like agree to 
a range of global policies that give substantial freedoms to 
capitalists to operate unhindered around the world while, at the 
same time, fiercely resistant to any demands that the freedom of 
workers be given equal concern (this why Chomsky talks about the 
<i>"international global justice movement, ludicrously called 
'anti-globalisation' because they favour globalisation that 
privileges the interests of people, not investors and financial
institutions."</i> [<b>Op. Cit.</b>, p. 259]). In other words, free markets are 
fine for capitalists, but not for workers. And if anyone disagrees, 
they turn round and accuse their critics of being opposed to "freedom"!
As such, anti-globalisation protesters are right. People in such regimes 
are not free and it is meaningless to talk of the benefits of "free 
markets" when a free market in labour does not exist. It does, of 
course, show how genuine the defenders of capitalism are about freedom. 
</p><p>
So has global poverty fallen since the rise of neo-liberalism in 1970s? 
Perhaps it has, but only if you apply the World Bank measure (i.e. a living 
standard of less than a dollar a day). If that is done then the number of 
individuals in dire poverty is (probably) falling (although Joseph Stiglitz 
states that <i>"the actual number of people living in poverty . . . actually
increased by almost 100 million"</i> in the 1990s and he argues that 
globalisation as practised <i>"has not succeeded in reducing poverty."</i> 
[<b>Op. Cit.</b>, p. 5 and p. 6]). However, the vast bulk of those who have 
risen out of dire poverty are in China and India, that is in the two 
countries which do not follow the neo-liberal dogma. In those that did 
follow the recommendations of neo-liberalism, in Africa, Latin America 
and Eastern Europe, poverty and growth rates are much worse. Chang states
the obvious:
</p><p><blockquote>
<i>"So we have an apparent 'paradox' here -- at least if you are a Neo-Liberal 
economist. All countries, but especially developing countries, grew much 
faster when they used 'bad' policies during the 1960-1980 period than when 
they used 'good' ones during the following two decades . . . Now, the
interesting thing is that these 'bad; policies are basically those that the 
NDCs [Now Developed Countries] had pursued when they were developing countries 
themselves. Given this, we can only conclude that, in recommending the 
allegedly 'good' policies, the NDCs are in effect 'kicking away the ladder'
by which they have climbed to the top."</i> [<b>Op. Cit.</b>, p. 129]
</blockquote></p><p>
Hardly a glowing recommendation for the prescriptions favoured by the Economist 
and other supporters of free market capitalism. Nor very convincing support for 
solving the problems of neo-liberalism with yet more globalisation (of the same, 
neo-liberal, kind). One thing is true, though. The accepted wisdom of the age 
if that the road to prosperity and international acceptance is "economic 
liberalisation" or some of euphemism for opening economies to foreign investment. 
What this really means is that authoritarian regimes that allow their subjects 
to be exploited by international capital rather than state bureaucracies will 
find apologists among those who profit from such transactions or get paid by 
them. That this involves violation of the freedom of working class people 
and the labour "market" does not seem to bother them for, they stress, in 
long term material benefits this will create outweigh such restrictions 
on the eternal and sacred laws of economics. That "freedom" is used to 
justify this just shows how debased that concept has become under 
capitalism and within capitalist ideology.
</p>

<h2><a name="secc102">C.10.2 Does "free trade" benefit everyone?</a></h2>

<p>
As we discussed in the <a href="secC10.html#secc101">last section</a>, the post-1980 era of neo-liberal 
globalisation and "free(r) markets" has not been as beneficial to the
developing world as the defenders of neo-liberalism suggest. In fact,
these economies have done worse under neo-liberalism than they did 
under state-aided forms of development between 1950 and 1980. The 
only exceptions post-1980 have been those states which have rejected
the dogmas of neo-liberalism and used the state to foster economic
development rather than rely on "free trade."
</p><p>
It would, of course, be churlish to note that this is a common feature 
of capitalist development. Industrialisation has always been associated 
with violations of the sacred laws of economics and freedom for workers. 
In fact, the central conceit of neo-liberalism is that it ignores the
evidence of history but this is unsurprising (as noted in 
<a href="secC1.html#secc12">section C.1.2</a>, 
economics has a distinct bias against empirical evidence). This applies
to the notion of free trade as well as industrialisation, both of which
show the economists lack of concern with reality. 
</p><p>
Most economists are firm supporters of free trade, arguing that it benefits 
all countries who apply it. The reason why was first explained by David 
Ricardo, one of the founding fathers of the discipline. Using the example 
of England and Portugal and wine and cloth, he argued that international 
trade would benefit both countries even if one country (Portugal) produced 
both goods more cheaply than the other because it was relative costs which 
counted. This theory, called comparative advantage, meant that it would be 
mutually beneficial for both countries to specialise in the goods they had 
a relative advantage in and trade. So while it is cheaper to produce cloth 
in Portugal than England, it is cheaper still for Portugal to produce excess 
wine, and trade that for English cloth. Conversely, England benefits from 
this trade because its cost for producing cloth has not changed but it can 
now get wine at closer to the cost of cloth. By each country specialising 
in producing one good, the sum total of goods internationally increases 
and, consequently, everyone is better off when these goods are traded. 
[<b>The Principles of Political Economy and Taxation</b>, pp. 81-3] 
</p><p>
This argument is still considered as the bed-rock of the economics of 
international trade and is used to refute arguments in favour of policies
like protectionism. Strangely, though, economists have rarely compared the
outcome of these policies. Perhaps because as Chomsky notes, <i>"if you want 
to know how well those theorems actually work, just compare Portugal and 
England after a hundred years of development."</i> [<b>Understanding Power</b>, 
p. 254] One economist who did was the German Friedrich List who, in 1837,
urged people <i>"to turn his attention to Portugal and to England and to
compare the economies of these two countries. I am sure that he can have 
no doubts as to which country is prosperous and which has lost its economic 
independence, is dead from an intellectual, commercial and industrial point 
of view, and is decadent, poverty stricken and weak."</i> [<b>The Natural System of 
Political Economy</b>, pp. 169-70] Unsurprisingly, List used this example to
bolster his case for protectionism. Little has changed. Allan Engler notes
that <i>"[a]fter nearly 200 years, comparative advantage had given Portugal 
no noticeable advantage."</i> While the UK became the leading industrial 
power, Portugal remained a poor agricultural economy: <i>"Britain's 
manufacturing industries were the most efficient in the world, Portugal 
had little choice but to be an exporter of agricultural products and raw 
materials."</i> In 1988, Portugal's per capita GDP was less than one third 
that of the UK. When "Purchasing power parity" is factored in, Portugal's 
per capita GDP was barely more than half of the UK. [<b>Apostles of Greed</b>, 
p. 132] 
</p><p>
Nor should we forget that free trade takes the economic agent as the 
country. Unlike an individual, a nation is divided by classes and 
marked by inequalities of wealth, power and influence. Thus while 
free trade may increase the sum-total of wealth in a specific country, 
it does not guarantee that its benefits or losses will be distributed 
equally between social classes, never mind individuals. Thus capitalists 
may favour free trade at specific times because it weakens the 
bargaining power of labour, so allowing them to reap more income 
at the workers' expense (as producers and consumers). Taking the example 
of the so-called "free trade" agreements of the 1990s, there was no 
reason to believe that benefits of such trade may accrue to all within 
a given state nor that the costs will be afflicted on all classes. 
Subsequent developments confirmed such a perspective, with the working 
class suffering the costs of corporate-led "globalisation" while the 
ruling class gained the benefits. Not that such developments bothered 
most economists too much, of course. Equally, while the total amount of 
goods may be increased by countries pursuing their comparative advantage 
it does not automatically follow that trade between them will distribute 
the benefits equally either between the countries or within them. As with 
exchange between classes, trade between countries is subject to economic 
power and so free trade can easily lead to the enrichment of one at the 
expense of the other. This means that the economically powerful will 
tend to support free trade as they will reap more from it.
</p><p>
Therefore the argument for free trade cannot be abstracted from its impact 
or the interests it serves, as Joan Robinson pointed out:
</p><p><blockquote>
<i>"When Ricardo set out the case against protection he was supporting
British economic interests. Free trade ruined Portuguese industry.
Free trade for <b>others</b> is in the interests of the strongest competitor 
in world markets, and a sufficiently strong competitor has no need for 
protection at home. Free trade doctrine, in practice, is a more subtle 
form of Mercantilism. When Britain was the workshop of the world, 
universal free trade suited her interests. When (with the aid of 
protection) rival industries developed in Germany and the United 
States, she was still able to preserve free trade for her own exports 
in the Empire."</i> [<b>Collected Economic Papers</b>, vol. 5, p. 28]
</blockquote></p><p>
This echoes the analysis of List who that the British advocacy of free 
trade was primarily political in nature and not to mention hypocritical. 
Its political aim was to destroy potential competitors by flooding their 
markets with goods, so ruining their industrial base and making them 
exporters of raw materials for British industry rather than producers 
of finished goods. He argued that a <i>"study of the true consequences"</i> of
free trade <i>"provide the key to England's commercial policy from that day 
to this. The English have always been cosmopolitans and philanthropists
in theory but always monopolists in practice."</i> [<b>Op. Cit.</b>, p. 167] Moreover, 
such a position was hypocritical because Britain industrialised by means 
of state intervention and now sought to deny that option to other nations. 
</p><p>
List advocated that the state should protect infant industries until such 
time as they could survive international competition. Once industrialised, 
the state could then withdraw. He did not deny that free trade may benefit 
agricultural exporters, but only at the expense of industrial development 
and spill-over benefits it generates for the economy as a whole. In other 
words, free trade harmed the less-developed nation in terms of its economic 
prosperity and independence in the long run. Protectionism allowed the
development of local industrial capitalism while free trade bolstered the 
fortunes of foreign capitalist nations (a Hobson's choice, really, from an 
anarchist perspective). This was the situation with British capitalism,
as <i>"Britain had very high tariffs on manufacturing products as late as 
the 1820s, some two generations after the start of its Industrial 
Revolution . . . Measures other than tariff protection were also deployed"</i> 
(such as banning imports from competitors). [Chang, <b>Op. Cit.</b>, p. 22] 
Needless to say, trade unions were illegal during this period of 
industrialisation and troops were regularly deployed to crush strikes, 
riots and rebellions. Economist Thomas Balogh confirms this analysis:
</p><p><blockquote>
<i>"The fact is that Britain's economic growth forged ahead of its European 
competitors while it was exploiting an effective monopoly of the steam 
engine, from 1780 to 1840. Through most of that period the nation had a 
high and complicated tariff . .  ., massive public investment and spending 
. . . and an extensive public welfare system with wage supplements and
welfare allowances indexed to basic costs of living . . .
</p><p>
"There followed a long period, from about 1840 to 1931, when Britain 
did indeed have the freest trade and relatively speaking the cheapest 
government and (until 1914) the smallest public sector among the 
industrially developing nations, Yet, for competitiveness, that 
century saw the relative decline of the country. Numerous competing 
countries, led by the US and Germany, emerged and overtook and passed 
Britain in output and income per head. Every one of them had protective 
tariffs, and a bigger (relative) public sector than the British."</i> [<b>Op.
Cit.</b>, p. 180]
</blockquote></p><p>
Significantly, and highly embarrassingly for neo-classical economists,
the one nation which embraced free trade ideology most, namely the UK
in the latter half of the 19th century, suffered economic decline in 
comparison to its competitors who embraced protectionist and other 
statist economic policies. It would be churlish to note that this is
the exact opposite of what the theory predicts.
</p><p>
In historical terms, List has been proven correct numerous times. If 
the arguments for free trade were correct, then the United States and 
Germany (plus Japan, South Korea, etc., more recently), would be economic 
backwaters while Portugal would have flourished. The opposite happened. 
By the 1900s, Britain was overtaken economically by America and Germany, 
both of whom industrialised by means of protectionism and other forms 
of state intervention. As such, we should not forget that Adam Smith 
confidently predicted that protectionism in America would <i>"would retard 
instead of accelerating the further increase in the value of their 
annual progress, and would obstruct instead of promoting the progress 
of their country towards real wealth and greatness."</i> He considered it 
best that capital be <i>"employed in agriculture"</i> rather than manufacturing. 
[<b>The Wealth of Nations</b>, p. 328 and p. 327]). The historical record 
hardly supports Smith's predictions as <i>"throughout the nineteenth 
century and up to the 1920s, the USA was the fastest growing economy 
in the world, despite being the most protectionist during almost all 
of this period . . . Most interestingly, the two best 20-year GDP per 
capita growth performances during the 1830-1910 period were 1870-1890 
(2.1 per cent) and 1890-1910 (two per cent) -- both period of
particularly high protectionism. It is hard to believe that this 
association between the degree of protectionism and overall growth 
is purely coincidental."</i> [<b>Op. Cit.</b>, p. 30]
</p><p>
As with the UK, America <i>"remained the most ardent practitioner of infant 
industry protection until the First World War, and even until the Second."</i> 
Like UK, the state played its role in repressing labour, for while unions 
were usually not technically illegal, they were subject to anti-trust laws 
(at state and then federal level) as well as force during strikes from 
troops and private police forces. It was <i>"only after the Second World 
War that the USA -- with its industrial supremacy unchallenged - finally 
liberalised it trade and started championing the cause of free trade."</i> 
[Chang, <b>Op. Cit.</b>, p. 28 and p. 29] Unsurprisingly, faced with growing 
international competition it practised protectionism and state aid 
while keeping the rhetoric of free trade to ensure that any potential 
competitor has its industries ruined by being forced to follow policies 
the US never applied in the same situation. Chomsky summarises:
</p><p><blockquote>
<i>"So take a look at one of the things you don't say if you're an economist 
within one of the ideological institutions, although surely every economist 
has to know it. Take the fact that there is not a single case on record in 
history of any country that has developed successfully through adherence to 
'free market' principles: none."</i> [<b>Op. Cit.</b>, p. 255]
</blockquote></p><p>
Not that this has disabused most economists from repeating Ricardo's 
theory as if it told the full story of international trade or has been 
empirically verified. As Chang puts it, his approach of studying the
actual history of specific countries and generalising conclusions <i>"is 
concrete and inductive"</i> and <i>"contrasts strongly with the currently 
dominant Neoclassical approach based on abstract and deductive methods."</i> 
This has meant that <i>"contemporary discussion on economic development 
policy-making has been peculiarly ahistoric."</i> [<b>Op. Cit.</b>, p. 6] This 
is unsurprising, as there is a distinct tendency within mainstream 
economics not to check to see if whether the theory conforms to 
reality. It is as if we <b>know</b> that capitalist economics is true, so why 
bother to consider the evidence. So no matter how implausible a given 
theory is, capitalist economics simply asks us to take them on trust. 
Perhaps this is because they are nothing more than logical deductions 
from various assumptions and comparing them to reality would expose not 
only the bankruptcy of the theory but also the bogus claims that economics 
relates to reality or is a science? 
</p><p>
That these theories survive at all is due to their utility to vested 
interests and, of course, their slightly complicated logical beauty. 
It should be noted, in passing, that the free trade argument is based 
on <b>reducing</b> international competition. It recommends that different 
countries specialise in different industries. That this would make 
sense for, say, a country with industry (marked by increasing returns 
to scale and significant spill-over effects into other areas of the 
economy) rather than one based on agriculture (marked by decreasing 
returns to scale) goes without saying. That the policy would turn the 
world into a provider of raw materials and markets rather than a 
source of competitors for the most advanced nation is just one of 
these co-incidences capitalist economics suffers from.
</p><p>
As such, it is not a coincidence that both the classic "free trade" and 
current neo-liberal position does allow a nation to secure its dominance 
in the market by forcing the ruling elites in <b>other</b> nations to subscribe 
to rules which hinder their freedom to develop in their own way. As we 
discuss in <a href="secD5.html">section D.5</a>, the rise of neo-liberalism can be viewed as the 
latest in a long series of imperialist agendas designed to secure benefits 
of trade to the West as well as reducing the number of rivals on the 
international market. As Chang notes, Britain's move to free trade after 
1846 <i>"was based on its then unchallenged economic superiority and was 
intricately linked with its imperial policy."</i> The stated aim was to halt 
the move to industrialisation in Europe by promoting agricultural markets. 
Outside of the West, <i>"most of the rest of the world was forced to practice 
free trade through colonialism and . . . unequal treaties."</i> These days,
this policy is implemented via international organisations which impose
Western-dominated rules. As Chang notes, the <i>"developed countries did 
not get where they are now through policies and the institutions that 
they recommend to developing countries today. Most of them actively used 
'bad' trade and industrial policies . . . practices that these days are 
frowned upon, if not actively banned, by the WTO."</i> [<b>Op. Cit.</b>, p. 16, 
p. 23, p. 16 and p. 2]
</p><p>
In other words, the developed countries are making it difficult for the 
developing countries to use policies and institutions which they themselves 
so successfully used previously. This, as with the "free trade" arguments
of the 19th century, is simply a means of controlling economic development
in other countries to reduce the number of potential competitors and to
secure markets in other countries. In addition, we must also stress that the 
threat of capital flight within western countries also raises competitive 
pressures for labour and so has the added benefit of helping tame rebellious 
workers in the imperialist nations themselves. These factors help explain 
the continued support for free trade theory in economic circles in spite of 
the lack of empirical evidence in its favour. But then again, given that 
most economists cannot understand how one class exploits another by means 
of exchange within a national market due to its economic power, it would be 
surprising if they could see it within international markets.
</p><p>
To generalise, it appears that under capitalism there are two main options 
for a country. Either it submits itself to the dictates of global finance, 
embracing neo-liberal reforms and seeing its growth fall and inequality rise 
or (like every other successful industrialiser) it violates the eternal laws 
of economics by using the state to protect and govern its home market and 
see growth rise along with inequality. As Chang notes, looking at the 
historical record a <i>"consistent pattern emerges, in which all the 
catching-up economies use activist industrial, trade and technology (ITT)
policies . . . to promote economic development."</i> He stresses <i>"it was the UK 
and the USA, the supposed homes of free trade policy, which used tariff 
protection most aggressively."</i> The former <i>"implemented the kinds of ITT 
policies that became famous for their use in . . . Japan, Korea and Taiwan."</i> 
[<b>Op. Cit.</b>, pp. 125-6, p. 59 and pp. 60-1] In addition, another aspect of
this process involves repressing the working class so that <b>we</b> pay the
costs for industrialising. Unions were illegal when Britain used its ITT
policies while the <i>"labour market in Taiwan and Korea, for example, has 
been about as close to a free market as it is possible to get, due in part 
to government repression of unions."</i> [<i>"What can Economics Learn from East 
Asian Success?"</i>, <b>Op. Cit.</b>, p. 70] Given that unions are anathema to 
neo-classical and Austrian economics, it is understandable why their 
repression should be considered relatively unproblematic (in fact, 
according to economic ideology repressing unions can be considered to 
be in the interests of the working class as, it is claimed, unions harm
non-unionised workers -- who knew that bosses and their states were 
such philanthropists?).
</p><p>
Neither option has much to recommend it from an anarchist perspective. 
As such, our stating of facts associated with the history of "actually 
existing" capitalism should not be construed to imply that anarchists 
support state-run development. Far from it. We are simply noting that 
the conclusion of history seems to be that countries industrialise and
grow faster when the state governs the market in significant ways while, 
at the same time, repressing the labour movement. This is unsurprising,
for as we discuss in <a href="secD1.html">section D.1</a>, this process of state intervention is 
part and parcel of capitalism and, as noted in <a href="secF8.html">section F.8</a>, has always 
been a feature of its rise in the first place (to use Marx's expression, 
a process of <i>"primitive accumulation"</i> has always been required to 
create capitalism). This does not mean, just to state the obvious, 
that anarchists support protectionism against "free trade." In a class 
system, the former will tend to benefit local capitalists while the 
latter will benefit foreign ones. Then there is the social context. 
In a predominantly rural economy, protectionism is a key way to create 
capitalism. For example, this was the case in 19th century America and 
it should be noted that the Southern slave states were opposed to 
protectionism, as where the individualist anarchists. In other words, 
protectionism was a capitalist measure which pre-capitalists and 
anti-capitalists opposed as against their interests. Conversely, in 
a developed capitalist economy "free trade"  (usually very selectively 
applied) can be a useful way to undermine workers wages and working 
conditions as well as foreign capitalist competitors (it may also change 
agriculture itself in developing countries, displacing small peasant 
farmers from the land and promoting capitalist agriculture, i.e. one 
based on large estates and wage labour).
</p><p>
For the anarchist, while it is true that in the long run option two does 
raise the standard of living faster than option one, it should always be 
remembered that we are talking about a <b>class</b> system and so the costs and 
benefits will be determined by those in power, not the general population. 
Moreover, it cannot  be assumed that people in developing countries actually 
want a Western lifestyle (although the elites who run those countries 
certainly do, as can be seen from the policies they are imposing). As 
Bookchin once noted, <i>"[a]s Westerners, 'we' tend to assume out of hand 
that 'they' want or need the same kind of technologies and commodities 
that capitalism produced in America and Europe . . . With the removal of 
imperialism's mailed fist, a new perspective could open for the Third 
World."</i> [<b>Post-Scarcity Anarchism</b>, pp. 156-7] 
</p><p>
Suffice to say, there are other means to achieve development (assuming
that is desired) based on working class control of industry. Given this, 
the only genuine solution for developing countries would be to get rid of 
their class systems and create a society where working people take control 
of their own fates, i.e. anarchism. Hence we find Proudhon, for example, 
stating he <i>"oppose[d] the free traders because they favour interest, while 
they demand the abolition of tariffs."</i> He advocated the opposite, supporting 
free trade <i>"as a consequence of the abolition of interest"</i> (i.e. capitalism). 
Thus the issue of free trade cannot be separated from the kind of society 
practising it nor from the creation of a free society. Abolishing capitalism
in one country, he argued, would lead to other nations reforming themselves, 
which would <i>"emancipate their lower classes; in a word, to bring about 
revolution. Free trade would then become equal exchange."</i> [<b>The General 
Idea of the Revolution</b>, pp. 235-8] Unless that happens, then no matter
whether protectionism or free trade is applied, working class people will
suffer its costs and will have to fight for any benefits it may bring.
</p>

<h2><a name="secc103">C.10.3 Does "free market" capitalism benefit everyone, <i>especially</i> 
working class people?</a></h2>

<p>
One defence of capitalism is that, appearances and popular opinion to
the contrary, it is benefits working class people <b>more</b> than the ruling
class.
</p><p>
This argument can be found in right-liberal economist Milton Friedman's 
defence of capitalism in which he addresses the claim that <i>"the extension 
and development of capitalism has meant increased inequality."</i> Not so, he 
states. <i>"Among the Western countries alone,"</i> he argues, <i>"inequality appears 
to be less, in any meaningful sense, the more highly capitalist the country 
is . . . With respect to changes over time, the economic progress achieved 
in the capitalist countries has been accompanied by a drastic diminution 
in inequality."</i> In fact, <i>"a free society [i.e. capitalism] in fact tends 
towards greater material equality than any other yet tried."</i> Thus, 
according to Friedman, a <i>"striking fact, contrary to popular conception, 
is that capitalism leads to less inequality than alternative systems of 
organisation and that the development of capitalism has greatly lessened 
the extent of inequality. Comparisons over space and time alike confirm 
this."</i> [<b>Capitalism and Freedom</b>, p. 168, pp. 169-70, p. 195 and p. 169]
</p><p>
Friedman makes other claims to the superiority of capitalism. Thus he
states that not only do non-capitalist societies <i>"tend to have wider 
inequality than capitalist, even as measured by annual income"</i> in such
systems inequality <i>"tends to be permanent, whereas capitalism undermines 
status and introduces social mobility."</i> Like most right-wingers, he
stresses the importance of social mobility and argues that a society 
with little change in position <i>"would be the more unequal society."</i> 
Finally, he states that <i>"[o]ne of the most striking facts which run 
counter to people's expectations has to do with the source of income. 
The more capitalistic a country is, the smaller the fraction of income
for the use of what is generally regarded as capital, and the larger 
the fraction paid for human services."</i> [<b>Op. Cit.</b>, pp. 171-2, p. 171 
and pp. 168-9]
</p><p>
Friedman, as he regularly did, failed to present any evidence to support 
his claims or any of his <i>"striking fact[s]"</i> so it is hard to evaluate the 
truthfulness of any of this specific assertions. One possible way of doing 
so would be to consider the actual performance of specific countries before 
and after 1980. That year is significant as this marked the assumption of 
office of Thatcher in the UK and Reagan in the US, both of whom were 
heavily influenced by Friedman and other supporters of "free market" 
capitalism. If his claims were true, then we would expect <b>decreases</b> in 
equality, social mobility and the share of <i>"human services"</i> before 1980
(the period of social Keynesian policies) and <b>increases</b> in all three 
after. Sadly for Friedman (and us!), the facts are counter to his 
assertions -- equality, mobility and share of income for <i>"human services"</i> 
all decreased post-1980. 
</p><p>
As we showed in <a href="secB7.html">section B.7</a>, inequality rose <b>and</b> social mobility fell 
since 1980 in the USA and the UK (social democratic nations have a better
record on both). As far as the share of income goes, that too has failed 
to support his assertions. Even in 1962, the facts did not support his 
assertion as regards the USA. According to figures from the U.S. 
Department of Commerce the share of labour in 1929 was 58.2% and this 
rose to 69.5% by 1959. Even looking at just private employees, this was 
a rise from 52.5% to 58% (income for government employees, including the 
military went from 5.7% to 12.2%). In addition, "proprietor's income" 
(which represents income to the owner of a business which combines work 
effort and ownership, for example a farmer or some other self-employed 
worker) fell, with farm income going from 6.8% to 3.0%, while other such 
income dropped from 10.1% to 8.7%. [Walter S. Measday, <i>"Labor's Share 
in the National Income,"</i> <b>The Quarterly Review of Economics & Business</b>, 
Vol. 2, No. 3, August 1962] Unless Friedman would argue that 1929
America was more statist than 1959, it seems that his assertion was
false even when it was first made. How did his comment fare after he 
made it? Looking at the period after 1959 there was continuing increase 
in labour share in the national income, peaking in the 1970s before 
steadily dropping over the following decades (it dropped to below 1948
levels in 1983 and stayed there). [Alan B. Krueger, <i>"Measuring Labor's 
Share"</i>, <b>The American Economic Review</b>, vol. 89, No.2, May 1999] Since
then the downward trend has continued. 
</p><p>
It would be churlish to note that the 1970s saw the rise of influence of 
Friedman's ideas in both countries and that they were applied in the early 
1980s.
</p><p>
There are problems with using labour share. For example it moves with 
the business cycle (rising in recessions and falling in booms). In 
addition, there can be other forms of labour compensation as well
as wages. Looking at total compensation to labour, this amounts to 
around 70% of total US income between 1950 and 2000 (although this,
too, peaked in the 1970s before falling [Krueger, <b>Op. Cit.</b>]). However, 
this "labour" income can be problematic. For example, employer provided 
health care is considered as non-wage compensation so it is possible 
for rising health care costs to be reflected in rising labour compensation 
yet this hardly amounts to a rising labour share as the net gain would be 
zero. Then there is the question of government employees and welfare 
benefits which, of course, are considered labour income. Unfortunately, 
Friedman provides no clue as to which statistics he is referring to, so 
we do not know whether to include total compensation or not in evaluating 
his claims.
</p><p>
One group of economists have taken the issue of government transfers into
account. Since 1979, there has been an <i>"increased share of capital income 
(such as rent, dividends, interest payments, and capital gains) and a 
corresponding smaller share earned as wages and salaries."</i> Most families 
receive little or no capital income, but it is <i>"a very important source 
of income to the top 1% and especially the top 0.1% (who receive more 
than a third of all capital income)."</i> In 1959, total labour income was 
73.5% while capital income was 13.3% of market-based income (personal 
income less government transfers). By 1979, these were 75.8% and 15.1%, 
respectively. The increases for both are due to a fall in "proprietor's 
income" from 13.3% to 9.1%. By 2000, capital income had risen to 19.1% 
while labour's share had fallen to 71.8% (proprietor's income remained 
the same). This <i>"shift away from labour income and toward capital income 
is unique in the post-war period and is partly responsible for the ongoing 
growth of inequality since 1979."</i> [Lawrence Mishel, Jered Bernstein, and 
Sylvia Allegretto, <b>The State of Working America 2006/7</b>, p. 76 and p. 79]
</p><p>
It should be noted that Friedman repeated the standard economist (and 
right-wing) argument that a better way to increase wages than unions or 
struggle is to make workers more productive. That lifts everyone's standard 
of living. At least it used to. Between 1945 and 1980, worker wages did, 
indeed, track productivity increases. This was also the high period of union 
density in America. After 1980, that link was broken. By a strange co-incidence,
this was the Friedman-inspired Reagan effectively legalised and encouraged 
union busting. Since then, productivity increases are going almost entirely 
to the top tenth of the population, while median incomes have stagnated. 
Without unions and robust worker bargaining power, productivity increases 
have not been doing much for workers. Not that people like Friedman actually
mentioned that rather significant fact.
</p><p>
Then there is the issue of <i>"human services"</i> itself. This is <b>not</b> the same
as labour income at all as it includes, for example, management pay. As
we indicated in <a href="secC3.html">section C.3</a>, this "labour" income is better thought of 
as <b>capital</b> income as that specific labour is rooted in the control of 
capital. That this is the case can be seen by the numerous defences of
exploding CEO pay by right-wing think tanks, journals and economists as
well as the lack of concern about the inflationary nature of such 
massive "pay" rises (particularly when contrasted to the response over
very slight increases in workers' pay). This means that "labour" income 
could remain constant while CEO salaries explode and worker wages 
stagnant or even fall, as is the case in both the US (and UK) since 
1980. In such circumstances, looking at "human services" becomes 
misleading as returns to capital are listed as "labour" simply because 
they are in the form of bosses pay. Equally, CEO perks and bonuses would 
be included as "labour" non-wage compensation.
</p><p>
To see what this means we must use an example. Take a country with 100
people with a combined income of 10,000. The average income would be
100 each. Taking a labour/capital split of 70/30, we get an income of
labour of 7000 and an income to capital of 3000. Assuming that 5% of
the population own the capital stock, that is an average income of
600 each while labour gets an average of 73.68. However, 10% of the
population are managers and assuming another 70/30 split between 
management and worker income this means that management gets 2100 in 
total (an average of 210) while workers get 4900 (an average of 
57.65). This means that the owners of capital get 6 times the national 
average income, managers just over twice that amount and workers just 
over half the average. In other words, a national statistic of 70% labour 
income hides the reality that workers, who make up 85% of the population, 
actually get less than half the income (49%). Capital income, although
less, is distributed to fewer people and so causes massive inequality
(15% of the population get an average income of 340, nearly 6 times
more than the average for the remaining 85% while the upper 5% get 
over 10 times). If the share of management in labour income rises
to 35%, then workers wages fall and inequality rises while labour income 
remains constant at 70% (management's average income rises to 363.33 
while workers' falls to 53.53). It should be stressed this example 
<b>underestimates</b> inequality in capitalist economies, particularly ones 
which had the misfortunate to apply Friedman's ideas.
</p><p>
Looking further a field, this pattern has been repeated everywhere 
"free(r) market" capitalism has been imposed. In Chile equality and 
labour's share increased during the 1960s and early 1970s, only for 
both to plummet under Pinochet's Friedman-inspired neo-liberal regime 
(see <a href="secC11.html">section C.11</a> for the grim details of <i>"economic liberty"</i> there). 
In Thatcher's Britain, inequality rose while labour share and social 
mobility fell. Between 1978 and 1990, the share of wages and salaries 
in household income in the UK fell from 65.8% to 57.4%. The share for 
capital income (rent, interest and dividends) more than doubled (from 
4.9% to 10.0%).Unsurprisingly, this rise <i>"directly contributed to the 
increase in overall inequality"</i> (48% of all investment income went to 
the richest tenth of households). [John Hill, <b>Inequality and the 
State</b>, p. 88]
</p><p>
Looking at how increases in income and wealth were distributed,
we find that gains since 1979 went predominantly to the rich. Before
that, the income of all sections of society grew at roughly the same 
level between 1961 and 1979. Most of the increase was near the mean,
the one exception was the lowest tenth whose incomes rose significantly 
higher than the rest). This meant that <i>"over the 1960s and 1970s as a 
whole all income groups benefited from rising incomes, the lowest
rising fastest."</i> After 1978 <i>"the pattern broke down"</i> and incomes for 
the highest tenth rose by 60-68 percent while at the medium it grew 
by about 30% between 1979 and 1994/5. The lower down the income 
distribution, the lower the growth (in fact, after housing costs the 
income of bottom 10% was 8% lower in 1994/5 than in 1979). As in 
America during the same period a fence turned into stairs as the 
nearer to the bottom the slower income grew, the nearer the top the 
faster income grew (i.e. roughly equal growth turned into growth 
which increased as income increased -- see 
<a href="secB7.html#secb71">section B.7.1</a>). Between 
1979 and 1990/91, the bottom 70% saw their income share fall. During 
the Major years, from 1992 to 1997, inequality stopped growing simply 
because hardly anyone's income grew. Over all, between 1979 and 2002/3, 
the share of all incomes received by the bottom half fell from 22% to 
37%. This is more than the whole of the bottom half combined. The bottom 
10% saw their share of income fall from 4.3% to 3% (after housing costs, 
this was 4.0% to 2.0%). Only the top tenth saw their income increase 
(from 20.6% to 28%). About 40% of the total increase in real net 
incomes went to the top tenth between 1979 and 2002-3. 17% of the 
increase in after-tax incomes went to the top 1%, about 13% went to 
the top 0.5% (<i>"Wealth is much more unequally distributed than incomes."</i>). 
[John Hills, <b>Op. Cit.</b>, p. 20, p. 21, p. 23 and p. 37]
</p><p>
Unsurprisingly, income inequality widened considerably (which more than 
reversed all the moves towards equality of income that had taken place 
since 1945) and Britain went from being one of the more equal countries 
in the industrialised countries to being one of the most unequal. 
The numbers below half the median income rose. In the 1960s, this
was roughly 10%, before falling to 6% in 1977. It then <i>"the rose 
sharply"</i> and peaked at 21% in 1991/92 before stabilising at 18-19%. 
After housing costs, this meant a rise from 7% to 25% below half 
the average income, falling to 23%. It should be noted that the
pre-Thatcher period gives <i>"the lie to the notion that 'relative' 
poverty can never be reduced."</i> In summary, by the early 1990s 
<i>"relative poverty was twice the level it had been in the 1960s, 
and three times what it had been in the late 1970s."</i> It seems 
needless to add that social mobility fell. [John Hills, <b>Op. Cit.</b>, 
p. 48, p. 263 and pp. 120-1]
</p><p>
The same can be said of Eastern Europe. This is particularly significant, 
for if Friedman's assertions were right then we would expect that the 
end of Stalinism in Eastern Europe would have seen a decrease in inequality. 
As in Chile, Britain, New Zealand and America, the opposite occurred -- 
inequality exploded. By the start of the 21st century Eastern Europe was 
challenging neo-liberal Britain at the top of the European income 
inequality tables.
</p><p>
The historical record does not give much support to claims that
free(r) market capitalism is best for working class people. Real 
wage growth rose to around 5% per year in the early 1970s, before 
falling substantially to under 2% from the 1980s onwards for 13 
OECD countries. In fact, <i>"real wage have growth very slowly in 
OECD countries since 1979, an extraordinary turn-round from the 
3-5% growth rates of the 1960s."</i> In the US, the median wage was 
actually less in 2003 than in 1979. Average wages actually 
declined until 1995, then they increased somewhat so that the 
average growth rate for the 1990s was less than 0.5% a year. 
Europe and Japan have done only a little better, with growth of 
around 1% per year. This is unsurprising, given the rise in 
returns to capital after 1979 for <i>"real wages do not automatically 
grow as fast as labour productivity. The general increase in the 
share of profits . .   pulls real wage growth behind productivity 
growth."</i> Within the labour force, inequality has risen. Wage 
differentials <i>"are considerably higher in the UK/US group than in 
Europe"</i> and have grown faster. Real wages for the top 10% grew by 
27.2% between 1979 and 2003, compared to 10.2% in the middle (real 
wages for the bottom 10% did not grow). In Europe, <i>"real wages
grew at the bottom at a similar rate to the average."</i> The top 1% 
of wage-earners in the USA doubled their total wage share between 
1979 and 1998 from 6.2% to 10.9%, whilst the top 0.1% nearly tripled 
their share to 4.1%. Almost all of the increase in the top 10% went 
to the top 5%, and about two-thirds to the top 1%. In France,
the share of the top 1% remained the same. Overall, <i>"labour's 
position tended to be more eroded in the more free market economies 
like the USA and UK than in European economies where social protection 
[including trade unionism] was already stronger."</i> [Andrew Glyn, 
<b>Op. Cit.</b>, p. 6 p. 116, p. 117,  p. 118 and  p. 127]
</p><p>
Looking at inequality and poverty, the conclusion is that liberalisation 
of markets <i>"tend to bring greater inequality."</i> In fact, the rise in the 
UK was strongest in the 1980s, the Thatcher period while New Zealand 
<i>"saw as big an increase in inequality as the UK."</i> The USA <i>"maintained 
its position as the most unequal country with inequality increasing in 
both decades."</i> In summary, <i>"the increase in inequality has been noticeably 
greater in the inegalitarian liberal economies than in Northern Europe."</i> 
Moreover, <i>"liberal countries have larger proportions of their populations 
in poverty"</i> than European ones. Unsurprisingly, New Zealand and the UK 
(both poster-childs for neo-liberalism) <i>"had the biggest increases in 
numbers in poverty between the mid-1980s and 2000."</i> In the mid-1990s, 
20-25% of workers in the UK, Canada and USA were earning less than 65% 
of median earnings, compared to 5-8% in Scandinavia and Belgium. This
rise income inequality <i>"tend to reproduce themselves through the 
generations."</i> There <i>"is far <b>less</b> social mobility in the USA"</i> than 
in Scandinavia, Germany and Canada and there has been a <i>"severe decline 
in social mobility"</i> in the UK after the Friedman-inspired Thatcherism
of the 1980s and 1990s. Unsurprisingly, there has been <i>"a rise in the 
importance of property incomes."</i>, with the ratio of property income to 
labour income rising from 15% in the USA in 1979 to 18% in 2002. In 
France it went from 7% to 12% and is around 8% in Norway and Finland. 
[<b>Op. Cit.</b>, p. 167,  p. 168, p. 169, p. 171, p. 169, p. 173, p. 174 and 
p. 170]
</p><p>
Needless to say, given the lack of evidence presented when Friedman 
first published his book in 1962, the 40th anniversary edition was 
equally fact free. Given that 40 years is more than enough time to 
evaluate his claims particularly given that approximately half-way 
through this period, Friedman's ideas became increasingly influential 
and applied, in varying degrees in many countries (particularly in 
the UK under Thatcher and the US under Reagan). Friedman does not 
mention the developments in equality, mobility or labour share in 
2002, simply making the general statement that he was <i>"enormously 
gratified by how well the book has withstood time."</i> Except, of 
course, where reality utterly contradicted it! This applies not 
only to his claims on equality, income shares and poverty, but also 
the fundamental basis of his Monetarist dogma, namely the aim
to control the <i>"behaviour of the stock of money"</i> by means of <i>"a 
legislated rule instructing the monetary authority to achieve a 
specified rates of growth in the stock of money."</i> [<b>Op. Cit.</b>, p. ix 
and p. 54] As we indicated in <a href="secC8.html">section C.8</a>, 
the devastating results 
of applying this centre-piece of his ideology means that it 
hardly <i>"withstood time"</i> by any stretch of the imagination! In 
other words, we have a case of self-refutation that has few equals. 
</p><p>
To conclude, as defences of capitalism based on equality are unlikely
to survive contact with reality, the notion that this system is really 
the best friend of the working person and the poor needs to be defended 
by other means. This is where the growth argument we debunked in the 
last two sections comes in. Neither has much basis in reality.
</p><p>
Of course, the usual excuse should be noted. It could be argued that 
the reason for this lack of correlation of reality with ideology is 
that capitalism is not "pure" enough. That, of course, is a valid 
argument (as Friedman notes, Thatcher and Reagan <i>"were able to curb 
leviathan, through not to cut it down."</i> [<b>Op. Cit.</b>, p. vii]). State 
intervention has hardly disappeared since 1980 but given the lush 
praise given to the "magic" of the market you would expect <b>some</b> 
improvement. When Friedman died in 2006, the praise from the 
right-wing and business press was extensive, listing him as one of 
the most, if not <b>the</b> most, influential economist of the late 20th 
century. It seems strange, then, to suggest that the market is now 
<b>less</b> free than at the height of the post-war Keynesian period. 
To do so would suggest that Reagan, Thatcher and Pinochet had 
little or no impact on the economy (or that they made it worse in
terms of state intervention). In other words, that Friedman was, in 
fact, the <b>least</b> influential economist of the late 20th century (as 
opposed to one of the worse, if we compare his assertions to reality 
before and after the policies they inspired were implemented). 
However, he helped make the rich richer, so the actual impact of 
what he actually suggested for the bulk of the population can be 
cheerfully ignored.
</p>

<h2><a name="secc104">C.10.4 Does growth automatically mean people are better off?</a></h2>

<p>
In the above sections we have discussed the effects of neo-liberal reforms
purely in terms of economic statistics such as growth rates and so on. 
This means we have critiqued capitalism in its own terms, in terms of its 
supporters own arguments in its favour. As shown, in terms of equality,
social mobility and growth the rise of "free(r) market" capitalism has 
not been all its supporters have asserted. Rather than produce more 
equality, less poverty and increased growth, the opposite has occurred. 
Where some progress on these areas have occurred, such as in Asia, the 
countries have <b>not</b> embraced the neo-liberal model.
</p><p>
However, there is a deeper critique to be made of the notion that 
capitalism benefits everyone, especially the poor. This relates to the 
<b>quality</b> of life, rather than the quantity of money available. This is 
an extremely important aspect 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 important aspects 
of human life: 
</p><p><blockquote>
<i>"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 . . . 
[For example] real wages [may have] advanced . . . but at the cost
of longer hours and greater intensity of labour . . . In statistical 
terms, this reveals an upward curve. To the families concerned it 
might feel like immiseration.
</p><p>
"Thus it is perfectly possible . . . [to have an] improvement in 
average material standards . . . [at the same time as] intensified
exploitation, greater insecurity, and increasing human misery . . .
most people [can be] 'better off' than their forerunners had been
fifty years before, but they had suffered and continued to suffer
this . . . improvement as a catastrophic experience."</i> [<b>The Making 
of the English Working Class</b>, p. 231]
</blockquote></p><p>
Thompson was specifically referring to the experience of the British
industrial revolution on the working class but his analysis is of
general note (its relevance goes far beyond evaluating past or 
current industrialisation processes). This means that concentrating 
on, say, absolute poverty or income growth (as defenders of 
neo-liberalism do) means to ignore the quality of life which this
increased income is associated with. For example, a peasant farmer
who has to leave his farm for employment in a factory may consider 
having bosses dictating his every move, an increased working day
and intensity of work more significant than, say, a net increase in
his income. That this farmer may have been driven off his farm as a
result of neo-liberal or other "reforms" is another factor which has
to be taken into account. If, to suggest another possibility, Health 
and Safety regulations reduce work speeds, then national output will 
be reduced just as unions will stop firms making their workers labour 
more intensely for longer. However, increased output at the expense 
of those who do the work is not unproblematic (i.e. real wages may 
increase but at the cost of longer hours, less safety and greater 
intensity of labour). Another obvious example would be the family 
where the husband gets "downsized" from a good manufacturing job.
He may get a lower paying service industry job, which forces his 
wife (and perhaps children) to get a job in order to make ends meet. 
Family income may increase slightly as a result, but at a heavy cost 
to the family and their way of life. Therefore the standard of living 
in the abstract may have increased, but, for the people in question, 
they would feel that it had deteriorated considerably. As such, 
economic growth need not imply rising standards of living in terms 
if the <b>quality</b> of life decreases as incomes rise.
</p><p>
This is, in part, because if the economy worked as neoclassical 
theory demanded, then people would go to work not knowing how much 
they would be paid, how long they would be employed for or, indeed, 
whether they had a job at all when they got there. If they rented 
their home, they would not even know whether they had a home to 
come back to. This is because every price would have to be subject
to constant change in order to adjust to equilibrium. Insecurity, 
in other words, is at the heart of the economy and this is hardly 
productive of community or "family" values (and other expressions 
used in the rhetoric of the right while they promote an economic 
system which, in practice, undermines them in the name of profit). 
In other words, while a society may become materially better off 
over time, it becomes worse off in terms of <b>real</b> wealth, that 
is those things which make life worth living. Thus capitalism has 
a corrosive effect on human relationships, the pleasure of productive 
activity (work), genuine freedom for the many, how we treat each other 
and so on. The corrosive effects of economics are not limited simply 
to the workplace but seep into all other aspects of your life.
</p><p>
Even assuming that free market capitalism could generate high growth 
rates (and that assumption is not borne out in the real world), this 
is not the end of the matter. How the growth is distributed is also 
important. The benefits of growth may accumulate to the few rather 
than the many. Per capita and average increases may hide a less 
pleasant reality for those at the bottom of the social hierarchy.
An obvious example would be a society in which there is massive 
inequality, where a few are extremely rich and the vast majority 
are struggling to make ends meet. Such a society could have decent
growth rates and per capita and average income may grow. However, if 
such growth is concentrated at the top, in the hands of the already
wealthy, the reality is that economic growth does not benefit the
many as the statistics suggest. As such, it is important to stress 
that average growth may not result in a bettering for all sections 
of a society. In fact, <i>"there are plenty of instances in which the 
poor, and the majority of the population. have been left behind in 
the era of globalisation -- even where per capita income has grown."</i> 
This is not limited to just developing countries. Two episodes like
this occurred in the United States, with data showing that <i>"the per 
capita income of the poor falling from 1979-84, and 1989-94, while 
per capita income rose."</i> Overall, the US has seen its median wage
and real wages for the bottom 20th of its populations fall between 
1973 and 1997 while <i>"per capita income in the US has risen by 70 
percent. For the median wage and bottom-quintile wage to actually 
<b>fall</b> during this same period is an economic change of momentous 
proportions, from the point of view of the majority of Americans."</i> 
[Mark Weisbrot, Dean Baker, Robert Naiman, and Gila Neta, <b>Growth 
May Be Good for the Poor -- But are IMF and World Bank Policies 
Good for Growth?</b>] This is a classic example of society with 
substantial inequality seeing the benefits of growth accrue to 
the already rich. To state the obvious, <b>how</b> the benefits of 
growth are distributed cannot be ignored.
</p><p>
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. Similarly, there is the issue of the quality of the
production and consumption produced by economic growth. Values like 
GDP do not tell us much in terms of what was produced and its social
and environmental impact. Thus high growth rates could be achieved by
the state expanding its armed forces and weaponry (i.e. throwing money 
to arms corporations) while letting society go to rot (as under 
Reagan). Then there is awkward fact that negative social developments,
such as pollution and rising crime, can contribute to a rising value
for GDP). This happens because the costs of cleaning up, say, an oil
spill involves market transactions and so gets added to the GDP for an
economy. 
</p><p>
As such, the notion of growth <b>as such</b> is good should be rejected in 
favour of a critical approach to the issue which asks growth for what 
and for whom. As Chomsky puts it, <i>"[m]any indigenous people apparently 
do not see any reason why their lives, societies, and cultures should 
be disrupted or destroyed so that New Yorkers can sit in SUVs in traffic 
gridlock."</i> [<b>Failed States</b>, p. 259] Under capitalism, much "productivity" 
is accounted for by economic activity that is best described as wasteful: 
military spending; expanding police and prison bureaucracies; the 
spiralling cost of (privatised) healthcare; suburban sprawl; the 
fast-food industry and its inevitable ill effects on health; cleaning 
up pollution; specifying and defending intellectual and other property 
rights; treating the illnesses caused by over-work, insecurity and 
stress; and so on. As Alexander Berkman once noted, capitalism spawns
many forms of "work" and "productive" activity which only make sense 
within that system and could <i>"be automatically done away with"</i> in a 
sane society. [<b>What is Anarchism?</b>, pp. 223-5] Equally, "productivity" 
and living standards can stand at odds with each other. For example, if 
a country has a lower working week and take longer holidays, these 
would clearly depress GDP. This is the case with America and France,
with approximately equal productivity the later spends less time in
work and more time off. Yet it takes a capitalist ideologue to say 
that such a country is worse off as a nation for all that time people 
spend enjoying themselves.  
</p><p>
These issues are 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. 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" it may be. Equally, a "free" market can lead to unfree
people as they driven to submit themselves to the authority of bosses do
to economic pressures and the threat of unemployment.
</p><p>
So it can be said that laissez-faire capitalism will benefit all, 
<b>especially</b> the poor, only in the sense that all can potentially 
benefit as an economy increases in size. Of course, the mantra that 
economic growth is so wonderful is hard to justify when the benefits 
of that growth are being enjoyed by a small proportion of the people 
and the burdens of growth (such as rising job insecurity, loss of 
benefits, wage stagnation and decline for the majority of workers, 
declining public services, loss of local communities and so forth) 
are being borne by so many (as is the case with the more to freer
markets from the 1980s). If we look at actually existing capitalism, 
we can start to draw some conclusions about whether a pure 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 the unknown ideal of pure 
capitalism. It is also interesting to note that it is also number one, 
or close to it, in the following areas [Richard Du Boff, <b>Accumulation 
and Power</b>, pp. 183-4]:
</p><p><blockquote>
     <li> 	lowest level of job security for workers, with greatest  
	chance of being dismissed without notice or reason.<br>
     <li>	greatest chance for a worker to become unemployed without 
	adequate unemployment and medical insurance.<br>
     <li>	less leisure time for workers, such as holiday time.<br>
     <li>	one of the most lopsided income distribution profiles.<br>
     <li>	lowest ratio of female to male earnings, in 1987 64% of 
	the male wage.<br>
     <li>	highest incidence of poverty in the industrial world.<br>
     <li>	among the worse rankings of all advanced industrial nations 
	for pollutant emissions into the air.<br>
     <li>  highest murder rates.<br>
     <li>	worse ranking for life expectancy and infant morality.<br>
</blockquote></p><p>
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 <b>especially</b> benefit the poor or working people. 
In fact, we find the more free market the regime, the worse it is for 
the workers. Americans have longer hours and shorter holidays than
Western Europeans and more people live in poverty. 22% of American 
children grow up in poverty, which means that it ranks 22nd out of 
the 23 industrialised nations, ahead of only Mexico and behind all 
15 of the pre-2004 EU countries. 
</p><p>
According to a 2007 United Nation report, the worse places to be a 
child are in neo-liberal societies such as the UK and USA (the UK was 
bottom, at number 21 one below the US). The UNICEF report dealt with 
the condition of children in advanced capitalist countries and found 
that both the UK and US are way down the list on education, health, 
poverty, and well-being. While UNICEF preferred to state that this is 
because of a "dog eat dog society", it is hardly a coincidence that 
these two societies have most embraced the principles of neo-liberalism 
and have repeatedly attacked the labour movement, civil society in 
general as well as the welfare state in the interests of capital. In 
contrast, the social democratic northern European countries which have 
best results. One could also point out, for example, that Europeans 
enjoy more leisure time, better health, less poverty, less inequality 
and thus more economic security, greater intergenerational economic 
mobility, better access to high-quality social services like health 
care and education, and manage to do it all in a far more environmentally 
sustainable way (Europe generates about half the CO2 emissions for the 
same level of GDP) compared to the US or the UK. 
</p><p>
A definite case of what is good for the economy (profits) is bad for 
people. To state the obvious, an economy and the people in that economy 
are not identical. The former can be doing well, but not the latter --
particularly if inequality is skewing distribution of any rising incomes. 
So while the economy may be doing well, its (median) participant (and 
below) may see very little of it.
</p><p>
Of course, defenders of laissez-faire capitalism will point out that 
the United States, like the UK and any other real country, is far 
from being laissez-faire. This is true, yet it seems strange that the 
further an economy moves from that "ideal" the better conditions get 
for those who, it is claimed, will especially benefit from it. As such,
non-believers in pure capitalism have cause for dissent although for
the typical "market advocate" such comparisons tell us littler -- unless
they happen to bolster their case then "actually existing" capitalism
can be used as an example.
</p><p>
Ultimately, the real issue is to do with quality of life and relative
changes. Yet the argument that capitalism helps the poorest most via high
economic growth is rooted in comparing "free market" capitalism with 
historical example, i.e. in the notion of <b>absolute</b> inequality rather 
than <b>relative</b> inequality and poverty. Thus poverty (economic, cultural 
and social) in, say, America can be dismissed simply on the grounds that 
poor people in 2005 have more and better goods than those in 1905. The logic 
of an absolute position (as intended, undoubtedly) is such as to make even 
discussing poverty and inequality pointless as it is easy to say that 
there are <b>no</b> poor people in the West as no one lives in a cave. But, 
then again, using absolute values it is easy to prove that there were no 
poor people in Medieval Europe, either, as they did not live in caves and, 
compared to hunter gatherers or the slaves of antiquity, they had much 
better living standards. As such, any regime would be praiseworthy, by the 
absolute standard as even slavery would have absolutely better living 
standards than, say, the earliest humans.
</p><p>
In this respect, the words of Adam Smith are as relevant as ever. In <b>The
Wealth of Nations</b> Smith states the following:
</p><p><blockquote>
<i>"By necessaries I understand not only the commodities which are indispensably 
necessary for the support of life, but whatever the custom of the country 
renders it indecent for creditable people, even of the lowest order, to be 
without. A linen shirt, for example, is, strictly speaking, not a necessary 
of life. The Greeks and Romans lived, I suppose, very comfortably though 
they had no linen. But in the present times, through the greater part of 
Europe, a creditable day-labourer would be ashamed to appear in public 
without a linen shirt, the want of which would be supposed to denote that
disgraceful degree of poverty which, it is presumed, nobody can well fall 
into without extreme bad conduct . . . Under necessaries, therefore, I 
comprehend not only those things which nature, but those things which the 
established rules of decency have rendered necessary to the lowest rank 
of people."</i> (Book Five, Chapter II, Article IV)
</blockquote></p><p>
As usual, Adam Smith is right while his erstwhile ideological followers are 
wrong. They may object, noting that strictly speaking Smith was talking of 
<i>"necessaries"</i> rather than poverty. However, his concept of necessaries
implies a definition of poverty and this is obviously based not on some 
unchanging biological concept of subsistence but on whatever <i>"the custom 
of the country"</i> or <i>"the established rules of decency"</i> consider necessary
Marx made the same point his later works, when he distanced himself from
his earlier notion that capitalism resulted in <b>absolute</b> impoverishment.
As he put it in volume 1 of <b>Capital</b>, <i>"the number and extent of [the 
worker's] so-called necessary requirements, as also the manner and extent 
they are satisfied, are themselves products of history, and depend therefore 
to a great extent on the level of civilisation attained by a country . . . In 
contrast, therefore, with the case of other commodities, the determination of 
the value of labour-power contains a historical and moral element."</i> [p. 275]
</p><p>
It is ironic that those today who most aggressively identify themselves as 
disciples of Smith are also the people who are most opposed to definitions 
of poverty that are consistent with this definition of "necessaries" (this
is unsurprising, as those who invoke his name most usually do so in pursuit 
of ideas alien to his work). This is done for the usual self-interested 
motives. For example, Thatcher's government originally had little problem
with the concept of relative poverty and <i>"[o]nly when its policies had led 
to a conspicuous growth of relative poverty was the idea denounced, and the 
decision taken by the government . .  . that absolute poverty (undefined and 
unqualified) was the only reality."</i> [Ian Gilmore, <b>Op. Cit.</b>, p. 136] Smith's 
perspective, significantly, is that followed by most poverty researchers, 
who use a relative measure in evaluating poverty rates. The reason is 
unsurprising as poor is relative to the living standards and customs of 
a time and place. Some sceptic might regurgitate the unoriginal response 
that the poor in the West are rich compared to people in developing countries, 
but they do not live in those countries. True, living standards have improved 
considerably over time but comparing the poor of today with those of centuries 
past is also meaningless. The poor today are poor relative to what it takes to 
live and develop their individual potentials in their own societies, not in 
(for example) 18th century Scotland or half-way across the globe (even Milton
Friedman had to grudging admit that <i>"poverty is in part a relative matter."</i> 
[<b>Op. Cit.</b>, p. 191]). Considering the harmful effects of relative inequality 
we indicated in <a href="secB1.html">section B.1</a>, this position is perfectly justified.
</p><p>
The notion of absolute poverty being the key dates back to at least Locke 
who argued in his <b>Second Treatise</b> on government that in America <i>"a King 
of a large and fruitful Territory there feeds, lodges, and is clad worse 
than a day Labourer in England."</i> (section 41) Ignoring the dubious 
anthropological assertions, his claim was made as part of a general 
defence of enclosing common land and turning independent workers into 
dependent wage slaves. The key to his argument is that the accumulation
of property and land beyond that useable by an individual along with the
elimination of customary rights for poor individuals was justified because 
owners of the enclosed land would hire workers and increase the overall
wealth available. This meant that the dispossessed workers (and particularly 
their descendants) would be better off materially (see C.B MacPherson's
<b>The Political Theory of Possessive Individualism: From Hobbes to Locke</b>
for an excellent discussion of this). The links with the current debate
on globalisation are clear, with so-called "market advocates" and 
"individualists" providing extensive apologetics for capital moving to
authoritarian regimes which systematically violate individual rights and
the principles of the "free" market precisely in terms of the increased
material wealth this (eventually) produces. But then it is easy for bosses, 
tenured professors and well paid think-tank experts to pontificate that 
such sacrifices (for others, of course) are worth it in the long run.
</p><p>
This apparently strange transformation of "individualists" into 
"collectivists" (justifying the violation of individual rights in 
terms of the greater good) has a long precedent. Indeed, it can 
only be considered strange if you are ignorant of the nature and 
history of capitalism as well as the contortions its defenders have 
inflicted on themselves (and by yet another of these strange 
co-incidences that so regularly afflicts capitalism and its supporters, 
the individuals whose liberty and rights are considered expendable are 
always members of the working class). So the notion of absolute poverty 
has always been associated with defending inequalities of wealth and 
power as well as providing justification in terms of long term benefit 
for the violation of the "freedom" and "individual rights" they claim 
to defend. Significantly, the contemporary representatives of the 
landlords who imposed enclosures framed their arguments precisely in
terms of restricting the independence (i.e. freedom) of the working
population. As Marxist David McNally summarises after providing extensive
quotes, it was <i>"precisely these elements of material and spiritual 
independence that many of the most outspoken advocates of enclosure 
sought to destroy."</i> They <i>"were remarkably forthright in this respect. 
Common rights and access to common lands, they argued, allowed a degree 
of social and economic independence, and thereby produced a lazy,
dissolute mass of rural poor . . . Denying such people common lands 
and common rights would force them to conform to the harsh discipline 
imposed by the market in labour."</i> [<b>Against the Market</b>, p. 19] This 
would only be considered paradoxical if you equate freedom with 
capitalism.
</p><p>
The underlying assumption under all this is that liberty (at least for
working class people) is less important than material wealth, a vision 
rightly attacked when Stalinism seemed to be out-performing the West 
in terms of growth before the 1970s. Yet the question, surely, is would
individuals freely agree to be subjected to the dictates of a boss for
10-12 hours a day if other alternatives had not closed off by state 
intervention? As we discuss in <a href="secF8.html">section F.8</a>, the answer has always been
no. This is the case today. For example, Naomi Klein interviews one
boss of a third-world sweatshop who explained that <i>"for the lowly 
province worker, working inside an enclosed factory is better than 
being outside."</i> One of his workers rebutted this, stating <i>"Our rights 
are being trampled"</i> and the he said that <i>"because he has not experienced 
working in a factory and the conditions inside."</i> Another noted that <i>"of 
course he would say that we prefer this work -- it is beneficial to him, 
but not to us."</i> Another states the obvious: <i>"But we are landless, so we 
have no choice but to work in the economic zone even though it is very 
hard and the situation is unfair."</i> [quoted by Klein, <b>No Logo</b>, p. 220
and p. 221] It should noted that the boss has, of course, the backing
of a great many economists (including many moderately left-wing ones)
who argue that sweatshops are better than no jobs and that these
countries cannot afford basic workers' rights (as these are class 
societies, it means that their ruling class cannot afford to give
their workers the beneficial aspects of a free market, namely the
right to organise and associate freely). It is amazing how quickly an
economist or right-liberal will proclaim that a society cannot expect 
the luxury of a free market, at least for the working class, and how 
these "individualists" will proclaim that the little people must 
suffer in order for the greater good to be achieved.
</p><p>
As for the regimes within these factories, Klein notes that they are 
extremely authoritarian. The largest free-trade zone in the Philippines
is <i>"a miniature military state inside a democracy"</i> and the <i>"management 
is military-style, the supervisors often abusive."</i> As would be expected,
<i>"no questioning of authority is expected or permitted"</i> and in some 
<i>"strikes are officially illegal"</i> (rather than unofficially banned).
[<b>Op. Cit.</b>, p. 204, p. 205 and p. 214] As with the original industrial 
revolution, capitalism takes advantages of other forms of social 
hierarchy in developing countries. As Stephen A. Marglin noted, the 
women and children, <i>"who by all accounts constituted the overwhelming
majority of factory workers in the early days, were there not because
they choose to be but because their husbands and fathers told them to
be. The application of revealed preference to their presence in the 
factory requires a rather elastic view of the concept of individual
choice."</i> [<i>"What do Bosses do?"</i>, pp. 60-112, <b>The Review of Radical
Political Economics</b>, vol. 6, No. 2, p. 98] In other words, while 
the workers <b>may</b> be better off in terms of wages they are not better 
off in terms of liberty, equality and dignity. Luckily there are
economists around to explain, on their behalf, that these workers 
cannot afford such luxuries. 
</p><p>
Looking beyond the empirical investigation, we should point out the 
slave mentality behind these arguments. After all, 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 (<i>"you'll get pie in the sky when you die"</i> 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. If the defenders of capitalism were 
genuinely interested in individual freedom they would be urging the 
oppressed masses to revolt rather than defending the investing of 
capital in oppressive regimes in terms of the freedom they are so 
willing to sacrifice when it comes to workers. But, of course, these 
defenders of "freedom" will be the first to point out that such revolts 
make for a bad investment climate -- capital will be frightened away to 
countries with a more "realistic" and "flexible" workforce (usually 
made so by state repression). 
</p><p>
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 
<b>if</b> 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 <i>"Immiserating Growth: The First World"</i> in
Z Magazine, July 1994.
</p><p>
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.
</p>

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