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<TITLE>C.10 Will "free market" capitalism benefit everyone, especially the poor?</TITLE>
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<p>
<h1>C.10 Will "free market" capitalism benefit everyone, <i>especially</i> the poor?</h1>
<p>
Murray Rothbard and a host of other supporters of "free-market" capitalism
make this claim. Again, it does contain an element of truth. As capitalism
is a "grow or die" economy (see section <a href="secD4.html#secd41">D.4.1</a>), obviously the amount of
wealth available to society increases for <b>all</b> as the economy expands.
So the poor will 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 1980's was obviously far better off
economically than one in the 1920's.
<p>
However, 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: can the other classes
benefit equally well?
<p>
As noted above, wages are dependent on productivity, with increases in the
wages lagging behind increases in productivity. If, in a free market, the
poor "especially" benefited, wages would need to increase <b>faster</b> than
productivity in order for the worker to obtain an increased share of
social wealth. However, if this were the case, the amount of profit going
to the upper classes would be proportionally smaller. Hence if capitalism
"especially" benefited the poor, it could not do the same for those who live
off the profit generated by workers.
<p>
For the reasons indicated above, productivity <b>must</b> rise faster than
wages or companies will fail and recession could result. This is why wages
(usually) lag behind productivity gains. In other words, workers produce more
but do not receive a corresponding increase in wages. This is graphically
illustrated by Taylor's first experiment in his <i>"scientific management"</i>
techniques.
<p>
Taylor's theory was that when workers controlled their own work, they did
not produce to the degree wanted by management. His solution was simple.
The job of management was to discover the "one best way" of doing a
specific work task and then ensure that workers followed these (management
defined) working practices. The results of his experiment was a 360%
increase in productivity for a 60% increase in wages. Very efficient.
However, from looking at the figures, we see that the immediate result of
Taylor's experiment is lost. The worker is turned into a robot and
effectively deskilled (see section <a href="secD10.html">D.10</a>). While this is good for profits
and the economy, it has the effect of dehumanising and alienating the
workers involved as well as increasing the power of capital in the labour
market. But only those ignorant of economic science or infected with
anarchism would make the obvious point that what is good for the economy
may not be good for people.
<p>
This brings up another important point related to the question of whether
"free market" capitalism will result in everyone being "better off." The
typical capitalist tendency is to consider quantitative values as being
the most important consideration. Hence the concern over economic growth,
profit levels, and so on, which dominate discussions on modern life.
However, as E.P. Thompson makes clear, this ignores an important aspect
of human life:
<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"</i> [<b>The
Making of the English Working Class</b>, p. 231]
</blockquote><p>
For example, real wages may increase but at the cost of longer hours
and greater intensity of labour. Thus, <i>"[i]n statistical terms, this
reveals an upward curve. To the families concerned it might feel like
immiseration."</i> [Thompson, <b>Op. Cit.</b>, p. 231] In addition, consumerism may
not lead to the happiness or the "better society" which many economists
imply to be its results. If consumerism is an attempt to fill an empty
life, it is clearly doomed to failure. If capitalism results in an
alienated, isolated existence, consuming more will hardly change that. The
problem lies within the individual and the society within which they live.
Hence, quantitative increases in goods and services may not lead to
anyone "benefiting" in any meaningful way.
<p>
This is important to remember when listening to "free market" gurus
discussing economic growth from their "gated communities," insulated from
the surrounding deterioration of society and nature caused by the workings
of capitalism (see sections <a href="secD1.html">D.1</a> and <a href="secD4.html">D.4</a> for more on this). In other words,
quality is often more important than quantity. This leads to the important
idea that some (even many) of the requirements for a truly human life
cannot be found on any market, no matter how "free."
<p>
However, to go back to the "number crunching" that capitalism so loves, we
see that the system is based on workers producing more profits for "their"
company by creating more commodities than they would by able to buy back
with their wages. If this does not happen, profits fall and capital
dis-invests. As can be seen from the example of Chile (see section <a href="secC11.html">C.11</a>)
under Pinochet, "free market" capitalism can and does make the rich richer
and the poor poorer while economic growth was going on. Indeed, the
benefits of economic growth accumulated into the hands of the few.
<p>
To put it simply, economic growth in laissez-faire capitalism depends
upon increasing exploitation and inequality. As wealth floods upwards
into the hands of the ruling class, the size of the crumbs falling
downwards will increase (after the economy is getting bigger). This
is the real meaning of "trickle down" economics. Like religion, laissez
faire capitalism promises pie at some future date. Until then we (at
least the working class) must sacrifice, tighten our belts and trust in
the economic powers that be to invest wisely for society. Of course, as
the recent history of the USA or Chile shows, the economy can be made
freer and grow while real wages stagnant (or fall) and inequality increase.
<p>
This can also be seen from the results of the activities of the pro-"free
market" government in the UK, where the number of people with less than
half the average income rose from 9% of the population in 1979 to 25% in
1993 and the share of national wealth held by the poorer half of the
population has fallen from one third to one quarter. In addition, between
1979 and 1992-3, the poorest tenth of the UK population experienced a fall
in their real income of 18% after housing costs, compared to an unprecedented
rise of 61% for the top tenth. Of course, the UK is not a "pure" capitalist
system and so the defenders of the faith can argue that their "pure" system
will spread the wealth. However, it seems strange that movements towards the
"free market" always seem to make the rich richer and the poor poorer. In
other words, the evidence from "actually existing" capitalism supports
anarchist arguments that when ones bargaining power is weak (which is
typically the case in the labour market) "free" exchanges tend to magnify
inequalities of wealth and power over time rather than working towards an
equalisation (see section <a href="secF3.html#secf31">F.3.1</a>, for example). Similarly, it can hardly be
claimed that these movements towards "purer" capitalism have "especially"
benefited the poor, quite the reverse.
<p>
This is unsurprising as "free market" capitalism cannot benefit <b>all</b>
equally, for if the share of social wealth falling to the working class
increased (i.e. it "especially" benefited them), it would mean that the
ruling class would be <b>worse off</b> (and vice versa). Hence the claim that
all would benefit is obviously false if we recognise and reject the
sleight-of-hand of looking at the absolute figures so loved by the
apologists of capitalism. And as the evidence indicates, movements
towards a purer capitalism have resulted in "free" exchanges benefiting
those with (economic) power more than those without, rather than
benefiting all equally. This result is surprising, of course, only
to those who prefer to look at the image of "free exchange" within
capitalism rather than at its content.
<p>
In short, to claim that all would benefit from a free market ignores the
fact that capitalism is a profit-driven system and that for profits to
exist, workers <b>cannot</b> receive the full fruits of their labour. As the
individualist anarchist Lysander Spooner noted over 100 years ago, <i>"almost
all fortunes are made out of the capital and labour of other men than
those who realise them. Indeed, large fortunes could rarely be made at all
by one individual, except by his sponging capital and labour from others."</i>
[quoted by Martin J. James, <b>Men Against the State</b>, p. 173f]
<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. If we look at actually
existing capitalism, we can start to draw some conclusions about
whether laissez-faire capitalism will actually benefit working
people. The United States has a small public sector by international
standards and in many ways it is the closest large industrial nation
to laissez-faire capitalism. It is also interesting to note that it
is also number one, or close to it, in the following areas [Richard
Du Boff, <b>Accumulation and Power</b>, pp. 183-4]:
<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>
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. Of course, defenders of laissez-faire
capitalism will point out that the United States is far from being
laissez-faire, but it seems strange that the further an economy moves
from that condition the better conditions get for those who, it is claimed,
will <b>especially</b> benefit from it.
<p>
Even if we look at economic growth (the rationale for claims that laissez
faire will benefit the poor), we find that by the 1960s the rate of
growth of per capita product since the 19th century was not significantly
higher than in France and Germany, only slightly higher than in Britain
and significantly lower than in Sweden and Japan (and do not forget that
France, Germany, Japan and Britain suffered serve damage in two world
wars, unlike America). So the <i>"superior productivity and income levels
in the United States have been accompanied by a mediocre performance
in the rise of those levels over time. The implication is no longer
puzzling: if US per capita incomes did not grow particularly fast
but Americans on average enjoy living standards equal to or above those
of citizens of other developed nations, then the American starting
point must have been higher 100 to 150 years ago. We now know that
before the Civil War per capita incomes in the United States were high
by contemporary standards, surpassed through the 1870s only by the
British. . . To a great extent this initial advantage was a gift
of nature."</i> [<b>Op. Cit.</b>, p. 176]
<p>
Looking beyond the empirical investigation, we should point out the
slave mentality behind these arguments. Afterall, what does this argument
actually imply? Simply that economic growth is the only way for
working people to get ahead. If working people put up with exploitative
working environments, in the long run capitalists will invest some of
their profits and so increase the economic cake for all. So, like
religion, "free market" economics argue that we must sacrifice in
the short term so that (perhaps) in the future our living standards
will increase (<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. Capital will be frightened away to countries
with a more "realistic" and "flexible" workforce (usually made so by state
repression).
<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
<b>Z Magazine</b>, July 1994.
<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>
Finally, the average annual growth rate per capita was 1.4% between 1820
and 1950. This is in sharp contrast to the 3.4% rate between 1950 and
1970. If laissez-faire capitalism would benefit "everyone" more than "really
existing capitalism," the growth rate would be <b>higher</b> during the earlier
period, which more closely approximated laissez faire. It is not.
<p>
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