The Argument for Non-Capitalism
J. Engelbrecht-Larkin
Objections to capitalism fall broadly into two categories, philosophical objections, these being moral or ethical, and material objections, these being political or economic. The former are statements like, ‘it is wrong to exploit the working class,’ or, ‘workers deserve the total value of the products of their labor.’ Neither of these questions impact the physical, day to day operations of a firm, regardless of economic theory, and implicate questions of right and wrong, justice, natural law and so on. These concepts are the true domain of the elite. Capitalists who defend their system with notions of ‘freedom,’ or slippery slopes dooming us to serfdom use abstract arguments to defend a system, which allows them to side step the material failings of capitalism.
If you have an advanced degree in ethics feel free to comment on such questions. However, for the remainder of the world, follow this simple rule: the best argument against is a better argument for something else.
The practical, material arguments for capitalism can be summed up with the cliché, ‘the rising tide raises all boats.’ That is to say that capitalism will always create an increase in standard of living for all people, even if it is hideously unequal. This is usually accompanied by the pareto optimum argument, that this is the best arrangement possible and that you cannot better someone without harming someone else. This infers that any variety of non-capitalism will result in a decrease in standards of living, and the unscrupulous defenders of capitalism will usually claim it will hurt those most immiserated by capitalism. The absurdity of this argument aside, the advantage of showing how a non-capitalist system can produce better results than capitalism removes the necessity of proving these arguments false. In fact, it is possible to accept everything claimed at face value and simply show that non-capitalism can do it better, thus using the internal logic of capitalism against itself, making non-capitalism the moral imperative because it creates ‘the greater good.’
How, then, can this be done? How can we advance a non-capitalist economy without first tearing down capitalism? If you have read your Marx you will realize that, in fact, it is not necessary to tear down anything. In fact, the creation of a communist society was dependant upon changes that would occur in a capitalist economy; industrialization, the creation of labor armies, and most important, the specialization of labor that creates collective ownership of the means of production because no single person or trade can run a factory. Non-capitalism, to work, must be built upon the foundations, the historical and material conditions, of the economy of the present. Put out of your minds worker’s paradises where you only work an hour a day and everyone gets to do whatever they want. Abandon false hopes of abundance and gift economies. If you are serious about non-capitalism you have to live in this world, which means accepting the limitations presented to you.
If that is out of the way we can begin.
To create a non-capitalist system you must first understand capitalism, something that few people can truthfully say they do. Despite what you may think, capitalism is not poverty or rich people lining their own pockets; these things come into play after the system is created, and are not part of the fundamental nature of the system. Capitalism has two basic characteristics, from which the real world corollaries of capitalist economies are drawn: private ownership of the means of production and a labor market.
The first is fairly simple and clear cut: individuals own the machines that create more value. This fact creates several characters that are, to many, part of the basic fabric of capitalist society: the exploitation of labor and the exclusive claim to the value created by labor. Please note when I say exploitation I attach no moral weight to it, I mean simply that the labor theory of value is correct and all value is created by labor; thus, when owners profit from workers, this is exploitation, using someone else for your own gain. This is not important and we must not condemn capitalism for this; the labor theory of value is universal, and holds in all societies. A socialist paradise must exploit laborers as much as a capitalist dystopia must; the only difference would be who claims the product of that labor, which is why it is far more important that private ownership of the means of production means that the owners have exclusive rights to the product of labor.
John Locke’s argument for this arrangement is as follows: in trade, it is possible to purchase something that will produce something else, like a cotton gin or a field. It is equally possible to rent that property, and by renting it you transfer ownership temporarily to the renter, and thus that renter has claims to all products of that property for the duration of the rent. Now Locke would never admit that a labor market is the renting of human beings so naturally he claims that what is bought is their time, though the difference is immaterial; the argument is that because the laborers are being paid their products belong to the person who purchased their time. It’s perfectly logical, if you accept the tenets of contract theory.
A discussion of private ownership would be incomplete without at least a brief explanation on the need for profit. Classical capitalists argue that profit goes right back into the company in the form of investment; this is patently false because, in real terms, profits are measured after the cost of upgrades to replace aging capital goods are included in operating costs. In the morass of Financialism, though, no one is quite sure how profits are generated, but presently profits exist for the very important purpose of paying the owners a fee to entice them to invest or continue to invest in the company because modern corporations live under the specter of debt. A corporation that cannot pay its creditors for just one month will face bankruptcy as investors abandon them, and I challenge anyone to point to a single publicly traded corporation that is not making heavy payments on what it owes someone else.
Profit exists because it is the only incentive that can be used to convince those with the huge amounts of money needed to fund capital expenditures to risk that guaranteed fortune in the market. If there was no money to be made, why would Rockefeller invest his billions? This question will be returned to shortly.
Exclusive property rights mean that laborers can never gain back the products of their labor and must instead purchase them, which creates the labor market. The labor market is not as tidy as private ownership because it emerges through a series of gradual changes in history. In essence, a labor market is created by private ownership of the means of production, because workers no longer have open access to the means of production, and because they must work to eat and survive, must sell their labor and the rights to the products of their labor to the owner of the means of production. The labor market, of course, creates the proletariat, a class that has no control over the basic economic determinants in their lives, and more importantly, a class that is consistently paid less than the total value of the products of their labor.
Beyond these two basic pillars, we turn our attention to the mechanism, the machinery, of a capitalist economy. Here we turn to study of actual economics, something that few in the capitalist world are ever encouraged to learn. They learn capitalism, the internal rules of their machine, without understanding the underlying mechanisms that are universal to all questions of economy. It is this kind of short sightedness that gives rise to absurdities like Fukayama’s ‘end of history’ argument; the impossibility of change seems certain to those without the language or cognitive tools to conceive of a world different from the one they were indoctrinated, excuse me, educated to understand.
To return to the issue of incentive, major proponents of capitalism argue that ‘socialism,’ which is the catchall for non-capitalism, offers no incentive. By this they mean at least one of two things, often both: that existing or attempted non-capitalist systems had no incentive, or that non-capitalism is incapable of offering incentive. They are wrong on both points, though as noted earlier, I need only prove the latter is false, and I will do so by the end of this discussion. For the moment, let us concentrate on capitalism’s methods of incentive.
Michael Douglas, in a frighteningly realistic portrayal, uttered these famous words: ‘Greed is good. Greed works.’ Quite; this is the root, the keystone of capitalist incentive. People want things; if we were all satisfied with a tiny studio apartment, eating government cheese and walking to work there would be no need for us to work forty hours a week. One can easily subsist in such a state with very little effort involved, and though those of us privileged to live in post-industrial countries will call this poverty, if you are satisfied in such a state why would you work harder for things you neither want nor need?
You would not, of course, and so we see that greed is an effective motivator. This works on different levels depending on your class; clearly, capitalists have more to lose than workers, and so will invest in order to assure that their wealth does not lose value as inflation takes its toll. However, the underlying principle is the same; investors are promised either a rising stock price, which means people will pay them more than what they paid for that stock, or dividends, a share of the company’s profits proportional to the amount of stock you own. The promise of personal benefit ensures someone will participate both with labor and investment.
Who then decides how this investment will be used? The owners, of course, they own and control the means of production. There is this great myth that surrounds economics, that capitalist economies are not planned. This argument is patently absurd because clearly production is planned; products spend months, if not years, in development, based upon a company plan that will put X many units into Y many stores by Z year. When someone says ‘planned economy’ with the intent of contrasting a planned economy with capitalism what they are actually addressing is the question of how production is decided, not how it is carried out. Keep this in mind, as it will become very important in the near future.
Investors are enticed in by the promise of profits, which manifest in dividends or rising stock price, and thus in order to obtain investors one must produce that profit they desire. Thus, production is determined based upon not need but profitability. Many ask, why is it that under capitalism people die of preventable diseases, when the medications cost pennies to make, or go hungry when governments pay farmers to leave fields fallow? The simple answer is that there is no profit in giving away food or medication, so it is not done. George Soros notes that the economic realm is amoral, because in his dealings as a businessman his duty, his obligation, was to produce a profit, and so the ‘right’ thing for him to do was produce that profit. Corporations that fail to show profit go under, which costs their employees their jobs, costs their investors their money, and in the end removes a firm from the competitive market, which leads to inferior production by alleviating pressure on other firms to innovate and cut prices. Thus we can see that far from being a cold hearted, willful maliciousness, the failure to provide for those without money is, in fact, an imperative created by the capitalist system itself and, this is important, a fundamental character of the system.
Production is decided based on what is the most profitable, which then moves into the labyrinth of saturation, aggregate demand, the creation of demand, market niches and so on, which is not important right now. All you must note is that production is decided based on profit, not demand.
However, it is claimed that capitalism makes up for this by producing in greater supplies and more efficiently than any other economic system, thus allowing workers to buy more than they would otherwise be capable of. This is the essence of the rising tide argument, and it is not without merit. Abundance is created through industrialization, something that is often demonized by neo-Luddite groups that, frankly, have no place in serious economic discussions. Our standard of living was created by machines that require capitalism to be developed; this theory has long been proven true through practice. A nation simply cannot move from agrarian to industrial economy without capitalism.
Efficiency, though, emerges not from industrialism but from competition. Multiple firms create the same good and vie for a limited market, and by natural forces, each will endeavor to lower prices and increase quality to entice workers to spend their wages on the firm’s product. Firms that charge too much, that cannot keep costs down by using investor’s money wisely, who produce low quality products, will sell fewer units than firms that keep prices and costs down or produce superior products. One look at the computer industry will give you an idea of this process in fast forward.
What is key to note about competition is that it, unlike industrialization, does not require private ownership of the means of production. Private ownership is required for industrialization because that personal incentive, the greed, is what gets the rich to invest in new machines. Once those machines are created it is possible, in theory, to expropriate them and use them to create new wealth for investment, but prior to the creation of the abundance created by industry, wealth exists as gold, or land, and this cannot be turned into heavy industry without creating incentive for innovation and the diversion of production away from consumables into capital goods. On the other hand, competition requires only that firms be separate, produce redundant goods and are rewarded for selling their product. In modern capitalism, the owners of a company, in this case the stockholders, rarely, if ever, work at the business in question, which means the incentive could be applied directly to the workers of the firm rather than paid in dividend without compromising the incentives of competition.
This scheme, though, will remove the incentive for investors, which is a problem in a system when firms are privately owned. If private investors are not offered individual rewards they will not invest, and the workers of a company do not have sufficient saving reserves to fund capital expansion alone.
What you should be seeing is how the various pieces of a capitalist economy fit together. Some like to say they are mutually supportive, and think that if you can yank one out the others will fall. In reality, the system functions like a starfish; if you cut off one arm, it will eventually regenerate, perhaps a little different looking, but fundamentally the same arm that you severed. All pieces must be cut off before the system will die.
How then, if I am to do what I proposed I do earlier, show that a non-capitalist economy can out do capitalism? The key is to find the things that capitalism does poorly, fix them, while retaining the benefits listed above. Capitalism necessarily creates inequality and immiserates a large segment of the global working class; the labor theory of value requires that someone lose in the deal, be exploited and end with less than the value of their labor. In real terms, despite what rising tide advocates might suggest, this inequality has resulted in not just poverty but a shortfall of goods necessary for life, such as the aforementioned food and medicine.
To create a functioning non-capitalist system it is a given some form of revolution is necessary. This creates what are called zero year problems; the problem of converting the existing infrastructure from one system to another, of keeping the nation stable long enough for the changes to take place and so on. For the moment we will not address zero year problems because, while important, they are not crucial to this discussion, which is to provide a more appealing system that capitalism. Of course if this system cannot be achieved because of zero year problems then it is not appealing, but this is a question for another time.
First, the system of private ownership in the means of production must be replaced with a new form of property. Rather than privately owned, either by individuals or through worker collectives, which simply mean that the workers are the stock holders, a minimal improvement, the means of production will be socially owned. Social ownership is a schemed used in Yugoslavia, most successfully in Slovenia, and eschews state or private ownership in favor of giving ownership to all citizens. All people own the bank, factory, restaurant and so on, and while private individuals manage and run these firms, all people are entitled, as owners, to the products of the means of production. The incentive for investment is, thus, retained; an inefficient use of capital goods means downturn for society in general, something all citizens have a stake in and are responsible for. An efficient use of capital goods means an increase in the total goods produced, thus an increase in the share each person receives; remember, that under a social ownership scheme everyone in society is an equal owner is all industry. This makes everyone a stockholder in the economy, giving everyone part of that incentive for business to do well.
If this system merely distributed the profits of privately run corporations back to the people of the country, it would be market socialism. However, having a privately managed corporation that runs for profit still leaves us with a method of choosing what is produced that addresses profit, not need. Thus, in order to solve this problem, it is clear that a firm cannot be privately owned or privately run. Capitalist firms are responsible to their stockholders, and corporate officers must report to a board voted in by the stockholders; the same should apply in a non-capitalist society. Firms will be held responsible to their stockholders, which are the people of the country, thus giving us democratically controlled production while maintaining the expertise of career corporate officers to run the firm.
By merely changing how the means of production is owned, socially rather than privately, we can see how this would fundamentally change how an economy is run while still retaining the simple incentives that make capitalism work. Corporate officers must do their jobs well or lose their positions and their salaries, stockholders must make sure that corporate officers are doing their jobs well or their stake in the companies will lose value and they will end with less than they started with. Of course, the actual functioning of society is not so simple, in capitalism or non-capitalism, but nonetheless there is nothing that makes private ownership any more feasible than social ownership; the latter is, after all, built on the exact same principles as the first. By giving all people an equal stake in the industry of their country, and an equal say in how the company is run and how their saving are used for new investments, you maintain the basic structure of a stock holding capitalist system without creating a class of haves and a class of have-nots.
The issue of the labor market is far more easily approached, and relies on that simple adage: ‘Greed works.’ As noted, no one works for subsistence any more, and if someone wanted to merely subsist it would not take much effort on their part. Thus, it is fair to say that those that do in fact work forty hour weeks do so not out of a need to survive but out of desire to accrue goods. If this is the case, then we can guarantee all people food, clothing, housing and medicine for free, as these are the basic needs for subsistence, and still expect them to show up to work on Monday.
We would not provide luxuries for free; a government provided diet would not include meat or imported fruit, nor would the clothing be designer label khakis. Housing would be adequate but not luxurious, and medical coverage would assure no person died for lack of treatment, but would not cover hair plugs or face lifts.
Through social ownership we remove the alienation of the worker from the means of production by giving them ownership and control over not just their workplace but all industry in the nation. Through a stipend that covers subsistence needs, we remove the life and death imperative to work, making the choice to work a true choice, not one made under duress, while maintaining the simple incentive to work: greed.
This system just described is, of course, the bare bones; one cannot sum up the exact and detailed operation of an entire economy with one fell swoop. However, we can see here that while capitalism works, other systems will work just as well with regards to achieving economic growth and production and will do better with regards to assuring equality and eliminating poverty. The principles that make social ownership and a government stipend work are the same principles that make capitalism work, and it is now clear that these principles are not mutually exclusive with the policies of economic equality and welfare programs. If it is possible, then, to create an economy that does not create poverty and can guarantee all a basic standard of living, why would we choose to maintain one that creates poverty and leaves millions without food or housing or medical care? If a system can be achieved that provides prosperity, equality and guarantees its citizens their basic needs, there is in fact a moral imperative to strive for that system and an equal imperative to tear down whichever inferior system exists in its place.