Capitalism has been understood to be an economic system whereby the main forces of production are: (i) owned and controlled by an enterprising minority who (ii) produce and sell in competition with one another, (ii) on the basis of the exploitation of those who live by the sale of their labour power.
In other words, in capitalism, the market is understood to operate to fulfil certain crucial public functions that in other systems such as socialism are fulfilled by governmental institutions. The functions of the market may include the allocation and distribution of resources, the development of needed goods and services and the setting of social priorities. However, as far back as the early 1970s Richard Barnet and Ronald Muller presented compelling evidence in their book 'Global Reach' that "the intersecting and cumululative effect of mounting concentration and globalisation of the US economy [had] negated the market as a social institution in significant ways." [1]
Critical problems are being experienced now in the realm of government policy because the market assumptions upon which they are based on are no longer realistic. The arms-length transactions between buyer and seller are rare. Multinational conglomerates currently negotiate directly with governments for vital resources such as forests, agricultural land and water. Or they cooperate and/or share ownership between themselves. Oligopoly concentration and other forms of stranglehold over whole industries and regional economies means (among other things) that higher interest rate costs to business doesn't translate to the curtailment of output. Inflation is also likely to arise as any increase in costs are passed on to captive consumers. Conversely, tax credits don't result in increases in production at anticipated rates.
Prices, generally, cannot be relied on as signals for allocating resources and market imperfections are no longer occasional nor correctable.
Moreover, labour doesn't so much 'sell' it labour-power to employers. It would be more accurate to say that wages are far more a function of social expectations largely set by those that have levers in dominant media and influential institutions.
Though the 'market' never was the perfect allocator of resources nor a good adjudicator of social priorities the current paradigm is an illegitimate and far more dangerous form of global sovereignty.
"Those who guide the nation-states are fearful that if the world economy is made more efficient and national borders are not allowed to impede the most efficient use of land, capital, labor, ideas, then the nation-state will have no reason to exist."
Conclusion of the 'Chief Executive Officers Roundtable', Business International gathering in Jamaica on 6th January 1971.
[1] 'Global Reach', Richard Barnet and Ronald Muller. Simon and Schuster, 1974. SBN 671-22104-3 Paperback. Page 268
12 comments:
I don't know if capitalism is "dead" yet, but I wrote recently that it needs to be replaced.
Capitalism Must Die!
My point is that capitalism depends upon never ending growth, which in turn depends upon unlimited natural resources.
Furthermore capitalism works in conjunction with consumerism to create demand for the excess production that highly efficient factories produce. The result is planned obsolescence, frequent style changes, shoddy merchandise, artificial demand creation and all the other ills of modern marketing.
The mistake of the economic critics of the past (including Marx) was to confuse the ownership of the means of production with governance. It matters little whether the state or the "people" or entrepreneurs own the factory, it matters how it is managed.
There has been much criticism lately about the separation between the interests of CEO's and the stockholders, but not so much discussion about the interests of the workers or the general public.
Economic "efficiency", narrowly defined, is taken to be a worthwhile goal in itself.
What we need is a new type of social organization that is not based upon consuming "stuff". Economists are not up to the task of discussing this - yet.
I keep hoping they will rise to the challenge. There is more to society than markets.
Capitalism's fatal flaw is unregulated consumption and exploitation of limited natural resources all in the name of growth and profit. In a world of over 6 billion people, capitalism is at checkmate. Just as capitalism replaced feudalism, capitalism will be replaced with something else. There is no such thing as "green, compassionate capitalism". My guess is that after enough natural disasters and after the downfall of major economies worldwide, the people will reclaim their democratic right to self control of production based on the needs of the local communities.
«Capitalism has been understood to be an economic system whereby the main forces of production are: (i) owned and controlled by an enterprising minority who»
Understood by whom? That's a complete prevarication, and anyhow under that definition capitalism has been dead for decades, if not a century.
Most of today's ownership of capital is by small savers via pension and investment funds, and by governments. There are very few capitalists.
It used to be that capitalism was the arrangement in which dominant political and economic power was exercised by the owners of physical and then financial capital (not by entrepreneurs, which are a different category).
No longer -- political and economic power is currently exercised by the owners of commanding positions in business and government bureaucracies.
It is the Business Roundtable and its representatives in Congress and counterparts in various agencies that runs most of the economy and exercises political power.
The actual owners of physical or financial capital (small semi-wealthy investors) are in large part just water carriers.
«Capitalism's fatal flaw is unregulated consumption and exploitation of limited natural resources»
That is not at all capitalism's fault. Capitalism has been dead for a long time, and the very same happened in feudal societies.
As a very clever argument goes, the fault lies with uncoordinated collective action:
http://www.web.net/~tslee/web.net/~tslee
«Capitalism has been understood to be an economic system whereby the main forces of production are: [ ... ] (ii) produce and sell in competition with one another,»
«in capitalism, the market is understood to operate to fulfil certain crucial public functions»
That's another ridiculous aspect of your "understanding" of what capitalism is. The "produce and sell in competition" is about a market system, not a capitalist one. There can well be market systems that are not capitalism.
«on the basis of the exploitation of those who live by the sale of their labour power.»
That is not capitalism either, and indeed it has happened in many non capitalist systems too, and viceversa.
I have made the argument that one should distinguish carefully between some fully unrelated aspects otherwise discussions become useless in this comment to a more lucid discussion of much the same subject related to banks:
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2008/09/ownership-vs-markets.html
Thanks Blissex. I found your comments very helpful.
The dilemma is that so many economic writers and dominant forms of media like to equate capitalism with the market. That it becomes a struggle to explain the actual reality in a way that will grab the attention of those that take this equation for granted.
I'll check out those links tonight.
Robert Feinman writes: "..Capitalism is a system of finance. It is not a system of government, nor is it even a system of management of the capitalist enterprises. One borrows money or sells shares to raise capital. This capital is then used to finance the operation of the firm. To pay back the investors the firm must make a "profit". To make a profit it must generate more revenue than the investors put in. This revenue has to come from someplace. The "someplace" is the natural environment which provides the inputs to the firm. This can be raw materials or human effort. These are, in general, non-renewable. Something is being consumed and turned into money. In addition investors are usually not interested in putting in their money and having it returned later with interest, they want the investment to continue which means the firm must continually strive to grow. A part of this year's profits are plowed back into the firm for expansion, or the promise of future growth is used as way to attract further investment. Capitalism requires growth, or there will be no investment...
That sounds like a reasonable description of our western economic system. With, inevitably, some important details missing.
Government, media, military and legal structures (and their people) must be well integrated into such a system for it to be sustained. The system appears to evolve into state-directed capitalism as resources run out or are irreparably damaged.
Blissex wrote: "That's another ridiculous aspect of your "understanding" of what capitalism is. . .
Blissex, I have not understood capitalism to be a 'market system'. I was attempting to counter one major line of propaganda that has artificially sustained the capitalist economic system. I perceive that the relatively common existence and experience of small enterprise was necessary to sustain the false myth of capitalism as being based on 'the market'. In Tasmania such enterprises almost always exist in terms of selling the products of large oligopolies or providing contract services to them. It is getting harder to disguise the truth.
I was hoping that my article would at least point out the folly of basing Government policy on something that doesn't exist. (Or at least making the appearance of doing so; in which case, one needs to ask what is the real purpose of government increasing interest rates and lowering business tax??)
Anonymous guesses that "the people will reclaim their democratic right to self control of production based on the needs of the local communities.
Well, at least in my neck of the woods, this is now happening more and more.
Brenda,
Capitalism must be both production and market -- surplus value created in the former cannot be realized as profit without the latter, a process that can provide an illusion of the market as productive even though that is impossible. More importantly though, the opposition and imbalances between (and within) the two sides, which we generally only notice during the periods of evident crisis inherent to such an arrangement. (Capitalism is only an equilibrium system within a certain group of theories which coherence requires equilibrium)
Commodity relations (production for exchange) existed prior to the rise of this system but only became generalized with it, which could not have happened without the blood and dirt transformation of, say, serfs and self-subsisting peasants into wage laborers.
Shift in emphasis to the market can be seen in the development and acceptance of marginalist theory with its utility maximizing consumers, a shift which one might correctly guess to be a great convenience when the working class began to organize for itself against owners of capital. You know, later 19th - early 20th centuries.
Capitalism ending? Yes, its ending was contained within its birth but in an immediate sense, I would say we are into a discontinuity as the system's most recent finance centered form is dying, perhaps dead beneath the surface.
Juan, are you saying that the functions of 'the market' weren't in fact negated by the rising concentration of industry in the 20th Century. This is because 'the market, (the process of exchange in capitalism) never did fulfill the social functions mentioned in this article??
I've rephrased your statement above and hope that you will point out any errors I have made in interpretation.
Capitalism is both production (creation of surplus value) and market (realization of profit, with the illusion of the market as productive). The forces of production and the market are in opposition and imbalance with each other (ie not in equilibrium). Commodity relations (production for exchange) became generalized under capitalism through the separation of people from the land and through the elimination of home production. When the working classes began to organize against the capitalist system the ideology encompassed in marginalist market theory (‘free’ markets, competition, supply-demand equilibrium, arms-length transactions between buyer and seller) became very convenient as a form of justification for the economic system of capitalism.
I would quibble with the concept of production as automatically resulting in surplus value. Military and many forms of 'forestry' production (for example) create negative 'value'.
Rehashing Blissex: under capitalism the owners of capital are the principals. If the bank bosses are the principals than it is no longer capitalism, it’s corporatism. Capitalism died in the western world at least 50 years ago… Chief executives of banks have traditionally had incentives to maximize earnings by using leverage because they are not the owners of the capital (principals). It maybe ownership rather than market dynamics that is the problem (with the current global financial crisis) or it maybe instead a large unacknowledged (except perhaps in papers/books read by few people) shift in the power structure related to ownership patterns, and *that* is what matters.
Haven't the bank bosses been the principals since the formation of the central banks? Or did this confusion of roles happen before then?
Brenda, I like your rephrasing.
Surplus value can be/is created even in the production of means of destruction or in the mining of the environment even though these have negative systemic consequences.
Simple definition of corporatism would be a vertically organized partnering of state, capital and labor--it is not not-capitalism but evidence of the struggle to perpetuate capitalism, i.e. it is a response, a reaction, which can itself take very different forms. New Deal v. German fascism v. Brazil's Estado Novo, etc, during the interwar years for example.
Blissex may be referring to a fusing of production and financial capital into finance capital or, not the same, simply to the rise of the financial, of a rentier capitalism.
Juan said: ..Simple definition of corporatism would be a vertically organized partnering of state, capital and labor--it is not not-capitalism ..
Simple definition of socialism in the former USSR: vertically-organised partnering of state-capital, and labour--it is state capitalism.
sure enough and as reaction to economic globalization, it has been raising its head again.
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