Democracy at Work

A Cure for Capitalism

Richard D. Wolff

• Publisher: Haymarket Books
• Year: 2012
• ISBN:
  9781608462575
• Topic: Social Sciences
• Subtopic: Social Classes & Economic Disparity
• Index: Social Sciences

• Aimed at Occupy movements and those looking for solutions to the political and economic dysfunctions of capitalist society.
  
• Especially since 2008, Professor Wolff has given many public lectures at colleges and universities to community and trade union meetings, in high schools, etc.
  
• He also maintains an extensive schedule of media interviews (on many independent radio stations such as KPFA in Berkeley, KPFK in Los Angeles, WBAI in New York, National Public Radio stations, the Real News Network, the Glenn Beck Show, and so on).
  
• Richard's book Capitalism Hits the Fan has become a staple for discussion and public education forums at the Occupy encampments across the country.
  
• Questions of alternatives to capitalism on the agenda are being talked about widely.

Part I:

Capitalism in Deep Trouble

Capitalism has had an extraordinary run in the world—and nowhere more so than in the United States. Its celebrants demand, and capitalism as a system deserves, significant credit for catapulting Britain’s former secondary colony, the United States, to its status as a global economic, political, and cultural superpower in two hundred years. The costs of the journey were huge and widely distributed; the gains were also huge, but less widely distributed. Here was a first sign of troubles to come. Moreover, a long-term rise in real wages bred conditions and expectations that eventually outran capitalism’s capacities to sustain them. Here was another troubling sign. The former colony turned to immigration and imperialism as key means to further its ascendancy. Yet they also contributed to economic dependency on an evolving globalization of capitalism. This was another signpost.

Underlying and amplifying all of these problems were the basic structural flaws of the capitalist system. Its internal contradictions, tensions, and conflicts—ceaseless and unevenly developing antagonisms of labor and capital interwoven with the competitive struggles among capitalists—periodically generated downturns, crises, panics, and cyclical booms and busts. These were often moments of harsh but clear insight into the system’s darker dimensions. Slowly, people accumulated not only appreciation of capitalism’s profound social costs and many victims, but also increasingly powerful anticipations of economic and social systems that would be better than capitalism. Today, in the wake of one of capitalism’s deepest and longest crises, critical insight has yet again been revived and sharpened. Today’s critics can build on their accumulated understanding of capitalism’s history and its present dilemmas.

Perhaps most importantly, the criticism of capitalism we can articulate today—as presented in part I of this book—allows us more clearly than ever to envision a genuinely new solution. That solution not only overcomes many of capitalism’s flaws and failures, it also learns which misunderstandings and missteps to avoid from earlier efforts to go beyond capitalism. Together, the critique and the solution offer more hope for a breakthrough beyond a system in deep trouble than we have had at any point in the last half-century.

Capitalism and Crises

Like all important topics, capitalism has been defined and understood quite differently by different people and groups throughout its history. That fact requires everyone using the term to be clear and explicit about the particular definition being used. No one should proceed as if any one definition is the only one or is a definition on which everyone agrees.

For example, many contemporary usages of “capitalism”—in the media, among politicians, and in academic treatments—focus on two key dimensions. The first is private property: capitalism is a system in which the means of production (land, tools, equipment, raw materials) and products (goods and services) are privately owned by individuals and enterprises. They are not owned collectively by society as a whole or by the state apparatus (representing, at least in theory, society as a whole). The second dimension is the market: capitalism is a system in which productive resources and produced outputs are distributed by means of freely negotiated exchanges between their private owners. Distribution is not accomplished by means of the state’s or any other collective agency’s planned decisions. Thus, the twentieth century’s great confrontation between “capitalism” and “socialism” was widely defined to be a struggle between private property and markets on the one hand and socialized property and government planning on the other.

I do not use that popular definition in this book. A full discussion of the different definitions of capitalism and of the disagreements among their adherents would take us far afield. Instead, I will underscore some problems with the popular definition as an introduction to the definition I use.

Private property is indeed a prevalent feature of capitalism. However, capitalist economies also typically contain significant amounts of productive property and products owned by state apparatuses in the name of the society as a whole. In the United States, for example, harbors, air space, transportation facilities, military equipment, large tracts of land, and many educational institutions are publicly owned.

Likewise, markets are common mechanisms of distribution, yet many capitalist economies also include the distribution of goods and services in nonmarket ways. In the United States, for example, food is distributed via food stamps issued to certain parts of the population, and many communities distribute park, fire, police, and school services to citizens based on local notions of citizens’ needs, not on market exchanges. Inside most households, members produce all sorts of goods and services (cooked meals, cleaned clothes and rooms, repaired furniture, and so on) distributed to other household members according to traditional forms of household planning, barter, and exchange, not by means of market exchanges.

Moreover, private property and markets do not distinguish capitalist from other types of economic systems in human history. For example, the slaves in the noncapitalist economic system of the US South before the Civil War were private property. Similarly, in many parts of late medieval Europe, the land, horses, plows, and mills were often privately owned means of production, yet we refer to the economic system of that time as feudalism, not capitalism. Markets were also often features of slavery and feudalism as well as capitalism. For example, feudal lords often sold the products of their serfs’ labor in markets; feudalism thus worked with a market system of distribution. Similarly, the cotton produced by slaves in the US South was regularly sold in world markets by means of exchange for money.

In short, private property and markets do not provide us with a clear demarcation between capitalism and, for example, slavery and feudalism as economic systems. Nor do we get much further if we try to deal with this problem by invoking individual “freedom.” A commonly held view is that slaves lacked freedom because they were property and serfs lacked freedom because they were tied to their feudal manors, but workers in capitalism suffer neither of those forms of coercion. Among the problems with this definition is the fact that, under capitalism, wage workers are not free (other than formally, legalistically) because to live even minimally, they must work for others. They must sell their labor power to those who own the means of production in order to survive.

Because of these and many other difficulties, I define capitalism differently. My distinctive focus is not on property or distribution mechanisms or freedom. Instead, I highlight the internal organization of production and distribution: how the social sites where goods and services are produced and distributed organize those processes. A capitalist system is, then, one in which a mass of people—productive workers—interact with nature to fashion both means of production (tools, equipment, and raw materials) and final products for human consumption. They produce a total output larger than the portion of that output (wages) given back to them. The wage portion sustains the productive workers: it provides their consumption and secures their continued productive labor. The difference between their total output and their wage portion is called the “surplus,” and it accrues to a different group of people, the employers of productive laborers: capitalists.

The capitalists receive the surplus from the productive laborers by virtue of a wage labor contract entered into between capitalist and worker. This wage labor contract specifies a particular commodity exchange. The capitalist agrees to buy—pay the worker regularly for—her or his labor time. The worker agrees to sell her or his labor time to the capitalist. The worker further typically agrees to use the tools, equipment, raw materials, and space provided by the capitalist. Finally, the worker agrees that the total output emerging from her or his labor is immediately and totally the private property of the capitalist.

The productive laborers—those who produce the surplus—use the wages paid to them by the capitalists to buy the goods and services they consume and to pay personal taxes. The capitalists use the surplus they obtain from their productive employees to reproduce the conditions that allow them to keep obtaining surpluses from their productive employees. For example, they use part of their surplus to hire supervisors to make sure the productive laborers work effectively. They use another part to pay taxes to a state apparatus that will, among other activities, enforce the contracts they have with their workers. They use yet another part of the surplus to sustain institutions (churches, schools, think tanks, advertising enterprises) that persuade workers and their families that this capitalist system is good, unalterable, and so on, so that it is accepted and perpetuated.

The workers who sign contracts with capitalist employers fall into two categories. Productive laborers are those directly engaged in the production of the goods and services that their employers sell; their labor yields the surplus that employers receive and distribute to reproduce their positions as capitalists. The term “unproductive laborers” refers to all those engaged in providing the needed context or “conditions of existence” for productive workers to generate surpluses. The unproductive laborers have their wages paid and their means of work provided by capitalists. The latter distribute parts of the surplus they get from productive laborers to pay and provide for the unproductive laborers.

In short, the capitalist economic system divides people into three basic economic groups: productive laborers, capitalists, and unproductive laborers. Just as the social context for the economic system—politics and culture—shapes and influences the economy, so the reverse also holds. To focus on a society’s economic system, as this book does, does not mean that economics is any more important than politics, culture, or nature in the interaction among them that shapes every society. My focus on the capitalist economic system is driven chiefly by the widespread neglect of this dimension of today’s social problems. One purpose of this book is to rectify that neglect.

For the last half-century, the capitalist economic system in the United States, and indeed in many other parts of the world, has gotten a free pass in terms of criticism and debate. Intense debates have swirled around other basic institutions or systems, such as marriage, schools, health care delivery, transportation, and urban structure. Criticisms about their current conditions and problems have informed proposals for changes ranging from the relatively minor to the fundamental. However, our economic system—capitalism—has been almost entirely exempted from critical discussion, as if some taboo precludes criticism. Business and political leaders, the mainstream mass media, and the bulk of the academic community have substituted celebration and cheerleading for serious criticism and debate of capitalism. This was their response to the Cold War—and even more an intrinsic part of the conservative resurgence after the Great Depression, the New Deal, and the United States’ wartime alliance with the Soviet Union frightened and galvanized such forces into reaction. They insistently treated capitalism as beyond criticism, debate, or basic change—and demanded no less of others.

During the postwar period, critics of capitalism were marginalized. Laws were passed that linked such criticism to disloyalty. Colleges and universities discriminated against such critics. Politicians competed in their adulations of capitalism and condemnations of all alternatives. Culture wars yielded purges of journalists, filmmakers, playwrights, and others suspected of sympathies with those who criticized capitalism as a system. The post-1940s history of the US labor union movement shows the stark social consequences of punishing critics of capitalism. First, the state apparatus pressed successfully for the systematic rooting out of those union leaders and activists who dared to include criticism of capitalism in their work. They were excoriated for advocating “subversive” and “ideological” politics rather than doing their proper jobs of “serving their members.” Yet, as most unions fell into line, they also declined in part because of repeated attacks on unions as “special interests serving only their members” at the expense of the broader social good.

Criticism of particular capitalist enterprises or their particular practices did sometimes surface over the last half-century. It was possible to target capitalist enterprises’ monopolistic activities, racial and gender discrimination, and environmental degradations—even their corruption of political institutions. However, critics learned to focus only on specific misbehaviors—not on the economic system that induced, rewarded, and reproduced them. Many oppositional movements foundered or collapsed because they excluded those who dared venture some criticism of capitalism as a system. By contrast, in 2011, the Occupy Wall Street movement broke with the traditional taboo, clearly affirming the legitimacy of criticizing capitalism itself.

Like any social system long exempted from criticism and debate, the capitalist system deteriorated behind its protective wall of celebration. Big business subordinated smaller capitalists when it did not overtake them. Laws protecting labor and labor unions were weakened, repealed, or simply not enforced. Freedom came to be redefined as first and foremost the freedom of businesses to decide what, where, and how to produce without interference from other parts of society. The results of so long-lasting a bar on serious criticism and debate of the capitalist system are many and sobering. They include the return to levels of inequality of wealth and income typical a century ago; consequent inequality in the distribution of political power and access to culture; atrophy of government-provided social services and supports; and multidimensional ecological crises.

In light of these developments, two central objectives of this book are to show how the severe crisis since 2007 is partly another result of capitalism and to help reopen the space for criticism of capitalism as a key step toward bringing about fundamental social change.

The capitalist economic system persists so long as labor contracts between capitalists and both productive and unproductive laborers provide acceptable quantities of surpluses to capitalists and employment and incomes to workers. Developments within the capitalist economic system and/or in its social and natural environment can disrupt—suddenly or gradually—the reproduction of the system. Then unemployed workers, unutilized means of production, and the resulting loss of output can coexist—often for years—in a stunning reproach to capitalism’s pretensions to efficiency, equity, and progress.

Such disruptions are viewed by the masses of people in capitalist economies as “hard times” to be prepared for and endured. Capitalism’s defenders fear disruptions as threats to the system. Capitalism’s enemies treat them as opportunities for organizing people—especially workers—to change or supersede the system. No wonder then that capitalism has evolved mechanisms to avoid, evade, and respond to such disruptions.

Among these mechanisms have been government interventions that mix rescuing capitalists by direct subsidies (direct investments, loans, loan guarantees, below-market exchanges, and so forth), moderating mass suffering by providing state support to the unemployed and others, and passing regulations to reduce the most egregious economic practices aggravating the crisis. Simultaneously, ideological rationalizations of economic crises are expressed in claims that they weed out the inefficient enterprises and thereby strengthen the economic system. Finally, there are the bold assertions by politicians that newly enacted reforms and regulations will not only extricate society from its crisis but also prevent such crises from recurring.

1.1 Capitalism’s Instability and Unevenness

Capitalism is a notoriously unstable economic system. Times of growth oscillate, often in extreme ways, with times of decline. This has always been the case since capitalism replaced feudalism in Europe and expanded globally from there. Its oscillations take many names, from downturns, busts, deflations, contractions, recessions, and depressions to upturns, booms, inflations, expansions, and prosperity. Professional economists have had to admit that capitalism displays endemic “business cycles” but keep hoping that something might be done to prevent them or at least to keep them from undermining the system. Many economists have built on the work of John Maynard Keynes to assert that the proper exercise of monetary and fiscal policies by government can realize that hope. Politicians have taken that assertion another step. In the United States, every president who presided over a cyclical downturn promised that his economic interventions (his mix of monetary and fiscal policies) would not only end that downturn but would ensure that we would not have another in the future. No politician or set of policies in the history of capitalism, however, has yet delivered on that promise.

Capitalism also develops unevenly across space—and always has. Thus, the growth of wealth in some parts of the world goes hand in hand with the growth of poverty in others. Every particular economic development path has its winners and its losers. Over the same period of time, employers often gain while—and often because—employees lose. This particular unevenness is a crucial cause of the global capitalist crisis that erupted in 2007, as I will demonstrate. Merchants and manufacturers developing in urban areas often produce simultaneous devastation in rural agricultural areas. The competitive success of one company in one town may devastate its rival companies and their towns. British capitalism’s success was the root of India’s crisis and decline. The explosive growth of capitalist enterprises in China finds its counterpart in devastated former manufacturing zones of the United States, much as earlier Europe’s industrial revolution worked to undo production systems in Asia.

Capitalism’s disruptions have always provoked complaints from those who suffer their results. Such complaints can and often have evolved into criticisms of capitalism as a system and from there to calls to usher in noncapitalist systems. The champions of the status quo sometimes respond with arguments that the causes of decline and underdevelopment are not the fault of capitalism, instead blaming natural conditions (for example, floods and droughts), political disruptions (such as wars and government intervention), or cultural patterns (inadequate entrepreneurship or savings behaviors) and so on.

The most common and enduring of these defensive arguments focuses on state economic intervention as the key external cause of capitalist crisis. Thus, for nearly a century now, it has been popular to blame capitalism’s instability and unevenness on government interference in free-market economics. Economists, politicians, journalists, and pundits point to taxation, government spending, and regulation of markets as the culprits. The major counterargument—associated since the 1930s with Keynes—instead locates the root of capitalism’s ups and downs in culture (how individuals cope with uncertainty about the future and their “propensities” to consume and save) and the ways in which culture and economy interact. Thus Keynes and those influenced by him see government economic intervention as useful and necessary to offset and to end the destabilizing interaction between culture and economics under capitalism.

Yet since capitalism’s instability and unevenness are continually reproduced across every variation of external natural, political, and cultural conditions, some of those who defend the system have felt compelled to find better arguments that don’t rely on external causes. These thinkers have sought to justify capitalism by insisting that its negative dimensions, such as cyclical downturns and inherent inequality, are simply the necessary price to be paid for economic and social progress. They claim that the gains of capitalism’s winners are greater than the losses inevitably suffered by economic losers in the system, and therefore that instability and unevenness are ultimately—in terms of their net social effects—progressive. Capitalism is thus an efficient system, no matter how unstable and unequal.

Yet this notion of efficiency, much beloved by those who celebrate capitalism, is actually quite elusive. To know whether an economic system is efficient requires identifying and measuring all of its effects—the positive that accrue to the winners and the negative that affect its losers. Yet this is an impossible task...