Capitalism

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Characteristics

Fred Magdoff:

Here are ten key aspects of capitalism:

It has to grow (or else it is in crisis) and its very logic and motivating force impels growth.

It has no other driving force than the accumulation of ever greater amounts of capital.

Through the creation of so-called “externalities” (or side effects) it wreaks damage on humans as well as the ecosystem and the life support systems needed by humanity and other species. In Paul Sweezy’s words: “As far as the natural environment is concerned, capitalism perceives it not as something to be cherished and enjoyed but as a means to the paramount ends of profit-making and still more capital accumulation.”

It promotes the use of nonrenewable resources without regard to the needs of future generations, as if there was no end to them, and abuses even renewable resources such as ocean fisheries and forests.

It creates vast inequality in income, wealth, and power both within and between countries. Not only class, but race, gender, and other inequalities are built into its laws of motion.

It requires and produces a reserve army of labor—people precariously connected to the economy, most kept in poverty or near poverty—so that labor is available during economic upswings and workers can easily be fired when not needed by businesses.

It promotes national economic and political competition and imperialism, leading to wars for domination and access to resources.

It fosters and rewards those particular human traits that are useful for thriving or even just existing in such a possessive-individualist society—selfishness, individualism, competition, greed, exploitation of others, consumerism—while not allowing the full expression of those human characteristics needed for a harmonious society (cooperation, sharing, empathy, and altruism).

It leads to the breakdown of human health since people operate in a hierarchical society, with many working under dangerous and physically debilitating conditions or in jobs that are repetitive and boring—while subject to job loss or fear of losing their job. (There are many adverse long-term health effects following the loss of one’s job.)

It leads to the breakdown of healthy communities as people become more solitary in outlook and behavior and indigenous culture is replaced by the dominant national or international capitalist culture and outlook. People become dedicated to obtaining more for themselves and their families and depending less on reciprocal relationships with others." (http://monthlyreview.org/2012/06/01/harmony-and-ecological-civilization)

Inherent Growth Characteristics of Capitalism

Richard Smith:

"1. Producers are dependent upon the market: Capitalism is a mode of production in which specialized producers (corporations, companies, manufacturers, individual \producers) produce some commodity for market but do not produce their own means of subsistence. Workers own no means of production, or insufficient means to enter into production on their own, and so have no choice but to sell their labor to the capitalists. Capitalists as a class possess a monopoly ownership of most of society’s means of production but do not directly produce their own means of subsistence. So capitalists have to sell their commodities on the market to obtain money to obtain their own means of subsistence and to purchase new means of production and hire more labor, to re-enter production and carry on from year to year. So in a capitalist economy, everyone is dependent upon the market, compelled to sell in order to buy, to buy in order to sell to re-enter production and carry on.


2. Competition is the motor of economic development: When producers come to market they’re not free to sell their particular commodity at whatever price they wish because they find other producers selling the same commodity. They therefore have to “meet or beat” the competition to sell their product and stay in business. Competition thus forces producers to reinvest much of their profit back into productivity-enhancing technologies and processes (instead of spending it on conspicuous consumption or warfare without developing the forces of production as ruling classes did for example under feudalism): Producers must constantly strive to increase the efficiency of their units of production by cutting the cost of inputs, seeking cheaper sources of raw materials and labor, by bringing in more advanced labor-saving machinery and technology to boost productivity, or by increasing their scale of production to take advantage of economies of scale, and in other ways, to develop the forces of production.


3. “Grow or die” is a law of survival in the marketplace: In the capitalist mode of production, most producers (there are some exceptions, which I will note below) have no choice but to live by the capitalist maxim “grow or die.” First, as Adam Smith noted, the ever-increasing division of labor raises productivity and output, compelling producers to find more markets for this growing output. Secondly, competition compels producers to seek to expand their market share, to defend their position against competitors. Bigger is safer because, ceteris paribus, bigger producers can take advantage of economies of scale and can use their greater resources to invest in technological development, so can more effectively dominate markets. Marginal competitors tend to be crushed or bought out by larger firms (Chrysler, Volvo, etc.). Thirdly, the modern corporate form of ownership adds irresistible and unrelenting pressures to grow from owners (shareholders). Corporate CEOs do not have the freedom to choose not to grow or to subordinate profit-making to ecological concerns because they don’t own their firms even if they own substantial shares. Corporations are owned by masses of shareholders. And the shareholders are not looking for “stasis”; they are looking to maximize portfolio gains, so they drive their CEOs forward.

In short, I maintain that the growth imperative is virtually a law of nature built-into in any conceivable capitalism. Corporations have no choice but to seek to grow. It is not “subjective.” It is not just an “obsession” or a “spell.” And it cannot be exorcised. Further, I maintain that these theses are uncontroversial, even completely obvious to mainstream economists across the ideological spectrum from Milton Friedman to Paul Krugman. But Herman Daly, Tim Jackson and the rest of the pro-market anti-growth school of ecological economists must deny these elementary capitalist rules for reproduction because their project for a “steady-state” eco-capitalism rests on the assumption that capitalist economic fundamentals are not immutable, that growth is “optional,” and thus dispensable." (http://www.paecon.net/PAEReview/issue53/Smith53.pdf)


Source: Critique of Steady-State Capitalism. Richard Smith


Characteristics of Capitalism according to Freemarket Anticapitalism

Charles Johnson:

"The term “capitalism” is used by almost all sides in economic debates as if it were obviously the ideal governing libertarian policy proposals, and is debated over both by nominal pro-”capitalists” and by nominal anti-”capitalists” as if it were perfectly obvious to everyone what it means.

But really the term has a lot of different shades of meaning, which are distinct from each other, and some of which are even mutually exclusive.1 And as often as not it seems that debates about “capitalism” involve more than one of them being employed — sometimes because each person is talking about a different thing when she says “capitalism,” but they think that they are fighting about a common subject. And sometimes because one person will make use of the word “capitalism” in two or more different senses from one argumentative move to the next, without noticing the equivocation. At the expense of oversimplifying a very large and tangled literature,2 there are at least four major definitions that have been attached to the term:


  • Free Enterprise.

This is a relatively new usage (coming mainly from libertarian writing in the 1920s-1940s). “Capitalism” has been used by its defenders just to mean a free market or free enterprise system, i.e., an economic order — any economic order — that emerges from voluntary exchanges of property and labor without government intervention (or any other form of systemic coercion). This is the meaning that is almost surely most familiar to those who spend much time reading libertarian economic writing; it is offered as, more or less, a stipulative definition of the term in Friedman, Mises, et al.

  • Pro-Business Political Economy.

“Capitalism” has also been used, sometimes by its opponents, and sometimes by beneficiaries of the system, to mean a corporatist or pro-business economic policy — that is, to active government support for big businesses through instruments such as government-granted monopolies, subsidies, central banking, tax-funded infrastructure, “development” grants and loans, Kelo-style for-profit eminent domain, bail-outs, etc. Thus, when a progressive like Naomi Klein describes government-hired mercenaries, paramilitary torture squads or multigovernment financial institutions like the IMF and World Bank, as examples of the political economy of “disaster capitalism,” capitalism here must mean something other than markets left free of major government intervention. Rather, this is the state intervening, with a very heavy hand, to promote the interests of a particular class of economic players, or promoting a particular form of economic activity, as a matter of policy. This second meaning of capitalism is, of course, mutually exclusive with the first meaning — state-driven corporatism necessarily consists of projects funded by expropriated tax dollars, or regulations enforced from the barrel of a gun, and so to be a “capitalist” in the sense of a free marketeer means being an “anti-capitalist” in the sense of opposing the corporate state, and being “pro-capitalist” in the sense of state “growth” policy means coming out against “capitalism” in the sense of genuinely free markets.


  • The Wage-Labor System.

“Capitalism” has also been used to refer to a specific form of labor market, or a distinctive pattern of conditions facing ordinary working people — one in which the predominant form of economic activity is the production of goods or the performance of services in workplaces that are owned and managed, not by the people doing the work on the line, but by an outside boss. In this third sense, you have capitalism when most workers are working for someone else, in return for a wage, because access to most of the important factors of production is mediated through a business class, with the businessmen and not the workers holding legal titles to the business, the tools and facilities that make the shop run, and the residual profits that accrue to the business. Workplaces are, as a result, typically organized in hierarchical fashion, with a boss exercising a great deal of discretion over employees, who are generally much more dependent on keeping the job than the boss is on keeping any one worker. (This sense is most commonly seen in Marxian writing, and in older writing from the radical Left — including a great deal of pro-market writing from Anarchists such as Benjamin Tucker and Pierre-Joseph Proudhon.)


  • Profit-Dominated Society.

Finally, the term “capitalism” is very often used (outside of the debating circles of libertarian economists, this is in fact probably the modal use of the term) loosely to mean something like the commercialization of everyday life — that is, a condition in which social interactions are very largely mediated through, or reshaped by, overtly commercial motives, and most or all important social and economic institutions are run primarily on a businesslike, for-profit basis.

It’s important to note, then, that while “capitalism” in the first two senses — that of the freed market, and that of pro-business politics — are mutually exclusive, “capitalism” in the latter two senses are conceptually independent of the political oppositions involved in the first two senses of the term. In concept, a fully free labor market might develop in any number of directions while remaining a free market — you might have a market dominated by big corporations and traditional employer-employee relationships; or you might have worker co-ops, or community workers’ councils, or a diffuse network of shopkeeps and independent contractors; or you might have a pluralistic mish-mash of all these arrangements, without any one of them clearly dominating. (The most likely outcome will depend in part on pre-existing patterns of ownership, the strength and direction of people’s preferences, the direction of entrepreneurial innovation, etc. etc.) Similarly, interventionist states might intervene either against, or in favor of, “capitalism” in the latter two senses — when states adopt heavy-handed “growth” policies and prop up corporate enterprise, they are attacking the free market, but they may very well be entrenching or expanding workplace hierarchy, concentrations of economic ownership, or commercial motives and activities, at the expense of other patterns of ownership, or other forms of peaceful activity, that might be more common were it not for the intervention.

I point all this out, not because I intend to spend a lot of time on semantic bickering about the Real Meaning of the term “capitalism,” or because I think that (say) the disagreements between libertarians and progressives can all be cleared away by showing that one of them is using “capitalism” in the first sense, while the other is really using “capitalism” in the second, third or fourth. Rather, I think the distinction is worth making precisely in order to avoid semantic bickering, and thus to get clear on where the areas of substantive disagreement, and the best topics for productive argument, actually are. A lot of time to get to the real argument you first need to be willing to say, “OK, well, I see that you are complaining about ‘capitalism’ in the sense of the corporate status quo, but that’s not what I mean to defend. What I’m defending is the free market, which is actually radically different from the status quo; no doubt you disagree with that too, but for different reasons; so let’s get on with that.” (http://bleedingheartlibertarians.com/2011/08/libertarian-anticapitalism/)


Capitalism as a system of generalized monopolies

Samir Amin:

"Contemporary capitalism is a capitalism of generalized monopolies. By this I mean that monopolies are now no longer islands (albeit important) in a sea of other still relatively autonomous companies, but are an integrated system. Therefore, these monopolies now tightly control all the systems of production. Small and medium enterprises, and even the large corporations that are not strictly speaking oligopolies are locked in a network of control put in place by the monopolies. Their degree of autonomy has shrunk to the point that they are nothing more than subcontractors of the monopolies.

This system of generalized monopolies is the product of a new phase of centralization of capital in the countries of the Triad (the United States, Western and Central Europe, and Japan) that took place during the 1980s and 1990s.

The generalized monopolies now dominate the world economy. 'Globalization' is the name they have given to the set of demands by which they exert their control over the productive systems of the periphery of global capitalism (the world beyond the partners of the triad). It is nothing other than a new stage of imperialism.


  • 2.* The capitalism of generalized and globalized monopolies is a system that guarantees these monopolies a monopoly rent levied on the mass of surplus value (transformed into profits) that capital extracts from the exploitation of labour. To the extent that these monopolies are operating in the peripheries of the global system, monopoly rent is imperialist rent. The process of capital accumulation -- that defines capitalism in all its successive historical forms -- is therefore driven by the maximization of monopoly/imperialist rent seeking.

This shift in the centre of gravity of the accumulation of capital is the source of the continuous concentration of income and wealth to the benefit of the monopolies, largely monopolized by the oligarchies ('plutocracies') that govern oligopolistic groups at the expense of the remuneration of labour and even the remuneration of non-monopolistic capital.


  • 3.* This imbalance in continued growth is itself, in turn, the source of the financialization of the economic system. By this I mean that a growing portion of the surplus cannot be invested in the expansion and deepening of systems of production and therefore the 'financial investment' of this excessive surplus becomes the only option for continued accumulation under the control of the monopolies.


The implementation of specific systems by capital permits the financialization to operate in different ways:

1. the subjugation of the management of firms to the principle of 'shareholder value'

2. the substitution of pension systems funded by capitalization (Pension Funds) by systems of pension distribution

3. the adoption of the principle of 'flexible exchange rates'

4. the abandonment of the principle of central banks determining the interest rate -- the price of 'liquidity' -- and the transfer of this responsibility to the 'market.'


Financialization has transferred the major responsibility for control of the reproduction of the system of accumulation to some 30 giant banks of the triad. What are euphemistically called 'markets' are nothing other than the places where the strategies of these actors who dominate the economic scene are deployed.

In turn this financialization, which is responsible for the growth of inequality in income distribution (and fortunes), generates the growing surplus on which it feeds. The 'financial investments' (or rather the investments in financial speculation) continue to grow at dizzying speeds, not commensurate with growth in GDP (which is therefore becoming largely fictitious) or with investment in real production.

The explosive growth of financial investment requires -- and fuels -- among other things debt in all its forms, especially sovereign debt. When the governments in power claim to be pursuing the goal of 'debt reduction,' they are deliberately lying. For the strategy of financialized monopolies requires the growth in debt (which they seek, rather than combat) as a way to absorb the surplus profit of monopolies. The austerity policies imposed 'to reduce debt' have indeed resulted (as intended) in increasing its volume.


  • 4.* It is this system -- commonly called 'neoliberal ,' the system of generalized monopoly capitalism, 'globalized' (imperialist) and financialized (of necessity for its own reproduction) -- that is imploding before our eyes. This system, apparently unable to overcome its growing internal contradictions, is doomed to continue its wild ride.

The 'crisis' of the system is due to its own 'success.' Indeed so far the strategy deployed by monopolies has always produced the desired results: 'austerity' plans and the so-called social (in fact anti-social) downsizing plans that are still being imposed, in spite of resistance and struggles. To this day the initiative remains in the hands of the monopolies ('the markets') and their political servants (the governments that submit to the demands of the so-called 'market').


  • 5.* Under these conditions monopoly capital has openly declared war on workers and peoples. This declaration is formulated in the sentence 'liberalism is not negotiable.' Monopoly capital will definitely continue its wild ride and not slow down. The criticism of 'regulation' that I make below is grounded in this fact."

(http://www.economics.arawakcity.org/node/977)

Definitions of other 'ethical' visions of capitalism

Collated by Jeff Mowatt:


"Economics, and indeed human civilization, can only be measured and calibrated in terms of human beings. Everything in economics has to be adjusted for people, first, and abandoning the illusory numerical analyses that inevitably put numbers ahead of people, capitalism ahead of democracy, and degradation ahead of compassion." (From the Manifesto for People-Centered Economics)

The white paper for People-Centered Economic Development was delivered to the Committee to re-elect the (US) President in 1996 following an invitation made to P-CED founder Terry Hallman, to serve as an honorary member of the steering committee. P-CED was first deployed in Russia in 1999 to source the Tomsk Regional Initiative for USAID." (http://people-centered.net/Capitalism.aspx)


  • Creative Capitalism - Bill Gates

"We are living in a phenomenal age. If we can spend the early decades of the 21st century finding approaches that meet the needs of the poor in ways that generate profits and recognition for business, we will have found a sustainable way to reduce poverty in the world. This task is open-ended. It can never be finished. But a passionate effort to answer this challenge will help change the world."


"Why is industrial era business so destructive - why does it slash and burn rainforests, endanger entire species, vaporize culture and community, marginalize the poor and disadvantaged, and erode our health and vitality?

"Because none of those have value in an industrial economy: none are capitalized. So the beancounters of the world are free to plunder and ruin them - because, economically, they actually don't exist.

"20th century capitalism, in other words, marginally valued pure financial capital too highly, while marginally valuing human, natural, social, and cultural capital at zero - or, at the limit, negatively." (http://people-centered.net/Capitalism.aspx)


Discussion

Point of view of Binary Economics

"An economic/financial system where a relatively small number of individuals own the vast bulk of capital assets, and where the majority of the population is employed at a wage and owns little or no capital.

Louis Kelso used the term "capitalism" (or "universal capitalism") to describe a free market system where capital (as opposed to labor) is the predominant factor of production, and where there exists the widest possible distribution of private ownership of capital among the households of the economy. For semantic and philosophical reasons, however, a growing number of binary economists have rejected any use of the term "capitalism" to describe the logical alternative to traditional capitalism and socialism. (See Just Third Way.)

The term "capitalism" was invented as a pejorative by socialists, not by Adam Smith or other pioneers of free market economics. Advocates of the "Just Third Way" assert that where socialism as a socio-political system reflects the "institutionalization of envy," capitalism represents the "institutionalization of greed." While the word "capitalism" retains some degree of respectability within the United States and other developed countries, it has become increasingly disparaged by opponents of globalization and many citizens in the developing world.

Capitalism is often confused with "free markets" or "democracy," but in practice has historically resulted in mercantilism, concentrated power and monopoly. So-called "democratic capitalism," as some have labeled America's socio-economic system, has fostered an unstable, conflict-prone and class-divided combination of political democracy and economic plutocracy. While many defenders of democratic capitalism share with binary economists support for limited economic power of government, establishment of free markets and free trade, and restoration of private property rights, they generally treat universal access to capital ownership as irrelevant politically and economically.

Expressed as an "ism," "capital-ism" connotes an ideology or value system that places its highest value on capital (or "things"), ranking it higher in importance than labor (or human beings). From the standpoint of binary theory itself, the term fails to acknowledge the interdependence and respective contributions of both capital and labor, with the distribution of incomes to both factors determined by market principles as well as principles of economic justice.' (http://www.cesj.org/definitions/glossary.html)


The anti-ecological growth imperative

Fred Magdoff:

"The growth imperative of capitalism deserves special attention because it is one of the major stumbling blocks with respect to harmony between humans and the environment. Accumulation without end means using ever greater quantities of resources—without end—even as we find ways to use resources more efficiently. An economy growing at the very meager rate of 1 percent a year will double in about seventy-two years, but one growing at 2 percent a year, still a low rate, will double in size in thirty-six years. And when growing at 3 and 4 percent, economies will double in twenty-four and eighteen years respectively. China recently has seen recorded growth rates of up to 10 percent, meaning economic output doubles at a rate of approximately every seven years! Yet, we are already using up resources far too fast from the one planet we have—depleting the stocks of nonrenewable resources rapidly and misusing and overusing resources that are theoretically “renewable.” If the world’s economy doubles within the next twenty to thirty years this can only hasten the descent into ecological, and probably societal, chaos and destruction.

Thus capitalism promotes the processes, relationships, and outcomes that are precisely the opposite of those needed for an ecologically sound, just, harmonious society." (http://monthlyreview.org/2012/06/01/harmony-and-ecological-civilization)