THE ECONOMIC SYSTEM; A RADICAL CRITIQUE. (Part 2 of 4.)
Ted Trainer. 5.11.06)
2. PRODUCTION FOR PROFIT
WITHIN A COMPETITIVE MARKET.
This economy is not designed to do what is needed, just or ecologically sustainable.
Our economy is extremely productive. It churns out enormous quantities of goods, many of them luxuries. But at the same time there is huge unsatisfied need. In Australia thousands of people want basic housing. We need more and better hospitals. Millions of Australians live under or just above the poverty line, going without things most people regard as basic. One billion people in the world are extremely poor. Huge environmental problems are not being attended to. Why are these needs not met?
The answer is, because it is not an economy in which we ask what needs producing and then organise our productive capacity to meet the need. It is an economy in which,
· most of the productive machinery (capital) is owned by a very few people,
· who decide what to produce by asking what will make most money for themselves,
· and they can always make most money producing relatively luxurious or more expensive things to sell to people who have higher incomes than they could by producing the cheapest possible necessities for the most needy people, or by producing what is best for society and the environment.
Profit ignores need.
What drives our economy is the determination to accumulate capital, i.e., the intention of those with capital to invest in whatever will make most profit, in order to have even more capital next year to again invest where it will make as much money as possible, in a never-ending spiral.
In other words, the most fundamental fault in our economy is that it is a system of production for profit and such a system ignores need. If you give people with capital the freedom to produce only what is most profitable to themselves you will inevitably end up with neglect of the needs of many poorer people and of the environment, and with increasingly bad distributions. A few will get richer and as time goes by there will be increasing polarisation and an increasing mass of people will be deprived by the market system. This is glaringly obvious in the world as a whole where 86% of world income now goes to the rich 20% of people and the poorest 20% are receiving only 1.3% of world income. A few decades ago the ratio was much smaller.
The marvellous free market
There are only two basic ways to determine what should be produced and how it should be distributed. Either you decide via rational discussion of needs and rights, or you leave it all to the market. The former option can involve you in difficult problems of planning and politics (although in The New Economy these will be much reduced). The latter option will inevitably result in serious injustice; the needs and rights of the poor are ignored.
The core problems in our economy derive from the fact that it is a free enterprise market system. Participants are free to produce, purchase and work as they as individuals wish. This can sound desirable and there is no doubt that it is an immensely powerful productive mechanism. However there is too much freedom for the strongest and richest. Unless an economy is under considerable social control it will mostly serve the rich and powerful and the poor will be ignored and deprived of a fair share.
It is easy to show that most of the waste, human suffering and ecological destruction in the world is due to the working of market forces. In a market system what is produced and who gets it at what price is determined by who is prepared to pay most. The result is that in a market system scarce things always go to those who can pay more. In other words those who own resources will sell them for the highest price they can get, and richer people can pay higher prices. Poor people have little or no “effective demand”. Need or justice is totally irrelevant and will not influence the outcome. In a market system it does not matter how desperately something is needed, it will go to whoever can pay most for it.
This is why one-third of the world’s grain production, more than 500 million tonnes is fed every year to animals in rich countries, while every year around 850 million people are hungry. It is why the rich countries take 3/4 of the world’s resource output and consume resources at a per capita rate that is 15-20 times that of the poorest half of the world’s people.
Even worse is the fact that market forces ensure that the wrong things are developed. For example in the Third World where there is obviously an urgent need for development of farms and factories to produce for the majority of people who are very poor, very little development of this kind occurs while almost all the investment goes into developing farms and factories to export to rich countries. Why? Simply because these are the purposes that will yield most return on investment. Investors will never maximise their profits developing industries to produce what is most needed, because the most urgent needs are felt by poor people and it is always much more profitable to produce what relatively rich people want. (For more detailed discussion of the way these two mechanisms cause Third World underdevelopment and poverty see, Third World Development.)
This is the mechanism that has developed the world into the forms and structures that serve the interests of the rich countries and especially their corporate elites. Most of the productive capacity in the Third World now produces things that benefit only the transnational corporations, the few richer people in the Third World, and people who buy coffee in rich world supermarkets -- because producing to satisfy their demand is the most profitable aim for those with capital to invest.
“The market makes the most efficient allocations.”
Conventional economists claim that the market makes the most “efficient” allocations of resources and investment. This is absurdly wrong. It is only true if we define “efficient” in terms of measuring the monetary return on investment. If on the other hand we are concerned with using resources and capital to meet needs most effectively, or to do what is morally right, or to develop what is sensible or best for the environment, then market forces are not only appallingly inefficient, they will almost always result in precisely the wrong outcome! Resource producers never sell vital resources to those in most need. Foreign investors never develop industries to supply what most poor people need. Market forces never result in just outcomes or those most likely to preserve the environment.
Conventional economists, and most people in general, think the market system is effective, but this is because it has had such desirable consequences…for most people in rich countries. What they overlook is the fact that they are rich. They are among the few in the world who win and take when markets determine production, distribution and development. The market system does work well – for them. They have “effective demand”, i.e., the money to buy things. There are three large groups who have no power to bid in the market and therefore will get nothing from it – the poor majority of people on the planet, all future generations, and all other species.. Before you claim that the market works well ask those groups how well it works for them.
“The freedom of enterprise”
Conventional economists claim as a merit of this economy the fact that it gives people a great deal of freedom to buy and sell and invest as they wish. But the foregoing examples show that in our economy there is far too much freedom of enterprise and freedom for market forces to determine what happens. Corporations and richer people have far too much freedom to do and to get what they want. Third World plantation owners are free to plant coffee for export rather than food for local people. Transnational corporations are free to invest in luxury production and to avoid investing in what most needs producing. Richer people are free to take most of the scarce resources and goods on sale by being able to pay more for them.
It is of course desirable in principle to ensure that people have considerable freedom to do what they want, but obviously in a good society there must be many restrictions placed on individual freedom. There are many things that it makes sense for us not to allow each other to do if we want an orderly, sensible, just and sustainable society. For example it is not a good idea to allow people the freedom to drive on whatever side of the road they choose to. This would reduce the freedom from danger that we all want. When those who own most of the Third World land have the freedom to produce what they like this undermines the freedom of most people to have sufficient food.
The basic question should always be, “What arrangements will maximise the overall social benefit?” In general these will restrict some freedoms, especially those of the few who are most rich and powerful and therefore most able to take much more than their fair share and thus to deprive others. Yet conventional economists proceed as if the fewer restrictions on economic activity the better, and we are in an era of globalisation when the giant corporations and banks are trying to reduce the remaining capacity governments have to regulate their activities. When they call for more “freedom of trade” they mean they want more freedom for corporations to go where they like and do what the like without regulation, and thereby more freedom to take all the resources and markets available.
The dominant “neo-liberal” assumption that a society functions best when all are free and encouraged to maximise their own individual advantage in competition with all others, is patently ridiculous. That is a recipe for vicious grabbing, winner take all, increasing inequality and the eventual destruction of society and its ecosystems. You cannot have a good society unless you make sure that the strongest few don’t take everything and unless you make sure that what is done is what is best for others, for society as a whole and for the environment. This often means individuals and corporations must not be allowed to always do whatever will maximise their own benefit (… although in a satisfactory economy it could be possible to allow this much or most of the time, providing we can always regulate when that makes sense.)
Put simply, the trouble with free competition on "a level playing field" is that the strongest win and take more than their fair share. If we want a world in which all people and regions have a fair share, and in which they can develop what is best for them, and in which the environment is protected, then there must be regulation to make sure these goals are not thwarted by those who are strongest or richest.
These have been arguments against the acceptability of a free enterprise or capitalist economy. It does not follow that the alternative has to be a “communist” or “socialist” economy in which all productive property is owned by a state totally controlling the economy. The alternative argued for in The New Economy is quite different. In a satisfactory economy there might still be considerable scope for markets, private firms and freedom of enterprise, but there must be much social control, planning and regulation. It will be stressed that this does not have to involve big-state planning bureaucracies but could be done in mostly small local economies through open and participatory processes in which all people share equally in making the decisions.
“Move over pal – Find something else to sell.
One of the worst faults in this economy is the fact that everyone strives to take over as much of the productive activity as they can, without any limit. People with little firms try to grow, to get more sales, taking sales from competitors if they can. Gigantic corporations put huge numbers of firms out of business all the time, by selling more cheaply and taking the sales and customers the others used to have. These people then have to search hard for something else to sell. (Most people only have their labour to sell.) In recent years most of the foreign investment in the Third World has not set up any new operations, it has just taken over existing firms.
As a result there is constant high pressure on all to produce and sell, even though the total amount of work done and stuff produced and sold are far greater than would be necessary to provide well for all, and is having alarming environmental and resource impacts.
The conventional economist says this situation pushes everyone to work hard, innovate and produce goods that are cheaper for us to buy. It is true that the most energetic and efficient producer can offer goods more cheaply than the little people he drives out of business, but that should not be the only consideration determining what happens. What about the social consequences? What about the possibility that it is not as important to have cheaper goods as it is to have all people happily in jobs and enterprises, to have a more equal society, and to head off the long term loss of social cohesion we are witnessing? What about the possibility of avoiding all that hard work, stress, anxiety and unnecessary competition? And what about the possibility that this system pushes us all to produce far more than is ecologically sustainable?
Where have all that production, wealth and income many little people used to have gone? To the owners of the successful firms of course. Once, many little shopkeepers in the town used to share the sales opportunities and the income that could be made there – but then the big supermarket chain came in and took those markets and sales from them. Now the business, purposeful activity and income that was shared between m any all goes to a very few. This mechanism is one of the main forces at work constantly making incomes more unequal, because the few are most able to win in the struggle to take sales, so they then take over more and more of the business to be done and the money to be earned. Inequality is increasing all the time because the few rich and most able to take business away from others are doing this all the time. The rest are then forded to scramble to find something else to start selling. This is very difficult, so it is no surprise that many turn to illegal ways of getting an income, or that many individuals and corporations do morally bad things to get more sales. However if we simply shared the producing among all the people who want work and incomes, all could have a satisfactory livelihood without this constant pressure to increase the volume produced, and without fuelling growth of inequality and GDP.
Our increasing capacity to produce should result in less work for all to do, but this is not what happens in this economy. A few firms take over more and more of the producing and selling and everyone else has to constantly look for something else to sell.
In a sane economy we would make sure that there were strict limits on how much one person could take or get. We would have rules which stopped the few who are most smart, competent, powerful, rich or energetic from taking much more than they need, and thereby taking scarce things others need and forcing many others to get by on less than their fair share. We would work out ways of somehow share the work and goods, to make sure all were provided for.
Especially important, we would make sure that all people had a livelihood, a way of earning a reasonable income and getting satisfaction and self-respect from being able to work and contribute. What we have at present is a winner-take-all society. A few are allowed to get very rich by taking what others once had (taking by winning in competition within the rules of this economy.)
Similarly, a good economy would provide for all, by making sure all had a satisfactory, useful livelihood.
“But what if someone develops a much better way of doing something, that will benefit all if he is free to market it and get the reward?” Again that is a relevant consideration, but there are others. H ow often would that benefit outweigh the loss of livelihoods that would result if he was free to drive many existing firms out of business? In a good society we would grapple with problems like this, working out how best to provide for all, encouraging innovation but never leaving anyone without a livelihood. (In a very good society the innovator would be happy to give his new idea to society without expecting to become very rich from it, i.e., in a society where he knew he and all others could always live well without having to struggle to be one of the few winners.)
Of course in a capitalist society the notion of this amount of social control over both the economy and how rich some individuals could become would be flatly rejected, both by the few who benefit most by the system and by people in general. They all fiercely insist on a system in which a few are free to get very rich taking more than they need, they all try to be one of the winners, and they all cheer the winner who becomes a tycoon, with no concern for the many who lose their livelihoods and the many who can’t keep up. (See also a discussion of the core faults in “Liberalism”.)
What regulates -- the market, or needs and rights.
When you allow the market to be the determinant of what is produced and who gets it you are rejecting the other way of doing these things. The other way to determine what is done is by reference to the needs and rights of people. The present economy thus ignores the needs that millions have for food, because it operates according to market principles. This is not the way we run a household economy. Old people and children get a share of the food because we recognise that they have a need for and a right to food, not because they can pay more for it than someone else. In a satisfactory economy the overriding criterion would be needs and rights, not market power.
Endless, mindless, un-winnable competition.
This economy forces us all into constantly competing against each other for scarce jobs, markets and export sales opportunities. It makes corporations waste huge amounts competing against each other for the same limited sales opportunities, e.g., soft drink advertising. Even though we already do far more working and producing than would be necessary in a sane economy, we all have to struggle all the time to be more productive, efficient and competitive, with no point in sight where we can ease up because we have developed a sufficiently productive economy.
As has been noted everyone has to struggle to find something to work at, something to produce and sell. This is difficult because too many people are already out there producing and selling whatever you might think of trying to sell, and this economy can’t give places to all who want jobs. (The number of jobs available is always a small fraction of the number who want work.) People study for years to acquire better qualifications in the hope that this will enable them to get the job before someone else. Large numbers of small businesses go bankrupt all the time, because there is not enough room for them in the market. Technical advance has made it possible to produce far more than is needed without having everyone working, yet in this economy most of us must look for full time work producing or selling something or we can’t get the things we need. Consequently many of us are constantly struggling, stressed and insecure, and worried about whether we can keep our jobs. If on the other hand we had a sensible and cooperative economy we could easily organise to produce everything everyone needs without much work, desperate competition, or having to worry about security.
Why do people go on working frantically at things that are not important or desirable, such as making weapons, digging up gold, making cigarettes, advertising junk food, selling drugs, running gambling casinos…? Why would anyone do these things…if they could find something worthwhile to do? But in this economy they can’t get such jobs. In a sensible economy we would a) think out what needs doing, b) share out the necessary work, and c) share out what we produced. If we got this done by Wednesday afternoon we would just shut the factories until the following Monday.
Similarly, nations are increasingly dependent on competing against each other to export, mostly into markets that are already glutted. Huge efforts are made to find things to export, and to beat others to markets. A country’s entire economic situation can collapse if it does not constantly strive to produce and export more cheaply than everyone else. Meanwhile the rich countries can buy commodities at the low prices that result from the fierce competition between poor nations to win export markets for their limited range of crops or minerals.
It is absurd to organise the world and the fate of all people in terms of competing to sell. Not all can win in a competition. Only the strongest win and then take more than their fair share and many miss out altogether. In a sane world nations would produce mostly to meet their own needs, at a relaxed pace, and would export only a few things in order to be able to import a few necessities they could not produce.
But in fact the economy is highly regulated…in the interests of the corporations!
The main point of the foregoing criticism of the market system is that to the extent to which market forces are allowed to operate then inequality, injustice, social and ecological damage will result. This explains much about the global situation. But we have to add the fact that in many of the important areas of the economy outcomes are not left to market forces, but decisions which suit particular interest groups are made by government, most often the interests of the corporate sector. This has been especially glaring in the US under G. W. Bush where astounding tax benefits have been given to the very rich, massive contracts awarded without competition to favoured corporations (for exzample in Iraq), vindictive labour and welfare laws have been put through, and the vast arms sector receives ever increasing contracts. Similarly in Australia the 2006 labour legislation greatly benefits business at the expense of labour, the screws are constantly tightened on “welfare”, etc.
Nowhere is this regulatory action more glaring and damaging than at the level of the World Trade Organisation, IMF and World Bank. Globalisation can be seen as the introduction of new rules regulating the way trade, debt, foreign Investment etc must be handled, and these rules massively suit the corporate sector (e.g., by stipulating that indebted countries must leave everything to the “free market”…while rich countries refuse to do so in those huge areas where this suits them; e.g., agricultural subsidies.)
So two apparently contradictory things are happening. The neo-liberal ideology insists on free market policies, and eliminating government assistance and intervention, regulation etc…in those areas where the rich benefit from such policies, while at the same time governments often pass laws which settle big economic issues quite outside the market sphere, in the interests of the rich.
As neo-liberal doctrine has become more dominant since the 1970s it has increasingly been taken for granted that governments should not run enterprises and that they are more efficiently run by private firms. Consequently there has been a huge transfer of operations such as railways and power supply to private corporations.
The assumption that private firms run things more “efficiently” than governments is a myth. The evidence from studies of firms that have been privatised does not clearly show that they then perform better, nor that the total social benefit has increased. (See The Economy: Documents, especially Hodge, . It seems clear that some kinds of enterprises are best left to private firms but governments can run many things quite well.)
More importantly, “efficiency” is not the only factor that matters. Governments should retain control of many industries in order to achieve social goals, such as making sure all have access to satisfactory services like water supply health and pharmaceutical goods, keeping prices down by competing with private firms, locating plant in needy areas, and in general making are that important things are done. If governments give up their role in running firms they give away their capacity to influence the development of society. In the Third World neo-liberal doctrine, especially via the Structural Adjustment Policies, force governments to give up much of their power to make development decisions, by insisting that governments should not own firms and that all development should be left to market forces. This means governments can’t make sure national resources are devoted to developing what will meet national needs, and that corporations are left free to decide what will be developed, according to what maximises their profits.
Governments can keep, or set up, firms in areas where jobs are needed or where the services are needed, whereas corporations will dump those areas as soon as they can make more profit somewhere else. One of the big Australian banks recently closed its branch in a country town, because it was only making 17% profit! The fact that the town might need a bank was of course irrelevant but if the government had owned that bank it could have been kept open at no cost to society. Note how this reveals the absurdity of conventional economic theory which asserts that allowing profit maximisation to determine everything results in what is best. A similar illustration comes from drug R and D where the problems affecting most people on earth are ignored while drug companies focus on new hair-restorers and cough syrups to market in rich countries. Malaria is one of the most deadly diseases in the Third World, but drug companies don't research anti-malarial drugs, because no one suffers from it in rich countries. Only about 1% of new drugs developed are relevant to Third World illnesses.
Unemployment is a central element in a market economy, i.e., an economy in which labour is just another commodity that can be bought and sold in a market. Unemployment reveals some of the worst irrationalities and injustices in this economy.
In this economy it would only be possible to solve the unemployment problem if there was a huge increase in the amount consumed and therefore in the amount produced and in the jobs required for that. But we do not need anywhere near as much produced as there is now, and present levels of production and consumption are quite unsustainable in view of the resource and ecological limits of the planet. If we only produced as much as was sensible, with modern technology the unemployment rate might be well over 80%! In a satisfactory economy we would organise to share the rather small amount of necessary work among all who wanted work.
In this economy labour is treated as just another “factor of production”, like bricks or land, to be used in production according to what will maximise the return on investment. But labour should not be treated as just another commodity. Labour is people. It is alright to leave a brick idle or to scrap it. It is not alright to leave a person unemployed and without a reasonable income. It is not alright to let market forces determine whether a person is dumped into unemployment. The fault here is in excluding from economic decisions all but money costs and benefits when these should be given much less attention than considerations of justice, morality and the welfare of people and ecosystems. The misery of unemployment, the damage it causes to morale and self-concept, are serious costs, which economists and people with capital completely ignore. Often we should keep people in jobs even though this might be quite inefficient or costly in monetary terms.
It is easy to organise an economy without there being any unemployment. There is none in the economy of the Kibbutz settlements, or in a tribal society or a monastery. In those economies people simply arrange to share the work that needs doing among the people who want work. Only backward and uncivilised societies allow unemployment.
It is also worth pointing out here that the real unemployment rate is usually about twice the official rate. If you want full time work but were only able to find one hour’s work in the week that the survey was taken, they put you down as employed! Studies of the numbers who want work but have given up looking etc. find that by any acceptable definition unemployment is twice as high as the government says. Consider how many social needs could be met if the workforce was usually 10 - 15% larger, and if these people could work on socially desirable projects..
Unemployment also shows how it is an economy that suits the owners of capital much more than it suits workers. It is great for the people who own factories that they can hire workers when that’s profitable and dump them into misery and deprivation when they wish. Also note the powerful ideological forces at work here. Unemployment is very bad for people. It has bad effects on health and families. But it is not seen as such a bad thing that we should get rid of it. We could easily have a system whereby the government employed all who could not get work in normal firms to work on producing things they need and on important national needs, such as environmental protection. They could be paid partly by the present unemployment benefits but also from increased taxes on the rest of us if necessary. In a good society we would be quite happy to pay more tax if this was necessary to eliminate unemployment.
During the Great Depression millions of people suffered idleness for a decade, yet the "leaders" of society would not take any steps to organise these people into cooperatives where they could put their labour and skills into producing for themselves many of the basic things they need. They could have very easily and at almost no dollar cost have been helped to develop gardens and small cooperatives to build houses, furniture etc, and provide entertainment and services for each other. This was not done simply because it would have been contrary to capitalist ideology; it would have been seen as "socialism". Conventional economists would have said it was voodoo economics. It would have been very much against the interests of the rich for the working class to have found that it could provide for itself in these ways that contradict the market, “private eneterprise”, and the assumed need for capital.
At one point the NSW Premier Lang refused to pay interest on the public debt to British banks, arguing that the money should be used instead to benefit the people in great deprivation. This provoked a serious conflict. The Australian Federal government fought against him. During the Irish Potato famine conventional economists argued against assistance to the starving peasants because this would interfere with the normal working of the economy…at a time when Ireland was exporting food. These are powerful illustrations of the toll in human misery caused by the domination of conventional economic doctrine…which, surprise surprise, typically recommends what suits the owners of capital.
It suits the owners of capital if labour is treated as a commodity that can be bought and sold in a labour market, like bricks, just left idle if no one wants to buy any of it. But many important things should not be treated as a commodity that can be bought and sold, including children, friendship, the judgments of lawyers, loyalty, good health care, prison sentences, fire protection, clean air, safe water, public parks… Again the power of capitalist ideology is apparent. Almost everyone, including unemployed workers, accept without question that whether or not people can have a livelihood and an income and thereby escape the misery and wreckage of unemployment should depend on wether employers can make more money giving people more jobs. The fault here is not greedy, nasty employers, it is an economic system that treats labour as a commodity to be traded in a market.
Similarly appalling is the fact that billions of people in the Third World suffer high unemployment rates and life-threatening poverty because it does not suit the owners of capital to invest in producing anything…when those people have all around them abundant productive resources and labour that could be being applied to producing to meet their urgent needs. (See Alternative development.) But because "development" theory and practice are only thought of in terms of a capitalist economy these governments steadfastly refuse to organise this…and rich countries and their agencies would eliminate it was attempted (…e.g., the conditions on Structural Adjustment Packages require reversing of any such measures and increasing the freedom of markets; i.e., access for corporations.)
Origins, nature and effects.
In the neo-liberal era the determination to leave everything to the market has reached manic intensity. This is the core element in “globalisation”. Globalisation involves
Globalisation has been primarily a response to the essential problem a capitalist economy faces, which is where to find profitable investment outlets for all the cap0ital that is constantly accumulating. In the 20 year boom after World War 2 this was not difficult, be cause of the pent up demand and the need for reconstruction. But by the early 1970s it was becoming increasingly difficult to invest profitably. Globalisation is essentially about corporations and banks wanting to get rid of the barriers which are hindering their access to more business opportunities. It involves removing the government regulation which protected local firms, forests, labour, resources and markets for use by local people and prevented foreign corporations from taking them. The corporations are therefore increasingly able to enter markets previously out of bounds, to move to where the wages and conditions are lowest, to drive local producers out of business by undercutting their prices and therefore to take their trade, to take over local firms, to divert local land and resources from producing for local people via local firms and to put these into producing for export via transnational corporations.
A satisfactory society is not possible unless there is a great deal of control and regulation. Governments should try to make sure that what is done is good for people and the environment. This will sometimes mean saying to corporations, please invest in that area or industry or not at all, you can’t invest in that field, you can come in if you meet these conditions, etc. Obviously governments must be able to protect and assist their own people, even though this might mean interfering with the wishes of investors and restricting what they can do.
But under the new “free trade” rules governments have less and less power to block or control what corporations want to do. Governments are legally prevented ( e.g., by the trade agreements they have had to sign to be able to export to rich countries) from protecting their people against what the corporations want to do. Some governments have been fined hundreds of millions of dollars for trying to restrict what corporations are doing, e.g., to ban a corporation’s ecologically undesirable products from sale. Any such attempt will be judged by the World Trade Organisation as “interfering with the freedom of trade”. It will even be difficult to stop a corporation from coming in and processing our forests or minerals or water resources to sell overseas, even if we want to preserve these…because that would be to “interfere with the freedom of trade”.
In addition, because the neo-liberal ideology insists that it is wrong for governments to run any businesses, vital services such as water supply, electricity, health, education, prisons and welfare must be sold off (at bargain basement prices) to transnational corporations. Because the corporation’s only interest is to maximise its profits it is not surprising that when water supply was privatised in Bolivia the corporations raised the price to levels poor people could not afford, and ceased supplying the poorest regions. The majority of people often protest strongly at these actions, but governments push them through anyway.
Thus what happens in a country increasingly depends on what it suits the transnational corporations to do there. Small and economically weak countries must compete against all others to earn export income. If the corporations can buy commodities more cheaply somewhere else then the country can’t export and therefore can’t pay for imports of necessities. If it does not suit corporations to do anything in your country then you can have no development. If your government then decides to develop needed industries itself the World Bank will immediately tell you your loans will be terminated. The corporations therefore have an open world in which to do business, the power to go into any country and produce or develop or buy what they want, from many economically weak countries desperate to sell on any terms.
One very important consequence of this more open and unregulated global economy is that governments have little control over financial flows. Vast amounts of investment capital can now suddenly rush into a country, or out, chasing speculative opportunities, causing very destructive booms and crashes. About 97% of the transfers of money around the world are not to pay for products or trade, they are just to speculate or gamble, e.g., on currency rate changes. Thus in the 1997 - 8 Asian “meltdown” millions of people who had jobs and could feed themselves one day were plunged into poverty the next day because financial markets suddenly decided to sell a country’s currency or withdraw investments. In some cases food prices suddenly multiplied by four. Had appropriate development been taking place these disruptions would not have been allowed. People would have developed in their villages and regions the capacity to provide for themselves irrespective of what happened within the predatory global market system. Neo-liberal doctrine upholds this freedom for banks and corporations to destroy whole economies in the pursuit of maximum profit.
Globalisation has been a huge catastrophy for most of the world's people, including now many people in rich countries. Yes it has brought some trickle down benefits o some poor people in some countries, notably China and India, but it has plunged hudreds of millions of the very poorest into even more desperate conditions, by allowing their resources and markets to be taken from them. (See Globalisation; Collected Documents, Effects.)
The world is increasingly governed by a few supra-national agencies such as the World Bank, the World Trade Organisation and the International Monetary Fund. For example the rules of the WTO enable three unidentified bureaucrats meeting in secret to judge on trade disputes and punish governments that “interfere with the freedom of trade”. They can stop a national government from imposing a ban on imports produced in environmentally damaging ways or containing toxic chemicals. In the famous tuna case, one country was not able to ban the importation of tuna caught in drift nets which kill dolphins, on the grounds that this would be to interfere with the freedom of trade. The new rules of world trade have been extremely favourable to the corporations while contradicting the interests of most of the world’s people. The goal now is to extend the kinds of freedoms they have achieved in the trade area to cover foreign investment, the provision of services by governments, and the purchasing of governments; i.e., to driv e back or eliminate government control in these areas.
The Grab by the Corporate Super-Rich.
There is now a large literature detailing these criticisms regarding neo-liberalism and globalisation. Unfortunately most people who are dismayed about globalisation see it as having failed or as being irrational, because it is not solving our problems. (For evidence that it does not even achieve conventional economic goals see.)This is a fundamental mistake. It is to assume that the World Bank and the IMF are run by fools who can’t see that their Structural Adjustment Packages and the privatisations deregulation and enforcement of market solutions do not work. This is quite wrong; these policies do not fail, they work like a dream. But they were not intended to work for the poor, or for you.
What is going on is a stunningly successful drive by the corporations and banks and their few highly paid lawyers and managers to bring in rules of procedure for the global economy which allow them to take even more of the world's wealth and resources. Since 1970 they have been stunningly successful in increasing their wealth and pushing the working class and Third World people back. They have done it without using (much) military force. For the most part they have done it simply by changing the rules by which the global economy functions, to give greater freedom for trade and investment, meaning that the corporations have greater access to resources, markets and labour.
Do you think that the highly intelligent, highly paid people who work for the World Bank do not understand that globalisation and the neo-liberal agenda which has brought economic and social destruction to many countries over three decades while enriching the corporate rich, do not grasp that the SAPs they inflict on the poor nations have these effects, heavily documenteds in a large criical literature?
Many critics make the mistake of thinking that these are consequences blunders and clumsiness. But the situation has to be understood in terms of the limitless greed, ruthless power and brazen thuggery of the rich. They want more of the world’s wealth, they want to get into the forests and mines and soils of the Third World, they want to be able to invest and buy and sell without interference from government, and they do not want their use of Third World resources to be determined by anything other than market forces, i.e., by any set of rules other than one which allows them to get the resources.
Why do governments go along, doing everything possible to facilitate globalisation, thereby serving the corporations and banks while betraying their own people? Because governments have no choice. They must cut corporate taxes (meaning less money to spend on hospitals), entice corporations in, be seen by the credit rating agencies as a good country for foreign investment, reduce costs of production for exporters…or their country will not be competitive in the global market place. No government now can “defy the global capital markets”. All must do what the corporations and banks want, or be trashed (i.e., abandoned by investors and unable to compete in trade.)
So the massively unjust global economy must be seen not as a result of unfortunate and unintended mistakes, but as the result of a deliberate and stunningly successful drive by the corporate rich for new rules which increase their freedom to accumulate wealth at the expense of everyone else.
Third World “development”
The major faults in our economy are most glaringly obvious when we consider Third World development. (For a detailed discussion, see Third World Development.) Conventional economists define development for the Third World essentially as increasing the amount of production for sale, the GDP, i.e., as economic growth. (They often claim their concern is wider.) “The more investment, production and trade, the more wealth is being generated and thus the higher the living standards will be.” The conventional economist wants to bring (force) tribal and peasant economies (dismissed as “subsistence”) into the global market system, so they can start buying products and selling their labour and resources, and getting jobs in the cash economy. “Development requires investment and you can’t invest without capital, which means that loans and foreign investment are crucial. At first development might do more for the rich than for the poor but in time there will be trickle down benefits for all.”
However, when development is defined as “getting the economy going” or increasing business turnover and the GDP, the result is little more than development in the interests of the rich, development of the wrong things. The industries developed are mostly those that will make most profit for the few with capital to invest, including the local rich but especially the transnational corporations and banks. In the competitive global economy the best way for poor countries to earn income is to sell natural resources such as timber of fish, or put good land into export crops, (competing against all the others and thereby lowering the price rich countries have to pay.) Even worse, conventional development puts the productive capacity which the people could have used to produce for themselves many things they need, into producing things which enrich the already rich (including exports to rich world supermarkets.)
Thus most Third World land, resources, labour and capital are now applied to the production of wealth for a few people far away. Women in Bangladesh being paid 15c an hour making shirts for export would be far better off if they were able to put all their time into their own cooperative farms etc. producing to meet their own basic needs. But conventional development theory and practice prevent that. For example the conditions of the Structural Adjustment Packages make governments facilitate only capitalist development and make them cut out subsidies for the poor or assistance for self-sufficiency. They only get the loans they desperately need on condition that they do these things. (See Structural Adjustment Packages)
For this reason the development produced by conventional economic theory and practice should be seen as a form of takeover or plunder. (Goldsmith, 1997, Chossudowsky, 1997, Trainer, 1989.) It takes from the majority of people the land and forests they once had and puts these into production benefiting the rich. If you allow development to be led by what will make most money and what will add most to the GNP then inevitably you will facilitate inappropriate development. You will for example move land out of subsistence food production (which adds nothing to the GDP) and into export crops.
Appropriate development, i.e., development that serves the interests of people in general and of the environment, is impossible in the present global economy. It could only take place if the profit motive and market forces were prevented from determining development (these might still have a role, see below). Appropriate development could only take place if affluent living standards and economic growth were not taken as the goals of development. Above all appropriate development for the Third World is not possible unless the rich countries take a far lower share of the world’s wealth and therefore cease taking most of the Third Worlds wealth … their oil, minerals, timber, fish, plantation produce. Yes these are “paid” for – that is the way we take them --but the payment is of negligible benefit to most people.
In other words, a glance at the Third World shows that the global economy is massively unjust. It greatly enriches the richest one-fifth and seriously deprives the majority. Our living standards in rich countries could not be anywhere near as high as they are if the global economy was fair. We get coffee from land that should be producing food for local people. We get most of the oil that comes from poor countries at little or no benefit to their people. You get the cheap products Chinese factory workers are paid 30 cents an hour to make. Again it is not possible for all to live as we do in rich countries. There are nowhere near enough resources for that. We could not do it if we were not taking most of the world’s wealth. The main way we get them is through the normal working of the market economy, which always allocates most resources to the rich who can pay most, and only develops that industries that will produce for them.
But the most glaringly obvious absurdity in conventional development theory and practice is the assump0tion that the goal of development if to achieve rich world levels of consumption and GDP. A glance at the global resource situation makes it clear that nothing like this is remotely possible. Conventional development is in other words totally impossible. Thye only goal of development that makes sense has to be The Simnpler Way whereby it is possible for all to have a high quality of life on miniscule levels of use of non-renewable resources.
As Ghandi said long ago,
“The rich must live more simply
the poor may simply live.”
The market mechanism built into the foundations of this economy has a powerful tendency to create and increase inequality. The market heaps goods, income, wealth and opportunities on those who are richer in the first place, and if much effort is not made the poor majority will be cut out and dumped. Especially between 1945 and 1970 governments made an effort to counter this tendency, but in recent decades the surge of neo-liberalism has pushed back the provisions which restrained the growth of inequality. Fifty years ago reducing inequality was an important goal of governments but it is not now, and we are seeing rapid polarisation, i.e., enrichment of the few while the poor stagnate at best. (See globalisation below.)
Inequality in the world, and in Australia, is great and rapidly getting worse. Consider the following.
· One-fifth of the world’s people get 86% of world income, while the poorest one-fifth get only 1.3%.
· The average dollar income for half the world’s people is about $2 a day. For one billion it is $1 a day.
· In 1991 there were 274 billionaires; by 1996 there were 447. Their assets equal the annual income of the poorest 3 billion people on earth. (Korten, 1999.)
· Almost all of the world’s productive capital, i.e., its corporations and banks, are owned by about 2% of the world’s people.
· 1% of Americans hold 33% of American wealth. (North,2001, p. 83.) They have doubled their wealth since the 1970s. (Wolff, 1999.) However the wealth of the median American household fell 10% between 1989 and 1997. (Dyer, 1997.) The poorest 80% of Americans have only 14% of wealth.
· Between 1971 and 1997 the income of the poorest 20% of American families fell 1%, while that of the richest 5% rose 157%.
· About 28 million Americans work but are paid the minimum wage of $5.15/hr, less than the poverty level income. More than 40 million Americans cannot afford health insurance.
(See Inequality documents for detail of this kind.)
These appalling figures are an inevitable consequence of an economy which allows a few to own resources and productive capacity and to put them into whatever purposes are most likely to increase their own wealth, and to take the wealth others once had (e.g., the firms, forests, fisheries) by beating them in the competition for sales. In the neo-liberal era of the past 25 years governments have greatly increased the freedom for the rich to take more wealth and to drive welfare and labour conditions down.
Most people think that great inequality is quite acceptable because there is “equality of opportunity”, i.e., if all have the opportunity to get ahead, to do well at school, start a business, and become rich. So there is an important distinction between equality of opportunity and equality of outcomes in society. You could have a society in which a very few were very rich and most were very poor, but all had an equal chance of getting into the rich group. In a good society we would not be content just to have given every one an equal chance to become rich or impoverished. We would want there not to be serious inequality of outcomes and we would not want anyone to be deprived of basic necessities. Again this can’t be achieved unless steps are taken contrary to market forces to prevent serious inequality from emerging. When people are free to (forced to) compete in a market, extreme inequality will in time result because some will become the winners and take most of the wealth.
So in the US, the richest of all countries tens of millions of people are seriously deprived of necessities, when far more wealth exists than would give everyone an idyllic lifestyle. Again 80% get only 14% of the wealth. Millions of people suffer poverty, squalor, stress and savage social breakdown, which could easily be avoided if we had an economy geared to meeting need. Reflect on the power of ideological forces at work here, ensuring that there is almost no discontent with this situation! No one seems to think the situation is appallingly unjust, wasteful, destructive of human life, and ridiculous in the extreme and in urgent need of radical change.
Why do we still have to work so hard?
Over the past three decades the real average GDP per capita in rich countries has more than doubled meaning that we could have 1970s “living standards” on an average work week of about 17 hours. Yet hours of work are increasing, overtime is increasingly unpaid, work conditions are deteriorating and jobs are more insecure than ever. How can this be? Why is it that despite such an enormous increase in average wealth, everyone is having to work harder, try harder to find something to sell, worry more about their future, and to endure less security? Clearly the wealth produced is much greater than it was previously, so why don’t we have more of it, or more time to take things easier? How come that no matter how much wealth the economy produces, people still have to struggle harder to produce and sell something?
The answer is, mainly because the super rich are taking the wealth. Yes part of the answer is that people have chosen to spending much more (e.g., on more expensive houses), i.e., to take the increased ”wealth” as more possessions rather than as more leisure. But most of the answer is that we have an economy that enables the rich to take most of any increase in wealth while it forces the rest to strive ever harder to earn a sufficient income. Just consider again the basic trends in Ameriocan inequality… over 30 years the average income of the American super rich 1% increased 157%, while the average for at least 40 million fell.
It is a class war – and we lost!
To repeat the obvious, the US has far more productive capacity than is needed to give all its people a very satisfactory life, but clearly that is not what the economic system is organised to do. It heaps most of the wealth produced on the rich. About 5% of people have 54% of the wealth while 40% have almost none of it. As the documents on globalisation and inequality demonstrate this economy works mostly for the corporate super rich 1%, and to a lesser extent for another 10 – 15% of very rich people. 1% of Americans have 33% of wealth and 54% of all the shares and bonds. Obviously American society is viciously divided into super rich, very rich, well off – and the other 80%. Yet no one now talks in terms of class divisions or class conflict.
The rich also own all the media – and they “own” the government. They buy it with their campaign contributions. It costs more than $100 million for a Presidential candidate to win an election, so he is then heavily indebted to the corporations who donated all this money to his campaign fund.
Similarly 30 years of globalisation has remade the world economy to give the corporate super rich access to vast resources and markets that were previously protected from them. This has been the most massive transfer of wealth in human history, mostly from the billions of very poor Third World people who now have less access to the land, forests, fisheries and markets they once had.
Nothing is likely to change until people in general come to see their situation in class terms, and to see that the economic systems controlled by and works for the very rich, the upper middle class and the super rich, but not for most people even in rich countries, let alone some four billion people in the rest of the world.
Conclusions on the market principle.
In the transition phase to a sustainable and just society we will probably retain many elements of the market system, but as time goes by we will probably slowly phase these out, because we will develop much more satisfactory ways of running economies. The situation we will be in, especially the intense scarcity and mutual dependence) will give strong incentive for this. (See The New Economy.)
A satisfactory economy must be under firm social control; society must somehow be able to decide what is to be done and not done, and make sure goals are achieved. Markets cannot do this; they cannot attened to need and they will always attend only to the “effective demand” of those withy money to spend.
Obviously there are enormous difficulties and problems in the idea of a regulated and planned economy and some of the attempts that have been made in the past have been quite unsatisfactory, notably the big, centralised, authoritarian bureaucracies of the Soviet Union. But there are other possibilities, especially those where the decision-making is open and participatory. In the discussion of The New Economy it will be argued that in addition we will have conditions which greatly increase our chances of running a socially planned and regulated economy (notably the fact that economies will be quite small, localised, and without interest or growth.)
Obviously there is very little concern about inequality in this society, much less than there was two decades ago. Reducing it is not a significant goal of government. In fact governments now take a mean and punitive attitude to people who are unemployed and disabled or otherwise “on welfare”. This seems to be another consequence of the rise of the middle class, with its obsession with getting wealth and property, travel, consuming and self-indulgence. Post war affluence has created this powerful political force. It can afford private health care and schooling, so it does not want its taxes spend on public hospitals etc for the rest…who could have succeeded had they had the talent and worked hard… Governments respond to these demands and ignore the glaring needs of the poor majorities (again 80% of Americans have only 14% of the wealth). Globalisation has accelerated all this; it has been about the freedom for capital to move factories to low wage regions, gutting manufacturing in rich countries ( and now service industries), and it has increased the returns to those with capital, which now includes many middle class technocrats, managers, lawyers and professionals.
The social damage the economy causes.
There are direct connections between the generation of inequality by this economic system and the breakdown of society. Social problems are increasing as more people are being stressed, dumped and deprived by this economy.
Around 40 million Americans have no wealth or medical insurance. About l30 million work but are paid less than the poverty level income. It should surprise no one that the nation is wracked by squalor, festering city slums, crime, violence and an intractable drug problem.
What are the causes of this social breakdown? Firstly, in this society market forces and growth are the supreme concerns so governments are reducing their activity and spending on socially beneficial purposes and therefore their welfare programs and assistance to communities, especially to those in most need. Governments want to cut taxes on business to have “competitive” tax systems that will attract foreign investment. The corporations and banks and their credit rating agencies like countries where governments do not spend much on public goods (which would require higher taxes). The Australian government in 2005-6 had a surplus of more than $11 billion but would not spend it on urgent public needs.
Secondly, it is an economy which does not need all people and it therefore dumps many into unemployment, poverty, lack of purpose, drug addiction and homelessness, i.e., into conditions which can only generate extremely negative and destructive social consequences. It is not surprising that indices of breakdown, such as suicide and drug abuse, have increased in recent decades.
The competitive pace is cranked up all the time. People are working longer hours, with less security at work or in old age or on the streets, because the conditions of work are increasingly made to favour business. Firms are downsized all the time, making the remaining workers do more, and comply out of fear of losing their jobs. It is not surprising that depression and stress are now almost the most common causes of illness in the richest societies.
Our society is becoming more mean and selfish. For example people who can’t find work are not only given miserly assistance, they are increasingly denigrated, penalised, accused of being lazy and harassed. Many would now agree that it is a more mean, selfish, competitive and callous society than it was 50 years ago.
Of even more concern is the mentality that comes with the increasing focus on market relations. The more emphasis that is put on “getting the economy going” , individuals competing to succeed, and on market relations, the more damage that occurs to social relations; e.g., to community, social cohesion, trust, concern for others and concern for the public good. In pre-industrial times we produced and received many goods and services outside the cash economy, i.e., informally from within family and community. People gave things to each other, helped, did things for friends and family and neighbours. In consumer society we must increasingly relate to each other as isolated individual competitors in a hostile market place, exchanging things only for cash.
When you go into a market to buy the situation does not encourage you to think about what would be good for the other person or society as a whole. Your attention focuses only on what will maximise your own advantage, and you must be suspicious of the other. Because we live very privately we are given relatively few goods and services freely by friends, neighbours or the local community. We are therefore less likely to feel gratitude and debt, or bonds of affection to others in our locality or to our town for what these give us -- because we buy and pay for most of the things we get. The more society is commercialised the more the goods, services and experiences we get become mere commodities. Whereas an exchange of gifts or voluntary help builds bonds of trust, gratitude, and friendship between people, the purchase of commodities does not. Living in society increasingly involves purchasing what we want, as a competitive, self-interested individual. Tribal societies involve much more shared experience, e.g. cooperating in food production, ceremonies or community life, and individuals do not get used to pursuing what they want as an isolated competitor in a market.
There are therefore subtle but powerful forces at work in this economy which weaken and drive out social concerns, concern for the other and for the good of all. Market relations damage social relations, yet governments and economists are eager to increase the scope for market forces to determine what happens in society. So one of the worst things about the neo-liberal mentality is that it is eliminating community, mutuality, altruism, collectivism, and concern for the common good. (See the critical comment on Values and Culture, and on Liberalism.)
It is no accident that the global economy works mostly in the interests of the rich countries and especially the interests of their corporate classes. The rich countries put a great deal of effort into keeping in place the rules, the policies, and the regimes that will ensure that Third World economies deliver most of their wealth to the rich countries. This effort includes advice, the conditions put on aid, loans, foreign investment and trade deals, giving arms and training for the purposes of putting down dissent, supporting dictatorial and repressive regimes, and outright military invasion. (See the summary, Our Empire, and for detail, Imperialism; Documents.)
Your living standards could not be as high as they are if this empire did not exist, and if the associated repression and military activity to support compliant regimes was not occurring. You would not get so much coffee and oil, or so cheaply, if many people were not forced to produce these things for corporations who stock your supermarkets.
The capitial surplus problem; the crucial driver.
In trying to understand the global situation, modern history, our problems, change and where we are going, there is one factor that is crucial. It is the fact that in a capitalist society there is constant accu8mulation of capital, and this generates an ever-increasing problem of where can all this money be profitably invested. This explains things like depressions, when they can’t make profits investing anywhere, and it explains neo-liberalism and the immense push for globalisation that is reshaping the world.
During the 1950-1070 boom there was no difficulty finding fields for profitably investing all the accumulating capital, but after that serious difficulties arose. Capital therefore determined to get rid of many of the barriers to profitable investment, especially the many activities unavailable to private corporations because they were being performed by governments or because they were prevented by governments from entering, or because governments restricted what they could do (e.g., making banks set aside funds for cheap housing loans.) The powerful drive to “free market forces” overt the last thirty years has got rid of many of these restrictions, thereby greatly increasing the capacity of private corporations to get into lucrative fields of business previously out of bounds to them. Part of this story has been he use of Structural Adjustment Packages to force Third World countries to eliminate protection for their industries and farmers, allowing rich world corporations to come in and take that business.
This surplus problem is inevitably generated by capitalism and must get bigger all the time. It will be the primary determinant of our future.
The morality of the market is unacceptable.
Even if we were able to prevent market forces from generating unjust outcomes, the fundamental motivation within markets is not acceptable. Markets require and reinforce undesirable attitudes, values and practices. In markets prices are always set as high as possible, which means that the driving principle is to maximise; i.e., it is greed. Price is not set by reference to the cost of production, or the capacity of the seller to make a sufficient income, or by what people can pay, etc. Markets are always about suppliers trying to get as rich as possible, and buyers trying to pay as little as possible. The seller does not ask himself what is enough; he asks what is the most he can get. In Medieval and ancient economies there was often the idea of a "just price", but we have no such idea now.
In addition the situation is predatory; you must be careful because the other person is likely to cheat you. If someone is forced to sell you pounce on a "bargain ". "Fire sales" are acceptable. These are not the ways we will want people to behave in the satisfactory society we will have some day.
The conventional economist thinks that if supply falls price "naturally" rises. This is not so. If you are running out of weet-bix at home the price does not rise. You decide who should have what's left in terms of what's best for everyone. Price only rises in situations where sellers find they are able to demand more and therefore choose to raise their prices even when they have no need to. That's not nice. In a good society we would have institutions and systems which both required and reinforced nice behaviour, i.e., behaviour intended to help others and to advance the public good.
Worrying social and morel implications also arise when we consider the typically neglected area of work.
Surprisingly little thought is given to the topic of work. For instance how can it be that the real income per person has more than doubled over the last few decades, which would have enabled us to have the good living standards of 1970 on something like a 20 hour work week, yet the hours of work have increased, the pressure has increased, (e.g., unpaid overtime), and security in work has deteriorated. We could have idyllic lives with a small fraction of the work that now takes place.
From the perspective of The Simpler Way, in consumer society we work about three times too hard. In a sensible economy producing would be enjoyable, the distinction between work and leisure would disappear, much leisure activity would be productive (e.g., gardening, crafts), people would happily choose to go to "work" on weekends and holidays.
There are powerful ideological forces at work here. It is not in the interests of the capitalist class for people to choose more leisure time rather than more income and more consuming. Factory owners want as much producing and consuming going on as is possible. Also consider the neurotic obsession people have with work; even the many who do not like it believe it is morally virtuous to work hard. We should be much more lazy than we are. Tribal people had more sense than to work so much. Kalahari bushmen work only about 20 hours a week. Medieval people had more holidays than we do.
Work has been destroyed by consumer-capitalist society. It has been made into unpleasant grind, a mere means to an end. For most people it damages the spirit, even when tolerable, because it confines a person to one narrow activity for half their waking time. In The Simpler Way we could work most of the time at many different activities at a relaxed pace, without bosses, which would be much better for our personal development. (See The New Economic System.)
Payment for work?
Conventional economists are happy to have the price of work set by the market, meaning that those who produce more dollar value in an hour receive more money. This can seem reasonable, but it isn't because people differ greatly in how much they able to produce in an hour's work. If two people did a ditch conscientiously for an hour, is it right for the one unlucky to be smaller and weaker to get less payment for the same effort put in? Obviously it suits the employer to pay by results, but if we approached the question of payment in terms of needs and rights we would think differently about what's appropriate. The essence of the market system is that it ignores questions of needs and rights and allows profit maximisation to settle things.
In a good family all contribute according to their ability, with children and aged people doing less, but all are “paid” according to their needs; i.e., they get what they need regardless of what they produced. Why don’t we organise the wider economy according to this principle? Thew New Economy deals with the fact that some people have put effort into learning skills which meake them more productive.)