Here are some reasons why I believe we should be devoting ourselves to the development of an alternative economic system.
Reason #1: Capitalism’s Focus on Compound Growth is Unsustainable, and Destructive to Society and the Ecosystem
A minimum of 2 to 3% GDP compound growth per year has been the average rate of economic growth in the U.S., and has been necessary to maintain a decent level of employment in a capitalist economy. But as Marxian theorist David Harvey has pointed out, compound growth eventually becomes unsustainable if you continue to run the numbers out for a sustained period of time. The economy must grow at a faster rate every year, and doing so has mostly exhausted the earth’s natural resources and destabilized the environment. Financially, it has led to expansionist economies dominated by large amounts of fictitious capital and debt in hyperinflated financial markets.
The 19th century French anarchist Pierre-Joseph Proudhon wrote regarding the mathematics of compound interest*:
If men, united in equality, gave to one of their number the exclusive right of property, and if this single proprietor placed with humanity a sum of 100 francs at compound interest, repayable to his successors of the twenty-fourth generation after the lapse of 600 years – this sum of 100 francs would, if invested at 5 per cent., amount to the sum of 107,854,010,777,600 francs, a sum 2,696 times as large as the capital of France, estimated at 4,000 millions (50 years ago), or 20 times as large as the value of the whole globe with all movable and unmovable wealth.
Mathematically, it doesn’t take long before compound growth engulfs everything.
In order to keep the economy growing at a compound rate (through increased profits) there also must be increased exploitation of workers and devaluation of their labor power. This arguably defeats the purpose of keeping employment steady through growth. Capitalism was built on slavery, and now much of industrial production is occuring in Chinese sweatshops. Undeveloped countries are exploited by global powers in order to remain mere exporters of cheap goods or resources with little to no global bargaining power.
Domestically, the FIRE sectors (Finance, Insurance, Real Estate) contribute more to our GDP (20.2% as of 2014) than any other industry by a very wide margin. And most of this is simply funneling money from the average person to the rich through interest charges and rents. The total domination by these sectors has led to instability in the global system, as speculation accounts for an increasingly large amount of our economic activity.
Decoupling our economy from GDP and other measures of growth, and committing to the creation of a steady state economy is a change we need to make. Such an economy would aim to stay within ecological limits and prioritize human well-being over profit.
Reason #2: Capitalism is an Inequality Producing Machine
As I mentioned in a previous post, Oxfam estimates that the richest 1% globally will own more wealth than the bottom 99% combined by 2016. Meanwhile 2.7 billion people live on less than $2 a day. In the U.S., the bottom 40% of Americans own only 0.3% of the wealth, while the top 20% own 84%. And since the recession, the trend in income inequality has been exacerbated, with the top 1% capturing 91% of all new income. Economists Piketty and Saez, among others, project that we are heading into a neo-feudalistic economy, where ownership of capital and inheritance will largely determine outcomes, and produce an increasingly disconnected plutocracy of global elites.
These elites have almost godlike powers as a result of their wealth. We have already seen them take over our political system. Gilens & Page concluded in a 2014 Princeton study that:
In the United States, our findings indicate, the majority does not rule—at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites or with organized interests, they generally lose.
Capital accumulation = power accumulation = manipulation of the political system = subversion of democracy.
Reason #3: Efforts to Reform Capitalism Through Tax Policies and Regulation Can Only Go So Far
Progressive taxes are largely an attempt to counterbalance the financial exploitation which occurs in the labor process, and reduce inequality on the back end. Regulation is an attempt to prioritize certain externalities which are often in conflict with profit seeking activities. Without changing the totalitarian, strictly hierarchical structure of multinational corporate institutions (many of which receive more revenue than the average country produces in GDP), we will remain in a losing battle with them at every turn. And without reforming our financial system, and escaping the stranglehold it has put us in, we will continue to be a nation of debtors.
Contrary to the idealized conception of capitalism as a decentralized and unplanned ‘free market’, what actually exists is a highly centralized, planned economy. The planners are located primarily in New York City. This is where most of the profits are distributed by a small handful of oligarchs (the One Percent). CEOs, shareholders, bondholders, and bank managers plan where our resources are allocated, with little interference from goverment regulators or practically nonexistent worker unions. Over the last thirty-five years these funds have almost entirely been used to inflate asset markets through massive lending and speculation, while simultaneously cutting investment in production and destroying the power of labor, along with their benefits. Investment in production, when it has occured, has been largely focused on developing technology and acquisition of cheap foreign labor power, both of which have been rapidly replacing domestic workers in numerous fields.
A fair amount of the money collected by the One Percent has been used to subvert the political system, as mentioned above. This has resulted in deregulation (e.g. repeal of Glass-Steagall), and shifting the burden of taxes largely off of the wealthy (Reagan cut the top income tax rate in half) and onto the middle and lower classes (through increasing payroll taxes for example). Bank bailouts under the Bush and Obama administrations were examples of how much the financial sector has infiltrated government for the purpose of socializing the costs of their reckless activities.
The defense department likewise is largely a means of subsidizing industry, whether it be directly (e.g. Lockheed Martin), or indirectly (e.g. opening up oil markets through foreign intervention). The military has also developed much of the technology that private companies now profit from.
The poor are given enough handouts to allow them to consume (and subsidize the food industry, retail, etc.) and keep them voting for Democrats, but little in the way job training and higher education to get them on their feet and out of poverty. Since the lower classes have a higher marginal propensity to consume, there is little incentive in a consumer culture to help them move up in society. Private colleges and lenders use the market to exploit high school grads who must go deep in debt to gain an education in an economy which now has little room for non-college educated workers. Hence the hyper-inflated college tuitions (up roughly 600% since 1980).
Privatized health care has also been a way to exploit the poor and jack up prices. And likewise, the compromises capitalist reformers must make to avoid the appearance of socialism has led to the subsidization of private health insurance companies through costly Medicare, Medicaid, and Social Security benefits, and now Obamacare. A single payer system would eliminate such exploitation, but there are no insurance companies to enrich, so it stays out of the discussion.
Decentralization and democratization of profits through worker cooperatives and alternative business models is necessary if we are to tackle our economic problems head on. Capitalism as it exists doesn’t really avoid the problem of centralized power accumulation. Usually the right argues in favor of decentralization, mainly through limiting the federal goverment, and emphasizing state power; but without decentralizing the private power of capital, this only continues to weaken the one democratic institution which can act as a counterbalance to private corporate tyrannies.
Reason #4: Capitalism’s Fetishization of Profit-Seeking Degrades Us as Human Beings
Our culture celebrates activities which are profitable and add to GDP, regardless of whether such activities ultimately benefit human beings. Does our work lead to more good in the world then bad? This disconnect was described in Marx’s theory of alienation . When our work is meaningless, it demoralizes us, and degrades our communities. A sociocentric economy, which prioritizes the well-being of people over profits is necessary to achieve the world we wish to see. This means looking beyond GDP, the Dow Jones, NYSE, and even official unemployment rates for alternative measures of a good society.
*For further reading on compound interest, I recommend the economist Michael Hudson’s article The Mathematical Economics of Compound Rates of Interest: A Four-Thousand Year Overview Part I
Thank you for considering my perspective. Your opinion matters to me, and I’d love to hear from you in the comments.
The contents of this article may be used in accordance with the Creative Commons Attribution 4.0 International license. Credit should be given to thefreethinkinghuman.wordpress.com.