Capitalism discussion

[Naselus]

I'd like to have a bit of a debate about capitalism, if we may. The entire system, and how it has failed just as badly as communism.

To begin, let's take a look at communism, the last failed economic experiment. Communism is such a lovely idea, in theory. To each according to his ability, to each according to his need. Of course, the big problem is that it relies on everyone staying honest enough to actually follow the system, and inevitably some utter bastard rises out of the pile and shafts the entire thing. Yes, communism is flawed.

However, the 'invisible hand' that capitalism uses to control the market economy also needs everyone to toe a line and stay honest, and Enron showed that when people cheat, the system is every bit as weak as communism. The invisible hand was only able to control the market as long as it remained invisible; when Adam Smith revealed it he essentially destroyed it's ability to guide the market. Once people are aware of market forces, they can be manipulated by anyone cynical enough to do so. Ken Lay was just a capitalist Stalin.

Worse, capitalism makes little effort to move away from roots which are essentially feudal in nature. While we demand all manner of rights and freedoms in our daily lives, we must surrender these to utter dicatorship in the workplace. We're all aware of the terrible things done in the name of profit, I'm sure; from the slave-labour used in iPod factories, to the barbaric refusal of US companies to allow factory labourers to have toilet breaks until required to by law (in 1997, hardly what you'd expect of civilised nations). Why should we allow utter remorseless sociopaths to run our lives for eight hours a day? Well, obviously because we'd starve to death otherwise. Surely this alone is a deep and obvious flaw in the system. Worse, the very nature of the corporate structure encourages behaviour that would be completely unacceptable in other situations; you must save money for the shareholders, so therefore the loss of 12,000 jobs is never a bad thing.

As to the concept that capitalism allows you to own the fruits of your labour, that's just nonsense. If everyone in a company was given shares in the organisation automatically when they joined, and all salaries were abolished, then perhaps we'd see that; however, generally those who do the most work (say, the poor bastard working an 80-hour week in a sweatshop in China) inevitably receive the least money. Another huge flaw; with a payscale based on responsibility rather than labour, the whole system is basically a lie in and of itself.

Adam Smith is the father of modern capitalism, and I'll end this with his delightful definition of 'corporation': A wonderful device to maximize personal gain while minimizing personal responsibility.

[HStorm]

Capitalism is an outgrowth of Feudalism, and therefore shares many characteristics e.g. the three-tier society. But at the same time they're not compatible. Feudalism's prime assets are land and ownership of people, whereas Capitalism supplants these with movement of money and limitation of people (which admittedly is very hard to distinguish from ownership).

This is one of the reasons I was always a little perplexed by Oliver's philosophy of pure Capitalism and Absolute Monarchy - they don't really mesh at all. That's part of how the Civil Wars happened. It was partly a religious conflict, partly a political/constitutional conflict, but it was also partly a class war. Many people assume it was Royalist Capitalism v Parliamentary Socialism, but this is a wild anachronism. It was Feudalism v Capitalism, and it was Parliament, not the Crown, that was backed by the Capitalists. Capitalism requires decision-making freedom for the entrepreneur/manager, and Feudalism doesn't allow it, as so many economic decisions are closely controlled by the Crown. Hence the businesses fought for Parliament.

In that respect, Capitalism is a vast improvement for the larger, more sophisticated society that emerged in early modern Britain. But, it's now out-of-date. Society has grown many scales again, and many more times more sophisticated, since then. The devolution of powers to the plutocrats has gradually extended further down the ladder, but it still has a shamefully long way to go. The main argument the new millennium has for retaining Capitalism is that all attempts to create Socialism have failed, therefore they always will.

The world has far more flexibility and possibility to it than that. I do agree the odds are largely against it succeeding, but that doesn't mean impossible. Society has to try, as it has become too large for Capitalism to prop it up any further, just as it once became too large for Feudalism.

[TheCritique]

Unfortunately, it is a sad fact of economics that no system will ever be perfect, and therefore the most general case in favour of capitalism is that it fulfils the functions of an economic system better than any alternative. I think it would be reasonable to say that this view is supported by the majority of economists today, despite the major detractions that capitalism has. Consequently, the major economic debates of today are essentially how to manage capitalism so that it benefits as many as possible and how to lesson its negative effects.

To explain this view, it is necessary to examine the reasons for the failure of command economies such as that of the Soviet Union:

Firstly, the impracticality of centrally coordinating all economic decisions. The capitalist economy is largely self-organising, as decisions regarding the allocation of resources are decentralised to buyers and sellers (economic agents). For example, the distribution of retail goods in the UK is coordinated entirely by supermarkets and other stores seeking to make profits, and what goods are produced is a matter ultimately decided by buyers. Moreover, because producers seek to make profits, they attempt to organise production and distribution in the most efficient manner possible, minimising their costs and thereby enhancing their competitiveness and profits. If they fail to be efficient, their profits will be eroded and they may risk bankruptcy.

However, in command economies centrally organising all production proved impossible, with frequent bottlenecks in production and shortages and surpluses (these persistently plagued the Soviet economy). Capitalism inevitably does encounter such problems, but as discussed, agents organising production suffer financial losses as a result and therefore they have a strong incentive to improve – there is no incentive of equal magnitude in command economies.

The second reason is the failure of quality control. Soviet factory managers met their production quotas at whatever cost, and the result was poor-quality products. In market economies, poor quality goods are punished by low sales, and suppliers quickly change their practices or face bankruptcy. This problem was shown to be extremely serious when competition was permitted in 1990 in Eastern Europe – goods produced in advanced market societies easily out-competed those produced domestically.

To demonstrate these two reasons, I need only point to the discrepancy in success between Tesco and its rivals – Tesco is successful primarily because it is efficient and can bring consumers goods of a reasonable quality at low cost; it rivals suffered a decline in profits because they did not satisfy the demands of consumers as effectively.

The third reason is a failure of incentives. With capitalism, the possibility of unemployment provides incentives to work diligently. In planned economies, workers had complete job security, and therefore it proved impossible to provide sufficient incentives to work reasonably hard.

All of this is not to say that capitalism does not have a number of glaring deficiencies. In any capitalist economy, there invariably exists unemployment and often significant inequality, both of which have significant social costs. There is a compelling case that unemployment is related to crime, and it undoubtedly is related to other social problems such as poverty. Although, the problem of inequality is not so great in magnitude provided that the proceeds of growth do not all disappear into the pockets of the wealthy.

Globalisation has had a devastating effect on numerous developing countries. It has the potential to be positive if the process is properly managed, shown by the successful development in East Asia. However, the way it has been managed by institutions such as the IMF (International Monetary Fund) has damaged many developing economies before they have become established. In particular, the introduction of a free market system in Russia has actually damaged the country due to the suddenness of the change and the collapse of the political authority at the time.

Although free markets may provide relatively efficient outcomes in the majority of instances, there are cases of “market failure” where they do not. Firms in advantageous positions (typically monopolists and oligopolists) will naturally abuse their position in order to profit maximise to the detriment of consumers. Some markets may not exist at all as firms cannot efficiently provide certain goods and services, such as healthcare. From this, the inescapable conclusion is that government intervention is sometimes necessary to correct excessive market failures in order to benefit the majority.

However, despite these difficulties capitalism is a broadly satisfactory economic system. It is abundantly clear from this discussion that capitalism has not failed as badly as communism and other long abandoned economic systems for the simple reasons given. There is clear evidence to support this conclusion: capitalism is the reason for the unprecedented prosperity the West currently enjoys, and also it has the potential to considerably improve the standard of living in developing countries.

This information has been compiled using Economics Tenth Edition by Richard G. Lipsey and K. Alec Chrystal, Oxford University Press.

[Naselus]

I would say that capitalism has failed every bit as much as communism, as any system based so thoroughly on the greed of the individual inevitably leads to the concentration of wealth in a few hands, as we can see today. As for the prosperity of the west, that prosperity is a paper mask covering the hopeless poverty in the lower levels of our society. We have CEOs giving themselves multi-million dollar bonuses, while the workers at the bottom of the company scrape by on minimum wage.

Worse, for many companies it has become financially expedient to simply break the law whenever they want. Even if we ignore such 'market failures' as Enron, we have examples such as Microsoft, who are willing to pay several million dollars a day in fines rather than stop illegal business practices because it's simply more profitable to do so. Hence any attempt at regulation becomes a joke. Another glaring failure.

Capitalism runs on the theory that if everyone does what is best for himself, then everyone will prosper. However, as John Nash proved in the 1950s, that theory is incomplete, and that's why we have a handful of fat cats in the west holding 50% of the world's wealth. The correct theory, mathamatically, is that all should strive to do what is best for the group first, and then for the individual second. And capitalism does NOT follow that rule.

Capitalism will NOT improve the standard of living in developing countries. The powerful western capitalist companies will simply exploit the workers in the hopes of maximizing profits still further, as Apple have in the iPod slave-factories. Of course, once word got out they changed things to avoid a PR disaster, but the corruption is in evidence and it is born of the system as a whole.

Capitalism demands a level of unemployment in order to control inflation, so as a system it actively requires some level of inequality. Meanwhile, the use of personal greed to fuel the economy means that corruption runs rampant. Frankly, these fundamental flaws mean that capitalism is broken. The system has led to the concentration of wealth in the hands of far too few, and I would say that that constitutes a failed system altogether.

[HStorm]

admin said:

capitalism... fulfils the functions of an economic system better than any alternative.

Better than any alternative that has so far been implemented, perhaps. That doesn't mean there won't be others that work in the future.

I think it would be reasonable to say that this view is supported by the majority of economists today

Economists are generally educated in how Capitalism works, with very little focus on any other system beyond the aphorism "Governments must not interfere in the market!!!!!" So indoctrinated, it's no wonder they generally become Capitalists...

The capitalist economy is largely self-organising

Self-organising, yes, but not self-regulating. We can talk about Goverment getting out of the way of the Invisible Hand of The Market all year if we want, but as long as an economy is self-organising, it will remain corrupt.

in command economies centrally organising all production proved impossible, with frequent bottlenecks in production and shortages and surpluses (these persistently plagued the Soviet economy). Capitalism inevitably does encounter such problems, but as discussed, agents organising production suffer financial losses as a result and therefore they have a strong incentive to improve – there is no incentive of equal magnitude in command economies.

The second reason is the failure of quality control. Soviet factory managers met their production quotas at whatever cost, and the result was poor-quality products. In market economies, poor quality goods are punished by low sales, and suppliers quickly change their practices or face bankruptcy. This problem was shown to be extremely serious when competition was permitted in 1990 in Eastern Europe – goods produced in advanced market societies easily out-competed those produced domestically.

With capitalism, the possibility of unemployment provides incentives to work diligently. In planned economies, workers had complete job security, and therefore it proved impossible to provide sufficient incentives to work reasonably hard.

You're missing the point that quality targets and employment incentives can exist in a state-controlled economy too. Equally, state-controlled economies - even socialist ones - don't necessarily have to be the same as the Stalinist model. It's a lazy Western mistake to assume that Communism, Socialism, Marxism and Stalinism are all the same thing.

naselus said:

I would say that capitalism has failed every bit as much as communism

I don't think we can really go quite that far. Capitalism has never been an overwhelming success, and is now inadequate, but it has survived for around four centuries and is still stumbling on, whereas Communism caved in in under one.

[Naselus]

Let us not forget that communism was under constant attack, and also that it's not yet dead; Cuba's been doing well enough under US embargo for the past forty long years. And capitalism has only survived as a bastard love-child of feudalism. I wouldn't say it's stood alone for four centuries; I'd say it only finished it's evolution with Adam Smith in 1780. And it's been falling apart since before then, back to the south sea bubble.

No, I'd simply say that capitalism hides it's mistakes better than all the others. Because of the hopelessly inadequate distribution of money and power, those at the top have a much louder voice than those at the bottom; hence capitalist-centered power schemes look great, since the only people who can afford to speak out are those benefiting the most. In a communist society, everyone has equal voice, so the malcontent can make their position clear just as easily as the others. In the greed-based world of the capitalist, the poor are simply bad losers, and their complaints are the gripes of failure.

To my mind, capitalism is the drawn-out death knell of a feudal system that could never fully escape it's own in-built weaknesses. While the capitalist strain allowed for some movement of power and capital, it maintained exclusivity while throwing open the doors of corruption. And while you may classify it's muddling along as 'survival', I'd call it an overblown and overlong collapse since day one. It's the final death of the slave-based economy of Rome; a final attempt to prevent the masses from recieving their share of the Senate's pie.

[TheCritique]

Better than any alternative that has so far been implemented, perhaps. That doesn't mean there won't be others that work in the future.

That statement is tautological: Because capitalism is not perfect, by definition there is conceivably an economic system that does a better job. However, we can only really judge success or failure based on what has been implemented – communism looked good on paper but transpired to be rather different.

Economists are generally educated in how Capitalism works, with very little focus on any other system beyond the aphorism "Governments must not interfere in the market!!!!!" So indoctrinated, it's no wonder they generally become Capitalists...

Twaddle! Are you seriously suggesting that academic economists are not sufficiently educated and open-minded to consider alternative economic systems and ideas, and that they are all free market liberals? To gain a greater level of understanding and appreciation of economics, one has to study alternative systems to capitalism; and the majority of economists agree that there is a case for government intervention whenever there is serious market failure.

I suspect that many academics have devoted their careers to studying the concept of planned economies, and the fact that they generally arrive at the balanced conclusion that capitalism is, out of those systems that have been tried, relatively the best, merely supports the argument that capitalism has not failed as badly as communism.

The process of globalisation, as it has been conducted, is also vehemently opposed in the economic community – in particular, eminent academics such as Joseph Stiglitz (former chief economist of the World Bank) have written persuasively on the topic. So much for “indoctrination”.

I admit that certain institutions (the IMF stands out) have confused means with ends when pursuing globalisation, and that some economists are genuinely parochial on such issues. However, your assertion that economists are “indoctrinated” with free market orthodoxy is too general and unsubstantiated.

Self-organising, yes, but not self-regulating. We can talk about Goverment getting out of the way of the Invisible Hand of The Market all year if we want, but as long as an economy is self-organising, it will remain corrupt.

I did not once assert that free markets are self-regulating. Indeed, I asserted that one of the roles of the government in an economy is to regulate it (providing the “economic framework” for free markets to function whilst addressing their problems). This includes promoting “transparency”, especially amongst large firms; providing a legal framework, so that firms act responsibly; intervening in markets in cases of market failure (see it in terms of monopoly power and efficiency); and outlawing things like corruption.

I suspect you have misunderstood what I meant by “self-organising”. Self-organisation and corruption are not omnipresent partners – self-organisation refers to an economy’s natural organisation of production, distribution and exchange; whereas corruption is a failure of regulation. Self-organisation can exist without corruption and vice-versa. To illustrate, I present a rhetorical question: Was corruption not present in command economies such as Soviet Russia; and do we not have a generally low level of corruption in the UK today?

It has been shown to be true that excessive government intervention in markets (especially in developed countries) has a negative effect, and often more optimal outcomes are produced by free markets in such circumstances. Please do not misconstrue what I am saying to mean that governments should never intervene, because that is demonstrably false. I am saying that there is a balance – governments should not attempt to control everything, and should let markets operate with a degree of autonomy; but neither is it desirable to have a free-for-all situation, as shown by post-communist Russia.

You're missing the point that quality targets and employment incentives can exist in a state-controlled economy too. Equally, state-controlled economies - even socialist ones - don't necessarily have to be the same as the Stalinist model. It's a lazy Western mistake to assume that Communism, Socialism, Marxism and Stalinism are all the same thing.

Admittedly, Soviet Russia is an extreme example, and it is true that incentives can exist in planned economies. But I refer you back to my quoted sentence:

…there is no incentive of equal magnitude in command economies.

Hence, there are incentives, but not as strong as those present in capitalist economies. The profit motive – derived from individuals’ desire to improve their position – is particularly strong. It is pervasive in all commercial organisations, and arguably cannot be matched (in a positive way) in a command economy.

I would say that capitalism has failed every bit as much as communism, as any system based so thoroughly on the greed of the individual inevitably leads to the concentration of wealth in a few hands, as we can see today. As for the prosperity of the west, that prosperity is a paper mask covering the hopeless poverty in the lower levels of our society. We have CEOs giving themselves multi-million dollar bonuses, while the workers at the bottom of the company scrape by on minimum wage.

Firstly, equality is not the be all and end all. Logically, a society in which all are reasonably affluent, but some are richer than others, is better than a society where everyone is poor but equal (based on material standards). Therefore, inequality is per se irrelevant and we must pay more attention to absolute rather than relative poverty. Hence, the fact that wealth is concentrated is not, per se, a fundamental reason why capitalism either doesn’t work or is unsustainable.

Secondly, it has been proven that Western capitalist countries are more prosperous (materially) than any others, and there is no existing system that can match its performance (see my original post for fundamental reasons). If you still don’t believe me, please just take a look at a few indicators of the standard of living – GDP per capita (based on purchasing power parity), the Gini Index, the proportion of the population that are below the (relative) poverty line, the prevalence of malnutrition, life expectancy, and finally the Human Development Index. Moreover, compare today’s minimum wage and associated standard of living with real wages in Soviet Russia and their associated standard of living.

Statistics can tell lies, but they can also be beacons of truth.

Worse, for many companies it has become financially expedient to simply break the law whenever they want. Even if we ignore such 'market failures' as Enron, we have examples such as Microsoft, who are willing to pay several million dollars a day in fines rather than stop illegal business practices because it's simply more profitable to do so. Hence any attempt at regulation becomes a joke. Another glaring failure.

The problems you have highlighted are actually a form of “government failure” – a failure of regulation. I have said, time and again, that capitalism has strong potential to be beneficial provided it is regulated effectively. In these particular cases, the government failed to ensure that Enron wasn’t pursuing illegal accounting practices (i.e. it failed to insist on transparency); and the fines imposed on Microsoft simply aren’t sufficient to persuade it to change its practices. Hence, it has become expedient because governments have failed to regulate effectively.

Capitalism runs on the theory that if everyone does what is best for himself, then everyone will prosper. However, as John Nash proved in the 1950s, that theory is incomplete, and that's why we have a handful of fat cats in the west holding 50% of the world's wealth. The correct theory, mathematically, is that all should strive to do what is best for the group first, and then for the individual second. And capitalism does NOT follow that rule.

This is entirely correct, and is by far the most convincing argument against capitalism to date in my view – it is based on a fundamental and inherent element of capitalism rather than sentiment about inequality or “exploitation”. It also proves that there is theoretically a better economic system than capitalism.

The theory is irrefutable, but let us move on to practicality. No economic system to date has harnessed a system of incentives better than capitalism has, and it is results that count. It has been proven that Western capitalist countries are more prosperous (materially) than any others, and there is no existing system that can match its performance (see my original post for fundamental reasons). In the majority of instances, the best outcome for the group is also that which is the best for the individual, hence the Nash equilibrium is the group’s optimum outcome.

Please refer to my earlier answer in which I quoted a list of indicators of standard of living.

Capitalism will NOT improve the standard of living in developing countries. The powerful western capitalist companies will simply exploit the workers in the hopes of maximizing profits still further, as Apple have in the iPod slave-factories. Of course, once word got out they changed things to avoid a PR disaster, but the corruption is in evidence and it is born of the system as a whole.

In the majority of developing countries, workers have a degree of freedom. In many cases, they have a choice. They can either work on the farm (or local equivalent), or they can work at the Nike (or whatever brand) factory. Many choose to work at Nike. The reason? – they earn a greater wage working there than they do working on their farms – why else would they. As a consequence, they can afford to support their families and live a materially better life; hence, it is good for them.

In our cosy armchairs in the West, we can look across to poor developing nations and see their working conditions, and we are appalled. We then selfishly campaign to shut them down, blissfully ignoring the simple logic that if workers were better off not working in these factories then they would not be there. Just imaging if the factories shut down. All those people would be out of work, thrust back to working on farms in equally appalling conditions, but this time in greater poverty.

To move on, capitalism has unquestionably improved the standard of living in some developing countries, and I invite you again to look at the statistics for places like South Korea. As for the others, many developing countries suffer from bad government or an oligopoly of violence more than they do from capitalism.

[Naselus]

Firstly, equality is not the be all and end all. Logically, a society in which all are reasonably affluent, but some are richer than others, is better than a society where everyone is poor but equal (based on material standards). Therefore, inequality is per se irrelevant and we must pay more attention to absolute rather than relative poverty. Hence, the fact that wealth is concentrated is not, per se, a fundamental reason why capitalism either doesn’t work or is unsustainable.

Bollocks. Inequality is not irrelevant simply because there is more wealth to go round; I'd say it becomes far more relevant, in fact. And as capitalism relies on that basic inequality, it is a failed system.

Secondly, it has been proven that Western capitalist countries are more prosperous (materially) than any others, and there is no existing system that can match its performance (see my original post for fundamental reasons). If you still don’t believe me, please just take a look at a few indicators of the standard of living – GDP per capita (based on purchasing power parity), the Gini Index, the proportion of the population that are below the (relative) poverty line, the prevalence of malnutrition, life expectancy, and finally the Human Development Index. Moreover, compare today’s minimum wage and associated standard of living with real wages in Soviet Russia and their associated standard of living.

Most of those indicators are based on broad averages, and so mean nothing. Meanwhile, we compare the US minimum wage and associated standard of living with the real wage in Soviet Russia and we actually find the US to be sorely lacking; it is literally impossible to survive in the US on minimum wage without working 14 hours a day, seven days a week.

Statistics do tell lies, and averages are never beacons of truth.

The problems you have highlighted are actually a form of “government failure” – a failure of regulation. I have said, time and again, that capitalism has strong potential to be beneficial provided it is regulated effectively. In these particular cases, the government failed to ensure that Enron wasn’t pursuing illegal accounting practices (i.e. it failed to insist on transparency); and the fines imposed on Microsoft simply aren’t sufficient to persuade it to change its practices. Hence, it has become expedient because governments have failed to regulate effectively.

The concentration of wealth has made it impossible to regulate certain companies. Multinationalism and the sheer number of jobs these companies provide means that they hold governments over a barrel; there is no leverage left to control the largest companies. Many US corporations have a turnover significantly higher than the GDP of Eastern European countries, for example, which in turn makes them far more powerful. For examples, see the Bolivian water supply.

This is entirely correct, and is by far the most convincing argument against capitalism to date in my view – it is based on a fundamental and inherent element of capitalism rather than sentiment about inequality or “exploitation”. It also proves that there is theoretically a better economic system than capitalism.

The theory is irrefutable, but let us move on to practicality. No economic system to date has harnessed a system of incentives better than capitalism has, and it is results that count. It has been proven that Western capitalist countries are more prosperous (materially) than any others, and there is no existing system that can match its performance (see my original post for fundamental reasons). In the majority of instances, the best outcome for the group is also that which is the best for the individual, hence the Nash equilibrium is the group’s optimum outcome.

Please refer to my earlier answer in which I quoted a list of indicators of standard of living.

Firstly, thanks for confirmation that John Nash is correct in his theories. He's only one of the most brilliant mathamatical minds of this century, after all, and I wouldn't like to rely on his word without your backing.

Secondly, the West is richer than the rest of the world, but then again we did cheat to get there. Imperialism bled the rest of the world dry for two hundred years, and so the Western world was starting with a significant advantage, not to mention everyone else's cash. The British, for example, destroyed one of the finest ship-building industries in the world in India, in order to prevent competition with the home-based companies. So the disparity between wealth in the East and West is at least partially unreliable as a defence of capitalism, as it has been thrown out of balance by other factors.

As for practicality, switching away from capitalism is extremely difficult. Capitalism defends itself, just as any system will, because those who have become most powerful want everything to remain as it is. This doesn't mean that it's a good system; it just means a few powerful men think it is.

In the majority of developing countries, workers have a degree of freedom. In many cases, they have a choice. They can either work on the farm (or local equivalent), or they can work at the Nike (or whatever brand) factory. Many choose to work at Nike. The reason? – they earn a greater wage working there than they do working on their farms – why else would they. As a consequence, they can afford to support their families and live a materially better life; hence, it is good for them.

In our cosy armchairs in the West, we can look across to poor developing nations and see their working conditions, and we are appalled. We then selfishly campaign to shut them down, blissfully ignoring the simple logic that if workers were better off not working in these factories then they would not be there. Just imaging if the factories shut down. All those people would be out of work, thrust back to working on farms in equally appalling conditions, but this time in greater poverty.

To move on, capitalism has unquestionably improved the standard of living in some developing countries, and I invite you again to look at the statistics for places like South Korea. As for the others, many developing countries suffer from bad government or an oligopoly of violence more than they do from capitalism.

Firstly, as has been continuously stressed by most industries, there are no figures for ANYTHING in South Korea outside the capital. The government keeps little or no record of the countryside at all, and I would assume that the figure for the farming population would result in a significant changing of the 'success' story there. Which is also probably why the aggressively capitalist government doesn't collect those figures.

Meanwhile, while I agree that workers have a degree of freedom, some areas (such as China and India, to pick the two most popular destinations for Western manufacturing and services, respectively) have such burgeoning populations (1.3 billion and 1.1 billion, respectively) that they don't have a choice. China's unemployment is averaged at 9%, or, put another way, 117 million people. India's is a similar 8.9%. This does not, to my mind, paint a picture of choices; you either work at the iPod factory or you starve to death. And you don't become rich, or even particularly well-off, since 99.99% of the profit from your work goes into the hands of executives overseas.

In our cosy armchairs in the West, it's easy to say that we're doing these people a favour, but we blatantly aren't. We're using them as slaves, because labour is cheaper overseas. These poor bastards will never own the iPods they build, even though they work a 60 hour week. Now, how exactly can you pretend that we're doing them a favour for that?

[HStorm]

That statement is tautological: Because capitalism is not perfect, by definition there is conceivably an economic system that does a better job. However, we can only really judge success or failure based on what has been implemented – communism looked good on paper but transpired to be rather different.

Yes but what I'm saying is that we shouldn't write off Socialism or other state-controlled economics just because Communism failed.

Twaddle! Are you seriously suggesting that academic economists are not sufficiently educated and open-minded to consider alternative economic systems and ideas, and that they are all free market liberals?

No, I said 'generally', I did not say 'entirely'.

I did not once assert that free markets are self-regulating.

Nor did I suggest that you had. I was saying the absence of self-regulation is the problem in an economy that is self-organising.

In the majority of developing countries, workers have a degree of freedom. In many cases, they have a choice. They can either work on the farm (or local equivalent), or they can work at the Nike (or whatever brand) factory. Many choose to work at Nike. The reason? – they earn a greater wage working there than they do working on their farms – why else would they. As a consequence, they can afford to support their families and live a materially better life; hence, it is good for them.

In our cosy armchairs in the West, we can look across to poor developing nations and see their working conditions, and we are appalled. We then selfishly campaign to shut them down, blissfully ignoring the simple logic that if workers were better off not working in these factories then they would not be there. Just imaging if the factories shut down. All those people would be out of work, thrust back to working on farms in equally appalling conditions, but this time in greater poverty.

(I should just point out that, living as I do on a working class income in a greedy capitalist society, I do not own an armchair as I can't afford one.)

I have read some truly extraordinary, disingenuous claims from right-wingers on Internet forums down the years, but this one I had to re-read three times before I was sure I understood it. The claim that being opposed to multi-national corporate domination is 'selfish', or that creating a virtual slave economy is 'beneficial' to its workers, is the most disingenuous attempt to justify blatant exploitation that I have ever read, the sort of outrageous cr*p factory owners were spewing during the Industrial Revolution to disguise their own disgusting avarice.

People don't necessarily want Nike or the likes to close down their factories - although we'd much prefer to see places like Malaysia and Indonesia have their own industries instead of becoming satellites of the US economy - we just want them to pay the locals a fair wage. It is nonsense of the most dishonest kind to claim that the wages and conditions the workers in these places get are beneficial and allow them and their families to have a better life. A dollar a day for 16 hours' work is just enough money to avoid starvation - usually - and it is the outrageous crime of the West that we take cynical advantage of such desperation.

Even taking into account the fact that prices are far lower in these countries than over here, the manipulation of the developing world by Western Corporations in giving such paltry wages is truly sickening.

[TheCritique]

Bollocks. Inequality is not irrelevant simply because there is more wealth to go round; I'd say it becomes far more relevant, in fact. And as capitalism relies on that basic inequality, it is a failed system.

I did not say that inequality was irrelevant entirely – I said it was irrelevant in its own right when compared to other, more important things, like absolute poverty. I hate to repeat myself, but there is something compelling about the logic that an affluent society in which some are wealthier than others is materially more successful than one in which everyone is destitute.

Inequality is as relevant as is its magnitude. In Russia, there is a more compelling case for redistributive policies (because the vast majority are poor yet there are a small number of super-rich oligarchs with surplus wealth) compared to the UK, as income is more evenly distributed in the latter and less people are absolutely poor (and I can quote statistics to prove it).

I agree that capitalism is a failed system in many important respects. Note that with any economic system we cannot declare it outright to be a success or failure because we have no perfect system – communism succeeded in achieving high (if not full) employment, but failed to generate wealth; whereas capitalism has succeeded in generating wealth (for some/many), but has fails to support the poorest in society. The fact that capitalism leads to inequality means it fails in that respect by definition, but it cannot be declared a failed system outright ipso facto (if you disagree with the last statement, please give me a fundamental reason why).

Most of those indicators are based on broad averages, and so mean nothing. Meanwhile, we compare the US minimum wage and associated standard of living with the real wage in Soviet Russia and we actually find the US to be sorely lacking; it is literally impossible to survive in the US on minimum wage without working 14 hours a day, seven days a week.

Statistics do tell lies, and averages are never beacons of truth.

As a matter of fact, three of the six indicators I quoted are averages – GDP per capita, life expectancy and the HDI. I appreciated this, and therefore qualified my argument by providing a list of indicators of inequality, which show that inequality is not sufficiently severe to negate the averages entirely. These indicators are the Gini coefficient (apologies for the misnomer), which is derived from the Lorenz curve and shows the level of income inequality; the proportion of the population that are below the (relative) poverty line, which is an indicator targeted at poverty; and the prevalence of malnutrition is an indicator of absolute poverty.

Statistics can tell lies, but do not do so always.

The concentration of wealth has made it impossible to regulate certain companies. Multinationalism and the sheer number of jobs these companies provide means that they hold governments over a barrel; there is no leverage left to control the largest companies. Many US corporations have a turnover significantly higher than the GDP of Eastern European countries, for example, which in turn makes them far more powerful. For examples, see the Bolivian water supply.

I agree that multinationals especially wield an undue amount of power over governments, especially in developing countries, and that should not be the case. However, I maintain that in the case of industrialised Western countries governments are not entirely powerless to regulate moderately. Enron’s troubles were mainly accounting fraud, and this could have been prevented by tougher tax rules on disclosure and so on. Such rules are frequently strengthened in this country, showing that governments are not entirely powerless – ultimately, multinationals will remain in a country provided they make reasonable profits, and a little more bureaucracy on trivial accounting matters will not motivate them to surrender their profits and leave. Moreover, if the political pressure is sufficient, governments can regulate effectively on virtually anything – how else was the Sarbanes-Oxley Act, instinctively opposed by multinationals, introduced in America?

Firstly, thanks for confirmation that John Nash is correct in his theories. He's only one of the most brilliant mathamatical minds of this century, after all, and I wouldn't like to rely on his word without your backing.

As a matter of fact, you only stated that he proved that individuals should act in the interests of the group rather than themselves, and that this was a problem with Smith’s theories of capitalism. I merely added my opinions to your argument and gave my reasons in terms of something that you had already said, for clarity. You and I are not the only participants or readers of this discussion.

And please stop misspelling “mathematical”.

Secondly, the West is richer than the rest of the world, but then again we did cheat to get there…So the disparity between wealth in the East and West is at least partially unreliable as a defence of capitalism, as it has been thrown out of balance by other factors.

Agreed on that.

As for practicality, switching away from capitalism is extremely difficult. Capitalism defends itself, just as any system will, because those who have become most powerful want everything to remain as it is. This doesn't mean that it's a good system; it just means a few powerful men think it is.

That was not my point, but I do agree with yours. It is actually worse than what you say: it is more than a few powerful and self-interested men, but because any country that attempts to change will consign itself to economic chaos in the medium term because of the inter-dependent nature of capitalism. This is evidenced by the recession triggered by something so relatively trivial as currency speculation in 1992.

Firstly, as has been continuously stressed by most industries, there are no figures for ANYTHING in South Korea outside the capital. The government keeps little or no record of the countryside at all, and I would assume that the figure for the farming population would result in a significant changing of the 'success' story there. Which is also probably why the aggressively capitalist government doesn't collect those figures.

Apologies if I made an incorrect assumption. I cannot provide you with more legitimate statistical examples, so I’ll instead provide you with a quote which will make the point better than any statistic:

“Globalisation itself is neither good nor bad. It has the power to do enormous good, and for the countries of East Asia, who have embraced globalisation under their own terms, at their own pace, it has been an enormous benefit, in spite of the setback of the 1997 crisis. But in much of the world it has not brought comparable benefits. For many, it seems close to an unmitigated disaster.”

Source: Globalisation and its Discontents, by Joseph E. Stiglitz, published by Penguin Books, paperback edition page 20, last paragraph.

I think that speaks for itself.

…that they don't have a choice. China's unemployment is averaged at 9%, or, put another way, 117 million people. India's is a similar 8.9%. This does not, to my mind, paint a picture of choices; you either work at the iPod factory or you starve to death. And you don't become rich, or even particularly well-off, since 99.99% of the profit from your work goes into the hands of executives overseas.

I agree that they do not have a choice whether to work or not. The main consideration for them is the job that pays the highest wage, because their main priority is to support themselves and their families. The factories pay higher wages than they would earn elsewhere, and as this means higher incomes for workers, this must be beneficial for them. I must say that I agree unequivocally that those workers should be paid a greater wage for simple reasons of social justice and equity, but the argument that the absence of these factories is beneficial is simply wrong in my view.

I was particularly surprised with this statement of yours:

…you either work at the iPod factory or you starve to death…

Based on this, if you could not work at the iPod factory, you would starve to death. Ergo, if the iPod factory was not there, you could not work at it, and you would starve to death. Hence, the presence of the iPod factory in those circumstances is a good thing because it prevents people starving to death. Right?

I would like to give you another quote, from the same source as before:

“People in the west may regard low-paying jobs at Nike as exploitation, but for many people in the developing world, working in a factory is a far better option than staying down on the farm and growing rice.”

Source: Globalisation and its Discontents, by Joseph E. Stiglitz, published by Penguin Books, paperback edition page 4, last but one paragraph.

And this is from an academic who is hugely critical of globalisation!

Yes but what I'm saying is that we shouldn't write off Socialism or other state-controlled economics just because Communism failed.

I agree that we shouldn’t write them off entirely ipso facto, but the arguments I put forward in my first post were reasons why command economies fail, rather than just communism, and I cited communism as the most obvious example of this failure.

No, I said 'generally', I did not say 'entirely'.

I recognised the generalisation, but even the generalised assertion was incorrect.

(I should just point out that, living as I do on a working class income in a greedy capitalist society, I do not own an armchair as I can't afford one.)

Your ability to recognise metaphors does you great credit. The point I was making is that we are far more affluent in the UK and have incomparably better working standards compared to poorer countries who need whatever they can get, and we consequently take a different view of their circumstances than they do.

People don't necessarily want Nike or the likes to close down their factories - although we'd much prefer to see places like Malaysia and Indonesia have their own industries instead of becoming satellites of the US economy - we just want them to pay the locals a fair wage. It is nonsense of the most dishonest kind to claim that the wages and conditions the workers in these places get are beneficial and allow them and their families to have a better life. A dollar a day for 16 hours' work is just enough money to avoid starvation - usually - and it is the outrageous crime of the West that we take cynical advantage of such desperation.

Do we take cynical advantage of such desperation by providing jobs to these people? I agree that they should be paid more, as I have said, but although the practice is exploitation by our standards, it is often not exploitation by theirs. Please refer to the second (shorter) quote given above.

Although it often would be better if these factories are domestically owned, because profits are not repatriated and would be for the direct benefit of the population, foreign ownership brings with it foreign knowledge and investment. For example, a Japanese owned car plant will utilise more efficient production techniques and cultures developed and used by the experienced owners elsewhere in the world, compared to domestically-owned car plants whose owners have relatively little experience of running them. Moreover, the Japanese owners can invest far greater amounts in the enterprise than the poorer locals.

[HStorm]

admin said:

Your ability to recognise metaphors does you great credit. The point I was making is that we are far more affluent in the UK and have incomparably better working standards compared to poorer countries who need whatever they can get, and we consequently take a different view of their circumstances than they do.

I'm well aware that it was a metaphor, just as I'm well aware of the point you were making with it. The point I was making was that the metaphor itself highlights assumptions that aren't even accurate here, let alone in Africa or the Far East.

Either way, I still don't see how anyone can say it's 'selfish' to demand that multi-national corporations should pay their workers a fair wage.

Do we take cynical advantage of such desperation by providing jobs to these people?

No. We take cynical advantage of them by working them half to death for a fraction per day of what Western workers receive in a single hour.

although the practice is exploitation by our standards, it is often not exploitation by theirs.

So, you're saying it's not exploitation because the workers don't realise that it is? You do realise that you're espousing the values of Ingsoc by saying that, don't you?

You know, I honestly thought the world was beyond this stage of the argument by now. The only things that matter are that grotesque Industrial-Revolution-standard exploitation is still going on, and that the people doing it are fully aware of it.

[TheCritique]

Either way, I still don't see how anyone can say it's 'selfish' to demand that multi-national corporations should pay their workers a fair wage.

What I said was selfish is that people campaign to shut down those factories without properly considering the effects on the local population – I have regularly advocated that multinationals should pay higher wages as that is a legitimate argument.

So, you're saying it's not exploitation because the workers don't realise that it is? You do realise that you're espousing the values of Ingsoc by saying that, don't you?

No, I am saying that it is not exploitation because multinationals pay their workers better (although still inadequate) incomes than they would receive elsewhere; and because there is a difference in standards not knowledge.

[HStorm]

admin said:

What I said was selfish is that people campaign to shut down those factories without properly considering the effects on the local population

That's not selfishness though is it? It's a case of not thinking arguments through properly, and that's certainly not to their credit, but it's not selfishness.

No, I am saying that it is not exploitation because multinationals pay their workers better (although still inadequate) incomes than they would receive elsewhere; and because there is a difference in standards not knowledge.

They force desperate people to work cripplingly long hours in appalling conditions for a pitiful sum of money, while retaining obscene quantities of profit. How is that not exploitation?

[Naselus]

admin said:

I did not say that inequality was irrelevant entirely – I said it was irrelevant in its own right when compared to other, more important things, like absolute poverty. I hate to repeat myself, but there is something compelling about the logic that an affluent society in which some are wealthier than others is materially more successful than one in which everyone is destitute.

Inequality is as relevant as is its magnitude. In Russia, there is a more compelling case for redistributive policies (because the vast majority are poor yet there are a small number of super-rich oligarchs with surplus wealth) compared to the UK, as income is more evenly distributed in the latter and less people are absolutely poor (and I can quote statistics to prove it).

Alright, let's compare things more fairly. In Russia, communism has clearly failed as everyone was poor. However, by your logic, the switch to capitalism should have brought a measure of wealth to everyone. It has not. As you say yourself, it has simply created a handful of super-rich, and everyone else is still poor.

Perhaps it's not the capitalist economy which has generated the wealth of these Western nations who regard Capitalism as the great success story? Perhaps it's the military bastardy of the past five centuries, the slavery, and the brutal theft of entire countries that we can attribute the relatively high weath of the capitalist glamour boys to?

In the rest of the world, capitalism has shown little promise. A few countries have managed to get away with it, mainly by aping the West (i.e. Japan, South Korea...), while those who attempt it alone end up just as poor and weak.

admin said:

I agree that capitalism is a failed system in many important respects. Note that with any economic system we cannot declare it outright to be a success or failure because we have no perfect system – communism succeeded in achieving high (if not full) employment, but failed to generate wealth; whereas capitalism has succeeded in generating wealth (for some/many), but has fails to support the poorest in society. The fact that capitalism leads to inequality means it fails in that respect by definition, but it cannot be declared a failed system outright ipso facto (if you disagree with the last statement, please give me a fundamental reason why).

Right, just for starters I'd immediately declare the slave-based economics of the Roman Empire to be an outright failure of an economic system, as it relies on continuous expansion, it generates no well-off middle class, and it is unable to perpetually support itself. Even with no perfect system, you can say something has failed if it doesn't work.

Now, onto capitalism. Capitalism, as with feudalism before it, doesn't generate wealth. It simply moves existing wealth around and keeps it in an inequal state. If the Soviet Union had, for example, been as wealthy as the US in 1918, then communism would not have left so many people poor. However, firstly they had to contend with the very expensive loss of Poland, then they faced 25 years of isolation from international trade. This will inevitably breed poverty.

The fact that capitalism has started out with 9/10ths of the worlds weath, and yet still requires that people starve in the wealthiest nation ever, is enough for me to call it a failure. It doesn't generate wealth in any more effecive way than any other system; economies don't create wealth, industry does. Economies mainly effect what happens with the wealth after industry has created it, although I do conceed that the two processes effect each other to a certain degree.

It is the Industrial power of the capitalist that has made it strong, not the capitalist leadership of the industry. For examples see corruption like Enron. The capitalist executives, following the founding rule of greed-based economics, devastate the industry through their actions. Compare to the vast, communist-built and now state-controlled Russian power industry if you will.

[TheCritique]

That's not selfishness though is it? It's a case of not thinking arguments through properly, and that's certainly not to their credit, but it's not selfishness.

I meant selfishness in respect of appeasing their moral consciences, but the point isn’t really relevant.

They force desperate people to work cripplingly long hours in appalling conditions for a pitiful sum of money, while retaining obscene quantities of profit. How is that not exploitation?

Interestingly, apart from the “pitiful sum of money”, that statement could actually apply to some employees in the City of London. They are forced to work cripplingly long hours (relative to the rest of the population at least), in a highly stressful environment (“appalling conditions”), and their employers retain huge quantities of their output as profit.

I still maintain that this is an issue of standards. People in developing countries accept those jobs because they are better than the alternative options available to them, and hence they benefit. I suggest on this point that we agree to disagree.

In any case, “exploitation” is irrelevant as it is not an economic argument but more a matter of opinion and circumstance. In my view, what is relevant is that people in developing countries benefit economically from the presence of these factories.

Alright, let's compare things more fairly. In Russia, communism has clearly failed as everyone was poor. However, by your logic, the switch to capitalism should have brought a measure of wealth to everyone. It has not. As you say yourself, it has simply created a handful of super-rich, and everyone else is still poor.

This legitimate example does not contradict my previous arguments. Throughout this discussion, the central theme of my arguments has been that capitalism has the potential to drastically improve the standard of living in both developing and developed countries better than any other economic system to date, there is evidence to support this conclusion, that capitalism is neither good nor bad in its own right, and nor is it perfect.

Please note the emboldened word especially. I have not said that capitalism always succeeds nor distributes the proceeds of growth and prosperity evenly, quite the contrary in fact – Russia is the prime example of where it hasn’t. What I have said is that it is the role of the government to manage and contain this volatile force that is the capitalist economy, in order to ensure that it benefits all by improving their standard of living (because it does not do so itself), and East Asia is the prime example of where the government has acted as such and as a result all have benefited. It is all about potential.

Whilst I do not know the details of the unmitigated disaster of capitalism in Russia, I suspect it is largely because of the political circumstances of the transition, namely the disappearance of one government and the haphazard formation of a new one. In the turmoil, physical assets (oil companies for example) were distributed to those few fortunate to have the right connections in a corrupt manner. Hence, the proceeds of capitalism were received by the now wealthy oligarchs (or “jollygarchs” as they are now known) whilst the rest of the population has remained in poverty, and therefore the transition has not benefited the population but arguably made it worse off.

Fortunately, I will soon move on to the chapter in this globalisation book of mine entitled “Who Lost Russia?” , which should enlighten me on the matter, and I’ll report back with some details in the future.

Perhaps it's not the capitalist economy which has generated the wealth of these Western nations who regard Capitalism as the great success story? Perhaps it's the military bastardy of the past five centuries, the slavery, and the brutal theft of entire countries that we can attribute the relatively high weath of the capitalist glamour boys to?

Now, onto capitalism. Capitalism, as with feudalism before it, doesn't generate wealth. It simply moves existing wealth around and keeps it in an inequal state.

You have already made the former argument, and I have agreed that it is in some small measure true in the case of the West – we did have a head start.

But the main tenet of the argument (in both quotations) – that capitalism does not generate wealth – is simply wrong. Capitalism is hugely successful in generating wealth as an economic system (taking wealth generation in isolation), and has massively improved the standard of living in developing countries, and I have repeatedly cited evidence and reasoning for this. Moreover, are you seriously arguing that modern Western prosperity is entirely attributable to “theft” of other countries and slavery, which was abolished in the UK centuries ago?

I will provide yet another quote which shows that this is true, as if I need to, from the same author and book as before to demonstrate capitalism’s potential for wealth creation.

“…The first is South Korea, a country with an impressive track record. As it emerged from the wreckage of the Korean War, South Korea formulated a growth strategy which increased per capita income eight-fold in thirty years, reduced poverty dramatically, achieved universal literacy, and went far in closing the gap in technology between itself and the more advanced countries. At the end of the Korean War, it was poorer than India; by the beginning of the 1990s, it had joined the Organization for Economic Cooperation and Development (OECD), the club of advanced industrialised countries.”

Source: Globalisation and its Discontents, by Joseph E. Stiglitz, published by Penguin Books, paperback edition page 94, second paragraph.

This is simply irreconcilable with the following assertion:

The military bastardy of the past five centuries, the slavery, and the brutal theft of entire countries that we can attribute the high wealth of the capitalist glamour boys to?

…because South Korea has not engaged in slavery nor colonialism since the Korean War. And if South Korea has succeeded so outstandingly, why cannot the West also benefit from capitalism?

I would respectfully ask you to provide proper economic arguments (of a fundamental rather than circumstantial nature, like those in my first post) and evidence if you again challenge capitalism’s potential for wealth generation, as I have provided seemingly endless arguments in support of capitalism.

Right, just for starters I'd immediately declare the slave-based economics of the Roman Empire to be an outright failure of an economic system, as it relies on continuous expansion, it generates no well-off middle class, and it is unable to perpetually support itself. Even with no perfect system, you can say something has failed if it doesn't work.

I agree to an extent. The point I was attempting to make is that everything is relative. We could legitimately argue that all economic systems have failed, but that doesn’t really help us, so we have to choose the lesser of the evils – which turns out to be capitalism in my view.

If this doesn’t clarify my point, Winston Churchill’s famous assessment of democracy is analogous:

“It has been said that democracy is the worst form of government except all the others that have been tried.” – Sir Winston Churchill, British politician (1874 – 1965).

Applied to economics the following I believe to be true:

“It has been said that capitalism is the worst economic system except all the others that have been tried.”

The fact that capitalism has started out with 9/10ths of the worlds weath, and yet still requires that people starve in the wealthiest nation ever, is enough for me to call it a failure.

Capitalism doesn’t actually require that people starve to death – it requires a percentage to be unemployed, and this is one of its worst drawbacks. Without the social security system, many unemployed would starve to death, but this is not actually required. As a matter of fact, capitalism does far more to alleviate malnutrition and starvation than to cause it – the majority are able to support themselves, and capitalism provides the state with the resources to help those who cannot. I refer to my earlier quote on South Korea as evidence of this.