originally written for a Fabian Society Forum ; Melbourne ; 19/4/2017
A finalised version of this will be submitted to ALP policy development bodies for consideration ; PLS provide feedback if you think it may help me improve the final version...
A finalised version of this will be submitted to ALP policy development bodies for consideration ; PLS provide feedback if you think it may help me improve the final version...
Restoring 'a traditional social democratic mixed economy' is part of the solution to current economic maladies ; but at the same time it is only the beginning of the journey...
by Dr Tristan Ewins , April 2017
Capitalism and its benefits
1) Capitalism is an economic system
based on the private ownership of the means of production, exploitation of
labour by Capital, and markets as vehicles for distribution and exchange.
2) Capitalism has benefits and failures
; which can be maximised or ameliorated via economic policy, and by the
struggles of ordinary people for justice
3) Capitalism as we know it has the
benefit of promoting innovation through the dynamics of competition ; The
competitive market system drives capitalists to innovate and respond to the
intricacies of consumer demand. It also
leads to the development of the means of production.
4) Capitalism also has the benefit of
driving efficiency and productivity gains via those same dynamics of
competition
Capitalism’s Flaws
5) But Capitalism’s failures include the
following
Canadian economist Jim Stanford
estimates that ‘the capitalist class’ of top owners and management dominates
control of the economy despite only comprising about 2 per cent of the
population. This has implications for
the viability and meaningfulness of democracy.
Capitalism has also always involved a ‘business cycle’ ; characterised by
fluctuations in consumer demand and investor confidence. This could be sparked
by the collapse of investment bubbles and the spread of ‘bad debts’; and in
response to the use of interest rates to contain inflation , or because of
‘supply shocks’. (eg: the Oil Shocks of the 1970s) And
these crises spread in the context of world capitalism because of increasing
global economic interdependence. At its
worst this has occurred in the context of Depression , and more recently with
the Global Financial Crisis. These were
only eventually overcome in the context of stimulus , government guarantees and
other interventions , and in the past (eg: WWII and post-war reconstruction)
also because of the ‘boost’ provided by rearmament and war. The
Great Depression put paid to the economic Liberal argument that ‘perfectly free
markets’ ensured the full mobilisation of all ‘factors of production’. Arguably
the right kinds of stimulus, intervention and regulation can reduce the
severity and duration of the associated downturns. This
includes what Keynesians call ‘demand management’. Downturns are a good time to invest in
infrastructure, for instance ; though there are arguments to invest in
productivity and quality-of-life enhancing infrastructure outside of that
context as well. Indeed stimulus can
create ‘a multiplier effect’, creating jobs indirectly as well as directly. But government (or ‘the people’) should not
shoulder all the costs and risks, here ; with little in return. Some of the concerns socialised to restore
stability during the GFC should arguably have remained socialised.
6) Left to its own logic capitalism leads to
economic monopolisation or oligopolism – which in turn can lead to the abuse of
market power. It also leads to systemic
inequality. Though this can be
ameliorated through labour activism , labour market regulation , progressive
tax , and the social wage and welfare systems.
And also by competition policy ; or enforcement of competition via
Government Business Enterprises with charters on promoting competition. Again,
though, the ‘capitalist class’ as such comprises only 2 per cent of the
population ; and yet has the power directly or indirectly to veto any public
policy through destabilisation and/or a ‘capital strike’. Unless ‘the people’ are sufficiently
conscious and organised to oppose those strategies.
7) Nation States also pursue their
economic interests attempting to extend their economic sphere of influence
through control of – and access to -markets in other countries (including key
strategic resources) ; or in the past through more direct expansionism. This can involve military force or economic
and cultural pressure ; and was described by the British liberal social
theorist John.A.Hobson as “Imperialism” ; a term which was then seized upon by
Vladimir Ilyich Lenin to explain the First World War.
8) Marxists once believed in ‘absolute
pauperisation’ and ‘absolute
bifurcation’ under capitalism; with the
destruction of the middle classes through the dominance of monopoly capital and
the inability of small business to compete.
In reality the ‘middle classes’ have re-emerged in diverse forms. Via the professional classes ; via emerging
small businesses in new industries where monopolies have not yet consolidated ;
and more recently as contractors who compete against each other to provide goods
and services for monopoly capital , or in other contexts via small jobs for
private consumers and households. Meanwhile, the working class generally
includes all wage labourers – skilled and unskilled, manual and mental. The wealthy , and Ideological economic
Liberals and capitalists, try to play the middle classes off against the working classes and the
disadvantaged. As well as playing the
working classes off against the most vulnerable with ‘anti-welfare’ narratives
; and using narratives around ‘political correctness’ as a wedge against the progressive
liberal, social democratic and socialist Left. Also capitalists try and play manual labourers
against intellectual labourers ; appealing to intellectual labourers that they
are ‘middle class’. (and hence do not share the same interests) In democracies the challenge is to build a
stable progressive electoral bloc to fight this. Swedish sociological theorist Walter Korpi
referred to a ‘democratic class struggle’. Arguably Labor could do better to
consolidate its support bases around the working classes and the vulnerable by
playing more directly to their interests and challenging dominant Ideological
themes; while maintaining the support of middle class liberals.
9) Current emphasis on ‘no real wage rises
without productivity improvements’ leaves some labour-intensive professions
(eg: cleaners) with little or no prospect of a real wage rise, ever. That is: without increases in the intensity
of labour – a disturbing notion given we are already talking about some people
who are engaged in hard and demanding physical work. Hence the creation of
effective poverty traps. Workers in other areas like Primary and Secondary
Teaching would also be hard pressed to achieve ‘productivity gains’. It also leads to absurd scenarios ; for
example in higher education ; with academics measured by their ‘academic output’ ; often excluding
deep thought and study of particular areas ; and getting in the way of good
teaching.
The
Imperative of Capitalist Expansion ; and the Associated Waste
10) Capitalism involves a dynamic of
expansion ; Its survival depends on it.
Waste at various points in the production process means capitalism must
continually expand into new markets – or more thoroughly exploit old markets -
to remain viable. That waste includes
cost structure duplication because of competition, and also the cost of
continual revolutionisation of the means of production to maintain
competitiveness. There are also areas of
unnecessary costs in areas such as marketing, dividends, executive salaries,
and so on. Getting rid of this waste and
duplication could arguably be qualitatively good for the economy, and for
consumers : freeing resources to be deployed elsewhere. Decisions need to be made as to where natural
public monopolies are viable (eg: transport and communications infrastructure)
; as well as where existing corporate competition (eg: Samsung versus Apple)
actually does drive innovation which improves peoples’ lives.
11) There is also extensive waste in
other areas. For example the fast food
industry involves enormous waste ; and domestic food consumption alone also
involves $8 billion of waste every year. But
approximately 2 million Australians depend on food aid every
year. Also there is the spectre of
planned obsolescence (for instance white goods and electricals): that is,
things are not made to last because that ‘would be bad for business’. This might warrant some kind of regulation re: minimum warrantee length for said electricals, whitegoods and so on.
12) But also there are limits to how far
capitalism can succeed by extending its reach into new markets or more
thoroughly exploiting old ones ; Over the past century capitalism has driven
greater labour market participation: for instance that of women. It has integrated most of the world economy
also. Now capitalists are demanding
changes which grate against social democratic principles, interests and values.
This led to what social theorist Jurgen
Habermas called a ‘Legitimation Crisis’.
That is, capitalism could not or would not deliver any longer on the
post-WWII social democratic historic compromise. This was dealt with in the form of attacks of
social democratic Ideology ; that is – convincing people to renounce their own
social and industrial rights on the basis that neo-liberalism, greater
inequality, privatisation, and austerity were ‘natural’, ‘inevitable’ and
according to Margaret Thatcher that ‘There is no Alternative’. (‘TINA’) This also involved twisted Ideological
narratives of individualism and meritocracy which ‘naturalised’ and justified inequality
and exploitation.
13) In response to the systemic
imperative to expand into new markets – or more thoroughly exploit old ones -
capitalists are demanding increases in labour intensity, longer working lives,
and longer working days. Capitalists are
also pushing down on wages, conditions, welfare, the social wage and so on – to
‘create room’ for profits.
14) But this creates as many problems as
it solves. Cutting welfare, the social wage, and so on may provide a short,
local boost to profits of particular enterprises. But it also reduces consumer demand and
consumer confidence , and probably increases the costs of crime. As well there is an intensification of
inequality, and a hit to quality of life.
We are producing more on this planet than ever; and yet we are told we
most work longer and harder ; and not simply enjoy the benefits of greatly
improved productivity in some areas.
Also capitalist measures of production (eg: GDP) often take no account
of social capital, and the benefits of voluntary work, and ‘intangibles’ (to
capitalism) such as free time, happiness and the environment.
15) Left to its own logic capitalism
creates great inequality. Certain social democratic policies can ameliorate
this without a full transition to a qualitatively different economic system or
mode of production. (which is not
currently an option) Though we should
not feel inhibited in imagining alternatives ; and discussing where current
problems could ultimately lead.
Socialisation and the Welfare State could still ‘Save Capitalism from Itself’
16) Firstly, a bigger public sector can actually
be ‘good for capitalism’ to a significant degree. Reversion to natural public monopolies in
several areas could reduce cost structures, creating efficiencies which flow on
to the broader economy. This includes in
communications, transport infrastructure, energy, water, and potentially with a
single public-sector job search and welfare agency. Cost structures would be reduced because of a
cut in waste, duplication and unnecessary or inappropriate competition (eg: in
energy) ; as well as because of a superior cost of borrowing for Government. Again there are some areas (eg: energy) where
‘competition’ is ‘anti-intuitive’ for consumers ; and confusion leads to abuse
of market power by energy retailers. For
policy makers there is also the danger of nepotism through the privatisation
process ; including Public Private Partnerships which facilitate the ‘fleecing’
of consumers.
17) Secondly ; while capitalism needs to
expand into new markets to survive, at the same time it undermines itself
insofar as in its current form it is failing to create full time work for all those
who want it. It is also failing to create full employment for all who want it;
and indeed depends on ‘a reserve army of labour’ to discipline workers into
accepting its demands on wages and conditions.
Proactive industry policies should endeavour to create full employment ,
and full-time employment for all who want it.
This involves the more thorough exploitation of old markets and well as
taking advantage of new ones. And with real
creativity government can act as ‘employer of last resort’ through programs
which provide for genuine social goods ; not merely pointless schemes ‘painting
rocks’ and the like.
18) Further, strategic government
business enterprises in areas like banking, general insurance, medical
insurance – could counter attempts by private oligopolies to exploit their
market power and fleece consumers. That
would mean more disposable income for average consumers upon whose demand the
economy depends.
19) Finally, as the Nordics have shown , growing
the social wage and welfare state is also good for people ; good for the
economy. Greater equality can mean greater happiness ; and also greater
consumer demand – as those on lower incomes spend a greater portion of their
income.
Through these strategies capitalism can be made ‘more survivable, more fair, and more stable’. These do not provide a final answer for capitalist instability and injustice. But ‘with no way out’ for now to a qualitatively better system of production the amelioration provided by such responses is crucial for those who will have to live and work under capitalism.
Better Outcomes for Consumers, Workers, Taxpayers…
Through these strategies capitalism can be made ‘more survivable, more fair, and more stable’. These do not provide a final answer for capitalist instability and injustice. But ‘with no way out’ for now to a qualitatively better system of production the amelioration provided by such responses is crucial for those who will have to live and work under capitalism.
Better Outcomes for Consumers, Workers, Taxpayers…
20) The Social Wage and Welfare State can
also contribute to happiness and well-being by providing a living income for
the disadvantaged and vulnerable , and support for carers. The social wage, welfare state, and other
areas of state provision (eg: infrastructure) can also provide a vehicle for
‘collective consumption’ by taxpayers via the tax system – providing much
better value for money than were the associated goods and services purchased by
atomised, private consumers. As already
alluded to ; the same applies in relation to ‘collective consumption’ with
regard natural public monopolies re: certain infrastructure and services ; and
in areas of health, education and so on.
Even if people pay more tax over the short term, they end up better off
– with more disposable income after non-negotiable needs are provided for.
The social wage and welfare state demand higher taxes as a proportion of
the economy ; but for the reasons stated actually tend to leave most people
materially-better-off. And with more
choice ; that is, more purchasing power – not less - after essentials are
provided for.
Democratic Socialists and Social Democrats must look to the best tax mix
also. The overall tax mix must be progressively structured. Arguably for fairness corporations and the
wealthy must pay more ; as far as it can be sustained. If there are consumption
taxes, for example (perhaps to prevent tax evasion), the bad distributive
effects of this must be fully offset through progressive taxes and social wage
measures elsewhere. A bigger role for
progressive income taxes, taxes on dividends, taxes on wealth and capital – is
desirable. Social security, welfare and
the social wage (perhaps including a guaranteed minimum income) must raise the
‘floor’ of inequality as high as can be fairly sustained. (that is, higher
minimum wages, including the effect of the social wage) Currently there is exploitation of the low
paid and unreasonable inequality in the labour market and in wealth ownership ;
but there are arguments that reasonable reward for effort, unpleasant labour, past
study and skill - should be factored in. (as most people accept) There should be much less inequality ; but some inequality is justified even under
democratic socialism.
Tax can also comprise a ‘lever’ for gradual socialisation over the long
term in strategic areas of the economy.
Finally the broad Left and Centre-Left cannot morally abide by a system which uses the threat of descent into an ‘underclass’, or classes of ‘utterly destitute’ and ‘working poor’ – as a way of ‘disciplining’ other workers. Neither can we tolerate ‘middle income’ demographics having their material living standards (interpreted here as material consumption) rest upon exploitation of the working poor. What is needed is broader solidarity to the point where there is no class of working poor or utterly destitute.
Finally the broad Left and Centre-Left cannot morally abide by a system which uses the threat of descent into an ‘underclass’, or classes of ‘utterly destitute’ and ‘working poor’ – as a way of ‘disciplining’ other workers. Neither can we tolerate ‘middle income’ demographics having their material living standards (interpreted here as material consumption) rest upon exploitation of the working poor. What is needed is broader solidarity to the point where there is no class of working poor or utterly destitute.
21) As well the social wage and welfare state can
provide the following: High quality,
comprehensive universal health care for all ; Providing high quality Education for all – including
education for personal growth, political literacy, and hence preparation for active and informed
citizenship; as well as education to meet the demands of the economy and the
labour market. Other important areas
include public and social housing, legal aid , child care, financial services,
access to information and communications services and technology , assistance
for equity groups , Public sector media such as ABC and SBS with charters to
maximise participation, support extensive pluralism, support local culture ; Broader
support for diverse local culture, recreation, sport, and so on. Creating ‘the good society’ involves more
than ‘hands off’ and ‘leave it to the market’. New needs are also always arising
as the economy and technology develop.
22) Further ; there is a growing push for
a ‘guaranteed minimum income’ for all ; which makes sense given the looming
problem of distributing the productivity gains of future automation ; But also
providing a ‘basic floor’ below which no citizen will be allowed to fall.
Automation is inevitable and governments must intervene to ensure the
full economic benefits are passed on to workers and consumers.
23) The emerging economy should provide
flexibility where possible on workers’ terms. Again ; Those wanting part-time work should be
so provided. And those wanting full-time
work should be so provided. All people
should have the prospect of a fulfilling life ; with a mix of varied manual and
intellectual labour. There should be
scope to devote time to personal growth ; including creative labour , study and
recreation. Industry and labour market
policies must aim to update skills, and also strive to nurture new industries
which draw on existing skill sets where jobs have been lost.
24) As Professor Andrew Scott explains in
his work ‘Northern Lights’, the Danes
have a policy they call ‘flexicurity’. Rather than
focusing narrowly on 'flexibility for employers to dismiss workers', the Danes
also emphasised 'the provision of generous unemployment benefits for those who
lose their jobs' and 'the provision of substantial and effective Active Labour
Market Programmes (ALMPs), [with] quality training to help unemployed people
gain new skills for new jobs …' (Andrew Scott, p. 135, (pp. 152, 154-55). By contrast Australia suffers 'the lowest
level of unemployment benefits in the OECD for a single person recently
unemployed.' Furthermore, ‘Work for the Dole’ programmes are punitive and
provide little in the way of relevant skills for job placement. (Andrew Scott ;
pp. 136-38). Denmark’s active labour
market programmes are expensive says Scott, but are worth the investment in
radically higher workforce participation.
Achieving an economy which operates at ‘full bore’ – as the Swedes
achieved for a significant time - also means more revenue for social
programs. Industry policies ensuring
more high wage employment also enhanced those outcomes.
25) The Housing Affordability Crisis is
driving an economic wedge between Housing Market Investors, Home Owners, and
those struggling to (or unable to) purchase their own homes. Simply releasing new land (the traditional
Liberal ‘solution’) is not a viable answer unless services and infrastructure
investment matches it. Large public and
social housing investments in growth and transport corridors could increase
supply, however, and if introduced in phases may be able to ‘deflate’ the boom
without a ‘crash’. Labor’s negative
gearing policies would also mean less competition between first home buyers and housing portfolio
investors. Again , Combined with
increased investment in public housing, and implemented properly, it should be
possible to ‘deflate’ the bubble without a crash. Public housing construction should involve expansion of ( largely
‘non-clustered’) public housing stock to at least 10% of total stock over several terms of Labor Government.
‘Non clustered’ stock aims to avoid traditional stigma against public housing,
as well as the creation of poverty ghettos. Though there is the opposing argument
that (implemented properly ; with the right infrastructure and services)
clustered housing can create thriving communities.
26) There are those who argue capitalism
cannot deal with looming environmental crises.
As a system based upon growth and the production of ever-more consumer
goods, with a ‘growing environmental footprint’ , there are reasons to take
these claims seriously. That said:
renewable technologies are advancing.
And information, culture and service industries – if emphasised – could
involve much less of an ‘environmental footprint’. A guided shift of emphasis to those
industries could be key to environmental sustainability. At the same time, though, we want to remain
an economy which ‘makes things’.
Manufacturing will remain necessary ; and working conditions in
manufacturing tend to assist the organisation of labour. But we do not know yet just how far
automation will go. Automation could be
good for people in their capacity as consumers, but bad for organised labour.
The Big
Picture and ‘The Good Society’
27) Finally, Labor needs a vision of ‘the
good society’ which includes
redistribution and rights of labour – including labour market regulation (with
an increased minimum wage) ; But at the same time goes further. Marxism involved an implied moral critique of
exploitation. But also of what was called ‘alienation’ ; That is, the impact of
physically onerous, repetitive and/or mentally punishing labour. And the lack of creative control workers
enjoyed over their labours, and the products of their labours. This ‘alienation’ could be addressed partly
through increased free time for workers in such demanding areas. And increased opportunities to explore such
diverse areas as philosophy, science,
art, and leisure. Though Marx also
envisaged a time when fulfilling labour would ‘become life’s prime want’. ‘Automation’ could actually create
opportunities here IF implemented properly.
Also Labor should have an appreciation both of the importance of
constitutional liberal democracy ; but also of its limits. Democracy needs to be extended into
production and work. This could involve
support for diverse models of co-operative enterprise and mutualism – on both
large and small scales. Not only would this model by-pass exploitation: it
could also provide workers with creative control over their labours ; including
the kind of intimate control and identification that may go with co-operative
small businesses. (eg: co-operative
cafes) Furthermore, mutualist and co-operative
associations could contribute to full employment in a situation driven by contextual human need , and not only
‘share value maximisation’ – which is the modus operandi for capitalism-as-we-know-it.
Large scale co-operative and mutualist associations could also occupy
crucial points in the economy in areas like health, motor insurance, and
general insurance, and
credit/banking. Government could
play a central role of ‘facilitation’, here) Strategic ‘multi-stakeholder’
co-operatives could also be created through co-operation between Government,
Regions, and workers. That model might
have been applied in the case of SPC-Ardmona ; and may even have been applied (much
more ambitiously) to save Australia’s car industry. Ambitious ‘mutli-stakeholder co-operatives’
should be considered by Governments, Workers and Regions for the future.
Other options for economic democracy include: growing the public sector , promoting ‘democratic collective capital formation’ (for example, like the Swedish ‘Meidner wage earner funds plan’) – though perhaps inclusive of all citizens and not only workers. As well as ‘co-determination’ (worker reps on company boards). Sovereign Wealth Funds or Pension Funds also socialise wealth and investment, and could be crucial to fund expenditure and investments (eg: infrastructure) into the future.
Other options for economic democracy include: growing the public sector , promoting ‘democratic collective capital formation’ (for example, like the Swedish ‘Meidner wage earner funds plan’) – though perhaps inclusive of all citizens and not only workers. As well as ‘co-determination’ (worker reps on company boards). Sovereign Wealth Funds or Pension Funds also socialise wealth and investment, and could be crucial to fund expenditure and investments (eg: infrastructure) into the future.
Superannuation is entrenched now, and provided for peoples’ retirement
without the political problems of raising taxes. It was seen as having
democratic potential ; but it also had problems of reinforcing inequality in
retirement (also affecting women) ; requiring low income workers to make
contributions they could not afford ; and reinforcing the capitalist focus on
share value maximisation regardless of other need. Arguably pensions need to be more generous
and broad-based ; but the superannuation system may lead to the marginalisation
of the Aged Pension into the future.
In conclusion ; We should talk of capitalism and not only ‘neo-liberalism’. Because to name capitalism is to make it relative. And one day the way may open for something better to become possible. At the end of the day all wealth does derive from labour and Nature: and now just as in ‘the Heyday of radical Social Democracy’ this implies a moral critique of capitalism and class.
In conclusion ; We should talk of capitalism and not only ‘neo-liberalism’. Because to name capitalism is to make it relative. And one day the way may open for something better to become possible. At the end of the day all wealth does derive from labour and Nature: and now just as in ‘the Heyday of radical Social Democracy’ this implies a moral critique of capitalism and class.
Dr Tristan Ewins has been a Labor activist for over 20
years. He has written for many publications including 'The Canberra Times' ; but most prolifically for 'On Line Opinion' ; see: http://www.onlineopinion.com.au/author.asp?id=208
References
Scott, Andrew, 'Northern Lights: The Positive Policy Example of Sweden, Finland, Denmark and Norway', Monash University Publishing, Melbourne, 2014
Scott, Andrew, 'Northern Lights: The Positive Policy Example of Sweden, Finland, Denmark and Norway', Monash University Publishing, Melbourne, 2014
Stanford, Jim "Economics for Everyone - A Short Guide to the Economics of Capitalism" , Pluto Press, London, 2008
