FOR DECADES Joseph Stiglitz has argued that globalisation only works for a few, and government needs to reassert itself in terms of redistribution and regulation. Today the sources of his ire have grown more dire. Wealth inequality has become a hot-button political issue just as populists are on the march.
In Mr Sitglitz’s latest book, “People, Power, and Profits: Progressive Capitalism for an Age of Discontent,” he expands on his left-of-centre economic prescriptions. He believes that capitalism’s excesses can be tamed by the state providing a “public option” in areas like health care or mortgages when the market flounders.Get our daily newsletter
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As part of The Economist’s Open Future initiative, we conducted a short, written interview with Mr Stiglitz about his ideas. It is followed by an excerpt from his book, on what he calls “the transition to a postindustrial world.”
The Economist: You argue that right-wing populists aren’t wrong—capitalism is indeed rigged. How so?
Joseph Stiglitz: It’s rigged in the obvious sense: some—the rich and powerful and their children—have better opportunities than others, enabling the perpetuation of advantages. There is not the competitive, level playing-field described in textbooks: in sector after sector, there are a few dominant firms that create almost insurmountable barriers to entry. Too many become wealthy not by adding to the size of the nation’s economic pie, but by seizing from others a larger share, through exploitation, whether of market power, informational advantages or the vulnerabilities of others.
The Economist: How did we get into this mess? Is it all the Republicans’ fault, or can you place a pox on the Democrats’ house as well?
Mr Stiglitz: There has always been a battle: those with power and wealth want to maintain and augment it, even when it comes at the expense of others. They have resisted attempts to redress the imbalances, whether through antitrust laws, progressive taxation and expenditure policies, or labor legislation. But in a series of progressive reforms from the late 19th century through to President Johnson, progress was made in each of these arenas and America created the first middle-class society.
Then, with President Reagan, a new ideology came to prevail: leave everything to the market, the economy will grow, and everyone will be better off (what is called “trickle-down economics”). Instead, growth slowed and incomes for the vast majority stagnated. Some Democrats also bought into these ideologies, with accompanying policies of unfettered globalisation and financialisation.
Since Trump, however, the splits between the parties have grown ever larger, with the Republicans arguing for policies that would increase inequality and slow growth, as they increase the profits and power of corporations and further eviscerate that of workers and ordinary consumers.
Regulations to restrain banks and to protect the environment are being stripped away, taxes on ordinary Americans are being increased as those on corporations and the wealthy are being reduced, profits of pharmaceutical and health insurance companies are being increased as millions of more Americans are being left without health insurance. Life expectancy in America is, remarkably, in decline. And wages, adjusted for inflation, for people at the bottom of society remain where they were 60 years ago.
The Economist: You offer a wide range of solutions. Are there one or two that you see as a linchpin?
Mr Stiglitz: At the core is a new social contract, a new balance between the market, the state and civil society, based on what I call “progressive capitalism”. It channels the power of the market and creative entrepreneurship to enhance the well-being of society more generally. This will entail rewriting the rules of the economy, for instance, to curb market power of our 21st century tech and financial behemoths, to ensure that globalisation works for ordinary Americans, not just for corporations, and that the financial sector serves the economy rather than the other way around.
It entails increased government investment in technology, education and infrastructure—advances in science and technology and our ability to cooperate at scale. They are why our standards of living and life expectancies are so much higher today than they were 200 years ago.
With climate change providing an existential threat, both public programs and regulations have to be directed at creating a green economy. Essential in our ability to ensure that a middle-class life is accessible to most citizens will be a “public option,��� a government alternative, for instance, in the provision of mortgages, retirement security and medical care.
The Economist: Behind your reforms is a bigger role for the state. But if government is dysfunctional, endowing the state with more economic power is like giving a toddler a power-drill: who knows what damage will ensue? Aren’t you worried that your solutions fall flat if the system that caused the mess is incapable of managing the fixes?
Mr Stiglitz: All humans, and all human institutions, are fallible. That is true both in the private and public sectors: look at the devastation wrought by private banks in the 2008 crisis, a loss of GDP (from what the economy would otherwise have produced) cumulatively now estimated in Europe and America to be in excess of $10 trillion.
But government can and has worked well in many places, including in America. Both social security and Medicare have far lower administrative costs than private firms providing comparable services. Modern economics has made us sensitive to the underlying incentive problems in both the public and private sectors, providing tools to enhance efficiency and accountability. Oversight—including systems of checks and balances and an active free press—are essential, and this is again true, both in the private and the public sector.
The Economist: In an environment of post-fact politics, you marshal a lot of evidence to support your views—which counts for zilch if the political terrain disdains evidence. So how can your reforms stand a chance of being adopted, unless you go to battle armed with narrative, emotion, superficialities and a dash of embitterment?
Mr Stiglitz: I’m a Midwestern optimist—a position that is perhaps hard to maintain in the face of what has been occurring. I believe, however, that the vast majority of Americans can be moved by reason and evidence, but I also believe that “emotions” are also on the progressive side. There is something distinctly un-American about our un-level playing field, with 20% of American children growing up in poverty; or with so much power concentrated in the hands of so few firms—power that they repeatedly abuse.
Polls show that the vast majority of Americans support the policy positions which I advance in the book, and they want a restoration of true democracy. We have to curb the power of money in our politics and end the systematic attempts at disenfranchisement. Political engagement of the kind we saw in 2018—and the increasing awareness of young people of how much is at stake—hopefully is setting the stage for the return of the country to its progressive ideals.
Facilitating the Transition to a Postindustrial World
Excerpted from “People, Power, and Profits: Progressive Capitalism for an Age of Discontent” by Joseph Stiglitz (Allen Lane, 2019)
The US, like most countries in Europe, has been struggling to adapt to deindustrialization, globalization, and the other major shifts in its economy and society. This is another area where markets need the help of the government. Facilitating transition after the fact is extraordinarily costly and problematic. We should have done more to help those who were losing their jobs to globalization and advances in technology, but Republican ideology said no, let them fend for themselves. Government must anticipate the broad strokes of future structural shifts. Adapting our economy to climate change and to the changing demography are just two of many challenges of “transition” facing our economy and society in coming years. New technologies—including robotization and artificial intelligence— represent further challenges.
Recent and earlier episodes of such changes have generated one important lesson: the market on its own is not up to the task. There is a simple reason already explained: those most affected, for instance, those who are losing their jobs, are least able to fend for themselves. The changes often imply that their skills are less valuable. They may have to move to where the jobs are being created—and house prices in the growing parts of the country are often far higher. Even if, after training, their job prospects might be good, they don’t have the resources for retraining, and financial markets will typically only advance them the money at usurious interest rates. They lend at normal interest rates only to those who have good jobs, a good credit history, and good equity in their home—in other words, to those who don’t need the money.
Thus, there is an essential role for government to facilitate the transition, through what have been called active labor market policies. Such policies help retrain individuals for the new jobs and help them find new employment. Another tool for government is referred to as industrial policies, which help restructure the economy into the directions of the future and assist the creation and expansion of firms, especially small and medium-sized enterprises in these new sectors. Some countries, like those in Scandinavia, have demonstrated that well-designed active labor market and industrial policies can create jobs as fast as jobs get destroyed and can move people from the old jobs to the new. There have been failures, but that is because sufficient attention has not been paid to what makes for successful policies.
As government pursues labor market and industrial policies, it needs to be sensitive to questions of location. Too often economists ignore the social and other capital that is built into a particular place. When jobs leave a place and move elsewhere, economists sometimes suggest that people should move too. But for many … with ties to families and friends, this is not so easy; and especially so since with the high costs of child care, many people depend on their parents so they can go to work. Research in recent years has highlighted the importance of social bonds, of community, in individuals’ well-being.
More generally, decisions about where to locate are not efficient. Too many people may want to crowd into the big urban centers, causing congestion and putting strains on local infrastructure. Among the reasons that factories moved to rural areas … was that wages were low, public education ensured that workers had enough skills nonetheless to be highly productive, and our infrastructure was sufficiently good that it was easy to get raw materials into the factories and the finished goods out. But some of the same forces that had led to low wages are now contributing to the problem of deindustrialization. Wages were low in part because of lack of mobility—with perfect mobility, wages (skill-adjusted) would be the same everywhere. But this lack of mobility is key to understanding why deindustrialization is so painful.
In short, we need policies focusing on particular places (cities or regions going through stress), in what are called place-based policies, to help restore and revitalize communities. Some countries have managed such policies extraordinarily well: Manchester, England, the textile capital of the world in the nineteenth century, has reinvented itself—with help from the UK government—as an educational and cultural center. It still may not be as relatively prosperous as it was in its heyday, but it is instructive to compare Manchester with Detroit, which the United States simply let go bankrupt.
Government played a central role in the transition from agriculture to a manufacturing economy; it now needs to play a similar role in the transition to the new economy of the twenty-first century.
One of the most important detractors from individual well-being is a sense of insecurity. Insecurity can also affect growth and productivity: individuals, worrying about whether they will be thrown out of their house or lose their job and only source of income, can’t focus on the tasks at work in the way they should. Those who feel more secure can undertake riskier activities, often with higher payoffs. In our complex society, we are constantly confronting risks. New technologies may take away jobs, even if they also provide new ones. Climate change itself presents untold new risks, as we have recently experienced with hurricanes and fires. Again, large risks like these and ones associated with unemployment, health, and retirement, are risks that markets do not handle well. In some cases, like unemployment and health insurance for the aged, markets simply do not provide insurance; in other cases, like retirement, they provide annuities only at high costs, and even then, without important provisions—such as adjustments for inflation. That is why almost all advanced countries provide social insurance to cover at least many of these risks.
Governments have become fairly proficient in providing this insurance—transaction costs for the US Social Security system are a fraction of those associated with comparable private insurance. We need to recognize, however, that there are large gaps in our system of social insurance, with many important risks still not being covered either by markets or by government.
Changes and reforms are necessary to achieve a more dynamic economy, growing faster, an economy that serves people, and not the other way around. Many of the policies are hardly novel—variants of these policies have worked successfully in other countries. It’s not the economics that are difficult. It’s the politics.
Even if we get the politics right and succeed in achieving the reforms described here, attaining a middle-class life may still be difficult: even families with reasonable jobs may not be able to have an adequate retirement or afford to send their children to college. Just as, traditionally, farmers helped each other raise a new barn, and just as families pull together in times of need, our society works best when everyone works together. The positive agenda of restoring growth for all is part of the broader ambition of making a middle-class life accessible to all.
Climate Change and Capitalism: A Political Marxist View.
Viewed from the perspective of geological history, our current climatic and economic conditions are unusual. For most of the last 60 million years, the climate has been wildly unstable. It was only 10,000 years ago that it settled into its current stable state, and within this period that the Holocene emerged, during which human societies shifted their relationship with nature though agriculture, and then creating complex settled socio-economic forms, including capitalism.
Despite its omnipresence today, capitalism itself is very young. But it has its roots in that stabilisation of the climate and the subsequent development of agriculture. Fully-fledged global capitalism has been with us for no more than 300 years. In the 4.5 billion year history of the earth, capitalism is a brief moment within the blink of an eye that is human existence.
But this brief moment is a global force. It is capitalism that has placed us on a path to leave the stable climate of the Holocene. Thanks to capitalist development, the earth is currently 0.8 of a degree warmer than the pre-industrial average. Without overthrowing capitalism, we are likely to warm the earth to levels that humans as a species have never lived with.
This should terrify socialists. As I will argue here, the environmental system and the economy have co-evolved. The economy is dependent on the environment. Once we leave the stable climatic conditions of the last 10,000 years, we have very little guidance on how to build a socio-economic system that works. There is no particular reason to think the systems we have developed in one set of environmental conditions will flourish in another. There is also no reason to believe that such conditions provide fertile ground for the development of a more compassionate or humane socio-economic system.
If we want to stand a chance of building socialism in the near future, we must become eco-socialists and stop catastrophic climate change now. At the same time, to stop catastrophic climate change, environmentalists must also become eco-socialists. The dynamics that drive climate change are core to capitalism. Serious action on climate change will necessarily amount to the first steps of a programme to end capitalism.
The economy, the energy system, and the environment: co-evolutionary systems.
The economy, the energy system and the environment have evolved together. They draw on one another, passing materials between them and absorbing one another’s wastes. All economic activity ultimately rests on the transformation of material resources. These must be drawn from the environment and then worked by labour. Marx makes this interdependency explicit:
The use values… i.e. the bodies of commodities, are combinations of two elements–matter and labour. If we take away the useful labour expended upon them, a material substratum is always left, which is furnished by Nature.1
Marx uses the example of linen–which is produced by workers (labour) who transform the fibres of the flax plant (environment). But this interdependency also holds true for more modern commodities. For example, the servers that host the files for music streaming services are made of up various minerals and metals that have been rearranged by labour.
An additional interdependency comes in the form of energy. At every stage of the production of a commodity, energy is being used to transform matter from one form to another. Metals are heated, melted and transformed into iPhones. Cotton is grown, harvested, woven, and dyed to make scrubs worn by surgeons. The energy used in these processes cannot be created. It can only be transformed.
All energy used in the economy is entropic: it comes from a repurposing of energy found in the earth system, and exacting it in return for a cost. Coal is dug from the ground and burnt, solar energy is captured by photovoltaics, or in plants that we cook and eat. The energy system which enables economic activity is entirely dependent on the environment.
We see here how the environment influences the economy. The economy is the process of transforming materials extracted from the environment by repurposing energy flows from the earth system. The result of this, is, to quote Marx’s citation of the economist William Petty, that when it comes to material wealth, “labour is its father and the earth its mother”.2 But at the same time, the environment and the energy system are shaped by the economy. The priorities of the economic system determine the valuation of each element, as well as which materials are extracted, changing the composition, look and dynamics of the environment.
The practice of extraction itself is not exclusive to capitalism. Agricultural practices that pre-date capitalism have reshaped our landscapes. Take sheep farming, for example.3 Heavy grazing tends to change the biological make up of heathland. Eventually, heathland may lose all of its herbs and woody species and become grassland. As grasses can survive for longer as the sheep eat them than woody plants and herbs, the transition from heathland to grassland can make conditions more favourable for sheep grazing as the sheep have more to eat. This is less helpful for bird life, as the grasses are a poor habitat substitute and the sheep compete with birds for certain types of fruit, and reduce the availability of various insects. Through pastoral grazing economic activity has transformed former heathland landscapes.
Climate change is another example of the co-evolution of the economy and the environment, but this time, one specific to capitalism. As we will see, the two are inextricably linked. Without fossil fuel deposits, capitalism could not have become the dominant force it is today. Similarly, without capitalism, fossil fuels may never have become the backbone of the economy.
Coal, the great divergence and the origins of capitalism
Between the mid 1500s and 1900, there was an explosion of coal use in England. On average, English coal use more than doubled every half century during this time period. By 1900 coal represented 92% of English energy use and was providing 25 times more energy than all energy sources combined had in the mid 1500s.
Over this time period the English economy also grew rapidly. For mainstream economic historians, the period from 1700 onwards marks the start of ‘the great divergence’. England began the industrial revolution and its economy took off, becoming much larger than other economies that had until that point been a similar size.
It is not a coincidence that coal use and economic growth expanded simultaneously. Coal is a high quality fuel. It offers a much greater amount of energy out for every unit of energy required to produce it than wood, for example. Consequently, it enables more work to be done–more materials transformed – than muscle power alone, or even wood or water–the dominant fuel sources in the nascent English industrial economy.
But the geographical distribution of coal is not, by itself, enough to explain English economic growth or the ‘great divergence’. In 1700, China had widespread domestic coal use, just like England. And until 1700 China had a similar sized economy, with similar levels of market activity. But neither Chinese coal use nor the Chinese economy grew exponentially in the way that England’s did.
The difference was the consolidation of capitalist social relations in England. We can locate the pressures that lead to capitalism, and the capitalist exploitation of coal, in the agrarian economy of 1500s England. As these pressures grew, they drove coal use and economic growth in England. Though pre-capitalist China was incredibly well-developed, had an extensive use of wage-labour within markets, it never became dominated by proto-capitalists, and so did not develop the same systematic pressures. Coal use and the economy, subsequently, did not see the same qualitative expansion.
Political Marxism and the Fossil Economy
Archetypical of the Political Marxist approach to modes of production, Ellen Meiksens Wood argues that a capitalist economy is one where a majority of people depend on the market to meet their basic needs.4 This distinguishes capitalism from feudalism, in which there is a large peasant class largely self-sufficient in terms of basic needs, and in which the more powerful classes depend not on market power to support their consumption, but on military and extra-economic power. Wood further distinguishes between the form of markets under capitalism and those that characterise pre-capitalist economies. She argues that markets originally functioned and made profit by providing a means of getting goods that could only be produced in one part of the world to other parts, where those goods could not be produced. She goes on to argue that capitalist markets operate differently: profit here is achieved by reducing costs and improving productivity.
Though substantially debated, this approach was developed by Wood (alongside Richard Brenner) as a reaction to what she saw as ahistorical explanations of the role of markets in the development of capitalism—particular the claim, coming from Adam Smith, that capitalism is “…the necessary, though very slow and gradual consequence of a certain propensity in human nature…the propensity to truck, barter, and exchange one thing for another.”5 Against this, Wood argues that capitalism began in England because of its unique constellation of social conditions.
In her landmark work The Origin of Capitalism,6 Wood argues that capitalism could only have begun in agrarian England. Unlike other nations with similarly sized economies, England had the unique combination of a large national market, substantial numbers of tenant farmers (as opposed to peasants, tied to the land by social convention), and highly centralised state power. These three components come together to create a transition to a market dominated economy. Highly centralised state power took political and military power away from land owners. So unlike in Holland, for example, the primary way for landowners to exploit the surplus of their workers was through market means rather than direct coercion. This was possible because of the existence of the large national market in which they could sell goods for a profit, and because of the existence of tenant farmers, which meant they could remove unproductive farmers from their land.
It is the development of capitalist markets, as Wood describes them, that creates the conditions for fossil fuel exploitation. Capitalist markets, like all economic systems, turn on the necessity of using economic tools to extract surplus. This dynamic creates capitalism’s drives to reinvest in productivity growth and to discipline the workforce in order to increase output. Because landowners were now dependent on the market for their own livelihoods, they tried to reduce costs and maximise outputs. This fundamental change in the nature of production created a system in which the ability of energy to do extra work became very attractive. Although Wood never directly discusses energy, her work has influenced Andreas Malm, whose Fossil Capital7 does pick up the energy question.8
Malm argues that under the conditions of capitalism, coal came to be a tool of social control. Coal centralises production, bringing workers under one roof. This serves the dual purpose of making them less able to embezzle from their employers, allowing improved scales of production, and also enabling employers to more easily regulate the times of work and levels of production. In addition, coal—alongside the machinery it allows—improves productivity: by giving them a greater source of energy than food and their muscles alone, coal increases the amount of output that can be produced by workers.
Only in England did the capitalist class benefit from these features of coal. Economic structures elsewhere followed fundamentally different logics that did not reward productivity and output growth. Though markets existed outside of England, central power and surplus was derived from military and political power, and only peripherally from economic power. Consequently, although productivity increases may have occurred by chance, societies were not systematically driven by the need to continuously produce more, or to do so more productively. As Debeir et al. put it, Chinese coal use:
…did not create new social needs, did not constantly push the borders of its own market outwards…proto-industrialisation and economic growth were remarkable achievements but failed to generate an accelerated division of labour.9
To understand this more fully, let us now examine the nature of capitalist markets in more detail.
Capitalist Markets and the Pressures to Grow
The ecological economists Tim Jackson and Peter Victor call the above dynamic the “productivity trap”.10 It occurs because, under capitalism, workers must be able to sell their labour to be able to obtain a decent standard of living. Capitalists depend on market power for their profits and therefore constantly reinvest in productivity gains. Productivity gains mean fewer workers are needed to produce a unit of output. So if output stops growing, employment will fall. This creates a legitimate desire amongst workers for more growth, and gives governments a mandate to do everything they can to expand economic activity.
Moreover, this ‘productivity trap’ is self-reinforcing. The expansion of markets drives the division of labour. Adam Smith argued that as workers become more specialised, they are better able to improve the production processes they’re engaged with. And at a higher level of specialisation you develop whole classes of workers whose job is purely to make production more efficient. In this way market expansion itself leads to productivity gains. But as people become more specialised this means that they come to depend on markets to get more and more of their goods—because (to use a personal example) people who sit in offices reading long-dead economists for a living don’t spend much time growing food, sewing clothes, or saving lives. So the expansion of markets creates both the conditions for further growth and the need for it.
We also need to talk about consumer capitalism. Innovations leading to productivity gains do not in themselves create a market for the greater volume of goods produced. This means that capitalism must alter consumption as well as production. Today, this increasingly involves the stimulation and artifical creation of consumer needs and desires by the capitalist class—who need us to keep consuming if they are to continue earning profits. William Morris argued that in order to get and maintain profits, capitalists must sell a “mountain of rubbish…things which everybody knows are of no use”. In order to create demand for these useless goods, capitalists stirred up:
a strange feverish desire for petty excitement, the outward token of which is known by the conventional name of fashion—a strange monster born of the vacancy of the lives of rich people
A substantial body of more modern work suggests that current society encourages the idea that consumption is the path to self-betterment. Psychologist Philip Cushman argues that the dominant present configuration of the “self” is as an empty vessel that requires filling up with consumer goods.11 The emptiness, he argues, comes from a lack of community, tradition, and shared meaning. These are not things that will be solved through consumption. Under consumer capitalism, there comes a collective inability to imagine social and personal change except through consumption. As a result, even ‘radical’ leftist futures tend to revolve around ever increasing levels of material consumption, rather than imagining new ways to live that prioritise our need for community and purpose beyond consumption.
No decarbonisation under capitalism
Because of the structural drivers towards growth that we see under capitalism, it is extremely unlikely that capitalism can avoid catastrophic climate change. The structural drive for growth means that efforts to reduce carbon emissions will be overwhelmed by the expansion of economic activity. This is controversial to most mainstream environmentalists (and to many socialists). But it is the clear experience of the history of capitalism.
To date, resources have not been conserved under capitalism. Rather when we become more efficient or find new resources, this frees up resources that are used by other parts of the capitalist machine. This explains why, for example, renewable energy and nuclear power remain only a small part of the global energy system (Figure 2). Under capitalism, low-carbon energy sources have grown but they have not replaced fossil fuel at any meaningful scale. Instead low-carbon energy is simply another energy pot available to fuel growth in economic activity in order to generate profits.
Figure 2 Global Primary Energy Use by type, 1900-2014. Source: Author’s own calculations based on data from De Stercke, 2014.
The same is also true of energy efficiency gains. Energy efficiency can be a key contributor for decarbonising the global economy. But only if it is coupled to a plan to limit the size of the economy. Under capitalism, energy efficiency measures actually drive economic growth. This happens for the same reason renewable energy doesn’t lead to decarbonisation. Energy efficiency improves productivity and reduces costs. In this way it reinforces capitalist growth imperatives, driving the expansion of the economy which requires more energy to be used overall.
This is also why progressive action on climate change will undermine capitalism. We will only successfully avoid catastrophic climate change if we are able to break the dominance of the market, and break the social imaginary that ineffectually ties fulfilment to consumption.
So, where do we go from here?
The economy, the energy system, and the environment are all inextricably linked. Combining ecological economics and Political Marxism, I have set out a framework in which climate change can be seen not only as a consequence of capitalism but as fundamental to it. Widespread fossil fuel use was enabled by, and necessary for, the capitalist dynamics of productivity growth and expansion. Climate change is a feature, not a bug of capitalism.
To avoid catastrophic climate change, we have to break the expansionary cycle of the economy. Otherwise technological improvements, renewable energy, and energy efficiency gains will do nothing but add to the stock of ways that capitalists grow the economy and their profits. Likewise carbon taxes and other market mechanisms will simply reinforce the core dynamics of the market and any positive effects will be overwhelmed by growth. Growth will increase energy use, including fossil fuel use. This will plunge us into a world that we do not know how to live in. It is likely that ‘hothouse earth’ will eventually destroy capitalism. But not before destroying the livelihoods of millions through extreme weather, greater incidence of disease, and ecological breakdown. There is no reason to believe this will lead to a better future.
Breaking the expansionary cycle of the economy in a just way requires rolling back markets. We must instead use commons, household, and state-based production as the principal means of meeting the collective needs of society. Only in this way can we break the societal drive for productivity growth and expansion. There is nothing inherently more sustainable in non-market forms of production (all economic activity uses energy), but these systems lack the expansionary drive of markets. Consequently, energy efficiency gains and new technologies can be used to replace fossil fuels rather than add to them.
This transition has the potential to be hopeful, a chance to build a more humane system. This system will be materially poorer than today’s society. But this is not ‘eco-austerity’. Much of the energy we use today is in producing goods that we do not need, that do not fulfil our needs. Richard Seymour articulates this in the context of the labour theory of value:
The overproduction of ‘stuff’ is largely achieved by making a costly withdrawal from the worker’s body, a form of life-impoverishing austerity. And a great deal of that ‘stuff’ is not for workers’ consumption, but rather, where it is not consumed as profit and dividends, is dead labour whose main effect is to achieve a further extraction of labour. We might think of energy conservation as class self-defence.
Put another way, consumption is an ineffective way of building a good life. Collectively limiting our consumption could open a path to a better economic system.
There are links between such a program and other radical leftist programs for change. Freedom from the market and repurposing of production along the lines of social need rather than profit are central to the post-work movement.12 But this movement lacks a critique of consumerism, and its analysis of capitalism fails to engage rigorously with insights from ecological economics. Visions of mass space flight continue the fantasy that consumption can fulfil us, and rely on the notion of continued expansion of output and energy use. It is unclear why those who advocate ‘fully automated luxury communism’ (for example) believe that a political programme whose key appeal lies in having more stuff will find itself able to break free from the expansionary cycle that lies at the heart of the ecological catastrophe. If the promise is more mass consumption, doing away with the most reliable and efficient energy sources to which we have access will be a hard political sell. There can be no avoiding growth in fossil fuel use under capitalism. But this does not mean that anti-capitalist programmes are all equally good solutions. The route forward is to embrace these radical impulses, but critique their obsession with consumption, and highlight the destructive dynamics they share with capitalism.
This marks out the terrain for political struggle. Socialists must engage mainstream environmentalists and work with them. We have a common foe in the big capital of the fossil industry. Many environmentalists are critical of the economy as it is, but lack a full analysis of its mechanics. Extinction Rebellion is a key example of this: a critical yet ‘apolitical’ movement. Yet they offer perhaps our best hope for building institutions that give us community, autonomy, and purpose, and for breaking with the expansionary capitalist fossil economy.
- Marx, Karl. (1856) 1990. Capital: A Critique of Political Economy Vol. 1. Translated by Ben Fowkes. London: Penguin, p.133
- ibid. p.134
- Ross, L.C., Austrheim, G., Asheim, LJ. et al. ‘Sheep grazing in the North Atlantic region: A long-term perspective on environmental sustainability’. Ambio (2016) 45(5):551-566. https://doi.org/10.1007/s13280-016-0771-z
- Wood, Ellen Meiksens. 2017. The Origin of Capitalism: A Longer View. London: Verso.
- Smith, Adam. (1776) 1976. An Enquiry into the Nature and Causes of the Wealth of Nations. Chicago: University of Chicago Press, p.17.
- Wood (2017).
- Malm, Andreas. 2016. Fossil Capital: The Rise of Steam Power and the Roots of Global Warming. London: Verso.
- ibid. p.258, 263
- Deléage, Jean-Paul, Jean-Claude Debeir, Daniel Hémery. 1991. In the Servitude of Power: Energy and Civilisation Through the Ages. London: Zed Books, p.59
- Jackson, Tim and Peter Victor. ‘Productivity and work in the ‘green economy’: Some theoretical reflections and empirical tests’. Environmental Innovation and Societal Transitions (June 2011) 1(1):101-108. https://doi.org/10.1016/j.eist.2011.04.005
- Cushman, Philip. ‘Why the Self is Empty: Toward a Historically Situated Psychology’. American Psychologist (1990) 45(5):599-611. http://dx.doi.org/10.1037/0003-066X.45.5.599.
- Weeks, Kathi. 2011. The Problem with Work: Feminism, Marxism, Anti-Work Politics and Post-Work Imaginaries. Durham, NC: Duke University Press.
Why Karl Marx was right about capitalism
From the moment Karl Marx put pen to paper, pro-capitalist political commentators and academics have attempted to bury his ideas. But successive generations of political activists have continually turned to Marx’s ideas, from the best working class fighters who joined the various communist and socialist parties in the early 20th century to the student radicals who stood up to the horrors of Vietnam war in the 1960s, embracing his searing indictment of capitalism and his argument for revolution.
Today, with millions around the world plunged into the indignity and pain of unemployment, hunger and homelessness, and with whole swathes of the Middle East torn apart, Marx’s ideas have an enduring relevance. They are essential for understanding why modern capitalism is so obscene. For those of us who want to win a society free of the misery and class inequality that scar our world, they are also indispensable as a guide to action.
“Society as a whole is more and more splitting up into two great hostile camps, into two great classes directly facing each other – capitalists and workers”
– The Communist Manifesto
Despite all the pronouncements that class doesn’t exist, that the biggest divisions are those between nations, sexes, or cultures, Marx was right about the nature of capitalism. It is a system defined by the exploitation of the working class by the capitalists. When Marx wrote the Communist Manifesto and later, Capital, capitalism dominated only in pockets of Europe and North America. Most of the the world’s population were peasants, independent farmers or tribal groups.
However, capitalism quickly became a global system. Around the world, peasants were thrown off their land and pushed into rapidly-developing urban centres. The working class and the capitalist class grew as nation states were established. Society became polarised between these two main social classes. The working class, which includes white collar and blue collar workers – anyone who has to sell their capacity to labour power to a boss in exchange for a wage – is now more than 2 billion people.
The capitalists on the other hand are a tiny part of the population. Yet they wield enormous power through their private ownership and control over the means of producing wealth in our society, whether that’s arable land, the mines, the offices or the factories. They are the ones who get to decide what gets produced and how it’s distributed, who will have a job and who will be thrown into poverty. They are the ones who decide whether our natural resources will be plundered or preserved. They are ones who can make or break governments.
As society has become polarised between the working class and capitalists, it has been increasingly marred by grotesque inequality. This is part of the structure of our society, and it helps to explain why the classes not only exist, but are “hostile camps”. Wealth doesn’t just come from thin air. The profits of the capitalists are not a product of their genius or hard work. They come from paying us less than the value that we produce at work. And because the capitalists are locked into competition with each other, they’re always seeking ways to cut costs and maximise the profits they can squeeze out of us.
Capitalism is therefore characterised by a never-ending struggle between labour on one side against the capitalists and their allies in the parliamentary and legal system on the other. This class struggle is waged over the rate of exploitation, over safety and conditions at work, over whether essential services like hospitals and public transport that working class people rely on will be publicly funded or privatised, and so on. This class struggle is sometimes hidden and at other times it is part of an open battle. It can be clearly seen in the attempts by governments to slash social spending and hold down wages.
“What the capitalist class therefore produces, above all, are its own gravediggers”
– The Communist Manifesto
Marx was also right when he argued that the only group in society capable of fundamentally challenging the inequality, war and oppression was the very class that was most impacted by these things – the working class. The horrors of capitalism inevitably push all its victims to resist. But Marx argued that the working class has a special capacity to be the system’s gravediggers.
Marx saw the working class as the agent for revolutionary change for several reasons. First, we have numbers on our side. As the poet Percy Shelley famously put it, “Ye are many, they are few”. But more important is the centrality of workers to production and profit making. Without our labour in the workplace, not a single wheel of industry would turn, not a single product would be produced. If we withdraw our labour, the source of their profits would dry up.
No other group has this power to challenge the functioning of capitalism in such a fundamental way. The working class brings together all people – blacks, whites, gays, straights, men, women, etc. While everyone has a different identity in some way, it is as workers that they can truly wield power.
While capitalism forces workers to compete against each other for jobs, housing, university places and so on, it brings us together in the world of work where we need to cooperate with each other for our workplace to function. Similarly, to bring the economy to a halt, individual heroism won’t do. It requires the active involvement of our workmates. The need for collective action in turn requires that workers build democratic organisations that can inspire solidarity and convince and organise the majority of workers to take action.
This collective nature of working class life and struggle under capitalism gives us the capacity to reorder society in the interests of the majority. In seizing control from the capitalists, workers can’t simply divide up the factories, the hospitals and the offices and share them out individually – one person taking a steel furnace, another a heart monitoring machine, another a photocopier. Obviously, none are sufficient for sustaining life. The only way workers can abolish the conditions of exploitation is to collectivise and socialise the means of production and distribution, democratising all aspects of production and decision making. Given the interdependent nature of the world economy, this process would have to be international, hence Marx’s call for workers of the world to unite.
“The ideas of the ruling class are in every epoch the ruling ideas”
– The German Ideology
Today, pretty much every idea pushed by the education system, the media, advertising companies etc. justifies capitalism. Ruling ideas include the notion of social mobility – that if we work hard, anybody can make it. They also include the idea that the competitive, individualistic, dog-eat-dog nature of capitalism reflects, not the interests of the elite, but instead our human nature. And because of this “nature”, any attempt to radically alter society through revolutionary struggle will inevitably end in dictatorship, so we’d better not try.
Once again, Marx was right when he argued that a key weapon in the hands of the ruling class is ideology – systems of ideas that attempt to naturalise their privileges and the subordinate position of the majority of people. This isn’t surprising: the capitalist system tramples on the needs and desires of the majority of people in the interests of a minority. To preserve the status quo and stop the gravedigging, they have to both break up the majority and win some of us over to the idea that nothing else is possible. The ruling class has at its disposal the means of disseminating and promoting its ideas on a huge scale.
Take the mass media, which have the capacity to shape public debate on a national scale. They are far from neutral observers. To deflect attention away from the real problems – like crap public transport and overcrowded hospitals – the media help stoke anti-refugee sentiments whenever they decide to give politicians prime time coverage to talk tough about “stopping the boats”. Why would anyone even notice, let alone resent, desperate refugees if it weren’t for the mass media carrying front page stories announcing their arrival?
Another key institution for the dissemination of ideas in our society is the education system, where we’re taught that to get by in society you need to obey the rules and respect or at least tolerate the authority of those above you. These are the types of classroom lessons our rulers hope you will take with you into workforce. We’re also taught about how history is made by great men (and very, very occasionally great women), downplaying the role that masses of ordinary people have played in creating historical change.
The reality of life under capitalism also plays a role in reinforcing pro-capitalist ideas. For instance, because of sexist discrimination in our society, women are generally in lower paid jobs which carry less authority. This fact can in turn reinforce the ideology that women are naturally inferior. The norms under capitalism can become established as natural rather than being seen for what they are – a social construction.
However, while ruling class ideas are dominant, they are never completely hegemonic. Lived experience under capitalism not only reinforces ruling ideas, it also clashes with them. For instance, the promise of social mobility that capitalism holds out to us is continually dashed against the rocks of economic crisis. The clash produces contradictory and mixed ideas in workers’ heads. Most workers accept aspects of capitalist ideology at the same time as holding oppositional ideas. If this weren’t the case, if we were all brainwashed, radical social change would be all but impossible. The civil rights and women’s movements, which were a direct challenge to the ruling ideas, could not have happened.
Key to undermining these ruling ideas is the class struggle itself. When workers go on strike it can reveal to them the real social power that they do have. It can reveal just how indispensable we are to the capitalists and how little we actually need them. It can also undermine the bigoted ideas that workers may hold, because successful working class struggle requires unity in action and solidarity.
Divisions that the capitalist class tries to sow, like sexism and racism, can be overcome because the special oppression of one section of the working class sets back the entire class. As Marx wrote in Capital, “Labour cannot emancipate itself in the white skin where in the black it is branded”.
“Philosophers have only interpreted the world, in various ways; the point is to change it”
– Theses on Feuerbach
Marx was not an armchair thinker. He argued that just understanding the world – knowing the real reasons for war, knowing about the lies the ruling class push, knowing that their wealth is based on our exploitation – was not going to change it. For Marx, gaining a deeper insight into the contradictions of capitalism was not some purely intellectual exercise. The point of developing theory was so that it could inform his political practice. The point of learning about historical struggles was so he could better understand the most effective levers for changing society.
Ideas alone were insufficient for altering the world around us. It wasn’t the ideas of liberty, fraternity and equality that chopped off the heads of the aristocracy during the French revolution. For ideas to have force, especially those that run completely counter to the common sense under capitalism, they need to be organised and embodied in the actions of working class men and women, which is why Marx played a leading role in radical organisations such as the Communist League.
Far from being a mechanical determinist, Marx understood that the victory of socialism over capitalism was not inevitable. Capitalism, despite being wracked by internal contradictions and periodic economic crisis, is not going to collapse of its own accord. Revolutionary social change needs to be fought for. Indeed, to achieve any progressive social change we need to demand, agitate and organise for it. If you want to see an end to the murderous wars; if you want to win genuine equality for LGBTI people; if you want to see the refugees freed from the concentration camps, then you need to put your actions where your mouth is. As the great abolitionist Frederick Douglass put it, “Power concedes nothing without a demand”.
Just a cursory glance at history confirms this. It is working class people who had to fight to win the eight-hour day. It is working class people who have had to fight for and continue to fight for equal pay for women. None of these gains were handed to us by some impersonal law of economic development. Nor were they handed down by some benevolent politician. The leopard has not changed its spots. Twenty-first century capitalism continues to be steeped in the blood and suffering of ordinary people. It’s high time our generation learned how to fight with passion and tenacity against this beast.
Capitalism Isn’t The Reason We’re Unhappy – OpEd
Many critics of capitalism have given up trying to claim capitalism makes people poorer. Faced with so many obvious gains in the standard of living, and in reducing poverty worldwide, markets have won the economic debate over whether or not capitalism is the path to material riches.
But the doctrinaire anti-capitalists have other strategies. They’ve now branched out into blaming capitalism for a host of other social, ecological, and psychological ills.
Sometimes, the tactic is to blame capitalism for destroying the earth. Other times, it’s to claim that capitalism, in spite of the material plenty it delivers, makes us miserable.
For example, George Monbiot, columnist at The Guardian blames pro-capitalist ideology for making people, sad, lonely, and unhealthy. Writers cite polls claiming people in richer countries — i.e., more capitalistic ones — are more miserable than people elsewhere. Holly Baxter at The Independent suggests capitalism is the reason elderly people are now so lonely and isolated: capitalism makes us more concerned with buying things than with visiting poor, dying Aunt Ethel.
Claim: Capitalism Wants Us to Be Sad, Needy Consumers
And it’s all by design, it seems. According to Monbiot and other critics of “neoliberalism” — by which they just mean anything resembling a market system — the capitalist ideology is designed to isolate us, and turn us into soulless consumers. This then paves the way for an endless cycle of misery and consumption.
For a more academic phrasing of this idea, we could consult Ankita Singh’s article “Capitalism, Consumerism, and Popular Culture” which examines how capitalism creates a downward cycle of despair. This persistent unhappiness, Singh explains, “is caused [by] the sense of alienation one feels in today’s urban corporate culture.” Consequently, consumers attempt to “compensate” for their capitalism-caused “emptiness” by “indulg[ing] in inanimate objects offered by the consumerist culture.”
At this point, all that is left for the capitalists to do is to tell us what products to buy. And fortunately for the capitalists, Singh tells us: “The power of advertising is such that it can create a demand where none exists, of a commodity which is not needed.”1
Much of this general concept can be traced back to Marxist psychologist Erich Fromm, who in Escape from Freedom (1941) wrote:
In capitalism economic activity, success, material gains, become ends in themselves. It becomes man’s fate to contribute to the growth of the economic system, to amass capital, not for purposes of his own happiness or salvation, but as an end in itself.
That is, through capitalism and its propagandists (i.e., advertisers) human beings are reduced to “a cog in the vast economic machine” who no longer pursues his own happiness, but only serves the interests of “capitalism.”
There are a couple of problems with this theory, though.
One is that a capitalist economy does not rely on endless consumption to sustain itself. The second is that advertising doesn’t work the way many assume it does.
Capitalism Doesn’t Cause Consumerism
For starters, it is not the case that the capitalist system is built on consumption or that it requires us to mortgage our future in order to buy ever-larger amounts of consumer goods. After all, it is for a good reason that capitalism has historically been much associated with misers — the quintessential literary example being Ebenezer Scrooge — who shunned consumerism. Saving (i.e., deferred spending) is every bit as essential to capitalism as is consumption. It is governments and their central banks, not markets, that seek to maximize consumption always and everywhere.
Moreover, saving and investment are key ingredients in increasing wages, growing the capital stock, and increasing future consumption. In a market economy, many firms, such as retirement funds and banks, directly profit from more saving and investment.
Spending every last dime on another trinket or bauble is not a recipe for robust capitalism.
How Advertisers Are Supposedly Making Us Miserable
At this point, the purveyor of the capitalism-makes-you-sad theory could still insist: “sure, maybe capitalism overall doesn’t require us to relentlessly consume. But certainly there’s a portion of the capitalist system, such as toy sellers and auto makers, who need us to consume. And to get us to do so, they use advertising designed to keep us hoping we can fill that hole in our souls with just one more trip to the mall.”
There’s a (small) kernel of truth to this. Many capitalists do indeed want us to buy consumer goods, without much regard to the consequences to each consumer personally. In hopes of getting us to spend, they employ advertising. And advertising often promotes feelings of inadequacy to get us to consume more.
This particular kind of advertising was developed at least as early as the nineteenth century. It was then perfected in the 1920s.
Typical examples of the formula include:
- Why be ugly … when you can use Zenith Cold Cream?
- Why be fat … when you can take Acme Diet Pills?
This formula was so widespread by the 1920s and 1930s, in fact, that Sigmund Freud joked the “boldest and most successful piece of American publicity” would be an ad using the phrase “Why live if you can be buried for ten dollars?”2
Nowadays, a lot of modern advertising is more nuanced and less in-your-face than this formula. Modern advertising often appeals to humor. Nevertheless, advertisers nowadays still rely on the strategy of presenting consumption as a sort of self-improvement. They offer a glimpse of a life of better looking people, more luxurious cars, and more fulfilling friendships. It’s the life you might have if you only consume the right products and services.
But do people actually believe what advertisers tell them?
Clearly, people don’t buy everything advertisers tell them to. If they did, as Ludwig von Mises noted, candle makers could convince us to abandon light bulbs with a few ad campaigns.
Indeed, studies conducted to determine the effectiveness of ads have never been conclusive. A 1931 consumer survey revealed the “only 5 percent of the public believed any of the more obviously outrageous claims made by ads.” Only 37 percent believed any ads at all.3
A 2013 survey concluded only 21 percent of consumers agreed “ads are somewhat accurate.” 21 percent also said they will even “refuse to purchase products due to brand advertising.”
Some might claim this is only survey data, and thus questionable. But then there are countless cases in which ad campaigns failed to achieve results. A 2015 study from the University of Texas, for example, showed alcohol ads have increased 400 percent over the past forty years. Meanwhile, per capita alcohol consumption has gone down. Yes, advertising can be helpful in promoting a certain brand. But it hasn’t been shown to increase a person’s overall spending.
So, it seems people don’t spend more just because capitalists tell them to. And its unclear that many even believe what ads have to say. If this is the case, it’s hard to see how “capitalism” has succeeded in its nefarious plan to make us miserable consumers, assuaging our loneliness with another round of mindless spending.
Are We More Miserable than Our Forebears?
In spite of the unconvincing reasoning behind the capitalism-makes-you-sad narrative, many continue to find it plausible. This is largely because many people remain convinced that people were happier — or at least had an easier time — in the past.
Certainly, there’s no statistical data to support this. Those happiness measurements we sometimes read about in the popular media (such as this one) are usually based on totally subjective self-reported survey data and offer absolutely no means of comparing the present with the past. Attempts to systematically asses “happiness” in the past were virtually nonexistent.
Quality-of-life indicators reconstructed from the past (such as working hours, living space, life expectancy, and homicide rates) don’t often make the era of our grandparents or great-grandparents look especially wonderful. The nineteenth century — an era before modern methods of mass marketing and mass consumption — wasn’t an era of carefree indifference to the requirements of daily work and toil. The poverty of the “good old days” was not exactly a source of personal fulfillment and contentment.
But perhaps we need to look deeper into the past?
On this, Murray Rothbard suggests the imagined Golden Age before capitalism existed. It was, according to the myth, an era of “Happy Craftsmen and Happy Peasants” who had a “sense of belonging” and all were “sure of his station in life.” No one suspected he ought to be buying a new car or a new bedroom set. No such options were available at all.
Was living in poverty with no access to advertisements or capitalism the real key to happiness? Rothbard is skeptical and notes that people — should they really want to flee capitalism — are largely free to pursue this supposedly happier type of living in communes like the utopians or hippies of old. He concludes:
Not only has almost no one abandoned modern society to return to a happy, integrated life of fixed poverty, but those few intellectuals who did form communal Utopias of one sort or another during the nineteenth century abandoned these attempts very quickly. And perhaps the most conspicuous non withdrawers from society are those very critics who use our modern “alienated” mass communications to denounce modern society.
It’s comforting to think there is some time or place in which human beings were not troubled by feelings of unhappiness, emptiness, or inadequacy. It’s unclear, however, where or when this place has existed. In the mean time, few seem willing to give up their modern amenities to investigate first-hand.
*About the author: Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for Mises Wire and The Austrian, but read article guidelines first. Ryan has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.
Source: This article was published by the MISES Institute
1. Singh calls to mind a line from the 1999 film Fight Club in which a main character declares modern workers in a capitalistic system are “slaves with white collars. Advertising has us chasing cars and clothes. Working jobs we hate so that we can buy sh-t we don’t need.”
2. Ann Douglas, Terrible Honesty:Mongrel Manhattan in the 1920s (New York: The Noonday Press, 1995), p. 144.
3. Ibid., p. 68.
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