Does Capitalism Inevitably Produce Inequalities?

Does Capitalism Inevitably Produce Inequalities

Joseph Stiglitz

In a recent New York Times op-ed article, Nobel Prize-winning economist Joseph Stiglitz theorized that capitalism does not inevitably produce inequalities in wealth. Instead, he argued, today’s inequalities result from policy decisions made by politicians on all sorts of matters that affect people’s income: the tax structure that favors the rich, the bailout of the banks during the Great Recession, subsidies for rich farmers, cutting of food stamps, etc. In fact, he concluded, today there are no “truly fundamental laws of capitalism.” Thanks to democracy, people can steer the economy in a variety of directions and no single outcome is inevitable.

In their 2010 book, Winner-Take-All Politics: How Washington Made the Rich Richer – and Turned Its Back on the Middle Class, Yale Professor Jacob Hacker and U.C. Berkeley Professor Paul Pierson would seem to add additional support to Stiglitz’s conclusion. As reported by Bob Herbert in The New York Times, they argued that “the economic struggles of the middle and working classes in the U.S. since the late-1970s were not primarily the result of globalization and technological changes but rather a long series of policy changes in government that overwhelmingly favored the rich.”

Although there is certainly significant substance to Stiglitz’s argument – policy decisions can have profound impacts on economic outcomes – nevertheless capitalism is far more responsible for economic inequality because of its inherent nature and its extended reach in the area of policy decisions than Stiglitz is willing to concede.

To begin with, in a capitalist society it is much easier to make money if you already have money, and much more difficult if you are poor. So, for example, a rich person can buy up a number of foreclosed houses and rent them out to desperate tenants at ridiculously high rates. Then, each time rent is paid, the landlord becomes richer and the tenant becomes poorer, and inequalities in wealth grow.

More importantly, at the very heart of capitalism lies an incentive that leads to the increase of inequalities. Capitalism is based on the principle of competition, and businesses must compete with one another in order to survive. Each company, therefore, strives to maximize its profits in order to achieve a competitive advantage. For example, they can use extra profits to offset lowering the price of their product, undersell their opponents, and push them out of the market.

But in order to maximize profits, businesses must keep productive costs to a minimum. And a major portion of productive costs includes labor. Consequently, as a general rule, in order for a business to survive, it must push labor costs to a minimum. And that is why, of course, so many businesses migrate from the U.S. and relocate in countries like China, Viet Nam, Mexico, and Bangladesh where wages are a mere pittance.

This inherent tendency to maximize profits while minimizing the cost of labor directly results in growing inequalities. Stiglitz himself mentions that C.E.O’s today “enjoy incomes that are on average 295 times that of the typical worker, a much higher ratio than in the past.” In fact, in 1970, the ratio was roughly 40 times. C.E.O.s who succeed in suppressing wages are routinely rewarded for their efforts. Hence, not only is there an incentive to keep wages low for the survival of the business, there is a personal incentive in play as well.

Although politicians religiously deny that these contributions have any influence on their decisions, it is inconceivable that businesses – always obsessed with their “bottom line” – would continue these contributions without a “return on their investment.”

While Stiglitz is correct in arguing that politicians can influence economic outcomes by policy decisions, what he fails to acknowledge is that these policy decisions themselves are heavily influenced by the economic relations established by capitalism. There is no firewall between the economy and politics. Those who have acquired money from the economic sector can then put this money to work in the political sector by lobbying and showering politicians with campaign contributions. Although politicians religiously deny that these contributions have any influence on their decisions, it is inconceivable that businesses – always obsessed with their “bottom line” – would continue these contributions without a “return on their investment.”

Study after study has confirmed the influence of money on political decisions. The San Francisco Chronicle reported, for example: “In a state with nearly 38 million people, few have more influence than the top 100 donors to California campaigns – a powerful club that has contributed overwhelmingly to Democrats and spent $1.25 billion to influence voters over the past dozen years. These big spenders represent a tiny fraction of the hundreds of thousands of individuals and groups that donated to California campaigns from 2001 through 2011. But they supplied about one-third of the $3.67 billion given to state campaigns during that time, campaign records show. With a few exceptions, these campaign elites have gotten their money’s worth, according to California Watch’s analysis of campaign data from state finance records and the nonpartisan National Institute on Money in State Politics, which tracks the influence of campaign money on state elections.”

Even beyond campaign contributions, political decisions are not crafted in a vacuum, remote from capitalism. Capitalism is a way of life, and for that reason it generates its own peculiar culture and world view that envelopes every other social sphere, a culture that includes competition, individualism, materialism in the form of consumerism, operating in one’s self-interest without consideration for the needs of others, and so on. This culture infects everyone to one degree or another; it is like an ether that all those in its proximity inhale. It encourages people to evaluate one another according to their degree of wealth and power. It rewards those who doggedly pursue their narrow self-interests at the expense of others.

The culture of capitalism, because of its hyper individualism, also produces an extraordinarily narrow vision of the world. Viewing the world from an isolated standpoint, individuals tend to assume that they are self-made persons, not the products of their surrounding culture and social relations. So the rich assume that their wealth has been acquired through their personal talents alone, while they see those mired in poverty as lacking the ambition and willingness to work hard. People are unable to see the complexities underlying human behavior because of the atomization of social life. But the disciplines of psychology, sociology, and anthropology all concur that individuals are overwhelmingly a product of their social environment to their very core.

In 1947, for example, the American Anthropological Association argued in its Statement on Human Rights: “If we begin, as we must, with the individual, we find that from the moment of his birth not only his behavior, but his very thought, his hopes, aspirations, the moral values which direct his action and justify and give meaning to his life in his own eyes and those of his fellow, are shaped by the body of custom of the group of which he becomes a member.”

Capitalist culture engenders a mindset among politicians that leads them to craft public policies in favor of the good people, the rich and powerful, and turn their backs on the poor or punish them with mass incarceration.

It is in this more subtle way that capitalism induces growing income inequalities. Because of their intensely competitive environment, politicians are more vulnerable to this capitalist culture than most. Capitalist culture engenders a mindset among politicians that leads them to craft public policies in favor of the good people, the rich and powerful, and turn their backs on the poor or punish them with mass incarceration. They think it entirely natural to accept money from the wealthy in order to fund their re-election campaigns. And the more the inequalities in wealth grow, the more this mindset blinds politicians to the destructive implications of these “natural” decisions.

In 2011, Stiglitz wrote a compelling article, “Of the 1%, by the 1%, for the 1%,” in which he argued forcefully that large inequalities in wealth are in no one’s interest. But since then the politicians have continued to accept campaign contributions from the rich, socialize with them, and do their bidding. They ritually denounce the shamelessly low taxes on the 1%, but have done nothing to alter them. The culture of capitalism trumps logical arguments, and thus the inequalities in wealth continue to expand. Capitalism has an iron grip on the political process.

Does Capitalism Inevitably Produce InequalitiesStiglitz concluded his article with this prophetic statement: “The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.”

While Stiglitz’s arguments have had no impact on growing inequalities, thanks to the power of capitalism, nevertheless capitalism gets credit for producing the one force that can put a stop to these destructive trends: the working class. As Karl Marx argued, capitalism produces its own “gravediggers.” In the 1930s workers massively organized unions and fought militant battles to defend their right to unionize and their right to fair compensation. These unions, which Stiglitz fails to mention, played a decisive role in reining in inequalities and unleashing a period in which the ranks of “the middle class” grew.

As Marx noted in his “Contribution to a Critique of Hegel’s Philosophy of Right,” “The weapon of criticism cannot, of course, replace criticism of the weapon, material force must be overthrown by material force; but theory also becomes a material force as soon as it has gripped the masses.”

Stiglitz’s criticisms of growing inequality will have little impact on policy decisions until they are embraced by the masses, the working class, those that capitalism cruelly exploits and who are so easily dismissed by politicians and academics. At that point the working class will finally stand up and collectively declare enough is enough.

Ann Robertson and Bill Leumer

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Comments

  1. Adam Eran says

    The message here has been around for a while. Economic historian, Karl Polanyi wrote “The Great Transformation” about how Capitalism was at the root of World War I.

    The key concepts: Capitalism conceives of all of humanity as marketable labor, all of nature as marketable land, and all human interaction as a financial transaction. The consequences of such thought remain with us today. How else can one explain GM’s willingness to spend 97¢ less on an ignition switch that kills people? It’s profitable, but inhumane.

    The willingness to embrace such heartlessness leads to massive suffering that simply can’t be ignored. Even conservative monarchists like Bismarck had to react (single payer health care!).

    It would certainly be desireable to avoid the kind of suffering caused by World Wars, Industrial Revolutions, etc. But the U.S. seems determined to ignore and/or suppress the suffering. That also explains the massive prison system (five times the per-capita incarceration rate of the rest of the world) and military (we have to suppress populations foreign, as well as domestic).

    Yet apologists for Capitalism remain largely undeterred. After the greatest failure ever of that system (the Great Recession), with the insecurity that requires the greatest military expense (defeated by home-made bombs), and greatest prison system in history… you’ll still find defenders Capitalism.

    The capacity for delusional thinking is truly amazing, but the truth will out.

  2. R Zwarich says

    In the conclusion to their article, Robertson and Leumer write that: “Stiglitz’s criticisms of growing inequality will have little impact on policy decisions until they are embraced by the masses”. True enough, yet nowhere in their well-written piece do they discuss how progressive ideas might be presented in such a way that ‘the masses’ might embrace them.

    It seems to me that both the Stiglitz article, and the Robertson/Leumer article, lack the requisite focus that might augment our ability to present a progressive message to ‘the masses’. Both are very good articles, and each presents very important and perceptive observations, but neither quite brings the crux of the matter into sharp enough focus to present a cogent message that could successfully counter the primary message that has led to the spectacular success of our powerful opponents in capturing the loyalty of a large percentage of the common people.

    Surely we all, as progressives, understand that government is the only social agency that has the potential power to restrain the power of amalgamated wealth. There is an old saying that: “The common people object to being governing badly, but the rich do not want to be governed at all”. The Rich do not want any social agency to exist that can restrain their own power.

    Surely we, as progressives, all see that the American plutocracy has hit upon a powerful political formula by which the common people’s dissatisfaction with bad government has been used to convince them that government itself is bad, thereby weakening the government’s power to restrain the power of the plutocracy.

    A large percentage of the common people vehemently resent the government’s prevailing policies, but a large percentage of that percentage are being convinced by agents of the plutocracy to undermine the very idea of government itself. “Your objections to bad government are well founded”, say the plutocrats (through their political agents) to the ill-informed masses, “therefore you should join us in objecting to being governed at all”. This is working. And it is working in spectacular fashion. A distressingly large percentage of the common people are voting for politicians who bamboozle them with right wing populism. These right wing populist politicians play to every social prejudice they can exploit, berating government interference in people’s lives as the root of all evil. Once elected, of course, these agents of the plutocracy shape government policy to the exploitative designs of the plutocrats.

    Too many progressives these days seem to satisfy themselves with berating and ridiculing the ill-informed provincial bigotries of these common people who find political refuge in right wing populism. Too many of us have forgotten that politics is a numbers game, and the object of the game is to get the most people on our side. Ridiculing and berating people are very poor methods for winning those people to our side.

    What message do we have to present them, to counter the powerful message of our opponents? The correct message is in the Stiglitz article, but it is buried beneath the ideas. It is not clearly and simply stated. The Robertson/Leumer piece presents some very valuable ideas, (particularly concerning the cultural mindset of capitalism), but other than saying that “capitalism is bad”, and that “the masses (their term) must embrace our ideas”, there is no message presented that might address the bamboozlement of ‘the masses’ by the message of our opponents.

    “Our government is bad, therefore government itself is bad” is a false syllogism, but this is the argument being used to spectacular effect by our opponent.

    Doesn’t the proper message to counter that false message seem obvious? (Hint: ‘Democracy’ is the major premise).

    R Zwarich

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