Why Pure Capitalism Doesn’t Work

capitalismI know a lot of people who are so enamored with free market capitalism and individualism that they oppose any social programs to reduce poverty and fix wealth inequality. In previous articles about government I mentioned why extreme inequality is a problem. Some capitalists disagree that it’s even a problem, or if they do they blame the poor for not earning more money. But others think government interference is what causes economic problems, and an unregulated capitalist free market would fix wealth inequality. I believe this view is inconsistent with what we’ve actually observed in the past, and social programs are necessary to offset the inherent problems created by capitalism.

The main problem with capitalism is that it’s specifically designed to make use of greed. It’s actually not a bad concept, to direct our more negative human traits into producing goods. However, capitalism assumes this is the best way of running an economy, and therefore tends to promote and reward greed.

Perhaps it was the best at some point in the past, when humanity was more spread out and individuals were more dependent on themselves and their families. But over the last couple centuries, the exponential growth of technology has led to a much more populous world and very different ways of life. You could see this as analogous to a single cell joining with others to form a multi-cellular organism. We started as small tribes, then cities, then nations. Now almost all of humanity has been brought into a single tribe, if you base your criteria for tribal membership on the length of time it would take to communicate with any other member. Instantaneous communication and faster methods of travel have brought almost everyone in the world as close together as the population of a city, whether we remain divided into separate countries or not.

If you think about it for a moment, you might realize that you can’t have a completely healthy economy until you create one that can sustain every member. When enough cells in an organism are suffering, the whole organism will also suffer. Poverty must be eliminated, because it’s a huge contributor to many expensive social problems such as crime, drug abuse, disease, and more. It’s futile to fight against these symptoms while ignoring poverty. Doing so is particularly stupid when we have the technology and the resources to support every human on earth, if only we could learn to work together instead of basing our entire economy on selfishness.

This doesn’t mean every aspect of capitalism is bad. The concept of competition in a market makes a lot of sense. After all, it was competition for resources that produced more and more complex life through natural selection. But if we want a happy and peaceful world, our economy should be based on the idea that respectful competition is a way to use our inclination to greed–but not greed itself–for our benefit. Thus we must have safeguards against inequality, greed, and other practices that cause harm.

If you combine that with the concept that human labor shouldn’t be treated as a commodity to be bought and sold on a free market, you get socialism, which actually started as an argument against unregulated capitalism. Even with some regulations, we’ve seen how capitalism can concentrate wealth and therefore power in the hands of a small number of people, which at some point makes them powerful enough to affect the government and change laws in their favor against the wishes of the people.

Socialism figures the main flaw of capitalism is that, in its purest form, it results in a steady flow of wealth away from the poor and toward the rich. This is probably caused by the simple mathematical inequality that results when the entirety of a company’s profit belongs to the person who happened to have enough money in the first place to start the business. Quite simply, the only people who can benefit from pure capitalism are the ones who already have capital. One way to fix this would be to implement social programs funded by taxes to create a reasonable flow of wealth in the opposite direction. Many modern countries use this method, in various contexts and to mixed success.

It seems to me that the most important problem that we haven’t yet solved is balancing the flow of resources from the rich to the poor so that the poorest members are able to live comfortably while the richest members still present a motivation for hard work and innovation. And it seems to me that if we all thought about it this way, perhaps we could finally figure it out.

The introduction of social programs to maintain a fair distribution of wealth, while keeping a free market, is usually called social democracy. It is very similar to democratic socialism, and the terms are often used interchangeably. The main difference is that social democracy keeps elements of capitalism, while democratic socialism may tolerate it but advocates for moving farther toward socialism. Pure socialism would be a system where each member is treated as a sort of shareholder in their group’s economy. Depending on the government structure, the economic group you belong to could be small or large. State socialism is when the group is the entire nation with one central entity that owns the nation’s means of production. Obviously this is a bad idea, since a single large government is easily corrupted. But not all socialism is equal; by using government only for general administration and rule-making, a socialist economy can be constructed with privately operated businesses to leave the ownership of the means of production in the hands of the citizens.

Democracy has proven to be the best government structure devised so far, when implemented correctly. Like socialism (its economic cousin), pure democracy doesn’t work on a massive scale. That’s how you end up with the two wolves and a lamb voting on who to eat for dinner, probably because they’ve shipwrecked their economy on a metaphorical deserted island and already eaten all their buddies. A large scale democracy only works for the benefit of all citizens when it’s a republic, wherein representatives are elected to manage a central government and minorities are protected from mob rule. I also think the division of government into states is a good idea, because there are many decisions that must be made on a local basis. A single national government would be more likely to generalize and overlook factors that may be important.

Just like political power, economic power should be split into smaller pieces, because it’s almost exclusively driven by the work and spending of average citizens. Every cent of profit earned by a business is produced by the work and spending of its employees and customers. The people who provided capital and ideas to start the company certainly deserve a share of the profit, but the employees devoted time out of their lives to produce that profit, and it wouldn’t have been possible without a structured society in the first place. Employee-owned companies are a perfect example of what socialism was meant to be. It’s democracy applied to the economy; just like democracy is intended to provide fairly distributed political power to every citizen, socialism is intended to provide fairly distributed economic power to every citizen.

Capitalism, on the other hand, is often a slightly less brutal economic equivalent of slavery, with an owner class that has a generally equitable share of the economy, and a laborer class that has almost nothing and survives by working for the owners. Without social programs, and laws to prevent large corporations from affecting government policy, capitalism seems to inevitably lead to increased poverty and political corruption.

Image: Milt Priggee

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