In 1776 the Scottish economist and philosopher, Adam Smith, released his magnum opus, “The Wealth of Nations” and laid the foundation for classical economic theory – and modern Capitalism.
The world at that time was significantly simpler in many ways than it is today, and our knowledge of economics, sociology, and politics has advanced considerably since then. But underneath all of our modern-day complexity, the economic foundation is the same: Capitalism – private ownership of the means of production and their operation for profit.
As an economic system, it has served us very well. In the last couple of centuries, our industrialised societies have developed at a totally unprecedented speed, both economically and technologically. And the enormous wealth generated is mainly attributed to Capitalism. It can come as no surprise then, that Capitalism is often viewed as a universal panacea for all the ills of society, and as an ideal means of continued welfare and growth.
If only the world were that simple…
Unfortunately, Capitalism is a truly appalling system for the distribution of wealth, general welfare, and handling environmental issues.
The last 40 years have seen a marked increase in wealth inequality throughout the world. I have written about this in an earlier post, here. Numerous studies have analysed the cause and effect of this, but fundamentally it really cannot come as a surprise at all. Capitalism is grounded in the idea that the application of capital to production produces wealth: those who have capital get richer; those who haven’t – don’t.
The accumulation of wealth inequality is thus built into the very system itself. More interesting, it seems that growing income inequality may also be a natural result of Capitalism. From a social and political angle, this is highly critical, for high and sustained levels of inequality comes attached with high social costs.
And in addition to that – and less commonly known – high levels of income inequality also come at significant economic cost: greater inequality leads to less economic growth. And especially so, if the income share of the top 1% is disproportionately large. The much-vaunted “trickle-down” effect of tax cuts for the rich is a myth. It does not exist in actual reality. If left to itself, Capitalism will – as stated – favour the ultra-rich at the expense of the poor and the middle-class.
Modern economic theory recognises such costs as “externalities”: costs of production which are borne by society at large and not by the individual company. They are, as such, “invisible” to capitalistic production. The individual company does not see the social and environmental costs it creates. When it puts a new assembly line into production, the price of that includes neither its effect on global warming nor the social cost of the growing inequality it creates. And even if it wanted to, the company would have no reasonable way of calculating such costs, for they are not part of the expenses paid for producing.
Capitalism is, in fact, blind to them.
Unfortunately, that does not mean that those costs do not exist. Pollution, global warming, destruction of rain forests, overfishing, strip mining, child labour, marginalisation of the poor, loan sharks, unsafe banking practices, black lung disease, pesticides killing off bees, plastic pollution of the seas, etc. etc. All of these and much more are costs to society and environment, incurred – but not paid for – by capitalistic production.
And because Capital does not pay those costs, society has to step in, in its place. It is the role of government to moderate and regulate free-market Capitalism. And when it neglects that duty, then it is not only failing us today but passing on the cost of Capitalism to our children and our children’s children.
The “de-regulation” mantra of right-wing Capitalism is destructive, counter-productive, and utterly asocial. It is, literally, saying: we don’t care that we may poison your water, pollute the air, melt the polar caps, crash the housing market, or whatever. We simply don’t care. Not our problem. We want to get rich, so fuck off!
You may contrast that with the Nordic societies, which – with their social-democratic policies, massive redistribution of wealth, strict control and regulation of the capitalistic marketplace, and keen social and environmental consciousness – are also, year by year, polled as some of the wealthiest and universally most happy and satisfied societies on Earth.
Raw, unregulated Capitalism leads to concentration of wealth – and universal misery.
– Northern Dragon © 2019. All rights reserved.