[RD] Capitalism, Prosperity and Social equity

[Birdjaguar]

It seems that economic theory finds a way to creep into many threads and that it needs a home of its own.

We are not starting from scratch, but live in a world where there is a huge disparity between the haves and the have nots, the rich and poor, the lucky and unlucky, the educated and the uneducated, the hard workers and the lazy. How do we deal with that reality? How and where should we begin?

Lots of questions get raised and are often not actually answered.

• Do the benefits of capitalism outweigh the downsides?
• Can socialism actually provide economic equality?
• Is economic growth required for prosperity?
• Do smarter, more creative people deserve to benefit from their skills?
• etc.

It is easy to talk theoretically, but that is often not productive. The real problem is finding ways to make changes to what we have to get closer to what we want. Whose ox gets gored first? Who gets punished for the greater good? Who reaps the benefits and are there limits to those?

What would your economic equality look like in practice? Perhaps pick a state or small nation as a starting point. How does one get from the here and now to something better?

 

[innonimatu]

Lots of questions get raised and are often not actually answered.

• Do the benefits of capitalism outweigh the downsides?
• Can socialism actually provide economic equality?
• Is economic growth required for prosperity?
• Do smarter, more creative people deserve to benefit from their skills?
• etc.

It is easy to talk theoretically, but that is often not productive.

But trying to join all that in a single threat inevitably leads to theoretical talk. I think it's better to argue the specifics on threads about specific circumstances.

 

[amadeus]

It’s 3:00 AM here so I’m not running on all cylinders.

The fundamental question to me is: has there ever been an economic system that provides a greater standard of living to the general population?

Look at the richest countries that have ever been—America, Australia, Canada, Britain, France, Germany, and Japan just to name a few. What have these countries all have in common? They don’t have a common language, faith, or race. What they do have is clear: a system of relatively open markets, if not completely, and a government that largely protects the private investor from arbitrary nationalization.

Now suppose someone argues that all of these countries are democratic in their political structure. This is true, but what of countries that weren’t? Chile under Pinochet, the Republic of China under Chiang Kai Shek, and the Republic of Korea under Park Chung Hee and later Chun Doo Hwan. They had authoritarian political systems, but their countries grew far beyond those running under any socialist system.

The closest we can get to any “experiment” we can get to in our lifetimes is the two Koreas and the two Germanys. What have we seen from each? East Germany fared better than it’s neighbors in the Warsaw Pact, but lagged far behind West Germany. North Korea, with Soviet aid, held its own until about 1970 when it was surpassed in GNP/capita by its southern neighbor.

As far as I see, the evidence is clear: a market system based on profits and losses and fair execution of the law have done more good to the average person than any well-meaning planocrat in any society ever.

 

[AmazonQueen]

The biggest injustice is inherited wealth.
Having wealthy parents sets up all but the most inept for life.
Educational opportunities, nepotism etc.

Under our current system wealth inequality is increasing and social mobility decreasing.

 

[Gorbles]

The UK and US are predominantly white, English and also predominantly Christian, and a variety of Western institutional and cultural norms tie directly into Christian beliefs. Marriage being an obvious and easy one. It's important to recognise the existence of diversity, but we can't kid ourselves that prominent Western powers don't have a common language, faith and / or race.

Besides that (I'm not meaning to pick on you specifically @amadeus, it's a common enough theory), I dislike the argument of "has there ever been a better system". The point of history, in theory, is that we learn from it. It's natural to be better than what came before. Or at least trend that way. It also blinds us to the ways society can (and does) regress. Like people seeing marriage for gay people as the defining moment in solving LGBTQ equality.

I'll try and illustrate where I'm coming from with my answers to the questions:

1. "capitalism" needs to be defined in one of two ways. Either the general principle of a country's industry being a privately-run, for-profit model, or a specific example of 21st century capitalism (i.e. the US currently, or the UK currently). I'm going to pick the latter simply because it's easier to illustrate the flaws with particular examples.
2. Of course it can. It's very difficult to find something to do with the vast inequality of inherited wealth (or stockpiled resources, like the milk or potatoes we're seeing wasted with the current logistical difficulties partly-caused by Covid-19) without socialist principles. The devil's in the details, but in my opinion, socialism is perfectly capable of doing so. I mean, people defend capitalism with its (glaring) flaws, but the feeling I get (not from the OP or any discussion so far in this thread) is that socialism has to be perfected before it's even considered.
3. It depends what we're defining as prosperous I'm only being partially tongue-in-cheek, because traditionally something being prosperous is indicated by economic growth. But it isn't always economic growth!
4. Absolutely.

 

[EnglishEdward]

There is a big distinction between a (1) market economy with simple laws where people buy and
sell goods and labour to get by AND (2) limited liability financial capitalism with derivative gambling.

In my opinion those benefiting most from (2) often falsely claim the benefits of (1) as being due to (2).

 

[Lexicus]

I'm paying Comcast for 100mpbs internet but right now I'm getting 0.17mpbs. Capitalism rules!

 

[Ferocitus]

I'm paying Comcast for 100mpbs internet but right now I'm getting 0.17mpbs. Capitalism rules!

It will improve once Ellen deGeneres finishes uploading heart-warming vids from her mansion showing how we're all in this together.

 

[Senethro]

Look at the richest countries that have ever been—America, Australia, Canada, Britain, France, Germany, and Japan just to name a few. What have these countries all have in common?

They don't grow their own coffee and they don't make their own clothes. If we placed the social conditions of those workers upon capitalism, the image would be much more mixed.

 

[innonimatu]

There is a big distinction between a (1) market economy with simple laws where people buy and
sell goods and labour to get by AND (2) limited liability financial capitalism with derivative gambling.

In my opinion those benefiting most from (2) often falsely claim the benefits of (1) as being due to (2).

Take the history of the "consolidation" and "greater efficiency" of the meat-packing industry in he US (later copied in other countries).

It was a capitalist country when butchers made the equivalent of $80000 today, it was a capitalist country when government and the national guard helped crush unions and end that status quo, and it is a capitalist country now when the industry successfully lobbies to import immigrants that it can underpay and treat miserably. So the label capitalism by itself is not enough to discuss which kind of system is good or bad for people.

There are different capitalisms and different socialisms. So, while points can be made about tendencies and inherent characteristics of either system, when comparing any concrete, historical case it comes down to the specifics of how it was practiced. Which makes the ambition of discussing it all here hard to accomplish. Who reaps the benefits depends on each incarnation of the system, and these systems even changed over time in the historic examples, while remaining "capitalist" or "socialist".

It might be more productive to argue over types of failures/public damage done under each system. I can throw the obvious one to start with, abuse of power: whether, say, capitalism inevitably breeds monopoly power and abuse, or can be tempered by political checks. Or whether socialism always produces some kind of nomenklatura, or that too can be tempered by political checks. But his, while certainly informed by historical examples, ends up being also a theoretical discussion. It's impossible to escape going into theory.

And, going back to the example of the concentration of the meat industry, this leads us into "side" theoretical questions (is economic efficiency worth the social cost?) that are valid under either system. Both have caused human damage in the pursuit of economic efficiency, according to the criteria of each time and place. These questions may be as important as the one about capitalism per se.

 

[Lexicus]

So the label capitalism by itself is not enough to discuss which kind of system is good or bad for people.

QFT

 

[Ajidica]

The closest we can get to any “experiment” we can get to in our lifetimes is the two Koreas and the two Germanys. What have we seen from each? East Germany fared better than it’s neighbors in the Warsaw Pact, but lagged far behind West Germany. North Korea, with Soviet aid, held its own until about 1970 when it was surpassed in GNP/capita by its southern neighbor.

That tells us only that West Germany, with a corporatist take on Social Democracy, was able to see strong economic growth as a result of state-directed and supported industrial policy. Yet when similar policies are promoted today, such as a state-directed industrial policy, it is called socialism and equated with Soviet economic planning.

It isn't "markets" that lead to national prosperity, but an intentional use and direction of economic resources by the state to promote industrial and economic policies that create a healthy consumer base with industries to satisfy demand. That may sound simplistic and idealistic, but no more so than "markets"; and this is actually supported by economic history.

 

[Zardnaar]

Germany was still reasonably rich pre Democracy.

No 11 in the world per capita 1013 iirc. They were poor compared with UK/USA.

Unregulated capitalism is bad, we can see that atm 1920s, gilded age 19rh century. You still need a system where skull gets more resources whether that's doctors or whatever.

Main thing you need is political stability.

Alot of concessions made to the working class was to help defang the appeal of Communism along with mobilize the masses for the war years.

Collapse of the USSR ironically hasn't helped out the working class any. Herp derp Communism failed we can dismantle everything.

Social democratic constitutional monarchies seem to be the best way to do things. Means that a president can't get to full of themselves as they're theoretically under the king/queen who exercises no power in the day to day running if the nation.

Inherited wealth, overhaul of the tax code and copyright laws would be key areas. You need some incentive for people to invent stuff but their grand children and great grand children don't need to benefit as much.

 

[amadeus]

They don't grow their own coffee and they don't make their own clothes. If we placed the social conditions of those workers upon capitalism, the image would be much more mixed.

It's funny you mention coffee, because East Germany suffered a shortage of coffee in the 1970's as they couldn't get enough hard currency to buy it from Brazil and other coffee producing countries; the East Germans then set up an agreement with Vietnam to build coffee plantations in exchange for machinery and technical expertise.

I'll say that crops are a little different as they require different growing conditions, but ignoring all other factors the outsourcing of low value-added manufacturing is a positive byproduct of capitalism. Workers in countries with higher levels of education tend to be more productive and having them screw radios together is a waste of their talent. For workers in the poorer countries, it offers them employment better than agriculture or whatever kind of local industry they were previously engaged in. I'm not being dismissive of their concerns; their health and safety ought to be protected and I think we in the richer countries probably could do more to consume more ethically.

That tells us only that West Germany, with a corporatist take on Social Democracy, was able to see strong economic growth as a result of state-directed and supported industrial policy. Yet when similar policies are promoted today, such as a state-directed industrial policy, it is called socialism and equated with Soviet economic planning.

It isn't "markets" that lead to national prosperity, but an intentional use and direction of economic resources by the state to promote industrial and economic policies that create a healthy consumer base with industries to satisfy demand. That may sound simplistic and idealistic, but no more so than "markets"; and this is actually supported by economic history.

I don't know a whole lot about West Germany's industrial policy other than it was more liberal in the classical liberal sense than postwar Britain and France, and W. Germany seemed to pass up both countries as the postwar years went on. But! I can tell you that Japan prospered in spite of the old Ministry of International Trade and Industry, MITI. MITI told one company that importing Western Electric's transistors to manufacture radios would be a waste of money. What company was that? Sony! In another case, MITI told another company not to manufacture cars because Japan had enough car production and another car company would cause too much competition. What company was that? Honda! Instead, Japan's bureaucrats supported investing more money into heavy industry like shipbuilding and steel. Where are those shipbuilders and steel mills today? Still around, but even after receiving that support from the government, they fared no better than industries not receiving support.

 

[Birdjaguar]

Here is a not so uncommon situation with questions.

Five people with wealth invest $100 million to build a factory making a new product with substantial growth potential:

• Sue $20M (20%)
• Bob: $15M (15%)
• Abdul: $10M (10%)
• Mick: $30M (30%)
• Renee: $25M (25%)
• Total: $100M

The $100 million was spent to build the factory, equip it and purchase necessary components to produce its products during its first year.

Once completed the factory is staffed:

• 5 Senior managers none of whom are owners
• 15 technical managers all educated and experienced in the specific industry
• 80 hourly workers with a variety of skills, company trained, to produce the product, but without advanced education

At the end of the first year the factory has Revenue of $30M.
It cost $15M to keep the factory running, pay general company overhead and cost of materials, but not any wages or salaries, leaving $15M available for distribution. Assume that all wages and salaries include 25% for taxes and benefits, so $1M in wages is actually only $750,000 paid out to employees.
Senior management foresees that with a $5M investment in year 2 revenue could be $40M without any change in overhead, but a reduction of 10 hourly workers, leaving $25M for distribution.

How would you distribute the $15M available for owners, managers, and workers at the end of Year 1?
Would you spend the $5M for growth? Where would you get the $5M needed for that?

 

[Lexicus]

I'll say that crops are a little different as they require different growing conditions, but ignoring all other factors the outsourcing of low value-added manufacturing is a positive byproduct of capitalism. Workers in countries with higher levels of education tend to be more productive and having them screw radios together is a waste of their talent. For workers in the poorer countries, it offers them employment better than agriculture or whatever kind of local industry they were previously engaged in. I'm not being dismissive of their concerns; their health and safety ought to be protected and I think we in the richer countries probably could do more to consume more ethically.

When you say that the immiseration of workers in the developing countries to produce stuff for people in the developed countries is a positive thing you are absolutely dismissing their concerns! The whole point of outsourcing manufacturing to these countries is so that the companies that do it don't have to worry about the health and safety of the workers. If they did worry about it they would not be outsourcing in the first place.

I don't know a whole lot about West Germany's industrial policy other than it was more liberal in the classical liberal sense than postwar Britain and France, and W. Germany seemed to pass up both countries as the postwar years went on. But!

The whole example of West/East Germany only tells us that the US poured investment into the West while the USSR basically stole everything it could out of the East. Many examples of "failed" Communost countries have similar themes: the US does everything possible to sabotage the country then when the sabotage works, naive people claim the country failed because of the inherent inferiority of its social and economic system.

As inno has already noted terms like "capitalism" and "socialism" often obscure more than they reveal in a discussion like this. Insofar as socialism means worker control of the economy there is an argument to be made that the "capitalist" West actually had more socialism than the "Communist" countries ever did given that the former had democratic governments elected by near-universal suffrage along with powerful independent trade union movements, while Marxist-leninist countries were governed by dictatorships which simply claimed to operate on behalf of the workers.

 

[amadeus]

@Birdjaguar, I get where you’re coming from but that looks like a high school math problem.

Do Mick and the others need an immediate return on their investment? I can’t speak to their motivations; would they accept a 0% return for the first few years anticipating greater takings in the future? Do they have immediate cashflow concerns that necessitate them taking profits out of the company at this point, or can they afford to sit on it and wait?

$10m for workers in your situation (100 employees) averages to a gross $100k/yr. Management would be higher up, maybe getting $60k and line staff around $40k? The other $5m for future capital investment? But that would be zero immediate returns for initial investors. Again, it gets back to how comfortable they are to taking no returns in their first year—I imagine that’s common in businesses that are expected to grow?

One thing that shouldn’t be overlooked is that all of the initial investors are engaging in risk. None of us, in any facet in life, will rationally choose to take unneeded risks and the market is very good at telling people when not to take unnecessary risks. Let’s say I want to quit my day job and paint pictures of cows. Now is there a market for it? Do I have the requisite talent? Most people already know. I know that I’d be out of business in ten minutes because I understand that risk, namely the market for cow paintings might not be there or maybe I don’t have the painting skills to satisfy the surely competitive cow painting market.

 

[amadeus]

When you say that the immiseration of workers in the developing countries to produce stuff for people in the developed countries is a positive thing you are absolutely dismissing their concerns! The whole point of outsourcing manufacturing to these countries is so that the companies that do it don't have to worry about the health and safety of the workers. If they did worry about it they would not be outsourcing in the first place.

There is a middle ground in this discussion and you and I will probably disagree greatly where it lies. Cost-cutting through outsourcing can be done without seriously jeopardizing the livelihoods of those in countries where low value-added labor is outsourced.

This is very easily measured—which countries accepting foreign investments have seen drops in health or overall quality of life? Vietnam was one of the world’s poorest countries before its 1986 reforms; has its living standards declined because of those greedy capitalists?

The whole example of West/East Germany only tells us that the US poured investment into the West while the USSR basically stole everything it could out of the East.

Socialism doesn’t work because other socialists stole the means of production?

You’re not making a very convincing case here.

Many examples of "failed" Communost countries have similar themes: the US does everything possible to sabotage the country then when the sabotage works, naive people claim the country failed because of the inherent inferiority of its social and economic system.

Witness the last gasp of the sad Marxist-Leninist: it was an American conspiracy.

As inno has already noted terms like "capitalism" and "socialism" often obscure more than they reveal in a discussion like this. Insofar as socialism means worker control of the economy there is an argument to be made that the "capitalist" West actually had more socialism than the "Communist" countries ever did given that the former had democratic governments elected by near-universal suffrage along with powerful independent trade union movements, while Marxist-leninist countries were governed by dictatorships which simply claimed to operate on behalf of the workers.

Finally, something we can agree on! Communist country = despotism. Capitalist country = tendency towards liberalism. Glad we got that settled.

 

[Birdjaguar]

@Birdjaguar, I get where you’re coming from but that looks like a high school math problem.

Do Mick and the others need an immediate return on their investment? I can’t speak to their motivations; would they accept a 0% return for the first few years anticipating greater takings in the future? Do they have immediate cashflow concerns that necessitate them taking profits out of the company at this point, or can they afford to sit on it and wait?

$10m for workers in your situation (100 employees) averages to a gross $100k/yr. Management would be higher up, maybe getting $60k and line staff around $40k? The other $5m for future capital investment? But that would be zero immediate returns for initial investors. Again, it gets back to how comfortable they are to taking no returns in their first year—I imagine that’s common in businesses that are expected to grow?

One thing that shouldn’t be overlooked is that all of the initial investors are engaging in risk. None of us, in any facet in life, will rationally choose to take unneeded risks and the market is very good at telling people when not to take unnecessary risks. Let’s say I want to quit my day job and paint pictures of cows. Now is there a market for it? Do I have the requisite talent? Most people already know. I know that I’d be out of business in ten minutes because I understand that risk, namely the market for cow paintings might not be there or maybe I don’t have the painting skills to satisfy the surely competitive cow painting market.

It is a HS math problem but one into which one's economic ideas are infused. it is easy to generalize and say greedy capitalist have raped the world and exploited workers. Or that workers assume no risk for hundreds of millions of investment and therefore....blah blah blah. Those generalities are built upon thousands of actual decisions, made by people, that are like the one presented.

The only way to change the problem of inequity and fairness is to change it at the decision level within companies. The point is for folks to look at the problem at the company level and offer their solution. "Capitalism is bad" is not an answer. The offered situation and questions force folks into a real world mode of thinking and away from generalities. The answers are not easy.

Is growth good or bad? Growth at the company level is not the same as growth in an overall economy. It is the decisions at the company level that affect people. I think it is important for people to wrestle with the issues at the company level.

 

[Estebonrober]

https://academic.oup.com/ej/advance-article/doi/10.1093/ej/ueaa048/5824627

We exploit changes in tax subsidies for union members in Norway to identify the effects of changes in firm-level union density on productivity and wages. Increased deductions in taxable income for union members led to higher membership rates and contributed to a lower decline in union membership rates over time in Norway. Accounting for selection effects and the potential endogeneity of unionization, the results show that increasing union density at the firm level leads to a substantial increase in both productivity and wages. The wage effect is larger in more productive firms, consistent with rent-sharing models.


there is a medium ground where capitalism is tempered by socialism to the better benefit of society. Right now the USA looks nothing like that and it is very guilty of sabotaging many “socialist” countries.