A bold statement that headline is. I shall do my best to justify it.
I’ve heard that vikings believed that every weapon had a ‘spirit’, and that if you wanted to be effective with that weapon you needed to work with that spirit, not against it. It’s possible to use a bow as a club and beat people to death with it, but it isn’t very effective because you are working against the ‘spirit’ of the bow.
There is an idea here that is very important: if you want to be effective you need to work with something’s design, not against it.
This idea is obviously correct but where things get controversial is that I think the design of capitalism is such that any social good that results from capitalism is not only accidental, it is actually a market failure.
The first concept I need to explain is that concept of working with something’s design.
Like the bow I mentioned above it’s possible to use a cellphone to hammer in a nail. But it’s never going to be very efficient because you are working against the device’s design. Top Gear showed us that it’s possible to turn a car into a boat. But they also demonstrated that this will never work very well. Cars want to sink; it’s part of their design to stay close to the bottom.
That is the second part of this key concept: if you’re not working in line with an object’s design then not only will your efforts be inefficient the object may actually tend towards doing the opposite of what you want it to do. The tool you are using may actively work against you.
Schools were originally designed to be indoctrination centres. Here poor people would be taught to sit down, shut up, and follow orders without question. It is possible to run a school that promotes critical thinking and a skepticism towards authority. But not only is this difficult to do but the system itself tends towards the opposite. It’s hard to run a class where everyone questions your every move. The system is fundamentally against individualism.
So it’s not like using a cellphone as a hammer, it’s more like using a positively charged magnetic hammer against a positively charged magnetic nail. Not only is the design not working in your favour, the design has actually become an obstacle that you need to overcome.
So the first key concept in this article is that if you want to get things done you need to work in line with the inherent design of things and if you don’t then that design can work to actively thwart your efforts.
Now let’s look at capitalism. Capitalism is a complex thing but what it is at its very core, what capitalism is about at its most fundamental level, is maximum profit.
This is inescapable.
Capitalism is only about maximising profit especially since Milton Friedman explained that the only social responsibility a corporation has is to spend every penny it’s got to get as many more pennies as are available. He was an ideologue who honestly believed that the system of free market capitalism was fair, so if everyone worked for their own ends we would all benefit.
The problem is that the more profit you have the more power you have, and the more power you have the more you can engineer profit for yourself. The system inherently rewards profit. So only those who maximise profit can remain competitive.
This is not news, but what are the implications here? Well, one implication is that any profit you haven’t made represents a failure on your part, and thus a failure to use capitalism correctly. Furthermore, these “failures” mean that you will lose power relative to your enemies who will make more money, and thus have more power.
For example one of the Occupy Wall Street protesters asked “would a corporation have ended slavery?” Some might say yes because a consumer class is good for the economy and slaves don’t buy anything. But that’s the kind of thing an Economics professor would think of, a business owner would not.
So no, a corporation would never have ended slavery because slaves are the ultimate workforce. You can pay them, in food and water, an amount that is literally the absolute minimum. This is an amount below which the slave will starve to death. It is a true equilibrium, in the absolute sense of the term.
And because you are literally paying the absolute minimum that means that (all else being equal) you have achieved maximum profit. You have won at the game of capitalism.
In other words paying your slaves any more than the minimum needed to sustain life would be less than maximum profit, and would thus indicate a failure on your part.
This principle plays out in multiple ways.
Let’s take healthcare. Many people have mentioned that healthcare companies don’t make money by providing healthcare. They make money by not providing healthcare while still collecting premiums from people. In fact their profit is defined as the difference between the premiums they receive and the healthcare they provide. The more inefficient they are at providing healthcare the more profit they make.
And people wonder why private healthcare is a really bad idea.
Anyway, the point is that the best possible outcome for a healthcare company would be customers who pay their premiums while never getting any healthcare at all.
This is not a controversial statement. Anyone who understands even the most basic economics should see this as obvious.
Of course they might also claim that this cannot happen because consumers would leave, so things are always a tug-of-war between the healthcare provider and the customer.
We’ll get to that later. For now as long as agree that the ideal system, from the point of view of the healthcare company, is a situation where the customer pays their premiums and receives no healthcare at all, I’m happy.
And this shouldn’t be a surprise since this would be the situation where maximum profit has been achieved. This is the situation where you are winning at the game of capitalism.
So what this implies is that every penny of product you hand out is a failure on your part. It is an opportunity for profit that you have missed. So providing healthcare to those who paid for it isn’t capitalism working properly, it’s a capitalism failure.
But if you “win” at capitalism that victory brings with it money that leads to power and even more money. So after a while those who win at capitalism have enough power and money to ensure that they always have an edge in the game.
By natural selection those who screw people the hardest rise to the top.
If you are running a business that pays fair wages and gives good quality merchandise to customers then you are a failure, in the eyes of capitalism, because there is all that profit that is slipping through your fingers.
My word, you’re almost giving it away! And you can bet your competitors aren’t making that mistake.
The same applies to any sort of social good that results from capitalism. I’ve long known that that the social good that comes from capitalism has only occurred by accident, now I know that it’s even worse than that. It’s not a neutral thing, like an accident. It’s actually a negative thing, a failure!
You see friends one of the ideologies that supports capitalism is Adam Smith’s idea of the “invisible hand”. This is the notion that when people selfishly strive for the maximum profit that capitalism adores this naturally leads to better outcomes for everyone.
But as I’ve explained above this is not the case. What capitalism really wants are systems where one side maximises profits. This is the true victory condition that capitalism rewards.
So when Milton Friedman says that maximum profit is the whole point he’s right, and he’s also saying that any social good that results from capitalism is a failure of capitalism.
So the second key concept of this article is that capitalism rewards maximal profit and any positive effects of capitalism are a failure of capitalism, a missed opportunity to make a profit.
Now, let’s put these two key concepts together…
If you put these two key concepts together you see that accomplishing any social good under a capitalist system is extremely difficult because you are battling against the design of the system the whole way. The system rewards selfishness and punishes altruism and then it gives power to the selfish and takes it away from the altruistic.
More specifically, any social good that results from a capitalist system is actually a failure of the system, it is profit that has escaped, so the system will tend towards the eradication of these failures, the eradication of any social good.
This includes wages. Any wage at all is missed profit for a business owner so the system will tend towards the lowering of wages, hence my slavery example above. Any decent quality of service is wasted profit so service quality will tend towards decline. And these trends will always occur unless something (government, unions, activists) forces the businesses to play nice.
Now, one might say that this is all nonsense because capitalism is not one-sided. Sure, what capitalism wants is maximum profit but since both employers and employees are striving towards that end they will both end up with the maximum available to them, right?
Wrong. Remember what I said above: the way in which capitalism favours profit is by rewarding it. The way it is rewarded is with both power and even greater profit. Yes, both employers and employees want their profit but only the employer has the power to affect the game.
This explains why the avatars and minions of big business always oppose unions: because unions are a way of making the power relation more equal. And without unions labour is at the mercy of business owners.
The traditional counter to this is to say that labour also has power, because they could simply find another job. But that’s not true. The freedom to look for work isn’t free, it costs money, and the greater the wealth gap between employers and employees the more money it takes.
For example these days workers following their jobs might need to move to Indonesia.
‘Cause that’s possible.
In many countries the excesses of capitalism are constrained by democracy. The people force government to counter the negative effects of capitalism by redistributing wealth into education, retirement, welfare and healthcare. In countries where this doesn’t happen things will tend to get worse.
But let’s not get bogged down in specifics. The principle is this: capitalism rewards wealth by giving it the power to create more wealth.
So as soon as there is a significant gap between rich and poor the rich will use their power to ensure that they get more power and more wealth. And because the system is designed to tend towards maximum profit at the expense of all else we will start to approach the points of absolute minimum wage, absolute minimum quality of service and absolutely no social good.
So (in the absence of government redistribution) it actually doesn’t matter how you restructure capitalism, it will never be good for society. Because any social good that comes out of capitalism is a failure, an inefficiency.
And capitalism is designed to destroy such inefficiencies.
[Standard Disclaimer: this post was entirely my own opinion and was not paid for in any way, directly or otherwise, by anyone or anything that stands to gain in any way from the ideas expressed herein.]