Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

19 May 2014

Coercive Capitalism


Introduction: why I’m a capitalist
Capitalism’s fundamental flaw, and why it’s fundamental
Capitalism and workers
The evolution of American capitalism
Where we Yanks stand today
Conclusion: raising the minimum wage

Introduction: why I’m a capitalist

Let me be clear at the outset. I’m a capitalist, both by upbringing and inclination.

I’m hardly a captain of industry. But I’ve spent my entire adult life working within the American capitalist system. I’ve managed to accumulate modest wealth, sufficient for a comfortable retirement. Nearly all of it I’ve invested in “the markets,” i.e., directly or indirectly in capitalist industry. (I don’t invest in finance because, as explained elsewhere in depth (1 and 2), I think it’s the single sector in which capitalism has gone most awry.)

This is not just a marriage of convenience. I approach my investments with enthusiasm. As I invest in firms like Apple, First Solar and Tesla, I marvel at the cleverness and adroitness with which they are addressing our common human problems of communication, energy, pollution and global warming, at the same time as they offer consumers more choices and shareholders more opportunities.

I also follow and admire great firms like Amazon and Google, although I’m still waiting for their shares to reach realistic price-earnings ratios. (I wasn’t smart enough to get in on the ground floor.) I think these firms, as well as other, older excellent ones, like Boeing, Caterpillar, and GE, represent the best of our common species and reveal some of the characteristics that will take us to the stars.

My admiration for capitalism is not just financially self-interested. It’s philosophical, too. Capitalism, at least it its best days and smartest guises, is the system of economic order that least relies on coercion. And as a hearty small-d democrat, I don’t like coercion in any form.

Capitalism requires and depends on free markets and free trade. And free markets and free trade, at least in their pure forms, are the antithesis of coercion. They depend upon purely voluntary transactions between buyers and sellers, on the one hand, and among trading partners on the other. Free trade has largely replaced the last century’s terrible wars over natural resources with bargaining and free exchanges. It has also encouraged rapid development of resources through foreign and joint investment—subjects to which I’ve already devoted a whole essay.

When people do things together eagerly, of their own free will, there is little they cannot accomplish. Properly managed and construed, capitalism seems to promote their doing so.

So I’m more than a lukewarm supporter of capitalism. I like it because it seems to offer a life freer from coercion, war, oppression, and tyranny than any other form of political/economic order that our species has developed so far.

Capitalism’s fundamental flaw, and why it’s fundamental

This doesn’t mean that capitalism can’t be improved. Anything can. Like all good things, capitalism has a flaw. You might say it contains the seeds of its own destruction. Or maybe there’s a flaw in our human nature, which capitalism has not (yet?) been able to overcome.

The flaw is that, in practice if not in theory, coercion usually creeps back in. This is especially so as capitalism is practiced today.

Sometimes individual capitalists acquire too much power and no longer compete fairly. They use the money and power they accumulated through innovation and past successful competition to undermine future competition, coerce or distort free markets, abuse consumers and slant foreign trade. Examples are the railroads in the nineteenth century, American car makers in the mid-twentieth century, Microsoft in the last two decades of the last century, Comcast today, and banks, at times, in almost every era, especially during last ten years.

Our Yankee antitrust laws, and competition law in Europe and Japan, were designed to reverse these trends. But they are increasingly ineffective. Discussing why that is so would require a whole book, not just a short essay. But it is indeed so.

Although authorities have sometimes stopped anticompetitive mergers recently, they have not, in recent years, broken up any coercive monopolistic foe of competition as they did the Standard Oil trusts over a century ago (in 1911). Europe’s competition law is a bit more robust than ours now, but both are wimps compared our antitrust law in its first few decades.

Somehow, our legislators and jurists have forgotten the basic lessons taught by Senator Sherman and Teddy Roosevelt: that private capitalists can be just as coercive as any tyrant (albeit a bit more subtle) if given the chance. These lessons have a strong pedigree. Here’s what Adam Smith wrote about the time we Yanks were declaring our independence from Britain:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.”
So far, in our new century, our Yankee antitrust wimps have ignored this sage advice almost entirely. In particular, they have done nothing at all to whittle down the abusive power of the gigantic banking combinations that destroyed the global economy six years ago. All they and the banking regulators have done is to marginally reduce the risk of big banks taking down the whole economic system again in the immediate future.

Sometimes coercion comes from an unholy alliance between capitalism and government, which corrupts both. China’s new president, Xi Jinping, is fighting that sort of unholy alliance at two levels: state-owned enterprises and regional governments that favor local business cronies. We Yanks are fighting “soft” political corruption against the tide of the Supreme Court’s catastrophically unwise decisions on campaign finance.

Of course the saddest recent example of government-capitalist collusion came just a few years ago, when our Yankee government and several European ones bailed out big private banks that were deemed “too big to fail.” Their excuse may have been sound: without bailouts, the global economy might have collapsed. But the result was terrible, and hardly consistent with the personal responsibility that capitalism usually implies. It was a case of pay to let others play: innocent taxpayers worldwide paid so that bankers could play, and the latters’ stupidity and greed went entirely unpunished and (in the future) undeterred.

So capitalism, at times, can be partly or even wholly coercive. Just think of taxpayers working extra hard, for the next decade or so, to pay off losses caused by the stupidity and greed of banking capitalists, none of whom ever went to jail for his misdeeds, and none of whom even suffered significant personal financial loss.

Unfortunately, none of these battles is one that we, the people, will ever “win.” They are perpetual Manichaean struggles within the human soul. In every decade and every age, men (seldom women!) build empires that get too powerful, grossly exceed their original aims (and any public benefit of size or power), and become coercive. The way this happens—and the best way to counteract it—vary from time to time. But the phenomenon is a human constant that will be with us as long as our species survives.

A third dangerous aspect of capitalist coercion is tribalism, including racism and nationalism. It can arise wherever modern people revert to tribal grouping or thinking and their tribalism finds expression in capitalist activity.

It’s happening today with China’s and Japan’s rival claims over the Diaoyu/Senkaku islands. Their conflicting desires to have those tiny islands derive not from need for habitation or agriculture, but from the oil and mineral resources surrounding the islands. The result is mutual provocations, which may yet become war. Similar things are happening in Ukraine, where Russia is trying to acquire territory and businesses (principally those involving Russian speakers) for reasons of both economics and national pride.

The smart, capitalist things to do would be: (1) for China and Japan to cooperate in developing the Islands’ resources and share the resources or the proceeds of their wider sale; and (2) for Russia to let Ukrainians decide their government and obtain the business resources and products through free investment and trade. But these things aren’t happening because of tribalism and bad memories. Thus do past wars cast their dark shadows into our species’ future and its capitalist development.

Capitalism and workers

And so we come to the fourth and final aspect of coercive capitalism, which is by far the most important. It’s the one that affects the human condition—and the vast majority of people—most directly: coercion of workers.

This sort of coercion is always economic. Yet at times it rises to the level of military force. For example, police, national guard, and the army broke many strikes in the last century, injuring and killing workers in the process. They did so even in our own country. They also did so just recently in breaking a miners’ strike in South Africa. Although we Yanks don’t do it much any more, both secret and not-so-secret police abroad imprison and/or execute workers’ champions, or (especially in Latin America) just make them “disappear.”

The struggle between owners and workers is not a temporary or transient thing. It’s also a basic part of the human condition. (Marx’ and Engels’ most fundamental error was thinking that any mere theory could make it go away.)

We humans are individuals. Yet whatever our puny bodies and minds have achieved derives solely from our cooperation. We succeed as a species, and we have come to dominate our small planet, only collectively.

So we are perpetually at war within ourselves. Our inner dictator is at war with our inner committee, as each tries to dominate and control the other. The problem becomes especially acute when we sit down to decide who gets the proceeds of our cooperative success, and in what shares.

Marx and Engels almost put their finger on this problem but missed the point entirely. The “dictatorship of the proletariat” is not an answer, but the question. How does a “dictator” accommodate the majority’s needs without coercion? Or how does a diverse and non-coercive majority make decisions and select leaders without resembling a dictator?

In other words, how can we split the proceeds of our species’ cooperative labor fairly and wisely, without coercion? We are not much closer to answering that question than we were when Marx and Engels thought they had an answer.

The implicit contradiction is not just semantic. It lies deep in our humanity. These questions reflect our dual evolutionary nature as a species of individuals which succeeds, prospers and triumphs only insofar as it cooperates socially, working together.

Our evolution gave us no celestial guideline for how to share the proceeds of that cooperation. For a while, the owner class argued that God meant them to have the lion’s share. Yet both God and His use as a mask for selfishness are going out of style today. Each of us, with individual needs, wants the best of the proceeds of our mutual labor for his or her own. The rest is mostly post-facto rationalization.

So you can’t square the circle. You have to accept us as we evolved and as we are. You have to understand the tension and the contradiction between individual desires and needs and our species’ imperative of working together and sharing the results. And you must manage all this as best you can. There is no simple or permanent solution, far less an overarching theory. The contradiction is one that every nation, culture and age must manage on its own terms.

Our Yankee right wing disparages sharing with a scornful term: “redistribution.” But there’s nothing “re” about systems that share the proceeds of common effort more widely. The least “redistributive” economic system, after all, is slavery. And we Yanks fought our bloodiest war ever to get rid of it.

The evolution of American capitalism

The way we Yanks face this fundamental problem has changed dramatically in just our own short history as a nation. In the nineteenth and early twentieth centuries, capitalists throughout the world took the same one-sided approach as as Marx and Engels, but from the other side. They accepted class warfare and held that that the owner class ought to win.

Business owners, they pontificated, were smarter, more capable and better educated than workers and so should determine what workers get paid and how well they live. Their temporary victory made workers’ lives miserable, with appalling conditions, child labor, long hours, and little if any protection of health and safety. That was not America’s finest hour, nor England’s.

Two things changed this sordid picture. First came Russia’s bloody Bolshevik Revolution and its attraction for oppressed workers worldwide. Like the hangman’s noose, these things focused capitalists’ attention. Second came FDR, the notorious “traitor to his class,” who tried to make workers’ lives less miserable, in the depths of the Great Depression no less.

The solution FDR and his brain trust arrived at was brilliant. Let the workers organize and represent themselves. Aren’t voluntary bargaining and free markets the essence of capitalism? Then why not let workers bargain collectively to fix the market value of their labor in the only way that ever makes sense in any free market: a voluntary, consensual trade?

FDR also imposed regulation to limit the worst harms to workers. With Congress’ aid, he abolished child labor, set maximum hours with overtime pay, and began the long process of cleaning up unhealthy and dangerous workplaces. Without collective bargaining and these new regulations, we might still have killer workplaces like Bangladesh’s Rana Plaza death trap here at home.

The dual system of collective bargaining and regulation that FDR put in place was a stunning success. It preserved our Yankee consumer society, which Henry Ford’s (then unique) five-dollar-a-day wage had jump started. It made an end run around global Communism and saved American capitalism from itself. In the process, it created the highest general standard of living and the biggest middle class that our species has ever known.

From the end of World War II until some time in the late eighties, the United States was the economic envy of the world. Productivity kept increasing, year after year, not just because of technological innovation but because workers, having taken a hand in fixing their own fate, worked willingly and hard. Class warfare faded into the background. Workers, at least in the big unionized factories and mines, were proud and happy. Even in a still-imperfect society, we Yanks had the greatest social cohesion of any society in human history.

Then, like many good things, it all began to unravel. The primary cause was globalization. Once capitalists began to source their labor worldwide, American workers simply couldn’t compete with foreign workers in China, Mexico, Vietnam and elsewhere. Foreign workers were (and are) quite happy to work longer hours, for less money, under conditions that American workers had grown to consider unacceptable.

The secondary cause of the great unraveling was a renewal of class warfare by capitalists. Owners began a furious campaign of propaganda to convince workers, against their interests, that the government that had protected them from unrestrained exploitation, and had given them the right to bargain collectively, was “the problem, not the solution.”

The slow withering of collective bargaining and regulation motivated a shift in owners’ political argument. They—or most of them—stopped arguing that they, as workers’ “betters” and owners of their own property (productive plants), had some sort of divine right to set workers’ wages, prices and working conditions.

Instead, they began to make economic arguments. As consumers, they said, workers want low prices. But they can only get them by letting owners fix low wages. Low pay, they argued, is an economic condition for consumer welfare, which workers as consumers should accept. In a competitive, globalized world, they also said, low wages are a condition of businesses’ economic survival and therefore of having any job at all.

At first, workers didn’t know what to make of these arguments. The relationship between labor prices (wages) and the prices of goods and services of course depends on several other variables, including the prices of land, materials and money. But it’s self-evident, in general, that as long as wages are at least a substantial component of the prices of goods and services, they will exert a substantial effect on prices. And the threat of losing jobs to China or other low-cost producers was both terrifying and historically real.

Workers’ first resort was to pine for the economic protectionism that made the last century a living hell. If we could just return to economic isolationism, and jettison globalization, they reasoned, we could stop the outsourcing labor drain, raise wages and prices, keep our clean environment and workplace safety, save our jobs, and return to our nation’s golden years.

But, the owners replied, you can’t do that. Closing our borders, whether to foreign labor or foreign imports, would destroy the entire postwar economic system, leading to economic cataclysm and maybe even to war. Isn’t that what happened in the last century, with the Smoot-Hawley tariffs?

Want to fight the most terrible war in history again, this time with nuclear weapons? That’s not going to help workers or their families. Isn’t it workers who end up being soldiers and fighting and dying in all wars?

Although workers didn’t quite understand or believe these arguments, they proved decisive, at least among the elite. I credit them, too, as I’ve outlined in another essay. The global economic system has, for the most part, replaced wars over resources with peaceful trade. And anyway, it’s far too late to unscramble the egg of the global, postwar economic system without unforeseeable, and probably disastrous, consequences.

The second thing that slowly killed FDR’s solution was the owners’ brilliant propaganda coup. Government, they told the workers, is not your friend but your enemy. Its complex and unwieldy regulations keep you from gainful employment, or at least from the wages and opportunities you would like. In the words of master propagandist John Boehner, government, like taxes, is a “job killer.”

This propaganda started to work in the “Reagan Revolution” but didn’t get much real traction until the Crash of 2008. With tens of millions unemployed or underemployed, it started to work for real. Desperate would-be workers, with little or no educational basis (or good data!) for assessing conflicting abstract political and economic claims, began to believe that their lives would be better if they regressed to the old nineteenth-century regime, under which they depended on owners’ enlightened self-interest and largesse. The result may have been one of the most successful propaganda coups in the history of class warfare.

Where we Yanks stand today

Now we are pretty much up to date. FDR’s brilliant solution no longer works. Three decades of consistent and relentless propaganda, repeated endlessly by Fox, has discredited government as a regulator, manager and protector of workers.

Collective bargaining is all but dead. Globalized labor outsourcing nearly killed it all by itself.

Then there’s the practical impossibility of organizing workers globally, as they face not only numerous different employers, but also different exchange rates, standards of living, working and environmental conditions and—not the least—wildly different cultures and attitudes toward authority and work. Today collective bargaining is vestigial in the private sector and robust only in state and local government services, which can’t (yet) be outsourced. And even there it’s under relentless political assault, or struggling with the realities of bankruptcy, as in Detroit.

As a result, America today is not the same nation I was born into 69 years ago. Gone is the social cohesion that made us the strongest society in human history. Gone is any pretense to egalitarianism. The 1% control business and government, and the 0.1% control them. Workers, for the most part, take what they can get and try to be happy with it, even if a couple has to work three jobs to raise a family.

Workers’ real wages have been stagnating for four decades, while the elite return to the Gilded Age. The “American dream” lies dead. Most parents’ lives are a constant, unrelenting struggle with time, which often forces them to let their children be brought up by strangers or grandparents, as in the last century. Our democracy itself is wounded, stabbed by persistent minority rule and two of the most spectacularly unwise decisions on campaign finance ever made by a supposedly rational and enlightened Supreme Court.

None of this, by the way, is the fault of capitalism per se. Nothing in the theory of capitalism requires that winners take all, especially by inheritance. And nothing in capitalism requires extreme inequality that surpasses our Gilded Age.

Conclusion: raising the minimum wage

And so, with collective bargaining beaten and subdued, at least for a while, and with government regulation of business discredited, we have the push for a higher minimum wage.

Don’t get me wrong. I support it. After three careers of hard work, my life is economically easy. I’d be happy to pay more for the goods and services I buy, just as I’d be happy to pay more taxes (as long as others did, too), in order to give today’s youth the very same opportunities I had, and to restore the socially cohesive nation, perceived by everyone as imperfect but fair, that I was born into.

But raising the minimum wage is an inelegant solution, especially compared to collective bargaining. It replaces economic coercion of workers with government coercion of owners. In contrast, collective bargaining imposed a regime of voluntary transactions on both sides.

So raising the minimum wage just replaces one type of coercive capitalism with another. What’s worse, it makes government, which must impose the minimum wage, the presumed culprit, opening up whole new vistas for the vapid anti-government propaganda that has all but brought our nation to its knees.

Unfortunately, at this point I don’t think we have any other choice. Coherent international collective bargaining is at least a generation away. A lot more economic leveling of the playing field, and a lot more political liberalization (especially in China), will have to occur before it makes sense. So the current practical choices are to return to the trade protectionism that motivated our species’ most horrible war, to continue the culling and impoverishment of our middle class, or to accept higher minimum wages as a temporary expedient. (If you can discover a brand new, more viable solution, you may have a Nobel Prize in economics and maybe a presidency waiting for you.)

At least higher minimum wages will keep the vast majority of our population, who work for a living, thinking that there’s a future in this country for them and their children. Without that optimism, what incentive would they have to educate their children well, let alone to work hard? Already many voices shout that a college education is a bad “investment.” They are not, I hope, the future of the nation that became a superpower and an unmatched innovator by investing in free, universal public education for all citizens.

At this point in our species’ history, collective bargaining is the gold standard for non-coercive capitalism. There is undoubtedly some tradeoff between wages and prices, as well as between wages and full employment. But economists differ widely on exactly how those tradeoffs work and how significant they are. And the people most eager to fund their studies and publish their results all have axes to grind—serious, longstanding axes.

Collective bargaining worked because it allowed workers themselves to decide how to make the tradeoffs that affect them. Isn’t that the essence of avoiding coercion, aka democracy? Yet the impracticability of including outsourced work in collective bargaining precludes that solution for the foreseeable future. In its absence, higher minimum wages are the only reasonable alternative to avoid a relapse into a Dickensian economy.

Imposing them as proposed (but recently defeated by GOP filibuster, i.e., minority rule) is even better. The $10.10 per hour wage that the President proposes is not going to upset any economic apple carts. Compared to the current hodgepodge of state and local minimum wages, it’s only (on average) about a ten percent increase. That size of increase is not going to destroy our economy, businesses, or employment in any segment of it. It will just do barely more than keep minimum wages up with inflation; our economy hardly succumbed years ago, when real minimum wages were much higher than today.

As for the $15 per hour minimum wage proposed in Seattle, consider it an experiment. It’s a trial run for a much more empowering minimum wage in a progressive, rather rich community. Business owners and right-leaning economists predict economic Armageddon: businesses moving out of Seattle, employment plummeting, and restaurant prices rising precipitously.

Nothing of the kind is terribly likely to happen. A few restaurants may move across city lines. A few marginal ones may go under. Some workers may lose their jobs. Seattle’s residents will have to pay more for restaurant meals, but it’s a wealthy community, in which meals out hardly constitute a huge share of most people’s income.

Life will go on, and people and businesses will adapt. If things go seriously wrong, Seattle can make adjustments. It’s a close-knit community of intelligent people used to reviewing evidence, making decisions based on facts, not ideology, and modifying them as needed.

In other words, Seattle’s plan is a grand social experiment, of the kind for which we Yanks used to be rightly renowned. And Seattle in particular is one of the best possible places for it. It should go forward. The President’s much more modest proposal should go forward, too. Likely, it will make few noticeable waves, while providing full employment for a generation of empirical economists seeking to prove one ideology or another.

Theory is great. But we Yanks are renowned (and strong!) for being practical. There is no practical way to restore collective bargaining to its former place in our economy, and there probably won’t be for at least a generation (although labor organizers of course should try). In the meantime, it makes good sense to experiment with higher minimum wages and shift the burden of coercive capitalism, temporarily and cautiously, off the shoulders of workers and our lower middle class. A nation that prides itself on a common dream, equality of opportunity, and a fair shake for the working stiff can do no less.

And none of this, by the way, will do much to disturb the 1% or the 0.1%, who supposedly bring us our jobs. Even the 1% receive nearly as much in a day as minimum-wage workers receive in a year. The 0.1% make that much in an hour. But saving the victims of injustice is always a more urgent task than punishing perpetrators or societal parasites, or bringing the favored and self-righteous down to earth.

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