What Makes Capitalism Capitalism?

Climate change and other deadly forms of land, ocean, and air pollution cannot be contained, and the Earth cannot be retained as a livable place, if resource-consuming economic activity continues to grow. Whether you call it no-growth, degrowth, the Wellbeing Economy or another name, alternative ways of living must be found that don’t involve ever-increasing exploitation of the earth, other plant and animal species, and our fellow humans. But how? Is moving beyond globalized capitalism really conceivable, and if so, where would we move to? I’m aiming to explore those issues over the coming weeks.

For many, imagining the end of the world is easier than imagining the end of capitalism, as numerous cultural critics from Fredric Jameson to Slavoj Zizek are credited with saying. I’m convinced it’s possible to make that leap of imagination beyond capitalism and that, if we do, we can start creating multiple, diverse worlds that will be happier and healthier than the one we have now. But it isn’t easy, and it helps if we all agree on a definition of this thing called capitalism that we want to get rid of. So before going forward, here’s another in my short looks back at the peculiar way we’ve organized the world — and what makes it so incompatible with a livable planet.

Capitalism = Growth Machine

Capitalist economies must grow or they will collapse, the Marxists say. But why? What it is about capitalism that requires growth? The answer is simple: Profit is the motivation for all economic activity under capitalism. If you don’t think you can make money doing something in the business world (capitalism), you don’t do it. You may make a mistake and end up losing money. But you wouldn’t have started in the first place if you didn’t think it would be profitable. That would be “absurd and without meaning,” to quote Karl Marx, who among his other attributes was one of the greatest analysts ever of capitalist economics.

That profit motive necessitates growth because it means that whenever money is invested in the economy — for anything from building a giant factory to running a local bookshop — the investors expect to get back more than they put in. In basic Marxist lingo, M (money invested) morphs into C (capital deployed) in the expectation of M+ (invested funds returned, plus profit, often written as M’). That “plus” is necessary to motivate investment under capitalism — not just for new businesses (venture capital) but to keep old businesses going. That plus is growth.

Everything anybody does in a capitalist economy either makes money or it’s a failure, by definition. The failed investors may even go bust. This is the grounding for the “grow or die” premise that people in America today take for granted. It has become so second-nature that the death-from-stability aphorism is often applied without thought even to non-profit organizations.

Stability isn’t seen as viable because people intrinsically understand grow-or-die to be a core characteristic of their world — the capitalist world.

It’s theoretically possible to run businesses at stable breakeven, neither growing now shrinking, neither making nor losing much money. But only if that business offers something that can continue to attract customers in competition with more profitable companies that plow earnings back into the business, thereby growing and perhaps obtaining economies of scale that allow them to cut prices. Think of all those much-loved little family shops that died after Walmart came to small-town America.

Capitalism = Cheap Labor

Where do employees fit into this? The standard assumption in capitalist economics is that investors in manufacturing — the simplest case — spend money (M) to buy plant and equipment, raw materials and semi-finished inputs (Marx’s constant capital) and pay employees (Marx’s variable capital) in anticipation of getting back a positive return on investment (M+).

Marxist theory also assumes that non-management employees (workers) will be paid at least the bare minimum they need to feed and house themselves and to raise another generation of workers — reproduction of labor, as Marx called it.

If profit margins (the plus after the M) are high enough and labor is unionized or scarce enough, part of the profit may be shared with the workers, that is they may be paid a bit more than a bare living wage. This profit-sharing means workers can go on vacations, buy stuff they don’t really have to have to stay alive, educate their children so that they can move up the economic ladder, maybe even save a bit.

This shared surplus is, in effect, “the American dream.” And it is the way things have occasionally been, most notably (since the “closing of the American frontier”) in the 30 years after World War II. But this happens only if there are lots of profits to share around. If not, or if unemployment is high and unions weak, the capitalists will just keep all the profit. This became the case in the US most of the time after the 1970s. That is when average earnings in the US began to stagnate and, in real terms (adjusted for inflation), to fall.

Many reasons are given for why profits shrank in the 1970s. One was that countries decimated in World War II, particularly Germany and Japan, had rebuilt and their companies started to offer competition to US corporations.

Another was that Opec took control of oil from the major US and European oil companies. Opec members started charging more for their oil and keeping more of the resulting profits, pulling that money away not just from Western oil companies but also from manufacturers and others who couldn’t pass along all the extra energy costs to customers due to growing global competition.

Capitalism = Competition

Just as profit is the motivating engine in capitalism and cheap labor is the fuel, competition is the steering wheel that is supposed to keep things on track. Capitalists who are nice — or misguided, as Milton Friedman would have it — may try to continue shifting some of their profits to their workers even when they don’t have to. Or keep factories going in places with relatively high labor and other operating costs. But if they raise prices to cover the extra costs, a competitor with cheaper labor and other costs is likely to come along and take business away by charging less. Nice guys are “not competitive.”

Through competition, capitalism imposes discipline on the bosses, as well as their employees. And also on governments, which get a similar drumbeat message about remaining competitive, in their case by slashing social support structures, from welfare safety nets and childcare centers, to healthcare and education, to community arts programs. All those things can be done more efficiently on a for-profit basis, they’re told.

The neoliberal era in the US, UK and Continental Europe — roughly 1980–2020 — illustrates how these capitalist compulsions of growth, cheap labor, and competition can run amuck, creating overlapping crises that threaten the very economic system they define.

This is what is happening now. Global competition is fostering nationalism that threatens to become fascism. Cheap labor has brought inequality and inequity to a point that consumers can’t buy as much as capitalists can make unless governments hand out cash. And economic growth has multiplied greenhouse gas emissions and other toxic pollutants to the point that the planet may become unlivable for most plants and animals, including humans.

Is this just another in the long line of crises that have afflicted capitalism since the Industrial Revolution turned it into a world system two centuries ago? Or is this the final crisis that will bring it all tumbling down into who knows what? Those are among the questions I’ll be exploring.

New Energy = New World (Part 1): How fossil fuels shaped our world https://readmedium.com/new-energy-new-world-part-1-31089604f890

New Energy = New World (Part 2): What a renewable-energy world might look like https://readmedium.com/new-energy-new-world-part-2-a4d5521d5c6