“Obama is a socialist,” his critics charge. No explanation why that would be bad – everyone assumes we know socialism is evil. In the past few decades even Europe and Scandinavia have been retreating from socialism – socialists have become social democrats, social democrats have become neo-liberals; few dare to associate themselves with this completely disparaged program on the decline. What little support socialism has gained in the wake of the Great Recession and the Occupy movement seems more reactionary than thoughtful. Should socialists finally admit defeat and just move on?
We have all been taught what socialism is about – totalitarianism, gulags, unbearable taxation, the elimination of the profit motive, central planning, leveling down through radical egalitarianism, the suppression of individuality, mass misery – in short, the most oppressive form of slavery known to humanity. This entertaining cartoon from 1948 explains it all. It is certainly true that every socialist model I have read about – from the community experiments in America, to the Israeli kibbutzim, to the Soviet Union, to Tanzania – has displayed, to varying degrees, an ignorance of economics and human psychology. But do these flawed models prove socialism itself is untenable? While we have to be very cautious of that possibility, we should be careful to distinguish between the system itself (what is inherent to the system) and its proper or improper execution. As I see it, the one and only inherent difference between capitalism and socialism is the issue of capital income, caused by the private ownership of the means of production.
We obsess a lot about inequality of income and whether or not entertainers, corporate executives, and financial services employees deserve their staggering levels of compensation (i.e. Oracle CEO Lawrence Ellison’s 2009 compensation of $557 million, or the average $361,180 made in the securities industry, or how the average Wall Street bonus declined by 13% when profits fell 51%), at the same time when compensation on the low end is so abysmal that millions of full-year, full-time workers live in poverty. But what is truly unjust is how capitalism ensures that even though workers initially get paid, all the wealth will still end up at the top through capital accumulation. The top 1% takes home 21% of the income, the top 10% earns 50%, the bottom 60% earns less than 20%, and the bottom 40% earn less than 10%. Yet in terms of total household non-home wealth (net worth minus the net equity of one’s home), the top 1% owns double their share of the income, 43%, the top 10% owns 83%, the bottom 60% own .3%, and the bottom 40% own -1% (they are, collectively, in debt).
The cumulative advantage of wealth in capitalism makes this inevitable; even in Scandinavia, where incomes are much less unequal, wealth is still quite highly concentrated compared to what many consider ideal (check Note 2). Because the people who initially earn more in income have more discretionary income (“play money”) they can invest or lend money in order to generate more money – capital income. In fact, the top 1% of households own 50% of all investment assets and 5% of total household debt, while the bottom 90% owns less than 20% of all investment assets and three-quarters of all the debt. Just 2% of the bottom quintile owns stock worth more than $10,000, while 90% of those making more than $250,000 do. And this is the result:
Nearly all of the wealth produced is necessarily produced by work (even the technology used in production had workers who created it, and natural resources usually require labor for extraction), but workers capture only 80% of total household income, while the other 20% goes to capital income and capital gains (capital gains, profit from the sale of capital assets, is a subset of capital income), and nearly all of that 20% goes to the wealthy, making them more wealthy, so they can, in turn, buy up more capital assets, and accumulate more wealth. Capital income accounts for at least 30% of the top 1%’s total income, and the wealthier you are the more likely your income came from capital. In 2007, 81% of the $139 billion “earned” by the top 400 tax filers came from capital income. In other words, these reverse Robin Hoods took in $112 billion from the work of others. In 2008, this group, the .00028%, claimed more than 13% of total capital gains, meaning their share of capital gains was an impressive 46,786 times greater than their percentage of the tax-paying population.
What do you call this massive redistributive system in which workers keep hardly any of the fruits of their labor, while nearly all of it goes to a few? Most call it capitalism; I call it slavery. When (some) workers are paid, yet all the wealth still ends up highly concentrated simply reflects that it is a more cunning, more evolved formed of exploitation. And the manipulation is clearly effective, as we can see with the “We are the 53%” movement. The blog features endless stories of people working two to three jobs and 60-80 hours a week to just barely afford a decent standard of living, yet these severely exploited workers are more than happy to be loyal servants so long as they are extended the courtesy of being called “free.” And in order to keep us docile, every once in a while, the media indulges our naïve mobility beliefs by relaying some inspirational rags-to-riches story that lets people believe that maybe, just maybe, if they suffer enough, work hard enough, and work long enough, they can become a master, too. And, if they eventually manage to succeed (or think they have), like many who have to endure suffering in order to join a group, they believe others should have to suffer, too, even if it seems evident that it such suffering is harmful to everyone.
I am ideologically uncomfortable with the exploitation of capitalism and allowing people to make money from having money, but I acknowledge the possibility that it may be, pragmatically, a necessary evil- the least bad of bad alternatives. As Cambridge economist Joan Robinson once said, “the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.” I will address that in part 2 of the column.