Newt Gingrich recently asked, “Is capitalism really about the ability of a handful of rich people to manipulate the lives of thousands of people and then walk off with the money?”
My answer: YES!
Some proponents of capitalism, particularly libertarians, seem to believe that free market utopia lies in mass self-employment. As anti-tax advocate Grover Norquist explained, his “ideal citizen is the self-employed, homeschooling, IRA-owning guy with a concealed-carry permit.” Self-employment would seem to ease my concern, too – workers cannot be exploited by employers if they do not have employers. But this may be a cure worse than the problem. The self-employed earn less money, work more hours, experience more stress and have no greater job satisfaction than workers with similar levels of autonomy and skill utilization. From an economic perspective, it seems likely that a society of self-employed individuals would be extremely inefficient at best and impractical at worst. There would likely be significant duplication of effort, reduced potential for specialization, and destruction economies of scale and scope. And, from a well-being perspective, the workers themselves may become worse off, especially compared to the alternative of persuading organizations to offer employees a greater degree of independence. In addition, self-employment cannot completely insulate workers from the problem of exploitation, because most still need access to capital, thereby requiring them to borrow. According to the 2007 Survey of Consumer Finances, 87% of the self-employed held debt, more than any other work status, including employees, the retired, and those not working. In 2011 alone, nearly 50% of small businesses (a rough proxy for self-employment) needed to take out a bank loan.
So do we have to submit to the exploitation – capital owners extracting wealth generated by labor –
of capitalism? After all, we do need a method of accumulating and allocating capital. I am not questioning whether or not people deserve compensation for their skill and ability in intelligently, efficiently allocating wealth. What I am questioning is compensating wealth itself. Is wealth a skill or an ability? Does wealth itself deserve to be rewarded?
It is argued that wealth deserves remuneration because of financial risk and deferred consumption, but there is no reason that workers themselves cannot take over these responsibilities. If, instead of private ownership of the means of production, we transition to either worker or public ownership, the income that is currently absorbed by capital would go to the workers and worker- or publicly-owned investment funds. In this case, workers would be the beneficiaries of risk-taking, deferred consumption, and their labor, while intelligent investors, managing worker-owned funds, would benefit from their investment competence.
The common complaint against socialism is that people will work harder for their own benefit than for the benefit of others and make more careful financial decisions with their own money than with the money of others. These claims may or may not be true. I do know of people who work harder for the benefit of others they care about than when they are working for themselves, and who are more financially prudent with the money of others they care about, or if they appreciate the trust and responsibility that others have given them. Nonetheless, accepting the claim that people work hardest for their own benefit is an argument for worker ownership of the means of production (socialism), not against it, because, according to that claim, workers would work harder if they themselves were the owners as opposed to today when so many work for capitalist owners and shareholders.
In addition, if people are more financially prudent when performance affects their own finances, then independent, competitive worker- or publicly-owned funds that utilize pay for performance would offer the same incentive structure without the enormous expense to workers of capital income. As it is, individual investing has been on the decline for years, with many instead opting to put their assets under professional investment managers (institutional investors now accounting for about 80% of total trade volume). So the main change in the financial markets would simply be that these professional investors were managing a different group of people’s wealth (workers instead of capitalists). And the discretionary income of workers could still be mobilized through non-exploitative, interest-free savings and loan sys tems, like Sweden’s JAK Members Bank.
I do not even understand why socialism is so controversial when everyone advocates for socialist principles. As one Michigan Tea Partier explained, “I don’t want my hard earned money, my parents’ money, my siblings’ money to go to people who don’t deserve it.” Ayn Rand believed each person had the right “to keep the product of his work,” quite reminiscent of Marx’s claim that workers under capitalism were alienated from the product of their labor. Rightly or not, most people in our society seem to believe that each person ought receive the full value of their labor efforts; that no one else but them should enjoy the wealth they create, especially not the “lazy and undeserving.” I think this sentiment could be summed up in the socialist maxims, “to each according to his contribution” and “he who does not work, neither shall he eat.” On the other hand, there are a few who believe that we should all contribute to the extent that we are able, and, by virtue of the fact that we are contributing to our fullest extent possible, we are therefore entitled to utilize the goods and services we need – “From each according to his ability, to each according to his needs.”
Almost everyone I meet seems to fall somewhere along this spectrum between distribution according to contribution or need. Yet, capital income is antithesis of those beliefs. I find it very curious that ardent capitalists constantly preach about how only work should be rewarded and yet have no qualms about capital being remunerative. The essence of capitalism is the maxim “to each according to his wealth,” a view I have never heard anyone openly embrace. So either most people actually agree with that in private, or they are confused about the difference between capitalism and socialism. The profit-motive, competition, the market economy, the free price mechanism, and the many other components of our economic model that people confuse with capitalism could just as easily be incorporated into a socialist model if we desired. The only difference between any form of capitalism and any form of socialism is that you cannot acquire wealth simply from having wealth.
It is nonsensical to suggest that going from private to worker ownership is the road to serfdom, because it would liberate workers from control and manipulation at the hands of capital. I do not know if capital income is an unnecessary relic from an era when capital and resources were scarce or a necessary component even for advanced economies transitioning to a postindustrial society. But unless you believe in “to each according to his wealth,” or you actually want to be exploited for the benefit of a few plutocrats, I think we, as a society, should seriously consider studying and discussing the potential results of eliminating capital income, and thus capitalism as well.