Capitalism efficient? We can do so much better

By Richard Wolff

article by Richard Wolff

A Madrid woman holds a banner reading ‘Your benefits, Our crisis. Another world is possible’ at the Spanish headquarters of the European Commission. Photograph: Susana Vera/Reuters

What’s efficiency got to do with capitalism? The short answer is little or nothing. Economic and social collapses in Detroit, Cleveland and many other US cities did not happen because production was inefficient there. Efficiency problems did not cause the longer-term economic declines troubling the US and western Europe.

Capitalist corporations decided to relocate production: first, away from such cities, and now, away from those regions. It has done so to serve the priorities of their major shareholders and boards of directors. Higher profits, business growth, and market share drive those decisions. As I say, efficiency has little or nothing to do with it.

Many goods and services once made in the US and western Europe for those markets are now produced elsewhere and transported back to them. That wastes resources spent on the costly relocation and consequent return transportation. The pollution (of air, sea and soil) associated with vast transportation networks – and the eventual cleaning up of that pollution – only enlarges that waste.

The factories, offices and stores abandoned by departing capitalist corporations increase the waste of resources and of workers’ lives. In the surrounding communities, tax bases eroded by capitalists’ departures mean reduced social services, public spaces, and qualities of life for all but the richest. Those vast wastes of resources and damages to lives offset whatever small efficiency gains corporate relocations only sometimes achieve.

Corporations rarely count, let alone compensate for, the resources and lives wasted because of their relocation decisions. They only count the benefits to their profits, growth, and market share from moving. Moving is advantageous for them; they neither worry about nor count whether moving is efficient for the economy or society at large.

They simply calculate that they will do better elsewhere than in the US and western Europe. Wages elsewhere are far lower. Levels of pollution are allowed that save corporations the environment-protection costs required in Europe and the US. Bribes or political “contributions” cost less and/or buy more favors, tax breaks, and subsidies there than back home. Efficiency for the economy or society has nothing to do with it: advantage for them is all that matters to them.

That is how the system works.

Capitalism’s last 250 years in Europe and the US repeatedly devastated the natural environment and imposed horrific conditions on working people. Multinational corporations are now reproducing that history elsewhere around the globe. China displays some of the most polluted industrial cities on the planet, alongside another “gilded age” of new millionaires. India and Russia display equally stunning inequalities. And so on.

We can and should do better than this kind of global “economic development”.

Throughout capitalism’s history, major decisions were justified by claims and promises that capitalism failed to realize. When new machinery automated production – saved on labor costs – the gains went chiefly to profits, while the workers, their families, and their communities suffered “technological” unemployment. When capitalists settled into communities “bringing jobs”, there followed years of threatening those communities that they would leave if not given tax breaks, subsidies, loans, etc – no matter their costs to the local population. When capitalists dumped toxic wastes into the air, water, and soil – often for generations – massive clean-up costs later were socialized, made everyone’s responsibility, while the profits from dumping stayed largely in private hands.

Efficiency was often claimed as the cause or result of capitalist decisions. We heard that greater “efficiency” would mean less labor for the mass of workers. Yet, today, US workers, for example, do more hours of paid labor per year than the workers of any other country. Their average real wages have declined over the last 35 years. Their average standard of living stopped rising since 2007 and only rose during the generation before that because of rising household debt.

Efficiency did not and does not deliver what its supporters claim. That is because efficiency was not and is not what drives capitalists’ decisions. The structure of a capitalist economy – exclusive power in the hands of major shareholders and boards of directors, competitions, tensions, and unequal resources among enterprises, shareholders, directors, managers, and workers – drives the decisions made by shareholders and directors. Those decisions primarily advance capitalists’ interests in greater profits, growth and market shares.

A chief defense of capitalists’ decisions – that they “bring economic development” to poor countries and regions – is easily rebutted. First, the economic underdevelopment in the former third world was and is partly the result of the colonialism and neocolonialism practiced by capitalists and their governments in Europe, the US and Japan. Second, the kind of development now being installed in the former third world replicates the colossal wastes, inequalities, and inhumanities that attended capitalist development in Europe, the US and Japan.

Third, a far better approach would be to reorganize western economies so that they yield far lower inequalities of wealth and income and far less waste of resources than are associated with capitalism. The resulting huge savings could support a different kind of economic development in poorer regions of the world – with, likewise, far lower inequalities of wealth and income, far less waste of resources, and far less inhumanity.

Less inequality among and within societies and increased efficiency that benefits everyone with less work and more or different output: these goals require confronting the capitalist system. The particular capitalist way of organizing how goods and services get produced and distributed and who makes the key decisions is the problem.

What, how and where to produce and how to use the profits are those key decisions. To serve most people, those decisions must be made by most people. To do that requires converting capitalist into co-operative enterprises where workers become their own collective board of directors. Workers self-directed enterprises would be far less likely to relocate production, far less likely to distribute profits among workers in extremely unequal ways, and far less likely to install technologies with negative impacts on the environment in which they, their families, and their communities live.

Democratizing the economy in this way can yield the kinds of economic and social results that capitalism has long promised – but increasingly fails to deliver.

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