Conceptualizing the capitalist system as a way of understanding its realities
We can make a distinction between the most developed types of capitalism, where the financial sector has a much greater weight, and cases of less developed countries, where this financial economy is not so large and important, which also limits the ability to transform or reorient the real economy of developing countries.
Hall and Soskie mention two primordial varieties of capitalism, one based on the liberal market economy, and one based on the coordinated market economy. The second is an economy whose companies depend more on strategic coordination with other sectors of society, such as other companies, trade unions, and the State itself through public policies.
This system restricts the freedom of the market, through the construction of a series of economic and social pacts between diverse economic agents, which even involve the training and education of social actors.
Other authors, such as Stiglitz, affirm that the great ideological division in the praxis of capitalism is between the neoclassical school, which proposes a capitalism based on a free market that for many is not really free, and the successor schools of the
Keynesian model, which propose a model where public spending has a greater role in the economy.
This spending is used to create jobs, train professionals, or promote and create emerging industries in developing countries. For all the aforementioned, capitalism is a contradictory system, which allows some progress of democracy in relation to the deplorable conditions of the People in feudalism, but which at the same time remains a deeply undemocratic system, due to its inability to respond to the yearnings of the People as a whole, no matter what kind of political system arises over capitalism, whether if a political system of multiparty nature, a bipartisan one, a dominant-party system, a single-party system, or one without parties at all.
Capitalism can be defined as the mode of production where the value of goods and services originates primarily from the mechanical bourgeois property ownership of the means of production.
By mechanical I do not mean based on machines, but mechanical in the sense that it produce clashes in society ranging from great to small ones, making society look less like an organic body and more like a set of groups and institutions in conflict, and by the clashes with others I mean that they enter into contradiction and these contradictions are the cause of the weakening of the capitalist system and the negative consequences inherent to capitalism, such as inequality, conflict between the sectors of society, and the internal conflict within each of those sectors.
In capitalism, bourgeois property ownership is mechanical and not organic because it produces conflicting clashes with the rest of the social agents, and this, as I will explain later, has its origin in the fact that in capitalism there is freedom of movement for the business capital, and also the economy is dependent on the level of private investor confidence. It is worth clarifying that the previous
freedom of movement can be moderated, but it is never completely eliminated in capitalism.
The essence of capitalism is the accumulation and concentration of capital in the hands of the owners. The competition between the former occurs to satisfy the demand of consumers in the goods and services market.
Capitalism is a mode of production, and as such is made up of a set of relations and forces of production. These originate in a certain historical moment, and as a consequence of the development and contradictions of a previous mode of production. Capitalism arose already in the XI and XII centuries in its form of merchant capitalism, as new forms of trade developed between the regions of Europe, and with the development of merchant capitalism the owners of the capitalist means of production could emerge.
But capitalism was not yet the dominant mode of production, since it was locked in the fetters of feudal production, which was basically autarkic and based on land, and greater freedom of trade that wasn’t allowed in feudal regimes is necessary for capitalists. As the population in the fiefs grew, it was no longer possible to satisfy the demand for food and other goods with the production capacity of the fiefdom. The urban growth placed merchants with all kinds of products, together with small producers who left the countryside in search of better opportunities.
The capitalists became increasingly powerful, and ended up destroying the structures of the Old Regime.
Instead of production occurring domestically as it did in fiefdoms, it became common to buy the production of capitalist entrepreneurs, who had the necessary means, and who used people to participate in the productive process in exchange for a wage. Workers began to be assembled in factories that replaced domestic workshops, although they continued to work with old methods of manufacturing.
The industrial revolution made the production processes more complex, introducing machinery that cheapened production significantly.
Small artisan producers of that time were ruined due to not being able to compete with owners, who had larger capital which was needed to pay for the new machines. Many were proletarianized by remaining solely with their labour force to be sold to the capitalist in exchange for a wage.
The division of labour became increasingly heterogeneous and increasingly complex, decomposing the work of each worker in several repetitive activities carried out with the intervention of machines. Thousands upon thousands of workers were gathered in the modern factories to participate in the production process, which gives rise to the socialization of that production process, although the ownership of their means was not socialized.
When developing an internal market based on the development of productive forces, the accumulation of capital and overproduction makes it necessary to turn to foreign trade and colonial exploitation, so it was necessary to search for new markets to sell the new offer being created, together with exploitation of the resources in the colonies. To give a simple example: imagine that in a craft workshop there are 3 workers, all dedicated to the production of a portfolio.
Suddenly the owner brings a machine that allows to make three portfolios, needing only one worker per machine.
The owner will reduce their costs significantly, and when accumulating capital it brings more machines.
Workers continue to sell their labour force, but now they must do so for a much lower price and become impoverished, while the owner's profits increase exponentially since it produces many more portfolios than before, and can lower costs by increasing the exploitation of labour.
The owner must find new markets to sell all the portfolios, as there is not enough demand from the impoverished population, even though the portfolios are cheaper.
Bourgeois property ownership radically changes labour relations and the condition of thousands of people, while at the political level capitalists achieve important gains that make them possessing political power, in addition to possessing economic power.
Economic growth becomes possible, this being a modern phenomenon that is generated by the accumulation of capital resulting from surplus, which was reinvested and thus led to a greater development of the productive forces, and a greater centralization and accumulation of capital.
Pre-monopolist industrial capitalism, characterized by free competition, develops into monopolist capitalism, where the business monopolies of capitalism come to control economic life, by concentrating and centralizing capital, while blocking free competition.
In monopolist capitalism, industrial capital merges with financial capital, and financial intermediaries take on an increasingly decisive role in economic processes (for example banks, investment companies, and stock exchanges). Banks are transformed into capital traders, and financial capital is used to purchase shares, so that the financial sector has an intense control over economic life.
Within the framework of monopolist capitalism, the need of companies for a greater volume of capital to dominate the market gives rise to the need to expand and incorporate technological innovations or simply more resources. This greater volume of capital was obtained through the financial sector and interest rates. Monopolies are made transnational, so that among a lot of them the world market is shared, while financial capital is exported to all parts of the planet and occupies all economic areas.
The remaining capital, which can not be reinvested in the domestic economy in the absence of sufficient demand, is exported where there are other investment opportunities, both in developed and underdeveloped countries, and both in the form of loans to governments and for the investments of companies.
States can not escape the influence of capitalist economic power, which rule the economic and political life of States.
Both capital and the global economy have globalized, giving rise to a global market, where economies and companies have become interdependent. In capitalism, competition does not disappear, being necessary to pull down prices naturally.
In any case, monopolies and oligopolies, due to a lack of sufficient competition, and by establishing barriers on possible competing companies, can speculate with prices and production thanks to the dominance over the market, requiring the intervention of the State to correct market failures generated by imperfect competition. Financial and production services led to the construction of electronic networks in part because they allowed the development of electronic transfer systems for capital, which are the backbone of the international financial system, since it was possible for banks to move capital immediately to any part of the world in the face of certain news, to place arbitrary differentials in interest rates, take advantage of favourable exchange rates, and evade political storms (Langdale 1991; Warf 1995).
These networks gave banks the ability to move capital around the globe at a great speed. Freed from the gold standard, and travelling at the speed of light, global financial capital has an even freer mobility that makes it dance around the world. This system of free mobility is one in which capital moves in a permanent stream of speculative investments that never materialize into physical and tangible goods (Warf, 2008).
Capitalism has a great contradiction that becomes a fundamental enemy of human development. On the one hand, the accumulation
of capital and innovation allows for substantial increase in the quantity of goods and services, but on the other hand, the fact that the means of production are in the hands of a few, the process of globalization, restructuring for productivity, and the nature of financial markets (even more so when these markets are not regulated) cause the value created to be distributed unevenly.
As we know, the State and union organizations can act to raise wages, impose taxes on companies and individuals with more resources, strengthen social security, improve working conditions, reduce unemployment, and in some cases even allow certain participation of the workers in the profits and decisions of the companies. This was one of the factors that led to the economic golden age after the Second World War, being a sort of contract between workers and capitalists in the framework of the welfare State, Keynesianism, and also the Taylorist-Fordist production system.
But due to economic globalization, and the development of the means of communication and transport, the capital of companies has acquired freer mobility.
There is a type of macroeconomic instability that arises from the fact that capital can flow from one region of the world to another, and it can leave countries either due to changing demand or new technologies that negatively affect markets, because trade unions become too strong, because of social and infrastructure problems, etc., which makes a country or region less desirable for investment, the result being capital flight.
If unions or the State push for better wages and working conditions, or regulation in other aspects such as the environment, companies can move to any part of the globe, for example to regions where wages are notoriously lower, where working conditions are worse for the work force, and where regulation in other aspects is more flexible.
According to Rafael Munoz de Bustillo Llorente, the evolution of the welfare state in developed societies is primarily characterized by an increase in the presence of the public sector in the economy and social security, if we compare it with what existed during the XIX century.
Public spending, in the opinion of many analysts, would be largely responsible for the social stability manifested by developed countries, as well as their good economic performance. The freedom of movement for business capital makes more difficult for the State to tax business capital, and workers are impelled to carry an even larger part of the tax burden necessary to finance public spending (Manuel Costa Valles 2005).
Since over-increasing the tax burden over labour generates an excessive reduction in the incentives to work, it is foreseeable that the government will be coerced to reduce public spending, and therefore social spending.
Just-in-time production increases the vulnerability of capital against interruptions in the productive flow, and thus increases the bargaining power of workers, as it is based on direct action in the place where it is produced. And this applies not only to the industries operating just-in-time, but also to the sectors of transport and communications, on whose reliability this method of production depends. (Beverly J. Silver 2003).
In any case, the aggregate demand is pushed downward and overproduction is generated, since an insufficient part of the wealth is destined to wages (workers are from the point of view of the capitalists both a cost to reduce and the source of demand for goods and services).
The capitalists must lower the cost of the labour force to produce more goods and services to sell in the market, and must use part of the capital for the expansion of their companies, since this makes them more aggressive and competitive in the market, which it implies more investment for the production of goods and services consumer confidence, which if greater means that consumers make more purchases and save less, while if the consumer's optimism about the economic situation is lower, they will spend less and they will save more.
In the last two cases, the result is that the aggregate demand suffers, since because the investor does not have the expectation of receiving an adequate return on his investments, he does not invest in new productive projects, and the result is the increase in unemployment, unemployment that generates a new decrease in aggregate demand, generating the aforementioned vicious circle.
It happens that investors must have sufficient confidence to obtain an adequate return on their investments, and this confidence is affected by various factors, such as a changing demand, technological change, social and political problems, etc.
The low aggregate demand, and the dependence on the level of private investor confidence, is what accentuate the economic cycles of capitalism, which ends up generating a cyclical unemployment in the short term. This is due to the fact that in labour contracts wages do not adjust quickly enough to changes in aggregate demand, and the health of the economy is left at the mercy of the expectations of private investors with intentions that collide with the sustainable human development of a country as a whole.
As is well known, the same capitalist crisis gives rise to a new stage of long-term growth, due to the destruction of the productive forces generated by crises, by eliminating capitalist overproduction.
Anyway, in the long term another effect is perceived, which is not enjoying the economic growth that could had be obtained if it wasn’t destroyed by overproduction and short-term crisis of confidence before a situation of adjustment by the market mechanisms themselves is reached.
It is necessary for the economy to grow continuously and indefinitely as to avoid generating a situation unfavourable to investment, in which therefore the capital for productive investments is stopped due to lack of confidence.
If humanity maintains the growth rates to which it has become accustomed, by the end of the century it will consume more than ten times what we now consume, and this planet, with its need for environmental balance, and its limited resources, could not support such burden, with the impact of the ecological crisis being an extremely important one.
Toyotism, as a new model of capital accumulation in the age of computers, supposes a more heterogeneous production linked to different types of demand, but also labour market flexibility and the rotation of jobs and roles at work.
In addition to the above, the demand for a workforce with a certain preparation and various functions increases the structural unemployment in capitalism, conforming in a minor scale the versatile and multifunctional workers capable of operating several machines or of exercising a work of intellectual nature.
But there are also a large number of labourers who work in precarious conditions and who do not have the qualification of the first ones, working in many cases for partial periods, when they aren't unemployed.
The changes in business organization introduced by the new accumulation model implied factory decentralization (a central core, and a multiplicity of dispersed, subordinated, outsourced units), while stable workers mix with casual workers who work for partial periods, with many sometimes working in a deregulated way, labourers working under the table, or working in small units as in the case of autonomous work and work at home.
A large periphery of workers who have discontinuous and less paid jobs and who work in precarious conditions is formed, which is linked to the expansion of forms of part-time work, flexible working conditions, the growth of service sector, working in small units, the use of subcontractors, etc.
This dismantles the workers' movement with the atomization of the working people, a movement that drives mobilizations and
demands, and an important source of pressure for the State and companies.
Automation makes jobs in the industrial sector smaller, but there is simultaneously the growth of service sector, with a type of proletariat linked to activities in this sector, which usually works for partial periods and in a precarious, deregulated way.
Added to this, resorting to the work of women and children is usual, being more vulnerable sectors that must resort to work as a way of subsisting, since in modern societies the traditional family model based on a deep division of tasks between men, women and children is erased.
Innovation and technological development are becoming faster, introducing new technologies capable of producing more quantities and at more speed, increasing the capacity to generate wealth.
The technological revolutions of the future, fostered by nanotechnology, artificial intelligence, etc., will aggravate the essential contradiction of capitalism. It seems that there is no boundaries for factories, which can relocate their capital to other parts of the world, and decentralize and restructure themselves.
The maximization of individualism in modern capitalism seems to have atomized human societies, giving rise to individualistic attitudes centred on competition and the greatest personal benefit. In addition, it seems that humanity no longer embarks on major communist revolutionary processes.
We can not ignore the role played by the fall of the Soviet bloc on the workers' movement and the communist political parties, which caused the alert of states towards "red danger" and to significantly enhance certain policies and rights to calm the struggle between capital and work, precisely because of this threat that destabilized and even destroyed capitalist power.
In this context, fighting with strength for alternatives to capitalism was possible, as anti-socialist and anti-Marxist beliefs were not so
deeply rooted, nor the belief regarding the impracticability of alternatives to capitalism.
Deregulation in the context of the era of neoclassical economics, after the crisis of welfare states characterized by the intervention of states in the economy, and after the beginning of the crisis of the Taylorist-Fordist accumulation system, profusely increased inequalities and led to the freezing and falling of wages, as well as the deregulation of working conditions.
Wages were frozen while the productivity of companies continued to grow, so the inevitable result would have been a too low aggregate demand and overproduction. However, the capitalists injected credit to consumers through bank loans and credit cards, so that they had greater access to the goods and services of the economy (mortgages, cars, appliances, etc.), although these consumers became increasingly indebted, until they couldn't return the payments.
In 2008, the crisis began to worsen in the US, to which was later added the crisis originating in Europe, although with the crucial advance of the Chinese economy and the economies of other emerging countries, as new engines for the world economy, despite some deceleration in them.
Much earlier, the great capitalist crisis which began in 1929 had devastating effects on the world economy, with the exception of the Soviet Union, submerging first the American economy, already the world engine, in a great crisis.
Keynesian measures were applied to activate demand and reduce unemployment, expanding the role of the State on the economy, a role that was small until then. These measures implemented during the presidency of F. D. Roosevelt were of great importance, but they did not take the American economy out of the pit it was in (in 1939 US unemployment was still at 17%).
It was the second world war, with its large mobilization of men, and its war production and sale, which generated in the US
economy that necessary push to get out of the depression and significantly increase the volume of that economy, together with the consecration of the US as a superpower.
With all the aforementioned, we can identify six essential components that make up the capitalist system.
The first is that it is a system based on bourgeois property ownership of the means of production, and that is already known by the general public.
The second, which is also known, is that it is a system where the institution called as market exists, in which goods and services are sold and bought with a price that is determined to a greater or lesser extent by the competition depending on the level of intervention that public agencies have in setting prices.
Thanks to this second characteristic, in capitalism there are always companies competing with each other to provide goods and services to the consumer, although companies sometimes make alliances, but in many other occasions they do not.
The third component is that it is a system based on the freedom of movement for the labour force (which did not exist, for example, in feudalism).
The fourth component is that it is also based on the freedom of movement for business capital, and with freedom of movement for business capital I do not mean free trade in the goods and services market, but the ability of capital to move from one region to another.
The fifth element that characterizes the capitalist system is that it is a system dependent on the level of private investor confidence related to obtaining an adequate return on his investments.
The sixth element of the capitalist system, which is linked to the fifth, is that it is a system that, in order to stay healthy, needs an indefinite and exponential growth of the economy.
Later I will show that the normativist system retains the first characteristic of the capitalist system, since it is still primarily
based on the property ownership of the capitalists over the means of production.
In addition, it retains the second characteristic, which is the mobility of the labour force within the framework of freedom of contract, and the third characteristic, that is, the existence of a goods and services market where prices are usually determined by competition.
But while these three characteristics are preserved, the other three characteristics of the capitalist system are suppressed.
It suppresses a very evident characteristic of capitalism, which is the freedom of circulation for business capital, while the fifth and sixth characteristics of capitalism are totally eliminated, since there isn't dependence on the level of private investor confidence and therefore neither dependence on an indefinite and exponential growth of the economy.
Based on this, I consider that from normativism also arises a new mode of production different from the capitalist one, that is, the normativist mode of production.
Normativism suppresses half of the basic elements that characterize capitalism, and therefore we can consider it as a different system to capitalism, unless we adopt the foolish position of labelling any system that continues to be based on bourgeois property ownership of the means of production as capitalist and as essentially the same thing.
This foolish and dogmatic stance is a legacy of Marxism and anarchism that must be overcome if we really want to build a viable alternative to capitalism.
It would be a mistake to define capitalism as merely an economic system, since it is also a political system inasmuch as the economic decisions made by the capitalists greatly affect the decisions in politics, and the political decisions that are made thanks to the capitalist states also affect the capitalist economy.
If in some capitalist societies there isn’t for example a system based on free elections, and in others there is, this does not mean that capitalism is not also a political system, because for example, in many cases the causes of a society having free elections or not having them has the nature of the capitalist system as the reason. The nature of the political system that arises on the capitalist system is not irrelevant insofar as the structuring of political systems tends to obey the requirements to maintain or restructure capitalism in different historical or geographical contexts. Currently, the term market economy is used as a synonym of capitalist economy, but this confuses people and distracts them from the real problems of capitalism, making them see only a positive side of capitalism, which is that there is goods and services market, where prices are still largely determined by the competition of companies.
An economic system can continue to be based on bourgeois property ownership of the means of production, it can be based on a market economy, and can be based on the freedom of contract, and still have quite important differences with capitalism. Therefore, if we do not want to fall into a conceptual error, to the three characteristics traditionally assigned to capitalism, and which are the characteristics that in normativism are conserved, we must add the other three characteristics that are of utmost importance.
Globalization brings us new problems that did not exist in the 1929 crash. Today, even companies in China can relocate their productive activities and capital to countries where wages are even lower, especially in India and Vietnam, in a way in which the bargaining power of the Chinese workers is diminished, already limited by the cancellation of the right to labour strike and to free trade unionism.
As developing economies grow, the existence of a stronger domestic market inevitably becomes necessary to absorb the
growing production of goods and services, decreasing dependence on exports. The more contribution the domestic market has in aggregate demand, as opposed to the contribution coming from abroad, the percentage of overproduction that can be absorbed abroad is lower, and the macroeconomic disadvantage that inequality generates is more serious.
This is one of the reasons why countries such as Chile, China and South Korea, which have relatively open economies, stood out both in terms of economic growth in the underdeveloped world, simply because a greater opening of the economy allowed them to absorb overproduction, and thus increase their growth rates.
For countries such as China to develop, their domestic markets must grow, which inevitably must acquire increasing importance for their economies, amplifying the problem of overproduction, as the economy of those countries become too large to depend of exports abroad at the same extent. This is because the rest of the world can’t absorb the same percentage of goods and services produced by countries such as China.
Added to the above, to increase the size of the domestic market, higher wages are required, and this will obviously cause the prices of economies such as China to increase, and therefore their products lose competitiveness abroad, which would make them even less dependent of exports.
The growth of the markets requires every day the production of more outputs, which in turn face a limited supply of inputs throughout the production chain. This occurs mainly with nonrenewable inputs of mineral origin such as hydrocarbons, drinking water, and other kind of resources.
As has been said, capitalism requires an indefinite and voracious growth to stay healthy, which implies a growing depredation of earth’s resources, and a growing pollution.
Economic models such as China or Chile are not desirable paths for human development...