Critique of capitalism

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Capitalism has been critiqued from many perspectives during its history. Criticisms range from people who disagree with the principles of capitalism in its entirety, to those who disagree with particular outcomes of capitalism. Among those wishing to replace capitalism with a different method of distributing goods, a distinction can be made between those believing that capitalism can only be overcome with revolution (e.g. socialist revolution) and those believing that change can come slowly through reformism (e.g. classic social democracy). Some critics recognize merits in capitalism and wish to balance capitalism with some form of social control, typically through government regulation (e.g. British Labour Party).

Contents 1 History 2 Markets 2.1 The free market and property rights 2.2 Market failures 2.3 Market instability 2.4 Profit and exploitation 3 Inefficiency and waste 4 Unequal distribution of wealth and income 4.1 Excessive inequality 5 Employment/unemployment 6 Islamic criticism of capitalism 7 Marxist critique of capitalism 8 Imperialism and human rights violations 9 Democracy 9.1 Economic freedom 10 Sustainability 11 Religious criticism 12 Noam Chomsky's critique 13 See also 14 Notes 15 External links

[edit] History

Criticisms arose shortly after the birth of modern capitalism. Rapid industrialization following the industrial revolution created, according to contemporary critics, working conditions in Europe viewed as unfair; including 14-hour work days, child labor, and shanty towns.^[1] Some popular novels arose during this time that took a pessimistic view of the industrial revolution, such as some written by Charles Dickens. Optimistic modern economists argue that the conditions were even worse earlier and that empirical evidence shows that even the early industrial revolution increased average living standards and life expectancy. More pessimistic modern economists argue that conditions did not or only very slowly improved before 1840^[2]. Some early socialist thinkers rejected capitalism altogether, attempting to create socialist communities free of the perceived injustices of early capitalism. Among these "utopian socialists" were Charles Fourier and Robert Owen. Other socialist thinkers argued that socialism could not be implemented before historical forces created the right conditions, and saw promise in the industrial revolution, viewing it as a new system that could potentially produce enough goods for the entire human population but which was hampered by its inefficient method of distributing goods. In 1848, Karl Marx and Frederick Engels released the Communist Manifesto, a pamphlet that outlined a political and economic critique of capitalism based on the philiosophy of historical materialism. Their manifesto has since become one of the most influential books ever written. A contemporary of Marx, the mutualist Pierre-Joseph Proudhon was one the first to call himself anarchist.

These classical criticisms have undergone a certain amount of transformation since their time. Many authors have changed or updated these thinkings to incorporate changes in capitalist societies. By the early 20th century, a myriad of socialist tendencies had arisen based on different interpretations of current events. Monopoly capital, accelerating colonialism, the spread of labor unions, the widening of the franchise, and clearly increasing living standards, for example, were new trends which capitalist critics, such as Mikhail Bakunin, Vladimir Lenin and Eduard Bernstein, worked to understand and which contributed to differences in organizational models (e.g. anarcho-syndicalism, social democracy, and Bolshevism). Identifying problems with free market capitalism, governments also began placing restrictions on market operations and created interventionist programs which attempted to ameliorate perceived market shortcomings. British Keynesian economics and the American New Deal have had long lasting effects on both of these countries' social policies. Starting with the Russian revolution, Communist states increased in numbers and a Cold War started with the developed capitalist nations. However, after the Revolutions of 1989 many of these states openly adapted market economies. Most of the remaining formally Communist states have also implemented widespread market liberalizations.

Criticisms of capitalism persist in the current era. Particularly with concern for the new global economy, critics have argued for government intervention or against capitalism. These can involve perceived market shortcomings around global warming, exploitation of citizens under consumer capitalism, shifts away from production-based economies towards a dependence on financial markets, and economic imperialism in an age of globalization. Many current organizations, not necessarily rejecting capitalism, focus on changing national and corporate policies (e.g. United Students Against Sweatshops or Greenpeace). Other organizations take a holistic view, viewing capitalist injustice as a systemic problem (e.g. social ecologists or participatory economics).

[edit] Markets

[edit] The free market and property rights

Pierre-Joseph Proudhon and Friedrich Engels argue that the free market is not necessarily free, but weighted towards those who already own property.^[3][4] They view capitalist regulations, including the enforcement of private property on land and exclusive rights to natural resources, as unjustly enclosing upon what should be owned by all, forcing those without property to sell their labor to capitalists and landlords in a market favorable to the latter, thus forcing workers to accept low wages in order to survive.^[5]

In his criticism of capitalism Pierre-Joseph Proudhon believed that the emphasis on property is the problem. He claimed that property is theft, arguing that property leads to despotism:

"Now, property necessarily engenders despotism -- the government of caprice, the reign of libidinous pleasure. That is so clearly the essence of property that, to be convinced of it, one need but remember what it is, and observe what happens around him. Property is the right to use and abuse."^[4]

Mutualists and some anarchists support markets and private property, but not in their present form.^[6] They argue that particular aspects of modern capitalism violate the ability of individuals to trade in the absence of coercion. Mutualists support markets and private property in the product of labor, but only when these markets guarantee that workers will realize for themselves the value of their labor.^[4]

Similarly, in recent times, most economies have also extended property rights to include such things as patents and copyrights. Critics also see this as coercive against those with few prior resources. They argue that such regulations discourage the sharing of ideas, and encourage nonproductive rent seeking behavior, both of which enact a deadweight loss on the economy, erecting a prohibitive barrier to entry into the market.^[7] Not all pro-capitalists support the concept of copyrights, but those who do argue that compensation to the creator is necessary as an incentive.^[7]

Proponents of property rights generally see them as necessary to create incentives and to avoid the tragedy of the commons. Milton Friedman sees property rights as "the most basic of human rights and an essential foundation for other human rights."^[8] With property rights protected, people are free to choose the use of their property, earn on it, and transfer it to anyone else, as long as they do it on a voluntary basis and do not resort to force, fraud or theft. In such conditions most people can achieve much greater personal freedom and development than under a regime of government coercion. Secure system of property rights also reduces uncertainty and encourages investments, creating favorable conditions for the economy to be successful.^[9] Empirical evidence suggests that countries with strong property rights systems have economic growth rates almost twice as high as those of countries with weak property rights system, and that a market system with significant private property rights is an essential, although not an exclusive, condition for democracy.^[10] According to Hernando de Soto, much of the poverty in the Third World countries is caused by the lack of Western systems of laws and well-defined and universally recognized property rights. De Soto argues that because of the legal barriers, poor people in those countries can not utilize their assets to produce more wealth.^[11] If there is too much inequality, then this can in principle be fixed with various taxations.[3]

[edit] Market failures

Market failure is a term used by economists to describe the condition where the allocation of goods and services by a market is not efficient. Market failure can be viewed as a scenario in which individuals' pursuit of self-interest leads to bad results for society as a whole.^[12] From this, some critics of capitalism prefer economic intervention by government into free markets.^[13] Some believe that the lack of perfect information and perfect competition in a free market is grounds for government intervention. Others perceive certain unique problems with a free market including: monopolies, monopsonies, insider trading, and price gouging.^[14]

Legislation has been introduced to deal with these concerns (e.g. anti-trust legislation or financial regulation). Also, governments overseeing capitalist economies have been known to set mandatory price floors or price ceilings at times, thereby interfering with the free market mechanism. This usually occurrs in times of crisis, or relating to goods and services viewed as strategically important. Electricity, for example, is a good that has typically been subject to price ceilings in many countries.^[15] Some economists have analysed market failures, and see governments as having a legitimate role in mitigating these failures through regulation and compensation schemes.

Wages determined by a free market mechanism are also commonly seen as a problem by those who claim that some wages are unjustifiably low or unjustifiably high. Another perceived failure is that free markets usually fail to deal with the problem of externalities, where an action by an outside agent positively or negatively affects another agent without any compensation.^[16] The most widely known externality is pollution. More generally, free market allocation of resources in areas such as health care, unemployment, wealth inequality, and education are considered market failures by some.^[17]

Poor distribution of goods has also been identified as a market failure. Critics criticize the distribution of goods based on profit, rather than need.^[18] One critic noted that 200 million Indians went hungry in 1995, while the Indian economy was exporting $625 million worth of wheat and $1.3 billion worth of rice that same year.^[19]

However, some economists, such as Bank of Sweden Prize-winning economist Milton Friedman as well as those of the Austrian School, oppose intervention into capitalist markets. They argue that government should limit its involvement in economies to protecting absolute private property rights rather than balancing property rights for the sake of remedying market failure. They tend to regard the notion of "market failure" as a misguided contrivance wrongly used to justify government action to further various political agendas, such as egalitarian goals. These economists believe that government action in the market creates more problems than it is supposed to solve - despite the well-meaning nature of some of these actions. Other laissez-faire advocates do not oppose monopolies unless they maintain their existence through coercion that prevents competition. They believe that monopolies have historically developed because of government activity, rather than due to a lack of it. They also argue that minimum wage laws cause unnecessary unemployment, that laws against insider trading reduce market efficiency and transparency, or that government-enforced price-ceilings cause shortages. Some individuals put forth moral justifications for opposing government action in favor of free markets.

[edit] Market instability

Critics of capitalism, particularly Marxists, identify market instability as a permanent feature of capitalist economy.^[20][21] Marx believed that the unplanned and explosive growth of capitalism does not occur in a smooth manner, but is interrupted by periods of overproduction in which stagnation or decline occur (i.e. recessions).^[18] In the view of Marxists, several contradictions in the capitalist mode of production are present, particularly the internal contradiction between anarchy in the sphere of capital (i.e. free market) and socialised production in the sphere of labor (i.e. industrialism).^[22] Due to the unplanned nature of the system, capitalists produce without knowing in advance what they can sell, while at the same time unleashing huge productive capabilities through industrial organization. The result is that crises are not caused by shortages, like a crop failure, but rather from a production of too many goods. Marx and Engels, in the Communist Manifesto, highlighted what they saw as a uniquely capitalist juxtaposition of overabundance and poverty:

"Society suddenly finds itself put back into a state of momentary barbarism. And why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce."^[18]

Modern critics believe that instability is the rule, not the exception. During capitalism's short history, they note many well-known examples of recession (e.g. the American Great Depression) and highlight recent examples (e.g. Asian financial crisis (1997), Mexican peso crisis (1999), Argentina (1999), and early 2000s recession).

While the Communist Manifesto (1848) was primarily a tool for political agitation, proponents of capitalism point out that Marx and Engel's stated that "the bourgeois revolution in Germany will be but the prelude to an immediately following proletarian revolution."^[18] They highlight the fact that this has yet to occur (despite the European revolutions of 1848 and the German revolution of 1919). Proponents also view the Great Depression as an exception due to central bank mismanagement and lack of economic knowledge.^[23] No similarly deep crisis has occurred in a developed nation since this time.

[edit] Profit and exploitation

See also: Wage slavery

Critics of capitalism view the system as inherently exploitative. In an economic sense, exploitation is often related to the expropriation of labor for profit and based on Marx's version of the labor theory of value. The labor theory of value was supported by classical economists like David Ricardo and Adam Smith who believed that "the value of a commodity depends on the relative quantity of labor which is necessary for its production."^[24]

In Capital, Marx identified the commodity as the basic unit of capitalist organization. Marx noted a "common denominator" between commodities, in particular that commodities are the product of labor and are related to each other by an exchange value (i.e. price).^[25] By using the labor theory of value, Marxists see a connection between labor and exchange value, in that commodities are exchanged depending on the socially necessary labor time needed to produce them.^[26] However, due to the productive forces of industrial organization, laborers are seen as creating more exchange value during the course of the working day than the cost of their survival (food, shelter, clothing, etc).^[27] Marxists argue that capitalists are thus able to pay for this cost of survival, while expropriating the excess labor (i.e. surplus value).^[26] In other words, workers are seen as producing enough value to cover their wages during part of the working day, while the rest of the working day produces value in excess of what they're paid (and results in profits).

Marxists further claim that due to economic inequality, the purchase of labor cannot occur under "free" conditions. Since capitalists control the means of production (e.g. factories, businesses, machinery) and workers control only their labor, the worker is naturally coerced into allowing their labor to be exploited.^[28] Critics argue that exploitation occurs even if the exploited consents, since the definition of exploitation is independent of consent. In essence, workers must allow their labor to be exploited or face starvation. Since some degree of unemployment is typical in modern economies, Marxists argue that wages are naturally driven down in free market systems. Hence, even if a worker contests their wages, capitalists are able to find someone from the reserve army of labor who is more desperate.^[3]

Unions are the traditional method of giving workers more bargaining power in the marketplace. The act (or threat) of striking has historically been an organized action to withhold labor from capitalists, without fear of individual retaliation.^[29] Some critics of capitalism, while acknowledging the necessity of trade unionism, believe that trade unions simply reform an already exploitative system, leaving the system of exploitation intact.^[30][31]

Neoclassical economists, which today are the majority of economists,^[32] consider value to be subjective, varying from person to person and for the same person at different times, and thus reject the labor theory of value. These economists see capitalists as earning profits by forgoing current consumption, by taking risks, and by organizing production. The labor theory of value, including Marx's version, has also been rejected by almost all economists in favor of marginalism.^[33] Proponents of capitalism argue that wage rates respond like any commodity in a market -- in proportion to supply and demand. If enough employers compete for labor, then arbitrarily low wages will be prevented. They also claim that as worker productivity and GDP per person rises, competition will force employers to pay increasingly higher wages. Unemployment is due to many factors such as temporary recessions, waiting for a better job offer, minimum wage regulations, social security, or a lack of skills needed at a particular time and place. [4][5] Proponents also argue that the value of a worker's production is based on his work, not on how much profit is created.^{[citation needed]} They also argue that conditions are generally improving worldwide. The author of The Improving State of the World provides empirical evidence regarding income, life expectancy, literacy, and time working to argue that capitalism is related to rapidly improving living standards worldwide.^[34]

[edit] Inefficiency and waste

Some opponents criticize capitalism's perceived inefficiency. They note a shift from pre-industrial reuse and thriftiness before capitalism to a consumer-based economy that pushes "ready-made" materials.^[35] It is argued that a sanitation industry arose under capitalism that deemed trash valueless; a significant break from the past when much "waste" was used and reused almost indefinitely.^[35] In the process, critics say, capitalism has created a profit driven system based on selling as many products as possible.^[36] Critics relate the "ready-made" trend to a growing garbage problem in which the average American throws out 4.5 pounds of trash per day (compared to 2.7 pounds in 1960).^[37] Anti-capitalist groups with an emphasis on conservation include eco-socialists and social ecologists.

Planned obsolescence has also been criticized as a wasteful practice under capitalism. By designing products to wear out faster than need be, new consumption is generated.^[35] This would benefit corporations by increasing sales, while at the same time generating excessive waste. A well-known example is the charge that Apple designed its iPod to fail after 18 months.^[38] Critics view planned obsolescence as wasteful and an inefficient use of resources.^[39]

Critics of capitalism identify marketing as wasteful. They note that American corporations spend upwards of $1 trillion on marketing, and wonder whether this money could be better spent.^[40] Authors such as Naomi Klein have criticized brand-based marketing for putting more emphasis on the company's name-brand than on manufacturing products.^[41]

Proponents point out that advances in science and technology increased dramatically after the Industrial Revolution and that most research and development takes place in capitalist nations.^[42][43] They also point out that high quality long lasting products are available to anyone who is willing to spend more money. Most products that may seem to be planned to be obsolete, or to fail, are not actually so.^{[citation needed]} They are just lower quality and therefore a lower price. The fact that the consumer has a choice between high quality/high price and low quality/low price products is seen as benefit of a capitalist system. The consumer ultimately decides which he prefers. Proponents also point out that the Communist states had far worse ecological problems than the Western states.^[44] According to the US Department of Energy, socialist economies maintained a much higher level of energy intensity than either the Western nations or the Third World.^[45]

[edit] Unequal distribution of wealth and income

Main article: Economic inequality

It is reasonable to expect that some disparity in wealth and income among individuals would exist in a capitalist system as this is determined through market forces rather than by centralized governmental authority. Some view a significant disparity and concentration of wealth to be a problem and that such is endemic to capitalism, while others do not have such egalitarian concerns. Some opponents of capitalism assert that there should be no inequality in wealth and earnings among individuals commensurate to their inheritance, skills, abilities or efforts. Defenders of capitalism respond that since free market capitalism distributes wealth and earnings among individuals commensurate to their inheritance, skills, abilities and efforts, it provides inherent incentives for human beings to hone their skills, improve their abilities, and make strong efforts to meet the needs of each other, incentives that are missing or significantly less present in any other type of economic/political system.

[edit] Excessive inequality

Other critics agree that inequality is necessary but argue that in capitalism, the distribution of wealth and earnings is too unfair, dysfunctional, or immoral. They cite the fact that, in the US, the shares of earnings and wealth of the households in the top 1 percent of the corresponding distributions are 15 percent and 30 percent, respectively[6].

Some critics note that there are very few people who are twice as tall as average, or who can run twice as fast, or have twice as high an IQ. They argue that the fact capitalism doesn't distribute wealth in a similar fashion means that something is fundamentally wrong with the system. Supporters argue that human contributions vary much more than humans vary in height or IQ (as can be illustrated, for example, by comparing the contributions of an arsonist and an inventor/producer of antibiotics).

Critics also note that there are many people who have no wealth. If wealth followed a bell shaped curve (standard normal distribution), as many other human characteristics and it might be surmised people's ability to be productive, then there should be very few people with no wealth. Supporters might argue that human productivity and especially the tendency to save wealth is not bell-shaped.

Critics claim that an untamed capitalist system may have inherent biases favoring those who already possess greater resources. For example, they say, rich people can give their children a better education and inherited wealth. They say that this can create or even increase large differences in wealth between people who do not differ in ability or effort. They cite the examples that in the U.S., 43.35% of the people in the Forbes magazine "400 richest individuals" list were already rich enough at birth to qualify [7], or a study that indicates that in the US wealth, race, and schooling are important to the inheritance of economic status, but IQ is not a major contributor and the genetic transmission of IQ is even less important [8]. On the other hand, at least some of the difference in wealth between people of equal ability may be explained by that some people voluntarily, maybe because they see other things as more valuable, make life choices that make them earn or save less than other people with the same ability. Defenders respond that since 30.1% of the individuals on the Forbes list of the 400 richest did not inherit great wealth (meaning they did not inherit at least $1 million in assets) this shows that even such people can gain the very highest level of wealth in capitalist economies. There are also some data indicating that income inequality for the world as a whole is diminishing (for examples see below in "Marxist critique of capitalism").

Supporters argue that a problem with using "distribution of wealth" as a standard to measure economic systems is that such a standard can produce seemingly irrational judgments. Under the "distribution of wealth" standard, a system where everyone has nothing is judged as equal to a system where everyone has enormous wealth since the distribution of wealth in the two systems is equal. The claim is made that capitalist economics are not zero-sum games and that more wealth for most people is created through innovation, entrepreneurship and risk-taking. Rewards for this may cause a necessary inequality. Regarding the inheritance of wealth, this may be necessary so that the most productive people continue to do productive work and save money when they get older. Thus, people who see uneven wealth distribution as a lesser or unavoidable problem tend to argue that if inequality leads to higher average wealth and higher wealth and income for most people, then wealth inequality may be acceptable. Several peer-reviewed studies show that the relative income share of the poorest does not decrease with higher economic freedom, but their absolute income increases. For example, one study found that the poorest 10% earn $823 per year in the quintile of nations with the lowest economic freedom, but earn $6877 per year in the quintile of nations with the highest economic freedom. [9][10][11][12].

Some advocates of capitalism may partly agree with the critics but think that the problem can be resolved with solutions like progressive taxation, wealth tax, and inheritance tax. They note that such taxes are already implemented in modern mixed economies. The best extent of such taxes and how much inequality there should be is much discussed and researched, but these variables can be changed without abandoning capitalism. The American Historian David Hackett Fisher, in his 1996 book The Great Wave argues that some characteristics of society commonly blamed on capitalism may in fact be the indirect result of decades-long inflation.

Other points of view on capitalism's unequal wealth distribution include:

• Anti-Capitalist:
  • The capitalists gather their wealth by exploiting employees. An employee is not paid according to the true worth of his labor but according to what the employer is willing to pay him. The employer pays him less than what his labor is worth so that the employer can make a profit when he sells the produce. In this way, the employee's labor is being exploited.
  • Wealth and unequal distribution can create social problems (such as higher crime rates). These problems affect both poor and rich.
  • Government interference in markets can be skewed to benefit the wealthy. In particular, wealthy people have the financial means and incentives to influence or corrupt government officials and to lobby for favourable legislation.
  • Many people have little wealth left over after living expenses, so they can't make it grow quickly. This further deepens the disparity between rich and poor.
  • Persistent long-term inequality of wealth undermines the motivation of the poor to improve their stance. This creates not only direct but perpetual sociological inequity.
  • Wealthy people save relatively more than poor people. Hence some economists believe that an unequal distribution of wealth undermines an economy's mass buying power, effectively leading to lower aggregate sales, reduced wealth production, unemployment and crises. (see Keynes) Economists, however, argue that saving is also necessary in an economy, since it provides the means for investment into new technologies and processes.
  • Wealth is defined and judged incorrectly, in many different ways. In particular, people may attach value to things for seemingly irrational reasons (sentimental value). Some may also value spiritual development more than material wealth. Capitalism's focus on absolute monetary value thus undermines the legitimacy of alternate paradigms.
  • The wealthy may not put their wealth to productive use. For example, they may buy land just to deny access to it to others, for personal or environmental reasons. Other critics of capitalism, however, would ask whether or not capitalistic production narrowly-defined is a good thing, especially if it is seen as damaging the environment, and such an action of denial may be seen as the lesser of two evils.
• Pro-Capitalist:
  • Robert Nozick has argued that no condition of perfect equality could be maintained for very long. If all agents possess the same amount of wealth, they will immediately begin investing it in different ventures which will pay off to varying degrees. But if voluntary economic exchange is seen as leaving both parties (since both would not be trading unless the outcome of the trade was mutually beneficial), even if the resulting distribution is not even, it is better than if there were no trading.
  • Lack of established property rights force the poor to operate in extralegal markets, keeping them from unlocking the capital in their assets. When only the politically privileged can leverage capital, the division between formally and informally owned property is an unbalancing barrier to the benefits of a modern market economy.
  • Wealth tends to be directed toward individuals in proportion to how productive they are in terms of creating and providing goods and services that others value, therefore the possibility of becoming wealthier than others can be seen as an incentive to benefit society. A limit on freedom of individuals to reap a disproportionate amount of wealth would dampen incentive. Technological progress would stagnate or at least significantly decrease, and, as a result, the standard of living would suffer.
  • The inequality of consumption is far less than the inequality in wealth, since most of the wealthy do not consume all their wealth. To the extent that they consume their wealth, they are redistributing it to others. To the extent that they are not consuming it, they are generally either managing it to create more wealth or giving it away.
  • Many rich give significantly to charity (see also philanthropist). Some argue that charity is more efficient than state welfare.
  • The economist Thomas Sowell has attributed factors such as geography, climate, culture, and natural resources as contributing factors to inequality inside of and between nations.
  • Economic freedom has been shown to correlate strongly with higher average income per person, higher income of the poorest 10%, higher life expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the same for both more and less economically free countries.[13]

[edit] Employment/unemployment

Since individuals typically earn their incomes from working for companies whose requirements are constantly changing, it is quite possible that at any given time not all members of a country's potential work force will be able to find an employer that needs their labor. This would be less problematic in an economy in which such individuals had unlimited access to resources such as land in order to provide for themselves, but when the ownership of the bulk of its productive capacity resides in relatively few hands, most individuals will be dependent on employment for their economic well-being. It is typical for capitalist economies to have rates of unemployment that fluctuate between 3% and 10%. Some economists have used the term "natural rate of unemployment" to describe this phenomenon.

Depressed or stagnant economies have been known to reach unemployment rates as high as 30%, while events such as military mobilization (a good example is that of World War II) have resulted in just 1-2% unemployment, a level that is often termed "full employment". Typical unemployment rates in Western economies range between 5% and 10%. Some economists consider that a certain level of unemployment is necessary for the proper functioning of capitalist economies. Equally, some politicians have claimed that the "natural rate of unemployment" highlights the inefficiency of a capitalist economy, since not all its resources -- in this case human labor -- are being allocated efficiently.

Some also blame central banks for unemployment, as some have been known to intervene in the economy to prevent full employment out of fear of driving wages up.^[46].

Some libertarian economists, such as Henry Hazlitt, argue that higher unemployment rates are in part the result of minimum wage laws, as well as in part the result of misguided monetary policy, and are not inevitable in a capitalist economy. In Economics in One Lesson, Hazlitt argues that if the value of the work of some potential employees is lower than the minimum wage, it would penalise the employer to employ them. Accordingly, if the value of the productive capacity of a given employee is worth less to the employer than the minimum wage, that person will become unemployed, and therefore unemployment will exist whenever the legal minimum wage exceeds the true economic value of the least productive members of the labor pool. Likewise, if the amount of money a person can obtain on welfare approaches or equals what they could make by working, that person's incentive to work will be reduced.

Some unemployment is voluntary, such as when a potential job is turned down because the unemployed person is seeking a better job, is voluntarily living on savings, or has a non-wage-earning role, such as in the case of a traditional homemaker. Some measures of employment disregard these categories of unemployment, counting only people who are actively seeking work and have been unable to find any.

[edit] Islamic criticism of capitalism

Islamic Law recognizes the right to private property but regulates economic activities with a system of checks and balances. A 2.5% alms tax (Zakat) is levied on all savings and assets beyond those normally used, including bank savings, a second home etc.

Usury or riba is forbidden, and religious law encourages the use of capital to spur economic activity while placing the burden of risk along with the benefit of profit with the owner of the capital.

Many Islamic thinkers have spoken out against capitalism along with totalitarian socialism usually by condemning "materialism." Notably, Sayyid Qutb did so in The Battle Between Islam and Capitalism, published in 1951.^[47]

The Islamic constitution of Iran which was drafted by mostly Islamic clerics (see the Assembly of Experts) dispraises the "materialist schools of thought" that encourage "concentration and accumulation of wealth and maximization of profit."^[48]

Currently, many governments of countries where Islam is the official state religion own a controlling stake in large businesses like the telecommunication, airlines, transportation, and energy industry.^{[citation needed]}

[edit] Marxist critique of capitalism

Main article: Marxism

Marxists define capital as "a social, economic relation" between people (rather than between people and things). In this sense they seek to abolish capital. They believe that private ownership of the means of production enriches capitalists (owners of capital) at the expense of workers ("the rich get richer, and the poor get poorer"). In brief, they argue that the owners of capital do not work and therefore steal from or exploit the workers. Gradually, the capitalists will accumulate more and more capital and make the workers continually poorer, in the end causing a revolution. The private ownership of the means of production is therefore seen as a restriction on freedom.

Supporters of capitalism believe that private ownership is essential to preserving personal freedom as well as enriching society. They also argue that the owners of capital do work, since they have to make often complex decisions regarding how to allocate their capital - poor allocation of capital will mean wasted work and resources.

Marx and his followers have proffered various related lines of argument suggesting that capitalism is a contradiction-laden system characterized by recurring crises having a tendency towards increasing severity. They have claimed that this tendency of the system to unravel combined with a socialization process which links workers in a world-wide market are two major factors that create the objective conditions for revolutionary change. Capitalism is seen as just one stage in the evolution of the economy of a society. Immanuel Wallerstein approaching matters from a world-systems perspective, cites the intransigence of rising real wages, rising costs of material inputs, and steadily rising tax rates, along with the rise of popular antisystemic movements as the most important global secular trends creating unprecedented limiting pressures on the accumulation of capital. According to Wallerstein, "the capitalist world-economy has now entered its terminal crisis, a crisis that may last up to fifty years. The real question before us is what will happen during this crisis, this transition from the present world-system to some other kind of historical system or systems." ^[49]

Supporters of capitalism argue that ownership of productive capacity provides motivation to owners to increase productive capacity and so generally increase the average material wealth ("we all get richer"). Opponents of capitalism counter this by pointing out the unchanged after-tax income of the poorest quintile of the U.S. population during the last two decades. While at the same time the average income and especially the income of the rich have increased. [14]. According to "United for a Fair Economy," in 1982 CEOs of major corporations in the U.S. earned 42 times the annual wages of the average worker; in 2002 the ratio stood at 282:1 [15]. Supporters of capitalism point out that the percentage of people in developing countries living below $1 per day have halved in only twenty years, especially in countries like China that have embraced capitalism [16]. Life expectancy has almost doubled in the developing world since WWII and the gap to the developed world is starting to close [17]. Some scientists have observed that when looking at the world as a whole and not only the U.S., income inequality is diminishing [18], but there is a general disagreement among scientists about the recent direction of change of global income inequality.^[50]

In mainland China differences in terminology sometimes confuse and complicate discussions of Chinese economic reform. Under Marxist ideology, capitalism refers to a stage of history in which there is a class system in which the proletariat is exploited by the bourgeoisie. Officially, according to the Chinese governments State ideology, China is currently in the primary stage of socialism with Chinese characteristics. However, because of Deng Xiaoping's and subsequent leaders Chinese economic reforms, instituting pragmatism within policy, China has undertaken policies which are commonly considered capitalistic, including employing wage labor, increasing unemployment to motivate those who are still working, transforming state owned enterprises into joint stock companies, and encouraging the growth of the joint venture and private capitalist sectors. A contrary Marxist view would describe China as just another variant of capitalism (state capitalism), much like the former USSR, which was also claiming to be operating on principals of socialism. This is echoed by what Mao Tse-Tung termed "capitalist roaders" who he argued existed within the ruling Party structures and would try to restore the bourgeoisie and thus their class interests to power reflected in new policies, while only keeping the outer appearance of socialism for legitimacy purposes. Deng Xiaoping was identified as one of these "capitalist roaders" during the Chinese Cultural Revolution, when he was placed under house arrest.

[edit] Imperialism and human rights violations

Critics argue that the ills caused by capitalism include imperialism, poverty, oppression, exploitation and abuse of human rights. They point systematic violence against political opponents, participation in coups which have placed dictators in power (for example Pinochet in Chile, Argentina with its dirty war); and large scale democide (like in the Congo Free State). Some argue that capitalism thrives on an uneven and exploitative relationship between wealthy nations (see dependency theory) who force regime or system changes in poor countries which are only beneficial to them, often through exploitative wars (like the Opium wars or the Second Sino-Japanese War). Although some of these violations occurred during a time period and in states sometimes considered being more capitalist than today since the government share of the economy was much smaller, U.S and European support of multinational-friendly capitalist dictatorships in Latin America and Africa lasted until the mid 1980s.

Near the start of the 20th century, Vladimir Lenin claimed that state use of military power to defend capitalist interests abroad was an inevitable corollary of monopoly capitalism.^[51] This concept of political economy concerning the relationship between economic and political power among and within states includes critics of capitalism who allege the system is responsible for not only economic exploitation, but imperialist, colonialist and counter-revolutionary wars, repressions of workers and trade unionists, genocides, massacres and so on. For example The Black Book of Capitalism concludes that capitalism has killed approximately 147 million people between 1500-1997.

Proponents of capitalism argue that these problems have been widespread through all of human history, including in many states characterized as socialist such as in Cambodia under Pol Pot, the Soviet Union under Stalin, and China under Mao. Some claim that these practices are not consistent with the principles of capitalism even though they have existed in nations or in the colonies of nations (commonly or loosely) labeled as capitalist. They deny that many of the colonies had capitalist economic systems and claim that their economies mostly continued to be feudalistic. Supporters emphasize that it was capitalist states that abolished slavery throughout the world and that it was capitalist states who developed the modern democratic system. Critics reply that the major imperialist powers accumulated huge amounts of capital through slavery before it was abolished. Furthermore, they argue, slavery was only abolished after it became less expensive to pay wages in industries like mining and agriculture in the colonies.

Marxists, importantly Lenin, argue that capitalism needs imperialism in order to survive. The unplanned nature of capitalism, they say, inevitably overproduces commodities and overuses resources, which leads it to expand its markets into and drain the resources out of other, less-developed nations. The wealthy nations, they say, must maintain cheap access to third world natural resources and unfree labor, by force if necessary. They argue that the capitalist countries like England initially were helped by the primitive accumulation of capital through the "theft" of natural resources and exploitation of slave labor from large parts of Asia, Africa and the Americas which spurred the industrial revolution. They see what they characterize as unjust exploitation, militarily (such as India in 19th century) or economically (e.g. through IMF structural adjustment programs during the 1980s), as part of the nature of capitalism. The constant, capitalist drive to expand markets is viewed by many as the primary cause of globalization.

In his essay, Imperialism: The Highest Stage of Capitalism, Vladimir Lenin advanced the now widespread thesis that the ‘New Imperialism’ of the late 19th and early 20th centuries was an inevitable correlary of monopoly capitalism. According to Lenin, the export of financial capital superseded the export of commodities; banking and industrial capital merged to form large financial cartels and trusts in which production distribution are highly centralized; and monopoly capitalists influenced state policy to carve up the world into spheres of interest (Burnham). These trends led states to defend their capitalist interests abroad through military power.

Most capitalists acknowledge that military exploitation should be condemned, but argue that economic globalization and the introduction of capitalist principles to the developing world is improving the living standards worldwide. See the empirical research on Indices of Economic Freedom and the book the The Improving State of the World and research stating that the percentage of people living on less than 1 doller per day halved between 1981 and 2001.[19] This is disputed by critics who claim that the very opposite is the case, that an underdeveloped, distorted economic growth concentrating wealth in the hands of elites within the cities while maintaining semi-feudal property relations in the contry side--increasing overall disparity--are products of global capitalism.[20]

[edit] Democracy

Marxists also often argue that the structure of capitalism necessarily leads to this exploitation of workers, regardless of whether or not the political system is one of a bourgeois democracy. For this reason, Marxists typically emphasise the capitalist economic system of Western countries rather than the democratic political system. A capitalist system is an economic system - although often associated with democratic political systems,^{[citation needed]} they are independent from each other. Capitalist systems have often functioned under unelected governments: the classic case is the United Kingdom, where less than 20% of adult males could vote prior to 1885, and women did not receive the vote until 1918.[21] Some recent examples include Hong Kong, Singapore, and Chile under the rule of General Pinochet. It is also argued by Marxists that governments espousing fascist (or "national socialist") rhetoric do not make substantive changes to the capitalist economies when they assume power.

However, many communists reject the Communist states for their lack of democracy, despite their central planning and common ownership of the means of production. Similarly, many pro-capitalists reject states having some characteristics of capitalism but lacking democracy.

A common criticism that Marxists make about capitalism is that it is only democratic to the capitalist class, citing examples such as people not being able to criticize one's boss out of risk of getting fired and not being able to express their opinions due to lack of funds to afford access to the media. Pro-capitalists respond that that in a free market one can always change work or start one's own enterprise. If one has an interesting opinion and there is freedom of speech, there will be a profitable market for this. Critics object that in capitalism, most people are too concerned about their own economic welfare that they have no time for this; and that a profitable market in media tends to distort the media to broadcast profitable media rather than truth. Pro-capitalists respond that there is little evidence that speech would be more easily spread in a non-capitalist system, especially political speech, since it would all have to be filtered through the state. But non-capitalism does not imply state-controlled speech.

Latin American intellectuals like Eduardo Galeano argue that capitalist practices do more to damage democracy in peripheral countries than encourage it. He points to democratically elected leaders like João Goulart, Salvador Allende, and Juan Peron who he believes were forced out of office by U.S. and European capitalist interests and replaced with military dictators during the 1960s and 1970s.

Defenders of capitalism contend the opposite, arguing that the strong economic growth during capitalism may encourage democratisation, or vice versa. There were very few democracies before the industrial revolution and the rapid economic growth that followed it. There is debate about whether liberal democracy, in the sense of electoral rights and civil liberties, is a consequence of economic growth[22], a cause of it,[23] or completely unrelated to it.[24] These studies tend to indicate that establishing the rule of law in protecting private property and free markets, rather than mere democratization, is what is most instrumental in generating economic growth.

One of the studies simultaneously examining the relationship among economic freedom (see below), economic development (measured with GDP/capita), and political freedom (measured with the Freedom House index) found that high economic freedom increases GDP/capita and a high GDP/capita increases economic freedom. A high GDP/capita also increases political freedom but political freedom did not increase GDP/capita. There was no direct relationship either way between economic freedom and political freedom if keeping GDP/capita constant.^[52] It should be emphasized, however, that GDP/capita does little to indicate the amount of poverty in a nation if the Gini coefficient, which measures distribution of income, is not taken into account. Countries with the lowest Gini coefficients tend to be social democracies that do not operate on laissez-faire capitalist principles, like the Netherlands. On the other hand, studies show that increasing growth is essential for reducing poverty.[25] If the economic development of a nation is low enough, there is simply very little to share even if there is equality.

There is research suggesting that although economic development itself does not increase the chance for democracy, if a nation becomes democratic, then nations with a higher economic development are more likely to remain democratic - poor and democractic nations have a high chances of returning to dictatorship if they experience a period of declining growth.(Przeworski, Adam (1997). "Modernization: Theories and Facts". World Politics 49 (2): 155 –183. doi:10.1353/wp.1997.0004. )

[edit] Economic freedom

There are two Indices of Economic Freedom used in economic research. The publishers are conservative, business-orientated and funded think tanks. One index is released by the Heritage Foundation and Wall Street Journal, the other by the Fraser Institute. Both attempt to measure of the degree of economic freedom in countries, mostly in regard to rule of law, lack of governmental intervention, private property rights, and free trade. The Index of Economic Freedom defines "economic freedom" [26] as "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." (This is otherwise known as laissez-faire).

They use statistics from independent organizations like the United Nations to score countries in various categories like the size of government, degree of taxes, security of property rights, degree of free trade and size of market regulations. Many peer-reviewed papers have been published using this material on the relationship between capitalism and for example poverty, mostly by researchers independent from the think tanks.[27] The Fraser Institute argues that more advanced capitalist countries have much higher average income per person, higher income of the poorest 10%, higher life-expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the same for both more and less capitalistic countries.[28] Other studies have shown similar results.[29]

Attempts to decide the importance of the subcomponents of the indices have often yielded contradictory results. Strong property rights may be important - the economist Hernando de Soto has argued that weak property rights, especially for the poor, play a major role in poverty and underdevelopment in developing countries [30] [31]. Many developing countries are now trying to strengthen and simplify their property rights system after the successful application of his ideas in Peru [32]. Others have emphasized the importance of a functioning credit system, especially microcredit.

Critics, however, maintain that capitalism undermines true economic freedoms due to an unfair and inefficient distribution of wealth and power; a tendency toward market monopoly or oligopoly (and government by oligarchy); imperialism, various forms of economic exploitation; and phenomena such as social alienation, inequality, unemployment, and economic instability. Critics have maintained that there is an inherent tendency towards oligolopolistic structures when laissez-faire is combined with capitalist private property. Because of this tendency either laissez-faire, or private property, or both, have drawn fire from critics who believe an essential aspect of economic freedom is the extension of the freedom to have meaningful decision-making control over productive resources to everyone. Economist Branko Horvat explains, "it is now well known that capitalist development leads to the concentration of capital, employment and power. It is somewhat less known that it leads to the almost complete destruction of economic freedom."^[53].

[edit] Sustainability

See also: Overpopulation

An economic system that produces strong economic growth and requires essentially free trade may have a large effect on the environment. Some question the continued sustainability of this, arguing that many aspects of the environment have been degraded since the industrial revolution. Defenders of capitalism note the many environmental disasters in communist states and point out that there seems to be no viable alternative or intermediate economic system to capitalism or state controlled economy^{[citation needed]}.

One of the main modern criticisms to the sustainability of capitalism is related to the so called commodity chains, or production/consumption chains [33],[34]. These terms refer to the network of transfers of materials and commodities which is currently part of the functioning of the global capitalist system. Examples include high tech commodities produced in countries with low average wages by multinational firms, and then being sold in distant high income countries; materials and resources being extracted in some countries, turned into finished products in some others and sold as commodities in further ones; countries exchanging with each other the same kind of commodities for the sake of consumer's choice (e.g. Europe both exporting and importing cars to and from the U.S.). According to critics such processes, all of which produce pollution and waste of resources, are an integral part of the functioning of capitalism (i.e. its metabolism [35]). Furthermore, it is sometimes argued that such chains, being resistant to change, may be partly responsible for persisting inequalities between different areas of the world. Nonetheless it is possible, although by no means certain, that someday wages reach more or less similar levels worldwide, thus eliminating a major cause which presently makes the environmental costs of commodity exchanges very different from their economic costs, and by consequence producing a more rational structure of production/consumption chains. Also, minimal restrictions on free trade (see Tobin Tax) have been proposed to induce a restructuring of the capitalist network, but such measures are typically rejected by proponents of self regulation of capitalism through free trade.

Some defenders note that many aspects of the environment in developed nations have improved recently, after the dangers of certain pollutants have become known. Examples include greatly reduced emissions of chlorofluorocarbons affecting the ozone layer, removal of lead from gasoline and other products, greatly improved cleaning of emissions from fossil fuel power plants, and much stricter control of emissions into rivers, lakes, and oceans. However, some leading conservation organizations such as the WWF and The United Nations Environment Programme argue that the impact of humanity on Earth is continually increasing. In 2004 they jointly reported that "humanity's Ecological Footprint grew by 150% between 1961 and 2000" and that most of this growth occurred in the 27 wealthiest countries of the world, in other words, the leading capitalist countries [36]. Critics note that the statistical methods used in calculating Ecological Footprint have been criticized and some find the whole concept of counting how much land is used to be flawed, arguing that there is nothing intrinsically negative about using more land to improve living standards. [37][38]

Supporters of capitalism argue that in many cases environmental problems are greatest when a common exists and there is no clear owner. See Tragedy of the commons, Free market environmentalism, and a proposal to have natural resource wealth owned by all people equally. Defenders of capitalism also note that world population has greatly expanded due to higher living standards since the industrial revolution. However, this growth is declining due to the demographic transition and, according to the United Nations, most likely estimates predict that the world population will stabilize at nine billion in 2075.[39]

Yet many environmentalists have long argued that the real dangers are due to the world's current social institutions that they claim promote environmentally irresponsible consumption and production. Under what they call the "grow or die" imperative of capitalism, they say, there is little reason to expect hazardous consumption and production practices to change in a timely manner. They also claim that markets and states invariably drag their feet on substantive environmental reform, and are notoriously slow to adopt viable sustainable technologies. [40][41]. Immanuel Wallerstein, referring to the externalization of costs as the "dirty secret" of capitalism, claims that there are built-in limits to ecological reform, the costs of doing business in the world capitalist economy are ratcheting upward because of deruralization and democratization, he therefore sees no exit from our dilemmas within the framework of the capitalist world-system.[42]

Some critics claim that strong economic growth also requires increasingly greater amounts of natural resources and energy and they question whether this can continue in the future. Those arguing for continued growth note that numerous past predictions of shortages have failed since new technology has continuously allowed exploitation of previously unavailable resources. That this continues in the future is considered to be of critical importance, especially for world energy markets, which face a peak and subsequent decline in fossil fuel production. Since 1970, each 1% increase in world GDP has yielded a 0.64% increase in energy consumption. See Future energy development. On the other hand, it is accepted by the oil industry that world oil production will peak or has already. See peak oil

[edit] Religious criticism

Some religions criticize or outright reject capitalism. For example, Islam strongly forbids usury (lending money at an interest). Christianity has been the source of many other criticisms of capitalism, particularly its materialist aspects. The first socialists drew many of their principles from Christian values (see Christian socialism), against the "bourgeois values" of profiteering, greed, selfishness and hoarding. Whilst anti-capitalist sentiments vary, generally, Protestant Christians and most western Roman Catholics do not oppose capitalism. Some that do, also support a mixed economy in order to ensure "decent" labour standards and relations, as well as economic justice. However, Soviet Russia and the misidentification of it as "godless communism" convinced some Christians, especially in the United States, to hold strict forms of socialism with high suspicion, particularly in the early 20th century^{[citation needed]}. Later, that changed to embracing soft forms of socialism and State welfare, as well as Christian religions embracing soft forms of capitalism.^{[citation needed]}

[edit] Noam Chomsky's critique

Noam Chomsky has argued that the asymmetric application of free market principles creates a "privatized tyranny": "The talk about labor mobility doesn't mean the right of people to move anywhere they want, as has been required by free market theory ever since Adam Smith, but rather the right to fire employees at will. And, under the current investor-based version of globalization, capital and corporations must be free to move, but not people, because their rights are secondary, incidental." Further, he emphasizes that it can matter what entities have rights in the market—"Do they inhere in persons of flesh and blood, or only in small sectors of wealth and privilege? Or even in abstract constructions like corporations, or capital, or states?"—and remarks that of what he sees as the three tyrannical systems of the 20th century, Bolshevism, and fascism have "collapsed", but "private corporatism… is alive and flourishing… [a] system of state corporate mercantilism disguised with various mantras like globalization and free trade."^[54]

Chomsky argues that the wealthy use free-market rhetoric to justify imposing greater economic risk upon the lower classes, while being insulated from the rigours of the market by the political and economic advantages that such wealth affords.^[55] He remarked, "the free market is socialism for the rich—[free] markets for the poor and state protection for the rich."^[56]

[edit] See also

[edit] Notes

[edit] External links

• A Reconsideration of the Theory of Entrepreneurship: a participatory approach - Critique of capitalism
• How The Miners Were Robbed 1907 anti-capitalist pamphlet.
• Information and Economics: A Critique of Hayek by Allin F. Cottrell and W. Paul Cockshott
• Marxists Internet Archive - Archive of Marxist and anti-capitalist literature.
• Ringmar, Erik. Surviving Capitalism: How We Learned to Live with the Market and Remained Almost Human (London: Anthem Press, 2005)
• Social economy: A Market Economy without Capitalism
• Value, Price and Profit - Karl Marx on the basic features of capitalism.
• Why Do Intellectuals Oppose Capitalism? by Robert Nozick