May 17, 2020


Capitalism or the Climate? (Saul Zimet, 5/17/20, Quillette)

US Representative Alexandria Ocasio-Cortez, author of the 2019 Green New Deal resolution and surrogate to Bernie Sanders in the 2020 democratic primary, told a 2019 SXSW audience, "Capitalism, to me, is an ideology of capital. The most important thing is the concentration of capital, and it means that we seek and prioritize profit and the accumulation of money above all else, and we seek it at any human and environmental cost. That is what that means. And to me, that ideology is not sustainable and cannot be redeemed." [...]

Throughout nearly all of human history, widespread economic growth per capita did not exist. Productivity per capita was ubiquitously stagnant; generation after generation, millennium after millennium, extreme poverty remained nearly universal and large-scale economic progress was not even imaginable. Virtually everyone lived on less than $3.50 per day in today's dollars according to research from University of Oxford economist Max Roser, and the average person lived on much less. That's even worse than it sounds, because (among other reasons) most of the things we can buy today had yet to be invented, and people didn't have access to most of the information that informs our purchases in the 21st century.

Then, starting in Western Europe in the 16th, 17th, and 18th centuries, an unprecedented breadth of optimism emerged and turned wealth (resources hoarded away in vaults and mattresses) into capital (resources invested in future production and discovery). Thus, capitalism was born, and with it, exponential economic growth began to spread across most of the Earth (a process that continues to this day). As a result, both the rich and the poor are consistently getting rapidly richer for the first time in human history. Whereas 94 percent of the population was in extreme poverty as recently as 1820, in 1990 the number was down to 36 percent, and in 2015 the number was less than 10 percent. And as the world gets wealthier, countless important things proliferate, such as access to nutrition, freedom from violence, improvements in life expectancy, and of course, the access to and production of scientific and technological knowledge.

Knowledge is produced and spread in many ways. Education is one crucial variable, for the purpose of having both an educated population of innovators and a thriving research community. According to research from the Brookings Institute, educational opportunities and outcomes for the affluent radically exceed those for the poor--not just between countries, or within them, but everywhere. This is to be expected. Whether funded by individuals or government programs, it costs a lot of resources to build strong educational institutions and invest in educating generations of students. Poor populations who can barely afford shelter, clean water, food, and medicine don't have much left over to invest in less immediate necessities such as education. And of course, this creates a feedback loop with causation running in both directions--if a population is uneducated, escaping poverty is much more difficult; if a population is poor, investing in education is much more difficult.

Another foundational tool for knowledge production is innovation, which capital and profit motive facilitate. A large amount of innovation comes from excess capital being invested in new research and development. Poorer populations, whether subnational, national, or global, have less to invest in prospective new inventions and processes of which the details are unpredictable in advance. No system incentivizes useful investments and disincentivizes wasteful investments better than the capitalist system, in which the investor's own capital is on the line. Incentives and wealth are two main reasons why all of the most innovative nations, such as the top 10 on the 2020 Bloomberg Innovation Index, are capitalist countries. The sociologist Susan Cozzens at the Georgia Institute of Technology offers a succinct description of the process:

In the classic literature of the economics of innovation, private firms are the driving force. They seek competitive advantage in the market by introducing new products that give them a temporary monopoly. By charging high prices during the period of temporary monopoly, the firm makes profits and grows. Introducing new processes can result in competitive advantage if that step reduces costs or increases productivity. In this view, firms drive innovation in order to survive and win in the marketplace.

Indeed, no serious critics of capitalism argue that any other system produces greater material wealth and innovation. Even Marxists, capitalism's most vehement antagonists, generally acknowledge that no system has ever produced more innovation and abundance. In The Communist Manifesto in 1848, Marx and Engels wrote this:

The bourgeoisie [capitalist class], during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature's forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground--what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?

If only Marx and Engels could see how drastically the affluence of the proletariat has grown under global capitalism since then.

Capitalism, contra the Congresswoman,, is dependent on the dispersal of wealth, not the concentration.  Wealth was and is concentrated in pre-capitalist economies, mostly in the form of land, which the mass of the population was forced to farm for subsistence.  The basic form of economic transaction was extremely straightforward; you work my land and, in exchange, you get to keep enough of the crop to feed yourself and your family...maybe. But farming inefficiencies that lasted for centuries set an artificial cap on just how much wealth the land produced. Lord and serfs were "sharing" a rather beggarly portion. The sharecroppers thus had to do as much as they could for themselves, from candle-making to sewing to hunting for meat and so on, because they lacked the excess capital to exchange for goods and services.

There were, of course, some skilled laborers who were not dependent on the lords who owned the land; they tended to protect the knowledge required for their jobs via things like guilds (just as unions long sought to bar access to jobs).  It was better to be a blacksmith or a blacksmith's son than a peasant farmer, but it's not as if all the peasants around you had horses for you to shoe. Your income was, likewise, limited by how little wealth the prevailing system produced.  

Not much of an economy, eh?  But, if the point of an economy is to provide jobs and roughly equal subsistence, it was actually a decent model.

Then there arose merchants, who traded one good for another or even exchanged money for goods.  They were what the Left/Right would call unproductive.  Like the hated bankers/investors/traders of today, they made their money on the margins of transactions involving wealth they had not generated by their own hands and might never actually handle or even see.  And what does this sort of economic model require? The generation of wealth, which can be exchanged for more than just the food to fill your own belly. And do you want that wealth concentrated in just a few hands so that your market is minimal? Of course not; you want as many potential consumers of your goods as possible and them with ass much wealth for such consumption as possible.  And, with these new possibilities for consumption, is it any longer sufficient to just skim off the top of the minimal wealth your peons produce? Of course not; you want to maximize the yields on your land so that you can exchange excess crops--that are not needed to feed you and your tenants--for goods you do not generate yourself, even luxury goods, be they silks or spices or books or what have you. And once you have access to goods to buy with your wealth and you seek to maximize the profits from your land, the old inefficiencies, like manual labor, become intolerable and innovation becomes a premium.  The point of owning land is no longer to be a landowner but to generate wealth.  And while labor-saving innovations are displacing the peasants' jobs are being created manufacturing the new tools for the new economy and working on transporting goods and building new infrastructure and so on and so forth.  And this new class of industrial laborers no longer produces that which it subsists on but has to purchase it, expanding markets and increasing transactions and on and on.  

This is capitalism: the economics of generating ever-greater capital. No one intended it, but it turned out to be the ultimate virtuous circle. It is the economics that destroyed centralized capital and spread it widely, lifting the masses out of grinding poverty, creating a culture that is consumerist precisely because everyone has the wealth necessary to consume things, creating a near-universal tax base that made possible the rise of powerful states but states bound to provide representation to taxpayers, generating technology that allowed every member of society to participate in the production of wealth, making them taxpayers, making them citizens due a say in governance.  

It is not a revolution that always proceeded smoothly nor as quickly as we might have wished, but proceed it did and does.  If the word still had content rather than being a mere rubric, Progressive would be associated with Capitalism, not it's obverse. 

Titular Progressives, like AOC, were they able to accept all this, would have an important role to play today as we transition to an economy where the universal employment that once automatically redistributed wealth and granted political participation does look unsustainable.  That role though involves embracing an economy that maximizes capitalism, as the uniquely efficient generator of wealth, but stops looking at it as the primary means of wealth distribution and turns instead to political forms of distribution.  As the labor input required to generate wealth trends towards zero our society will grow ever richer but employment can no longer be counted on to spread capital.  Something like a Universal Basic Income will have to replace jobs, as the current economic crisis has demonstrated.  The "Progressive" alternative, a universal employment scheme, preserves the notion of work, appealing to our Puritan natures, but it will only make the economy less efficient--less good at generating the wealth we desire--and, because the jobs will be just make-work, is actually dishonest in a way that should appall us, as we would be rewarded for an illusion while pretending to return value.

An important corollary to this decline in employment is that our system of taxation must change.  Replacing income taxes--since we are not earning--with consumption taxes--since we'll still be consuming to some greater or lesser degree--will preserve the principle that has driven the Anglosphere for near a millenia-"No Representation without Taxation." Not only will this preserve the required skin-in-the-game, but by encouraging us to save and invest will promote the universal accrual of capital.  Even a responsible "Progressivism" ends up being capitalist.  The virtuous circle just keeps on rolling...

Posted by at May 17, 2020 7:09 AM