Category Archives: Economics

Yesterday, I discussed the strength of capitalism and reached a conclusion unfamiliar to many on the Left, namely that diversity strengthened it in the face of its own repeated internal contradictions. Today, I’m going to look at alternatives to capitalism, mainly in the hope that our political debate can be widened beyond the simplistic analysis over interest rates and unemployment that the established media serves up for our daily news diet.

What are the options? Any economic system which uses a different model for economic organisation must be considered an alternative. However, most of these have been tried and test to destruction by history. No-one is going to argue that enslaving people and using them to carry out all the work we need to run our societies is a viable alternative to capitalism. Similarly, there’s no point discussing a multi-layered system of land rents, such as was used in feudalism, or centralising all economic planning as was used by the command economies favoured by the East European communist regimes. Although the only serious challenge to US style capitalist hegemony comes from Islam, that doesn’t seem to offer a fundamentally different economic system. Despite the apparent ban on usury, the various Islamic countries are very heavily involved in the capitalist system.

There is, of course, a problem with defining capitalism. Most of yesterday’s essay focused on industrial capitalism, for the sake of convenience. Certainly mercantile capitalism died centuries ago. Debating the precise nature of capitalism is outside the scope of this essay but it will be useful to pin down what capitalism means. The dictionary definition thrown up by Google is as good as any other: “An economic and political system in which a country’s trade and industry are controlled by private owners for profit.” These owners include persons both corporeal and corporate. Plenty of modern thinkers, including the anarchists of Occupy, complain that corporations have the psychological charactistics of pyschopaths but they readily enjoy their products, such as smartphones and the like. Claiming that we should end the corporate personhood of such behemoths is more than a tad hypocritical if we love their products but simply wish to push them out into other jurisdictions where they can operate without any social constraints. However, I digress.

A swift change from one economic system to another is fraught with complications. History teaches that over and over again. Purely political revolutions have a habit of convulsing people and creating the worst kind of chaos. Combine that with sudden and experimental economic change and very often the results include mass starvation. This is unacceptable, especially if it is done in the name of progress.

If capitalism is defined by the private ownership of its economic models, it seems logical to seek a method by which to share economic ownership. The thieving Tory bastards will tell us that is precisely what the stock exchange is for but this doesn’t really share things in the way we commonly understand the word. If I take you to the pub but we only have enough money for a single pint of beer, we spend it on half a pint each. Of course, sharing doesn’t have to be completely equal but for it to retain the meaning of the word, it has to go according to need. Thus Labour created the NHS, so that the nation’s medical skills and resources could be shared according to need. The stock exchange is not organised around the principle of sharing, it is set up to trade private profits.

The most interesting economic alternative to capitalism is cooperatism. Although a well established idea, Google doesn’t even know what this is. “Did you mean corporatism?” it asks. No, I did not. Cooperatives are founded on the principle that people work together for their mutual benefit. The owners of the enterprise are those involved in it. They agree how to share out the rewards or burden the liabilities. There is no one system by which they are organised: some might decide to contract out for management, others may pay everyone the same regardless of their role, others still may gradate pay and so on. The founding principle of a cooperative is that the profits are shared amongst those who earn them according to their mutual agreement. Cooperatives and other types of mutual enterprises have co-existed with market capitalism for a couple of hundred years. Proof of their success through tough times lies in the fact that all the building societies were mutuals, which would still be accumulating substantial resources today had their members not decided to carpet bag themselves in the early 1990s and collect the reserves as private profit. The few that had sufficient long term wisdom to withstand that massed greedy grab are with us today, largely unaffected by the banking crisis.

In other words, here we have, staring us in the face, a model for economic enterprise which suits businesses both large and small and is capable of resisting the quarterly demand for dividends which is the bane of capitalism. Would it not be better if the entire economy was grounded on such methods? Assuming agreement on that, the question becomes how to get from here to there? The answer lies in law and public policy. We need to properly establish a framework which favours cooperatives and other mutuals, so that they can flourish. Presently, the only people who create them are driven by ideological persuasion. If the conditions were set to encourage everyone to create them, more people would join the cooperatives movement.

This short essay is hardly the place to set out a detailed economic manifesto for achieving conditions which would allow mutuals and the like to flourish. However, some of the changes required are completely obvious. Businesses have to pay a special council tax. Small businesses are given a discount (at least they are in Brighton & Hove). Cooperatives could be given a 100% discount, for example. After all, each one of their members already pays council tax on the homes they live in. Once a critical mass of an economy driven by mutuals is established, tax breaks like this will become very hard to remove. That is but one example. Another might include weighting tendering processes by local authorities to favour mutuals and cooperatives. Of course, we’d have to flesh out the details. We’d want to know that those bidding for tax exemptions and other advantages really were cooperative in nature. We’d have to lay down some publicly understood rules for what would qualify.

One of the biggest obstacles to establishing a business is the cost of land. Land is typically owned in a capitalist manner. All revolutionary movements have been deeply concerned about how to deal with land issues and have usually been driven by the need to redistribute land ownership. Short of wholesale revolution, the problem isn’t easy to solve. In order for cooperatives to obtain land (which, of course, includes all buildings), they have to buy it but they rarely start with enough assets to be able to make the necessary acquisition. Thus they are thrown back on the financial problem of having to pay rent to a capitalist land owner. However, this need not be an insurmountable obstacle. Local authorities have vast turnovers. Although every last penny is accounted for, substantial sums nevertheless pass through their coffers every year. This money could be used to underwrite land acquisitions by cooperatives, with the land in question being used as collateral in much the same way as a bank uses it. What is missing is the political will.

Clearly, we humans are driven by the desire to constantly improve our lot, which requires work. Here on the South coast there are any number of small businesses which are run on a cooperative basis. The problem they all face is that of unfair competition from capitalist corporations. We could, as a society, choose to engender economic conditions which righted the unfair advantages given to international corporations and the like. To do that, we’ll need to choose to vote for a political party which is committed to changing the economic conditions. The big three established parties are now all disinterested in producing that change. They look only to the next election and their own selfish interests. They are content to see capitalism continue pretty much as it is, raping the planet and screwing us, the workers, as much as possible along the way. Sure, Labour seeks to improve the lot of the poor within that framework but that is as far as its policy runs. There is no vision whatsoever.

In tomorrow’s post I’ll tie up the threads of these essays by looking at how the Green Party has thrived despite not being obsessed with any one particular leader and how it has persisently presented the most radical policies in the UK despite so many of its members being from a business orientated background.

Traditionally, political stability was delivered by the adoption of systems which focus on consistent leadership by one person. Thus we had tribal leaders, clan leaders, kings, emperors and dictators. All of these governmental methodologies had one thing in common. They all vest power or most of the power available in one person. The political strength of the society rose and fell with their leaders’ strengths. This had the advantage of simplicity. Everyone knew who the leader was, what fell in or out of their favour, more or less why they took the decisions they did, whether they were mad or benign and where they stood in relation to the centre of power. The disadvantage is that the enemies of these systems also knew which target they had to undermine, work up alliances against and, eventually, attack.

Some of these systems survive longer than others, usually through some kind of dynastic succession. In these cases, the singularity of power has typically been concentrated into a familial line. When it hasn’t, there has been some other generally recognised route to succession, for example by military or ecclesiastical rank. However, the durability of the system over generational changes was and is always dependent on the main man. Only occasionally in world history has it been a woman and then she has usually had to proclaim her masculinity. Witness Queen Elizabeth I of England declaring,

“I know I have the body of a weak and feeble woman, but I have the heart and stomach of a king, and of a king of England too.”

These systems of political leadership suited the economies of the times they ruled over. Prior to the emergence of industrial capitalism in the mid-18th Century, the social classes were arranged according to their relationship with the holder of political sovereignty. Of course, this is an overly simplistic analysis but it serves the point. When industrial capitalism got going properly, it began to kill off the idea that real power could be successfully wielded by one person. Instead we began to see the beginnings of a powerful class of people, whose political interests did not lie purely in pleasing the monarch or the landed aristocracy which dominated parliament. Their chief interest lay in profiteering. These people became known as capitalists, due to the fact that their power lay stemmed from their ownership of the machinery and wealth necessary to generate their economic success, namely capital.

With the rise of the capitalists another, much bigger, social class arose. The people who worked for the capitalists had far more in common with each other than the petty divisions of religion, race and geographic background. Inevitably, these people, whose income was dependent on the employment patterns proffered by the capitalists, became known as the working class. These two classes and the economic conflict between them remains, to this day, the source of all serious political debate. Back in the 18th Century, this was a new demographic fault line which cut across the far more complex system of social rankings which had existed hitherto. We saw the beginnings of demands for democracy based on a universal franchise of all the working folk, not just those whose claim to feed into political power rested on their particular place in medieval society.

As economic systems go, capitalism has an inherent instability built into it by dint of the boom and bust cycle. Every seven or so years, it produces a social crisis all of its own, regardless of the adversity thrown at humans by the natural world. Each of these crises appears to threaten the entire system to greater or lesser extents. Presently, we are being challenged by a crisis which even the most ardent admirers of capitalism struggle to find solutions for and turn instead to that scourge of all they believe in, Karl Marx, to find a sensible explanation. Much the same thing happened in the 1930s, by the way.

When a single ruler system goes through a fundamental economic crisis of this or even a less dramatic magnitude, the blame is placed on the ruler. They are, after all, in charge. They got to claim the credit in the good times, so it is completely logical that they should be deemed culpable for the bad times. Throughout history, we see examples of a society’s economy failing and the political system failing with it. Dynastic systems overcome this problem by various means, typically by successfully placing the blame at someone else’s door, as if they were responsible for the crops failing, or the traders finding better markets elsewhere or whatever. The people are encouraged to attack some other target instead of the ruler.

In the 20th Century we saw the emergence of a new political system, which attempted to cure the constant and chronic crises produced by capitalism by means of a command economy. Although he wrote nothing at all about centralising economic control in the manner they attempted, these communist regimes drew their ideological inspiration from Marx. Instead of a single ruler for the people to love or hate, they offered a single party. The persistence of these systems surprised many in the capitalist world but, with one or two notable exceptions, they also fell to be judged by the same tokens as single ruler systems. When the economies managed by these political systems collapsed, so did one party rule and the great communist experiment. Thus, in the late 1980s we saw perestroika sweep through Eastern Europe and beyond. The people blamed the communist system for all their ills for the simple reason that it had been claiming the credit all along.

Along the way, capitalism has thrived. Capitalism doesn’t enforce any particular political system on the people living under it. It can function in a party dictatorship, like China, just as well as it can under a liberal democracy, like we have in the UK. Although it aggrieves much of society with the chronic social problems it produces, capitalist societies are in the habit of blaming their political leaders rather than the capitalist system itself. It has no single leader to blame. Its strength lies in the diversity of its powerful persons, corporeal or corporate. A particular company can go bankrupt, even a very large one like Enron or The Royal Bank of Scotland, but this doesn’t damage the system’s credibility as a whole. We, the people, blame the company executives or, sometimes, our elected political leaders on the basis that they have created the conditions which allowed the failure in the first place.

When the communist regimes were still expanding around the globe, people turned to their ideology in times of capitalist crisis. With no large scale economic system elsewhere in the world which appears to challenge capitalism, most people have no alternative and cannot easily find fault with the system itself. Without something to point the finger of blame at and knowing nothing else to hope for, they continue to approve of the system and capitalism thrives. It’s strength lies in the diversity of capitalists, rather than the economic power they wield.

In tomorrow’s post, I’ll discuss some of the alternative economic models to industrial capitalism and what methods we could adopt to encourage them.