Economic Update: How We Get Beyond Capitalism

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On this week's show, Prof. Wolff presents updates on the 'Social Progress Index" and US capitalism's decline; how most young Americans, 18-29, now live with their parents; Argentina's debts are cut in half; and lastly, why most of the US economy is now on welfare. The second half of the show features a major discussion of a social transition beyond capitalism.

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This Transcript has been edited for clarity.

Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives — jobs, debts, incomes — our own and those of our children. I'm your host, Richard Wolff.

I want to begin today by introducing you, if you're not already familiar, with something called the “Social Progress Index.” You can find out a great deal more about it in detail just by checking it out on the internet. It was founded back in 2011 by a group of Nobel Prize-winning economists and has been an attempt, increasingly interesting, to measure social progress — to not be limited by just measuring GDP, total output of goods and services, or average level of wages, but to have a comprehensive sense of how societies are progressing. So, yes, it includes all the economic indicators — wealth, income, debts, and stuff like that — but also social indicators — crime statistics, educational statistics, health conditions — all of it. And it puts it together to get a sense of how societies as a whole are doing, how we are living our lives, which is a more important measure to try to develop than something narrowly focused on only one or another dimension of our lives. 

So it began in 2011. It now measures 133 countries, year in, year out, and it just issued its report. And I want to share a number of items with you because I think it illuminates what's going on in the United States and the world in a way that lots of talk doesn't quite catch. Okay. Only three countries are worse off in terms of their social progress from 2011 to the present, so roughly a decade. The three countries out of 133 that are worse off? Here we go: Hungary, Brazil, and the United States of America. In terms of social progress, the United States ranked 19th in 2011, and in 2020 it ranks 28th. It dropped. 

What does this mean? Well, let me give you some of the specifics. The United States ranks number one in the quality of its universities, but it ranks number 91 in the access to quality basic education. Wow. Let me continue. The US leads the world in medical technology, yet we are number 97 in access to quality health care. You begin to get a pattern here. The rich, the well-off, the well-positioned have access to high-quality social progress, but the mass of people do not. Their social progress has gone into reverse. Let me continue. The Social Progress Index finds that Americans have health statistics similar to those in the following three countries: Chile, Jordan, and Albania, while kids in the United States get an education roughly on par with what children get in Uzbekistan and Mongolia.

A majority of countries have lower homicide rates than the United States. And most other advanced countries have lower traffic fatalities, and better sanitation, and better internet access. Why am I telling you this? Partly to shock you, I admit it, but partly to underscore that what we are going through is not just a terrible pandemic, and not just another terrible economic crash. Those are true, but we are also going through a long-term economic decline. And that has to be something we think about, talk about, face up to, and deal with, or else it will continue.

My next update is in a way an illustration of what I just said. I was struck by the following statistic: Fifty-two percent — that's a bit more than half — of young Americans aged 18 to 29 now live with their parents, in the same house. That is the highest percentage in 120 years of American history. We've not had that since the year 1900. Why is that happening, and what does it mean? The explanation is crystal clear. Young people cannot afford to live apart. They have to economize by living with their parents. 

By the way, it means that the per-person square footage of living space is reduced. It is a decline in the standard of living, even though it doesn't quite show up in most statistics. It undercuts the recovery because it means people are not starting new households, and therefore they're not buying the houses, or the furniture, or the supplies that they might otherwise. It's also extremely dangerous in health terms. Why? Young people are well known to be less careful and more dismissive of all the safety precautions around COVID-19. The more they're living with their parents and grandparents, the more opportunities for resurges of the virus are built in, because the economic conditions are worsening the virus, just as much as the other way around.

My next update has to do with the country of Argentina. Why? Argentina just reached an agreement with its creditors. Argentina owed foreign banks, and governments, and other lending institutions $111 billion. It couldn't pay. It told those creditors that it had been squeezing its people, raising taxes on the poor people of Argentina, to pay off the interest and the principal on all the debts that they had incurred, and they couldn't anymore. Argentina's economy is scheduled to fall this year, 2020, by over 12 percent, and it's been falling for years. They can't squeeze more interest and amortization payments out of their people. If they try to, there will be a revolution. And a revolutionary government, this current government says, will refuse to pay any debts.

So, it said to its creditors, you better come to the table and reduce our debts. The creditors yelled and screamed, and hemmed and hawed, but they agreed. And a week ago they reached a settlement in which the debts, effectively, of Argentina were cut in half. 

I want to stress this because it shows you that if you push the debtor to the point where it is impossible, you're going to have to cut a deal if you're a creditor. Those people in Argentina just had half their debt reduced. It means that you, dear listener and dear viewer, you too, if you mobilized all of the people in debt like yourself, could also get cuts in your debts. It's not impossible. It's not something that never happens. Don't let the lender try to persuade you otherwise.

But I also want to explain something that may have surprised some of you. This is the ninth recorded debt deal that the Argentinians have cut. They've done this before, over and over again. How is that possible? Why would anyone lend to Argentina, with a history of cutting the debt in half like that? 

And the answer gives you an idea of what real high finance is about. So think of it this way. I'm going to use the number 100. Let's suppose that bankers in New York and London and Paris give Argentina's government a $100 loan. Here's how it works. For the next five, six, seven years, that loan is carrying a nice six, seven, eight percent hefty rate of return. A huge part of the loan — 30, 40 percent — is distributed right at the time of loan, in the form of fees, and commissions, and other kinds of payments to the bankers who are lending, and to the friends of the government that is borrowing the money. That money is never used for the mass of people, but the mass of people have to pay the taxes to pay back the loan, and to pay interest. After five or six years, the interest, and the payback of the principal, and the money taken at the beginning is more than half the loan. So when the magnanimous creditors agree to cut the loan in half, it's all fake. It's a theater for the people of Argentina to think they have gotten something, but they haven't. They paid high interest for a loan, half of which they never saw. And the other half, which they did see, they now owe on for many, many years into the future. Fancy flim-flam is the underlying reality of high finance. Which is why banks are now lining up, yup, to give another huge loan to Argentina, which will happen in the next year or two, because it never stops, since it's not what it appears.

The last update I'll have time for today is something that is so ironic that I could not forbear to present it to you. Maybe you've noticed, like I have, that recently there's been very little talk from conservatives ridiculing, or attacking, or demonizing welfare recipients. Mr. Trump is not parading around denouncing welfare moms, the way Republicans used to. In fact, you're not hearing anything about the horrors of the government that has everybody on life support — all the poor people are getting the dole, isn't it terrible, aren't they lazy. And you know why you're not hearing it? Because the entire capitalist system is now on the dole. Let me drive that home: You're not hearing the ridicule of people on welfare because what is given to welfare, the poor, is nothing compared to what has been given to the rich and to the corporations. 

In case you're not familiar, one-third of all mortgages in the United States are financed by the Federal Reserve. The government is the ultimate lender. And that's why there's money available for mortgages, and that's why mortgages are as low-interest as they are today. That's the government keeping the housing market on life support.

Let me give you another example. The Federal Reserve is now buying corporate bonds. Here's what that means : If a company has a desperate problem, it can now borrow money at a virtually zero, or near zero, interest rate. It borrows from the bank. Why is the bank willing to lend? Because immediately after the bank lends to the corporation, it takes that IOU of the corporation and resells it to the Federal Reserve for fresh new money, which it goes out and offers to other corporations. The banks love it because they can collect fees. The corporations love it because they can now cheaply solve every problem that comes their way. The debt of the corporations rises.

But let's make no mistake: Corporations are on government dole; housing is on government dole. And much more money is involved in just those two than was ever given to welfare moms or is given today to people who get a little extra on their unemployment check. You don't hear conservatives talk about how terrible it is to get support from the government because all of them depend on it.

We've come to the end of the first part of today's show. As always, please subscribe to our YouTube channel and follow us on Facebook, Twitter, and Instagram. And be sure to visit democracyatwork.info, where, I am proud to say, you can find my latest book. The title is The Sickness is the System: When Capitalism Fails to Save us From Pandemics or Itself. It is the third book released in collaboration with Democracy at Work. I'm proud of it, and I think you will enjoy it. Lastly, thanks to our Patreon community, as always. Their invaluable support helps make this show, and all of our work, possible. It is enormously appreciated. Stay with us; we'll be right back with a look at how transitions occur from one economic system to another. We'll be right back. 

Welcome back, friends, to the second half of today's Economic Update. Many of you have asked me how transitions happen — how we can understand, imagine, plan for, and organize a transition from capitalism to a better system. This has been an issue that has interested people for a long time, as you can imagine. And one of the ways you get a handle on it, as I'm going to try to offer you today, is by looking at the last transition — the transition from feudalism in Europe to capitalism — and hoping to get some clues, as I think we can, from the earlier transition so that we can think creatively about a transition now. And it couldn't be at a more urgent transition time. 

Okay, let's start with feudalism. The feudal system in Europe was a system that had basically two positions: the lord and the serf. Most production was agricultural. The lord presided over the land and gave pieces of it to people called serfs. The serfs had to swear loyalty and a commitment to their lord. The lord promised to protect them. They often had a little ceremony where the lord tapped the serf on the shoulder, and the serf promised to love, honor, and obey the lord (which might strike you as familiar, and make you understand feudalism in a new way).

And the work was done this way: The serf did a lot of the work on the piece of land he got, and he could keep that for himself and his family, three days of the week. The other three days of the week he went to work on the land of the lord, and whatever he produced there belonged to the lord. The work he did for the lord — the portion of his own growth of animals or crops that he delivered to the lord — those words were “rent.” That was the word used. And the lord of the land was of course the “landlord.” You see where those words come from.

And this feudalism existed in Europe from roughly 500 AD to roughly the 16th, 17th, 18th centuries, when it collapsed. This is the important question: How did it collapse? How was the transition from feudalism — from these manors, they were called, where there was the lord of the land surrounded by the poor serfs who did the work on the land — how did the transition happen? And here's what's important: It happened over and over again — a little over here, a little over there. Suddenly the lord of the land and the serfs under the lord couldn't keep this system going, even if it had been going for hundreds of years. 

Maybe a famine occurred. Maybe bad weather happened. Maybe the serfs got sick and tired of working for the lord and began to refuse. Maybe a war happened between this lord and some other lord that destroyed the crops. A hundred different things could happen to upset it. And when it got upset, sometimes, the lord either died, was killed, disappeared; the serfs either died, were killed, disappeared, and suddenly people had no way to continue the lord-serf relationship. Then they tried other ways to survive.

And one of those other ways was for one person who had a little something to offer a peculiar deal to another person who had less. And here's the deal: I have some food I've stored away. I have a place for you to live. You come and work for me, I will give you at the end of each week enough food to survive and a place to stay. You will work for me, and whatever you produce is mine because I've paid you. 

Well, in embryo this is the wage-labor relationship. This is the capital-labor relationship. In a word, it's “capitalism.” It's one person, not swearing loyalty, none of that — it's a deal. It's a contract: I'll work for you. You give me a wage, and I will give you my labor, my brains, my muscles. And whatever I produce is yours. In that moment feudalism turns into capitalism. There's a transition.

It happens often, but the conditions aren't ripe for it to last. So, for example, a lord isn't there, capitalism develops, the lord comes back, squashes this, says no, no, no, you can't do this, we're going back to the old system. Did that happen? Often. Many experiments in capitalism happened. Some lasted a week; some lasted a decade. But they needed the conditions to be ripe for the system as a whole to change. 

Here's one of the things that did that in Europe: In the 14th century they had a terrible pandemic. They had something called the “Black Death,” the bubonic plague. It killed millions of lords and serfs, leaving millions with no structure to live in — no feudal relationship, no manors, no lords and serfs — just individuals desperate to survive. And you know what many of them did? They became self-employed. They became little farmers, little craftspeople, living on their own. They weren't a lord, they weren't a serf, they were something else. 

And some of them also found another relationship. If they had nothing, they went to work for somebody who had something. And they cut a deal, which we now call capitalism. One of them paid a wage to the other, who in return gave them their labor power, their ability to work, and the fruits of the work that they did. Capitalism formed. The plague itself brought to an end — slowly, took centuries — feudalism couldn't quite ever come back. Which ought to make you wonder whether the pandemic we're in now might not have a comparable effect on the capitalism we now have.

But now let me show you what the hints are and why they're relevant to capitalism. Capitalism also has always had, like feudalism, moments when it broke down — when, for whatever complex of reasons, people didn't connect to each other as employer and employee, which is the core relationship of capitalism, just like lord and serf was the core relationship of feudalism. Let me give you just a few examples. The Shakers, that religious community in the early United States. They didn't relate to one another as employer and employee. You know how they related? In the way we nowadays call “worker co-ops.” All the people in a Shaker village got together and decided — one person, one vote — how to produce: what to produce, how to produce, where to produce, what to do with the fruits of their labor. No employer-employee. That was a socialist experiment, if you like, going beyond capitalism. But the conditions weren't ripe for that to spread. It spread a little, but it couldn't become the dominant system.

Let me give you another example, more modern: the Mondragon Corporation in Spain. A Catholic priest in 1956 starts a co-op. No employer-employee; we are our own bosses here, said Father Arizmendiarietta, in that area, in Mondragon, a little city in the north of Spain. And here we are in 2020, and the Mondragon Corporation is one of the 10 biggest corporations in Spain. It's a family of a couple of hundred worker co-ops where there are no employers over there, and employees. The workers are their own bosses. Wow. That is a non-capitalist experiment that has been able to grow and last, well, 70 years. Remarkable.

Here's another one: the province of Emilia Romagna in Italy, around the city of Bologna, in the north of Italy. Forty percent of that region is worker co-ops. People have refused — huge numbers — to be in an employer-employee relationship. They want worker co-ops, and that's what they have. And they have coexisted there for decades with capitalist enterprises that still have the old employer-employee relationship at their core. They've been able to exist and grow. So there, going beyond capitalism is an experiment.

And then there's the Soviet Union and China.They tried. And Vietnam and Cuba, and they tried. Very interesting, all these experiments. Some worked; some didn't. Just like the experiments going beyond feudalism — some worked; some didn't. It took time for the conditions to ripen so that there could be a general transition.

So no one should imagine that because, for example, the Soviet Union fell apart after 70 years — that's an experiment that taught the lesson that something about how they tried to go beyond capitalism didn't work out. And we have to learn from that. And what we have learned is that the focus on power in the state can be too much, and that if the state has too much power, that's a problem. That's an important lesson from the experiment that happened there. And it is a lesson that's been learned by many, which is one of the reasons why today, looking at the experiments that have happened so far, there is a growing disinclination to think about the next system in terms of what the government does, and more of an interest in saying no, the hint, the clue, to how transition happens now is to go after the core relationship. 

What really sealed the fate of feudalism was the decision and the commitment of millions of people that they thought that the employer-employee relationship was more productive, was better for most people, than what lord and serf had been. The great father of modern capitalism intellectually, Adam Smith, that's what he said; that's what he wrote. Capitalism is a more productive system than feudalism. 

So what's beginning to happen is a recognition that what has to change, what has to be learned from the successful, but also the failed, experiments in transition is to focus more on the core relationship, that what has to happen is you put aside the employer-employee relationship, just as earlier people put aside the lord-serf — or if you like, the master-slave — put those aside. 

The new breakthrough, the new system, the better way to live and work would be if you democratize the enterprise. You do away with these two positions: master-slave, lord-serf, employer-employee. Why? Why have that? Why not make it instead a democratic community at the workplace? The way we want a democratic community at our place of residence, where we live, why not have it also where we work? One person, one vote. And we all together decide what to produce, how to produce, where to produce, and what to do with the fruits of our labor.

We don't need to be divided between owner/board of directors/boss, and peons at the bottom. We didn't need a king anymore some centuries ago, and we basically got rid of them, except as figureheads.Why are we keeping kings inside the workplace? Kings and courtiers, who steal most of the money and leave us to do most of the work. 

We can do better. That was the idea in the minds of all those people in feudalism who clawed their way — with many experiments — into what they thought would be a better world, the world of employer and employee. And now that we've had three centuries of capitalism under our collective global belt, we too have every right to yearn to do better. To try to go further and to see and learn, from the experiences of social transitions in the past, what has to be our focus now.

And I submit to you, having learned from the successes and failures of transition from capitalism to the next system — whether you call it socialist or not — is that we need to focus on changing the core relationship at the workplace. No more employers running the show, telling everybody else what to do. That's not democratic; that's hierarchical, and we don't want it. We want to do better. And just as people before us did better by changing that relationship from lord-serf to employer-employee, we're tasked with taking it the next step, to democratize the enterprise. Worker co-op is the core of the next transition.

Thank you very much for your attention. We've come to the end of our program for today. I really do appreciate all the support that you have been providing, and I look forward to speaking with you again next week.


Transcript by Marilou Baughman.

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