Economic Update: Why Capitalism Reproduces Inequality and a Solution

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The extreme economic inequalities of both global and US capitalism are not new or exceptional. Capitalism reproduces inequality and repeatedly blocks or reverses redistribution efforts.Inequality stems from capitalist enterprises' internal organization: a tiny minority, employers, with dominant, unaccountable power enriches itself at the expense of all others, the employee majority. To overcome capitalism's inequality requires democratizing its enterprises' organizations.


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. Today’s program is dedicated to a fundamental issue: economic inequality. I want to understand and explore with you: why economic inequality is such a problem in our society; why it is so extreme, as I’ll show you in a moment; and why the capitalist system, the dominant economic system for the last 300 years, has been systematically unable to overcome inequality throughout that history, and shows no sign of doing it now. Okay, let’s begin.

We do want to change inequality- I’m going to end with that, and I’m going to begin with it too. The overwhelming majority of Americans, poll after poll, indicate that they would like a society with less inequality- much less than what we now have- so this is not an issue in dispute. The mystery is why, with those views, has nothing in fact been done. So let’s begin by explaining income inequality, wealth inequality- what they mean, and what numbers are basically there. I’m going to talk about it, first at the level of the whole world because we live in a capitalist world, and then focus on the United States.

First, in a capitalist world. There’s many ways to get at this; I’m going to give you a couple. The 68 richest people in the world- roughly 7 billion people on this planet- the 68 individuals who are the richest have more wealth than the bottom half of the population. You add up the wealth of those 68, and they together have more than the bottom half- that’s 3.5 billion people. The richest 10 percent of adults in the world own 86 percent of global household wealth. The bottom half collectively owns 1 percent of household wealth. Top 10 percent have 86 percent, and the bottom half, 1 percent- you could not be more starkly unequal. And here’s one more way: an average person in the top 10 percent owns nearly 3,000 times the wealth of an average person in the bottom 10 percent of the world- 3,000 to 1, in terms of wealth.

Let me turn then to the United States so that everybody’s clear that it isn’t all that different. The top 20 percent of Americans own 86 percent of the United States wealth; The bottom 80 percent of our people together own barely 14 percent. If you look at financial wealth you know, the way wealth is held in the form of stocks and bonds and money- here are the numbers: the top 1 percent of Americans own 43 percent of the stocks and bonds; the next 19 percent of Americans own 50 percent; and the bottom 60 percent of Americans own 7 percent of the value of stocks and bonds. So, we have extreme inequality in global capitalism, and extreme inequality in American capitalism.

So, next question: Why does such inequality persist? Because it has- if you look at England in the middle of the 19th century, when Charles Dickens is writing his famous novels that’s the kind of inequality you had; If you look much later in the United States, say at the novels of Jack London- it’s the same inequality; John Steinbeck writing in the 1930s- the same inequality; and then you get to the present- and I’ve just given you- the same inequality. Have there been policies adopted by the government to deal with the inequality? Yes, there have been over, and over again. Remember Franklin Roosevelt’s famous speech in the Great Depression of the 1930s, when he bemoaned the fact that one-third of Americans go to bed hungry, are cold, are not properly housed and clothed? He knew; People have known; It’s been talked about. Politician after politician has promised to develop an anti-poverty program, a less inequality program. You know the Declaration of Independence, the Constitution, the documents of our society are full of “all people are created equally.” Yeah, maybe. But something goes terribly wrong if that’s the beginning because we know how that story ends: with a level of inequality that has resisted change.

Here’s what we have occasionally done. There have occasionally been redistributions of wealth. Here’s how they work out: We go to poor people and we say “here, here’s some money, here’s some welfare payment, here’s some food stamps, here’s some...” We all know about that. Well here’s another way we’ve done it: We’ve done taxes where we tax people at the higher end, the richer people, rather more than those we tax at the bottom of the wealth and income distribution. Those are ways we say we’re going to redistribute wealth from the top to the middle and the bottom. We say it; We pass those policies; But yet, the inequality persists in capitalism. It turns out, to be blunt, that capitalism as a system is able to produce remarkable wealth- no question. Unfortunately, it is equally capable to produce and reproduce remarkable poverty. Bottom line: it is a system that reproduces inequality. Well then, why didn’t those efforts at redistribution- progressive taxation, welfare systems of one kind or another- why didn’t they work? Here’s the answer, and it’s very important. We have a system which positions the rich in such a way that they can quite easily and quite regularly evade, avoid, minimize, or altogether escape the redistribution- to negate it, to make sure it doesn’t last even if you get it, and to block it most of the time.

I’ll give you an example. There was an effort starting in the 1930s to have a minimum wage, to not allow wages to go below some level set by the government so that you wouldn’t create poor people, which capitalists had been doing by paying very low wages. The logic here isn’t complicated. But what happened was there were ways that businesses got around paying minimum wages. They hid and paid less, they used immigrants who could not defend themselves and paid them less because immigrants were often afraid to complain because their status as immigrants made them nervous, or capitalists went to other countries where they could get away with paying below the minimum established here- lot’s of strategies that the people who run the businesses could use to get around the efforts at redistribution. Bottom line: if you allow businesses to be run by a small number of people, you can’t really be surprised that they, the ones who run it- you know, the owner, the board of directors, the major shareholders, those people, always a small minority of every capitalist business because that’s how capitalist businesses are organized- they of course, to no one’s surprise, benefit themselves first and foremost. If the company is doing well, they give themselves the big dividends as shareholders, the big pay packages as top executives, the benefits that come to the owner of a business; And if the business doesn’t do real well, well then, they fire all of us and close the business down. Yeah, you notice something. The costs of a failure are borne by all the rest of us; The bulk of the benefits of a success are taken by the people who own and run the business. So if you don’t change that then you’re giving them, as the leaders of the business, as the people who have the money in their hands, who grab the profits- you give them the wherewithal to escape and to undo whatever efforts at redistribution can be imposed on this system, usually by pressure from below.

Businesses take a portion of their profits, and rather than keeping them for themselves, they use them to buy the political system. Why? To make sure that the redistributions don’t go very far. Using my same example: When the working class was able to get a minimum wage, the business community responded by not getting the politicians to raise the minimum wage along with rising prices. So as prices went up over the years, the value of the minimum wage went down- unless the politicians lifted it, which they haven’t done. For example, the minimum wage today in the

United States, seven dollars and twenty five cents an hour federal minimum wage, was last increased in 2009; That’s when it went to seven and a quarter an hour. We’ve had inflation rising prices every year since 2009, but the politicians- controlled by the donations that come from the rich people sitting at the top of capitalist businesses- they haven’t raised the minimum wage and so in effect, they nullify what it’s about.

Over the last 10 years, the value of stocks on the NASDAQ, our largest and most important stock market, have gone up over four times. If you look at another index of shares over the last 10 years, the Standard and Poor 500 stock index, it’s gone up over three times. During the same 10 years that those things went up four times and three times, what did the real wage? The average real wage in the United States- or more accurately the median real wage- 50 percent did better, 50 percent did worse. The median real wage, what you could buy with your wage, went up over the 10 years- 6 percent; stock owners- it went up four times and three times; wage earners- 6 percent. You haven’t changed the system so long as you allow the people who run the corporations to gather into their hands the wealth and the power to undo any redistribution that you can achieve or to block it from happening in the first place.

We’ve come to the end of the first part of today’s show. Before we get to the second half, I want to remind you, our new book The Sickness is the System: When Capitalism Fails to Save Us from Pandemics or Itself is available at DEMOCRACYATWORK.INFO/BOOKS. I also want to thank our patreon community for their ongoing and invaluable support. If you haven’t already, go to PATREON.COM/ECONOMICUPDATE to learn more about how you can get involved. Please stay with us. We will be right back, and then we will be talking not only about what the inequality is and why it is has persisted, but what needs to be done finally to really do something about economic inequality, rather than bemoan and worry about the fact that it’s been with us because capitalism reproduces it so steadily. We’ll be right back.

Welcome back friends, to the second half of today’s Economic Update. This program today is devoted to analyzing the question why capitalism reproduces over time poverty, desperate economic circumstances, a pinched middle alongside extraordinary wealth. In other words, why capitalism reproduces serious, deep inequality, and what we can do about it. In the first half we explored what that inequality is, and a good part of the story of why it has persisted, what the conditions are. Now I want to turn to what we’re going to do about it. But before I do, I want to deal with the history of inequality.

Some of you know, and you’re quite right, that inequality doesn’t begin with capitalism; It’s older; It has existed before; Capitalism hasn’t overcome it, as many of its enthusiasts promised it would, but it hasn’t been the beginning of it either- and there’s a lesson in that. Let’s take a look at the two major economic systems before capitalism: feudalism and slavery. There’s something interesting that we can learn about those systems- and they were systems of enormous inequality. The pyramids in Egypt are a product of a society very, very unequal. The pyramid is a tomb for the richest, produced by a mass of the poorest citizens. The chateaus along the river Loire in France that are tourist attractions were the homes of the very richest feudal lords, and they were produced and staffed by the poorest serfs. Well, what is interesting about slavery and feudalism that we can learn from, is something that they have in common with capitalism. In other words, a certain structure is true about slavery and feudalism that is also true about capitalism, and that I believe explains why all of them have this extreme inequality that they reproduce over centuries.

Let’s start with the slaves. You divide the population of a slave economic system basically into two roles: master and slave. The master runs the show. The masters are a small minority of all the people; The vast majority are slaves in most slave systems; But that minority has extraordinary power. They decide what gets produced, how it gets produced, where it gets produced- and they get all the product. They give a portion of it back to the slaves so that they can keep working, but wow, it is no surprise that the people who run that system make themselves the beneficiaries. They become wealthy, and the mass of the slaves don’t. Let’s turn to feudalism. There we divide, again, into a minority that runs the show they’re called feudal lords in Europe; and a mass of people who do the work- they’re called serfs. Now, it’s a different system- the lords don’t own the serfs the way the masters owned the slaves slavery is not there anymore. But, in this relationship between lord and serf, here’s what we have again: a minority. The lords make all the decisions- what to produce, how to produce, where to produce, and what to do with the product- and the serfs do all the work. Now, the serfs keep part of it; They deliver only the extra- the surplus, the rent, as it was called- to the lords; But it allows the lords to amass enormous wealth, which we can see because much of the wealth of feudalism is still around- in the great castles and in the great cities in the Versailles, outside of Paris, and so forth.

Now, we come to capitalism, and here’s the clue. Capitalism also divides the people involved in production into two groups: a small minority that runs the show, and they have a name employers, or if you like capitalists- because they’re employers who are trying to amass capital to make their wealth grow, which is what capitalism means- and then a vast majority of people who are employees. Employer to employee replicates lord to serf and master to slave. And again, the employers- because they’re in charge and they have the position of gathering the net product, the surplus, the profit into their own hands- take a big portion for themselves to become wealthy, and the mass of people live on their wages, and do not become wealthy. In other words, here’s the punchline: Whether it’s slavery or feudalism or capitalism, the structure of each of those societies positions a minority in such a way as it can accumulate wealth and keep that from being shared among the mass of people. That’s the clue: it’s the structure of production- or if you like, the class structure- because employers are one class, employees are another; just like lords are in one class, and serfs in another; masters in one class, slaves in another. This system, this class division within capitalism, explains why it is unfortunately as successful in reproducing inequality over time as both feudalism and slavery were over the many centuries that they were the dominant economic systems before capitalism came to replace them.

And now, let’s draw the conclusion together. If you really want to do something about inequality, and let me remind you as I said at the beginning of today’s program, the big majority of Americans- and by the way it’s true in other countries as well- wants there to be support steps to be taken to reduce the extreme inequality in the world today. One of the saddest realities going on in the world today is the information and the reporting that the vaccinations against the Covid disaster are much more happening in the richest part of the world, and almost happening not at all in the poorest. Once again you see not only the inequality being reproduced, but the awful, literally fatal consequences of that inequality, and the injustice it always brings with it. Well here’s what you have to do: you have to change the organization of production; That’s the only way you’re going to end this inequality. You cannot expect it to stop if you continue to allow a small minority of the population to be in charge of the enterprises, the factories, the offices, the stores; because they will use their position- as we have seen- to amass the wealth in their own hands, and then to corrupt politics so that they can keep the wealth that this economic system allows them to accumulate in their own hands; You have to deal with that or else you’re not serious.

It’s because of that minority having that position that they can block efforts to overcome inequality or reverse them when they happen. You know they do occasionally happen- the mass of people sometimes rise up. It happened in the United States in the 1930s, in the Great Depression, when we really did for a while have a movement that stopped the inequality- made us much less unequal for a while because masses of people demanded it, and the democratic administration of Franklin Roosevelt accommodated that demand. So for a while we had less inequality. But as soon as the war was over in 1945, the Republicans came back in, and the Conservatives came back in, and the resumption of capitalism allowed us to recapture the inequality that had only temporarily been overcome. That’s the problem: you’ve left in place a minority of folks who are able either to block redistribution efforts, or to make sure they’re temporary; and if you don’t change that, you will not go beyond the inequality we have. But we can change it; we know how; and I want to end today’s program making that crystal clear.

Suppose you change the organization of production: no longer a small group in charge, no masters, no lords, no employers; you say that in every production unit, every enterprise, whether it’s a factory or an office or a store, it doesn’t matter- in any collection, in any community of human beings, producing a good or service- it has to be organized democratically. Just think, what an idea: one person, one vote. Whether you’re a supervisor or a machine operator or a service provider or a sweeper upper- at the end of the day- one person, one vote. You together, by majority vote, decide: what this enterprise is going to produce, what technology it’s going to use, where this is all going to happen- and here comes the big one- what’s to be done with the output, with the profit, with the revenue, whatever you call it. I don’t think in a minute- if this were done democratically- you would ever see five people being given spectacular pay packages, while everybody else can’t put their kid through college without accumulating debts they can never repay. Some people have 15 yachts, and other people are “food insecure,” the modern euphemism for hunger. No, if it were democratically done, you’d have a fantastically different commitment to less inequality. You wouldn’t see the inequality we have because you wouldn’t anymore have a minority in a position to accumulate it because they wouldn’t be in the power position that they have been in slavery, in feudalism, and capitalism. The democratization of the enterprise, the democratization of the workplace- that’s a structural break from the past; and only with that kind of a break do we have a chance to undo the inequality reproduced systematically by slavery, by fuedalism, and in our era, by capitalism.

Here’s the bottom line, and I tell it with a story. If you want to have social conflict, tension, and difficulty, then you give some people a great deal and everybody else way less. It’s a recipe for tension, conflict, difficulty, and disorder. You want a society in which each of us can develop our talents, follow our passions, contribute to society, and be taken care of? Then don’t allow that kind of inequality; and the way you do that is not merely moral preaching, however useful that may be. You’ve got to take the structural steps, and economically, we know how to do that: democratize the enterprise, make it a general discussion and a general democratic decision. Sure some people will get paid more than others, but we will never have the kinds of centuries-long, gross inequality that I described to you at the beginning of today’s program. Overcoming inequality is a systemic problem. Capitalism is the obstacle that we need to overcome to get to the kinds of levels of equality rather than inequality that most Americans have shown us over and over- like most people around the world- is what they would prefer. Thank you for spending your time with us.

This is Richard Wolff for Democracy at Work, thanking you, and looking forward to speaking with you again next week.


Transcript by Elain Rabady
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Showing 6 comments

  • Christopher Hamlin
    commented 2021-02-26 21:04:53 -0500
    In response to Mr.Weihe, I feel the defining difference between an entrepreneur and a corporation is the level of involvement the owners have in the operation of the business. An entrepreneur is directly involved in the daily operations of the business whereas shareholders of a corporation have no involvement in the business. As the owner, I make decisions based on many things such as, effectiveness of lesson plans, needs of individual students, what resources are needed, even weather conditions. Profit is but one of the things I consider on a daily basis andI don’t have to justify any of my decisions to anyone. In a corporation, on the other hand, all decisions made by everyone must ultimately be justified to the shareholders, which means they must increase profits.

    Regarding legal structure, it’s important to remember that Capitalism is very new in Vietnam and, therefore, lacks the legal framework that has devolved over the years in America. I liken the business environment in Vietnam to the “Wild West” only, instead of horses and guns everyone has motorbikes and cell phones. The few laws that do exist are optional and/or “negotiable”. Basically anyone can sell anything as long as they can find someone willing to buy what they are selling. There are virtually no barriers to starting a business and the government stays out of it. Capitalism in its purest form where the American Dream and the Vietnamese Dream are one in the same.
  • Sonny Wiehe
    commented 2021-02-26 10:37:07 -0500
    Interesting. Mr. Hamilin, may I ask what you feel the defining difference is between a corporation and an entrepreneur? Also, what is the business structure that you legally set yourself up as that allowed you to achieve the “American Dream” in Vietnam as opposed to, say, the Vietnamese Dream you found in Vietnam.
  • Christopher Hamlin
    commented 2021-02-26 04:37:25 -0500
    In response to to Mr. Weihe’s comments, I totally agree that it is possible to treat an employee fairly and still make a profit. In my experience, however, NOBODY at ANY of the corporations where I worked was willing to do that. I became so frustrated that I literally left the country seeking relief. I landed in Vietnam and began a new career as an English teacher. I soon found, much to my dismay and disappointment, that the corporate language centers in Vietnam were just as bad as any American company I worked for. After leaving two corporate language centers, I took a job at an independent language school that was owned and operated by a Vietnamese entrepreneur. What a difference! This was the first non-corporate job I ever had and it was the first job I ever had in which I was treated fairly. After nearly a year working there, I left and started my own English teaching business. Now, for the first time in my life, I am the employer rather than the employee (I have 2 employees). So far, I have not succumbed to whatever forces compelled the management at my former employers. My relationship with my employees is exactly as Professor Wolff recommends. I value their input and I don’t make any dicisions without consulting them first. Things are going great! I feel like I have finally achieved the American Dream that has eluded me all my life. I just had to leave America to do it. I truly hope America gets its act together. However, I have moved on and I have never been happier.
    Warmest regards,
  • Sonny Wiehe
    commented 2021-02-26 01:10:18 -0500
    I have two points I’d like to make:

    1. Mr. Hamlin makes, IMO, an accurate assertion that most people simply want to be told what to do. It does seem to be a natural part of human society. Perhaps it is this general tendency that gave rise to the popular adage: Too many chiefs and not enough indians doom any mass venture to failure. However a logical fallacy of Mr. Hamlin’s argument lies in his further assertion that “giving direction” to employees is generally synonymous with exploitation of those individuals being directed. It isn’t. You can treat an employee fairly while giving direction—and still make a profit doing so.

    2. While I agree with Professor Wolff’s historical assertion that a small minority directing the masses in the engagement of economic production appears to be the common thread resulting in wealth inequality, it does not necessarily or logically follow that democratization of the workplace is the answer. If you accept that “government” is essentially a human enterprise, than you must also accept that a democratic government does not necessarily guarantee equality. I would argue that, ultimately, the democratically organized government of the United States has fostered less liberty and more inequality than virtually any other form of government on the planet. Our elected government officials have voted themselves fabulous salaries and fabulous benefits far beyond the level of the average citizen. They have, as George Orwell famously wrote in 1947 within his dystopic novel “Animal Farm”, legislated themselves as “more equal than others”.

    For example:
    1. They receive special tax exemption opportunities not offered to regular workers killed in the line of duty. Surviving spouses of military personal or first responders killed in the line of duty no longer have to pay real estate taxes despite the positions of the deceased being fully volunteer.
    2.They get universal health care while others don’t. Our Congressional members and many state and local officials participate in subsidized health care systems off limits to regular citizens-many of them receiving this benefit for life.
    3. They get job security that only private sector workers could dream of. This is due to a slew of “equal opportunity” and racial hiring employer government regulations that makes it all but impossible to fire a government employee short of them committing a capital crime while on duty.

    I could go on, but as the professor is fond of saying—you get the picture.

    It would have seemed more prudent for the professor to outline the equities offered by worker cooperatives (where democratic leadership structure is but one aspect of the operation) at the end of his talk as a naturally progressive means for organizing human enterprise in the hope of achieving broad economic equality— rather than advocating for the general notion of Democracy as our saving grace. Unfortunately the notion of “one person, one vote” alone is just not going to cut it. One only has to look at our last presidential election to see how easily and pervasively that concept has become corrupted.

    Sonny Wiehe
  • Christopher Hamlin
    followed this page 2021-02-25 02:29:49 -0500
  • Christopher Hamlin
    commented 2021-02-25 02:28:47 -0500
    After working in corporate America for nearly 4 decades, I came to the conclusion that the people I worked with were perfectly happy being told what to do. That was, in fact, one of the main reasons they worked for a corporation- so they would NOT have to make decisions. Therefore, I am skeptical of any proposals to fix inequality that are based on giving employees the power to make decisions. How, then, can we keep the CEO an Board of Directors from exploiting their employees if those employees would rather be exploited than be required to make decisions?

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