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February 17, 2009

Improve Capitalism or Replace It?

BOOK REVIEW: Jim Stanford, Economics for Everyone: A Short Guide to the Economics of Capitalism. Fernwood Publishing and Canadian Centre for Policy Alternatives, 2008. 360 pages.

Reviewed by Bill Burgess 

Economics for Everyone is attracting a lot of attention in the labour movement in Canada for its popular exposé of many flaws in mainstream economic theory. 

But what many people are looking for is a sound basis for understanding the rapidly developing economic crisis and what to do about it. Here the book fails. It betrays too much faith in capitalism. 

Antidote to neo-classical economic theory

Jim Stanford is the staff economist for the Canadian Auto Workers union (CAW), and he explains economic concepts in clear, accessible language. The main points are summarized in a statement of  “A Dozen Things to Remember About Economics,” available, along with further resources and study guides, at www.economicsforeveryone.ca/

What makes this book different from most economic texts is Stanford’s emphasis that, contrary to the claims by mainstream (neo-classical) economists, their theory and policy are very political, and very pro-employer. They assume that markets are natural when they are really socially constructed. Wages, working conditions and social programs are not determined by objective economic “laws,” they are the result of class or trade union struggle. 

One function of mainstream economics is to justify the profits that capitalists reap from economic activity. Neo-classical economists claim that profit rates are determined by what capital contributes to output. However, as Stanford explains, the neo-classical model of capital actually assumes the profit rates they claim it explains. The advocates of this model were forced decades ago to admit this circularity in their reasoning, but they lack any solution to this flaw in their supposedly objective explanation for profits.

One form of capital is fixed capital, like the paper machine as long as a football field that I used to work on. Each shift, tons and tons of paper rolled off my end of the machine. It was very hard to resist the notion that it was the machine that made the paper, that the machine was productive. Stanford explains that such fixed capital is instead a kind of tool that makes labour more productive. 

The book’s discussion of labour costs takes up an important issue that is omitted by mainstream economists, namely the intensity of work. Neo-classical economic theory only considers the market price of labour time and skill. But labour intensity is regulated differently, by compulsion within the workplace. Because they consider only market relations, mainstream economists ignore the role of class relations of production.

“Free” trade is a favourite policy of neo-classical economists, who advocate it on the basis of the theory of “comparative advantage.” The theory claims that it always pays countries to specialize and trade, even if one country can produce all tradable goods at a lower cost than the other countries. Stanford shows why the theory does not apply. He describes how it was by not following the neo-classical prescriptions that East Asian economies managed to develop in recent decades. 

The book includes a chapter on household and other non-market labour. Mainstream economists simply exclude the decisive contribution made by those who keep us all alive and able to go back to work each day.

In short, this book provides an accessible introduction to some of the concepts and terminology needed to discuss economic issues. It is particularly valuable for its popularization of flaws in neo-classical economic theory like those noted above. By the end of the book, I think readers will identify with economist Joan Robinson’s statement that, “The purpose of studying economics is…to avoid being deceived by economists.” 

Too much faith in capitalism

The problem with Economics for Everyone is its inadequate assessment of capitalism. Stanford targets “bad” capitalism rather than capitalism itself. 

On issues like the global ecological crisis and the failure of development in poor countries, Stanford suggests that capitalism is to blame, especially its neo-liberal (i.e. post-1970s) variant. Yet, these issues are marginal to his analysis of the economies in advanced capitalist countries. He never addresses their imperialist nature, notably the reality of imperialist war. 

Stanford nods to the ideal of an economy organized to meet human need rather than private profit. However, this is not projected as a vital necessity for today. In his chapter titled “Improving Capitalism,” he instead writes that, “Fighting to make our respective countries more like the Nordic version of capitalism … is a challenge that rightfully deserves our first attention.” (‘Nordic’ here refers to the Scandinavian countries of Europe.) 

In the final chapter titled “Replacing Capitalism?” Stanford notes “the scandalous failure of capitalism to meet basic needs for so many.” But he then concludes, “On the other hand, there is an absence of compelling real world evidence that any other system … would reliably do better.”

Stanford explicitly accepts the framework of capitalism in his detailed policy agenda. He proposes no measures to replace and displace the capitalist market. One example is that nationalization is limited to “natural monopolies” and industries producing what are narrowly defined as “public goods.” He is emphatic that “private business investment spending remains at the core of the economic strategy.”

What causes economic crises? 

Written just before the financial collapse in 2008, Economics for Everyone notes that some economists suggest that “the ingredients may be in place for the commencement of a new period of sustained and relatively stable capitalist growth.” Stanford concludes that, “the jury is still out on whether this modern, tough-love incarnation of capitalism has really established the conditions for a longer-run winning streak.” 

Well, that verdict has now been rendered, and it shows how utopian it was to believe that some kinder, gentler “Nordic” version of capitalism is on offer.

The book correctly notes that, “Those of us hoping for something better from the economy cannot wait around for capitalism to self-destruct.” Also correctly, it says, “The only factor that poses a genuine challenge to the current order is the willingness of human beings to reject the injustice and irrationality of this economy, and stand up to demand something better. Capitalism will not fall – rather, it must be pushed.”

But how and why would this happen? Stanford is very clear: “I do not see convincing evidence of an inherent, systematic vulnerability of capitalism.” In other words, he disagrees that this system is characterized by a deep-seated tendency towards producing more goods than people under capitalist relations of production can afford to buy. Socialists have concluded that the capitalists’ only “solution” is social and ecological barbarism.

One telling illustration of Stanford’s perspective is that while he agrees there is an “inherent instability of a decentralized, profit-driven economy,” his explanations for particular economic crises are shallow. They are blamed on “negative events or shocks” external to workings of capitalism proper. 

For example, the book describes the global downturn in the early 1980s as being caused by U.S. monetary policy. Even the Great Depression of the 1930s is attributed to stock market speculation rather than expressing something deeper in the nature of capitalism. At a January 30, 2009, public meeting in Vancouver, Stanford similarly blamed the current crisis on financial speculation, and blamed this speculation on neo-liberalism. It is as if they float above capitalism itself.

Since he disagrees that capitalist economic crises are systemic, Stanford also underestimates what it takes for deep crises to be resolved. He claims that it “was massive military spending … that solve[d] the Great Depression.” In fact, this “solution” additionally required the fascist destruction of powerful working class movements in countries like Germany, and the widespread destruction of existing capital by horrific world war.

Socialism for the rich?

Stanford’s “vision” for “improving capitalism” is a “high-investment, sustainable economy.” But we are in a deep economic crisis, and as Keynes put it, trying to get capitalists to invest during a crisis is like pushing on a string. Reducing interest rates has failed, so governments are dumping in public money, hoping to maintain the cycle of borrowing and spending, investment and profit. The policy is “socialism for the rich.”

Stanford’s proposals are not very different. At the January 30 public meeting in Vancouver, his prescription was also more government spending, plus financial regulation. 

Of course, we need to fight for programs to meet immediate human needs, like unemployment insurance, and to direct government spending to the most socially productive ends, like housing and public transit. However, borrowing and spending by capitalist governments will not solve the deep-seated problems that have brought the world economy to the brink of collapse. Yes, we should “stand up to demand something better.” But there is no way around the need to challenge capitalism as a system, not just bad, neo-liberal capitalism. 

The question is how to mobilize people against the ravages of this capitalist economic crisis and find our way towards 21st Century Socialism. On these points, the perspective in Economics for Everyone is part of the problem rather than part of the solution.

2 Comments »

2 Responses to “Improve Capitalism or Replace It?”

  1. Dr. Angelito on 17 Feb 2009 at 4:44 pm #

    Great review, it really is Socialism for the Rich, thanks, but rather than improve ANY of the old systems, which are really just different forms of the same thing, i.e. Capitalism, Socialism, Communism are all really based on the same premise, humans generating wealth for a very few at the top who are in fact external to the system, for they in fact created it !!!

    Please consider the following:

    What do Capitalism-Socialism-Communism all have in common ?

    - They each turn all but the children of the most-high Elite into machines of production.

    What system is completely different than Cap-Soc-Com-ism ?

    - Robotism, i.e. the Robotic Wageless Economy – where all labor is performed by systems of Robots directed by systems of computers – and all humans are free to develop their mental, physical, emotional, social and spiritual health FULL TIME, you know, just like the Elite have always done since the beginning of time, as any intelligent free person would, and should.

    http://RoboEco.com/sv

    Would love to discuss these matters with you in an interview, any angle, it will be a great conversation.

    Dr. Angelito
    sysop@TeamInfinitity

  2. Dr. Angelito on 18 Feb 2009 at 7:44 am #

    Regarding Socialism however, please realize that
    Capitalism-Socialism-Communism are all abysmal failures: in fact all but forms
    of the same human powered economical model that has ebbed & flowed for eons,
    but all the same thing in that all wealth is derived from humans
    transforming matter & information into forms useful to each other & most
    importantly, useful to a self-organizing group of Nobles that have always
    been external to the systems beneath them that they organized as capitalism,
    socialism or communism, but that they themselves were never subject to.
    They only created the systems to maintain their state of bliss as is every
    wise person’s right to.

    This was the only way as there were no Robots to transform the matter
    & information into the requisite forms: other than humans, & in fact most
    people ever born were born to serve this noble Good Elite indirectly via
    these systems, but today are no longer necessary because systems of robots
    can perform all functions that humans have ever assumed other than existing
    in a blissful state which only humans can do, were ever meant to do, but
    many have forgotten why they exist, but those who remember to always strive
    to be in blissful state: the noble good elite have been the only
    ones to do so on a consistent harmonious basis.

    The only way Capitalism-Socialism-Communism can continue is with a dumbed
    down population unaware that it makes much more sense to use robots for
    labor: while humans enjoy every moment of their existence sharpening
    their mental physical emotional & spiritual health as they wish, when they
    wish, & for as long as they wish.

    Only a Robotic Wageless Economy can channel ALL human nature safely while
    permitting full expression of free will, it is the end state that
    accommodates all possibilities, & it can be here in 5 years as we expect it.

    http://RoboEco.com/FAQ.shtml


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