WHAT IS CAPITALISM?
In its simplest terms, capitalism is a social and economic system based on private ownership of the means of production (the factories, equipment, land, etc.) for the purpose of making commodities (goods and services) in order to sell them at a profit. Most people have no way to make a living on their own and must work for those who own the land, factories, and other businesses. Business profits derive from the unequal relationship between labor and the owners of capital, with workers paid less than the value they add during the production of commodities. One way that business owners continually try to increase their profits is through greater control and exploitation of their workforce.
Markets, though not a defining feature of the system as some think, are needed in order for sales to occur and profit to be obtained.
A commodity can be as simple as an apple or as complex as a car or a computer made from minerals mined from all over the world. And types of services vary widely: haircuts, hotel accommodations, equipment repair, or heart surgery. The goods and services produced by businesses embody human labor power and natural resources. And though commodities may have a genuine use, their real value in this economic system is that they can be sold for profit—for more than the cost of making them.
Position of Labor
Because workers depend upon capitalists for their livelihoods, they are subservient to the owning and managerial classes. One way that business owners continually try to increase their profits is through greater control and exploitation of their workforce. They can do so because of the unequal power relationship between labor and the owners of capital. Individually, workers are not normally able to negotiate their wages, benefits, and working conditions. They gain power relative to capitalists by coming together to form unions, so they can use their collective strength, including the ability to stop work by striking. This is what makes unions so important to workers in capitalist economies. That is why capitalists oppose unions and try to stop their formation, while fostering anti-union sentiment in the general population through their indirect control of the media and politicians.
Whenever their power is weakened, workers are commonly forced to work harder (“do more with less”), any benefits they obtained through previous labor struggles such as paid pensions and healthcare coverage are reduced, eliminated, or have to be exchanged for employer promises not to downsize or move production elsewhere. Their miserly pay increases are not commensurate with increased productivity or increased cost of living.
Conversely, when workers have organized strong unions and incorporate elements of social justice into their demands (such as equal pay for women and defense of immigrants), the pendulum of social power swings toward them. This back and forth battle between how the extra value generated by workers is divided, what proportion goes to the capitalists and what goes to the workers or into government social programs, is a constant struggle between opposing interests. It is this sometimes hidden, sometimes open “class war” that explains why there is always going to be social conflict within capitalism.
The decline in the organizing power and conditions of workers over the last few decades and the resulting difficulties are discussed later in the chapter.
Perpetual Growth
Growth is at the core of the capitalist system. This quest for profits is what keeps the system going, it’s the moving and motivating force for investment that propels growth. Karl Marx captured this in a simple formula, M–C–M′, where M is the money, or capital, used to purchase raw materials, machinery, and labor to produce a commodity, C, which is then sold for a price, M′, that includes the costs of production and the profit. Profits are then reinvested in the production of more commodities to be sold for more profit, setting up an endless cycle: M′–C–M″ becomes M″–C–M‴ and so on, ad infinitum.
There is also no such thing as too much profit—more is always striven for. The purpose of production is not to provide people with goods and services; the purpose is to make money. Companies compete with each other for market share in order to maximize profits. If a company fails to expand, its profits suffer and it will eventually be taken over or go bankrupt. There is no such thing as steady-state capitalism: it’s either grow or die for individual businesses.
As much as the system tries to propel growth, capitalist economies aren’t always growing. Boom-and-bust business cycles are a feature of all capitalist economies.9 When the market becomes saturated and growth falters or a financial crisis occurs, expansion turns into recession, leading to layoffs, cuts to social programs, hunger, and increased poverty. Governments try to get the economy moving again by lowering interest rates, or spending more money, or creating jobs programs or paying out unemployment benefits. Spending money becomes a public duty to resurrect growth.
The profit motive even applies to essential goods and services such as food, clothing, and healthcare that are clearly in the public’s interest. In a June 2014 Wall Street Journal article, Mike Peterson, CEO of Valeant Pharmaceuticals, explains that “R&D on average is no longer productive. I think most people accept that. So it is begging for a new model, and that is hopefully what we have come up with.” Instead of trying to discover and bring new drugs to market, Valeant has increased profits by purchasing other companies, lowering production costs, and raising drug prices. It relocated its headquarters to Canada and made other changes purely to obtain tax advantages. Peterson goes on: “We were able to get a corporate tax structure which took our effective tax rate from 36 percent over all to what was actually 3.1 percent, which we hope to continue to work on and move lower.”10
Another tactic that drug companies use is to combine two inexpensive drugs and market the combination as something special at a huge markup. A box of nine tablets of the drug Treximent, brainchild of the Pernix Therapeutics, costs $728 while its two ingredients cost $19.11 Other pharmaceutical companies, including Valeant, have also adopted the practice of charging outrageous prices for combinations of inexpensive drugs.
Individual companies and the system as a whole work to maintain growth, through investment in new production, city and state tax breaks for companies, promoting favorable regulations, opposing regulations deemed unfavorable, and working for international agreements that maximize flexibility to move capital and goods across borders.
The Market Needs and Creates Consumers
One of capitalism’s central problems is how to sell the avalanche of goods that are continuously churned out by ever more productive factories and workers. This creates the need for never-ending, ever-increasing consumption. So, how does such a system of commodity production, always making new items and more of the old ones, sell all its products at a high enough price to make profits?
It does so by finding and developing new markets in other countries or among new groups of people by inducing in them a “need” for these commodities. Advertising and other types of marketing play an essential role in capitalism, not just to sell a particular product but to convert people to consumption as a way of life, a path to personal happiness, a means of overcoming feelings of emptiness, loneliness, and dissatisfaction that are generated by a system that stresses individualism, competition, and consumerism. An essential purpose of advertising is to make people feel inadequate in their bodies and lifestyles. The “consumer age” didn’t happen by accident; it arose as a systemic necessity, carefully cultivated as an ideology supportive of business interests.
As far back as 1955, Victor Lebow proposed the following solution to the problem of overproduction: “Our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption.”12 But what happens if consumption isn’t great enough? “We’ve got to motivate people to want things so they’ll work for these things,” says marketing guru Philip Kotler. “If there’s no more things they want, they won’t work as hard: they’ll want 35-hour weeks, 30-hour weeks and so on. Yes, marketing does drive