Link to this page: https://secure.socialistparty.org.uk/issue/706/13932
What's wrong with capitalism?
The 99% and the 1% have became watchwords as the fightback against austerity grows. They encapsulate the unequal and exploitative nature of capitalism. In response to the growing opposition to this profit-hungry system many of its proponents have attempted to argue that not all capitalism is bad.
Here Lynn Walsh, editor of Socialism Today, the Socialist Party's monthly magazine, exposes the myths proposed by Tory prime minister David Cameron as he tries to sell us the idea of 'popular' capitalism. www.socialismtoday.org
David Cameron, like other capitalist leaders, has been deeply shaken by the tumultuous events of the last year. Revolutions in North Africa and the Middle East, general strikes throughout Europe. Riots in Britain, massive public sector strikes. The eurozone debt crisis. Stagnation of British capitalism, deepened by the Con-Dems' austerity measures.
Despite their smiling faces, Cameron, Clegg and the others fear social upheaval and revolution. They also fear an electoral backlash against them from their traditional middle class supporters. Cameron has to admit that there is a "crisis of capitalism" and that capitalism is "unpopular". So he is attempting to stitch together some political camouflage under the heading of "popular capitalism".
In a recent speech (19 January) Cameron promised new legislation, which he claimed would make it easier for people to set up cooperatives and small businesses. This is part of his scheme to get "more people engaged in a genuinely popular capitalism". He wants "an ownership society". He wants a nation of shareholders, savers, and homeowners - as well as new entrepreneurs - who will enjoy the "success of capitalism".
'Fairness' is the slogan of the day. How credible is this coming from a cabinet of Con-Dem ministers who are together worth £60 million? Most of them, including Liberal Democrats, come from wealthy, privileged families. Twenty-three of 29 ministers have assets and investments estimated to be worth more than £1 million. Cameron, who wants 'fairness', has personal wealth of £4 million. George Osborne, the austerity chancellor, is worth £4.6 million.
Their personal wealth reflects the huge inequalities of income and wealth in British society. The share of net (after-tax) income received by the top 1% of taxpayers rose from around 4% in 1978 to 10% by 2000. In stark contrast, the share of national income of the bottom three-fifths of the population fell from 40% to 33% between 1977 and 2008. (Stewart Lansley, The Cost of Inequality)
Wealth (in the form of property, financial assets, etc) is even more unequally distributed. In 1988 the top 1% owned 17% of 'marketable wealth'. By 2002 the top 1% owned 23%. Meanwhile, the share of the bottom 50% shrank from 10% in the mid-1980s to 6% in 2002.
These changes reflect both the trends in capitalism (de-industrialisation, casualisation of the workforce, etc) and the policies of successive governments (a financial free-for-all through deregulation, huge tax cuts for big business and the wealthy, an assault on trade union rights, etc).
Chanting the 'free-and-fair' mantra will not reverse these deep-rooted trends.
Cameron scores a point when he comments that "the last [New Labour] government made something of a Faustian pact with the City... It seemed frightened of challenging vested interests, believing... that the interests of big business were always one and the same as those with the economy as a whole."
But what will the Con-Dem government actually do to change this? Tighter regulation, promised by Cameron, may impose some temporary restrictions on the banks and finance houses. But, as in the past, they will very quickly find ways round any new legislation.
Cameron attacks the "bonus culture" and the "excesses" of the City. But what will the Con-Dems do about it? A number of top bankers and chief executives have, under the pressure of intense public hostility, given up their bonuses for last year. Yet hundreds of bankers will still be collecting phenomenal bonuses in addition to their inflated salaries.
For instance, 24,000 employees of Barclays investment bank will still be getting bonuses averaging £64,000. The head of Barclays Capital, Bob Diamond, got a bonus of £6.5 million for 2010 on top of his salary of £1.35 million. This year, he will be offered a bonus for 2011 of 'only' £2 million.
The excesses of the banks, being bailed out at our expense, will not be curbed by sermons or even legislation. Capitalism, in reality, has become more and more dominated by parasitic finance capital.
For instance, in the 1880s, total British bank assets were equal to 5% of gross domestic product. At the peak of the bubble in 2006 they had risen to a staggering 500%. Their debt was 30 times their assets. The return on their shares - the profits made by shareholders - reached 30%.
Cameron promises that he will make sure that "the market is fair as well as free". But this is impossible. Capitalism is based on exploitation.
New wealth (in the form of goods or services which are sold on the market for money) is created by the application of workers' labour power to materials and production equipment (built up through capital investment). But what the capitalists pay workers in wages is only part of the value of the labour power expended in production.
The rest (the unpaid labour of workers, or surplus value) the capitalists take for themselves in the form of profit. This is how the capitalists accumulate capital. At the heart of the market is an unequal exchange between workers and capitalists. This is why capitalism can never be 'fair'.
The unequal exchange between workers and bosses at the heart of the capitalist production process ultimately underlies the polarisation of income and wealth in society.
One indication of the increased exploitation of workers is the sharp fall in wages as a share of GDP. By 2011 this had dropped to 53.8%. This meant that workers were taking home £60 billion less in 2011 than they would have if the wage share had remained at 1978 levels. This amounted to a cumulative loss of approximately £1.3 trillion. (Stewart Lansley, All in This Together? TUC, 27 January 2012).
Will Cameron, in the name of a 'fair market' be attempting to reverse this anti-working class trend? Will he restore trade union rights, enabling workers to defend their wages and conditions? Will he raise the minimum wage to a level that guarantees a living wage?
'Fair capitalism'- a fairy tale
Cameron proclaims his "ambition of building a nation of shareholders, of savers, of homeowners... Margaret Thatcher did the same with privatisation [of utilities], with share ownership, with the right to buy your council house."
But figures from the Office of National Statistics show that Thatcher's attempt to spread share ownership has been a total failure. In 1963, individuals in Britain owned 54% of UK shares traded on the London Stock Exchange (LSE). This fell to 13% in 2006 at the peak of the boom. Under the impact of the crisis after 2007, they fell further to only 10%. Overseas investors now own 42% of LSE shares.
Even the pro-Tory Daily Telegraph comments: "The data highlights how the Thatcher revolution in private share ownership failed to create a lasting impression on the stock market..." (27 January 2010) Cameron will be no more successful than Thatcher in promoting so-called popular capitalism.
One of the main aims of Cameron's cooperatives bill is to promote the development of small businesses. Small and medium-sized businesses (SMEs), however, are being ruthlessly squeezed at the present time. Those that supply goods and services to bigger companies in the manufacturing sector are being hit by the stagnation of manufacturing.
Most small businesses, however, are in the service sector, and are being hammered by the decline in consumer spending, as a result of squeezed incomes and unemployment. SMEs are also being crushed by the credit squeeze imposed by the big banks (despite the ultra-cheap credit provided to them by the Bank of England).
It is absurd to think that small businesses can flourish while the economy is at best stagnating, or on the verge of another serious downturn.
Cameron's 'fair and free' camouflage is a tatty, see-through effort to cover up the pathological symptoms of capitalist crisis. It will prove to be futile. A cauldron of discontent and anger is boiling up within society. It will not be cooled by fairy tales of a 'fair', 'responsible' capitalism.
David Cameron wants to "get more people engaged in genuine popular capitalism". He wants to see "more entrepreneurs": "I admire, more than anything, the bravery of those who turn their back on the security of a regular wage to follow their dreams and start a company."
This (leaving aside the insult to the unemployed) panders to the idea that anyone, if only they are entrepreneurial enough, can become a successful capitalist. Maybe a tiny handful, perhaps, on the basis of outstanding technological innovation and with sufficient financial backing from a sponsor, can become successful (often taken over by a big company at a later stage).
The reality of present-day capitalism, however, as Cameron well knows, is that it is dominated by giant companies and big banks. It is an absurd fantasy to believe that just anyone can start a successful business and grow big.
At the end of the post-war upswing in the 1970s, the top 100 companies controlled around 70% of the assets of all manufacturing and non-financial services. The concentration is undoubtedly greater now, although up-to-date information is strangely lacking.
However, analysis of companies listed on the UK stock exchange shows the degree of concentration. In 1998 the top 100 companies accounted for 68.4% of the market capitalisation of all companies. By 2008 the share of the top 100 had risen to 87.77%.
In Britain there is an incredibly high level of monopoly in a whole range of industries. For instance, in the following sectors, the five biggest firms dominate the market: sugar 99%, tobacco products 99%, gas distribution 82%, oils and fats 88%, confectionary 81%, manmade fibres 79%, coal extraction 79%, soft drinks and mineral water 75%, pesticides 75%. Detergents are dominated by Unilever and Proctor & Gamble. This is clearly monopolistic capitalism, not popular capitalism.
Five big banks dominate the UK banking sector. Four giant companies (Tesco, Sainsbury's, Asda and Morrison's) between them control 74.4% of the grocery market. They have wiped out thousands of small shops.
Despite the claim of the Thatcher government to be opening up the power companies to competition through privatisation, six big companies now control the retail electricity market: EDF Energy, Centrica, RWE npower, E.ON, Scottish Power, and Scottish and Southern Energy.
What these facts show is that capitalism is becoming less and less popular. Only 10% of company shares traded on the London Stock Exchange are held by individuals (and most of those are held by wealthy people).
Marx was right
These facts confirm the continuation of deep-rooted tendencies within capitalism analysed by Karl Marx 150 years ago. He showed that competition between capitalists produced two interrelated trends. One is the increasing centralisation of capital, as the biggest companies strive to take over a bigger share of production and markets in seeking to maximise their profits. This accounts for the huge waves of 'mergers and acquisitions' - takeovers - during recent financial bubbles.
At the same time, there is a steady concentration of ownership, as control of the big companies is concentrated into fewer and fewer hands (mostly through financial investment vehicles such as hedge funds, mutual funds, and investment companies, which are investment clubs for the super-rich).
These trends, moreover, operate on an international basis, as globalisation and the deregulation of markets (ultra-free market policies) have unleashed global competition between the big corporations and banks.
A recent study of 43,000 transnational corporations (TNCs) revealed the tightly knit interconnections between the top global corporations. (Vitali and others, The Network of Global Corporate Control, www.arXivl.org)
The study shows that "nearly 40% of the control of the economic value of TNCs in the world is held, via a complicated web of ownership relations, by a group of 147 TNCs in the core, which has almost full control over itself".
Many of the companies within the core are interconnected through mutual shareholdings and can be thought of as "an economic 'super-entity' in the global network of corporations". It hardly comes as a surprise to learn that three-quarters of the core companies are banks or financial institutions!
Within Britain and across the globe these big banks and corporations wield enormous power. They dictate to governments. Through financial markets, which deploy the wealth of big business and the super-rich, they determine the anti-working class policies of governments: social spending cuts, mass unemployment, squeezed wages, and the erosion of rights. There is nothing 'fair' or 'popular' about their activities.
That is why capitalism, as even Cameron is forced to admit, is very "unpopular". A few speeches about Britain's alleged "insurgent economy" (where?) and a country "fizzing with business potential" (?) will not change the reality.
Cameron claims he is seeking "a new model" of capitalism. But what we need is a new model of society, a socialist reorganisation. "Improving human wealth and happiness," - Cameron's professed aim - depends on taking over the giant banks and companies that dominate the economy.
They need to be run democratically, on the basis of a plan, to meet the interests of the great majority of society, not the wealthy few who currently control them. Democratic workers' management and control would ensure that the economy was run efficiently (avoiding the bureaucratic problems that arose under Stalinism in the Soviet Union).
Cameron's promise of a "more socially responsible and genuinely popular capitalism" is a cruel deception. Capitalism offers only a bleak future of economic stagnation and social crisis. This will be aggravated by the Con-Dem government's anti-working class austerity measures. Rewriting the rules for setting up small companies will not change anything. We need a root and branch reorganisation of society.
In The Socialist 22 February 2012:
Socialist Party youth and students
Socialist Party feature
International socialist news and analysis
Socialist Party workplace news
Socialist Party reports and campaigns
Reviews and readers' comments