The Paradox of Capitalist Regulation

James Schipper writes in the comments section:

The historical record shows that wage increases eventually follow productivity growth. For instance, in 1960 South Korea was dirt-poor, and naturally wages were extremely low. By 1990, SK had become a prosperous country, due to massive productivity growth, and wages were also much higher.

As workers become much more productive on average, they become more valuable to employers, who are therefore willing to pay them higher wages, for the same reason that a dairy farmer is willing to pay a higher price for a cow which gives 10,000 liters of milk per year than for a cow which gives 5,000 liters per year.

It seems to be true that wage increases in the US have not kept pace with productivity growth in the last 3 decades. I have no explanation for it.

It can't be doubted that the transition to a market economy in Russia was handled very badly. Such major changes should be introduced gradually. Just compare China's performance with Russia's in the 1990's.

The problem with Chile between 1973 and 1983 was that the country was completely opened to foreign economic influences almost overnight while the exchange rate was kept fixed. They liberalized the entire foreign sector, except the exchange rate. If they had also brought in flexible exchange rates, the results would have been less catastrophic.

I hate neoliberalism as much as you, but I'm a moderate economic liberal. I believe that durable prosperity is not possible without considerable private ownership of the means of production and free markets. The motto should be: the market when possible and the state when necessary.

The Chicago boys are like a doctor who always prescribes the same medicine and then argues that the medicine wasn't taken properly when some patients get worse.

Inflation is not bad for all capitalists. As a rule, inflation, or at least unexpected inflation, is bad for lenders and good for borrowers. Most companies are borrowers. Inflation tends to reduce the real wealth of lenders and increase the real wealth of borrowers.

Suppose that I lend you 10,000 for a year at 5% interest and on the assumption that inflation for the coming year will be 0%. Instead, inflation is 20%. After a year, I get my 10,000 back, but their real value is only 8,000. I lost 2,000 and you gained 2,000.

It is a libertarian myth that big government equals oppressive government. In what way do I become less free because in Canada the state provides most health care for free? I can't just demand any treatment that I like, but I wouldn't be able to that either if I were privately insured.

There is something fraudulent about neoliberalism. They constantly talk about freedom, but what they really mean is that they are opposed to economic egalitarianism. The freedom that they are most interested in is the freedom to make lots of money. Still, hostility to neoliberalism should not blind us toward the virtues of free enterprise, which are considerable.

I respond:

I really dislike capitalism, James, but I am the first to admit that pure socialism has some very serious problems. Socialism has done great at building economies for a while, but after a few decades, it starts bogging down into bureaucracy. Furthermore, while alleviating poverty, we have only been able to provide a low standard of living for the people. Social capital only goes so far - people want stuff too.

My attitude is that some capitalism may be necessary, like death and disease, but that doesn't mean it's a good thing by any means. Lots of nasty stuff is necessary.

Class war is continuous under capitalism.

Owners are continuously waging war against workers to take more of the profits generated by their enterprises. If there is X amount of profits from an enterprise, owners must decide how much to take out for themselves and how much to give to workers. Clearly they wish to give as little as possible to workers. So there is a battle between workers and owners to divvy up the profits from the enterprise.

Owners oppose increased % of profits going to workers since that means less for them, so they are always trying to cut down on the workers' % to get more for themselves. The tendency among capitalists would be to take 100% of productivity increases if they could get away with it. The only reason that workers get any % of productivity increases at all is when they organize to fight for it.

During the period you mention, the South Korean labor movement emerged and became extremely combative. This is probably the reason for the wage increases you mention. Capitalists will never give a wage increase just to be nice. Their whole project, in part, is to screw the worker to the greatest extent possible and even kill him if they can get away with it.

Indeed, capitalists kill millions of workers every year in the world, which is exactly what their project is designed to do. Workers and management are de facto enemies in capitalism, and if workers do not organize, they don't get much of anything.

I'm sure there were productivity increases in housing construction from 1975 to today and the prices of houses have certainly gone through the roof. At the same time, wages for construction workers have probably collapsed by anywhere from 50-80%. 100% of that vast surplus and probable productivity increase went into the hands of owners. Workers got less than zero. In a time of booming profits and probable productivity raises, instead of getting even a meager slice, they got a massive pay cut.

Builders reaped massive benefits from declining wages and from increased prices for their homes. Many industries have seen declining wages in the US since 1980 due in part to the busting of unions and their replacement typically with illegal immigrant or H-1B guest worker labor.

During a 15-year period in Guatemala from 1948-1963, the economy grew by 5% per year. During that same period, the % of the population living in poverty actually increased from 87% to 93%. 5% economic growth over 15 years equals a 75% increase in the size of the economy. 0% of the benefits of this economic growth went to the vast majority of the population.

This is how capitalism is supposed to work.

Every capitalist on Earth wants to live in a country like that - where owners, the rich and the upper middle class reap all or almost all of the benefits from economic growth and the workers get little, nothing, or even lose money. To avoid this, workers must organize into unions, since workers usually never get anything from capitalists without a fight. In the the 3rd World where murders of trade unionists are par for the course, it's often a deadly fight.

I repeat, capitalism is evil, but pure socialism doesn't seem to work very well.

I don't have much issues with small businesses, who often seem to really care about their employees and consumers (customers) and even in some cases, the environment and the society they live in. But Organized Small Business is always profoundly reactionary.

But big business is just bad. Whatever benefits it gives us in terms of jobs and decent products, good service or reduced prices is typically vastly outweighed by havoc it wreaks on society, the environment, the workers and consumers.

It's true that regulation and organized workers and consumers can ameliorate a lot of this downside, but in capitalist nations, the capitalist classes buy all the media and institute a Gramscian cultural hegemony over society with their media and cultural control. At the same time, they use their money and media and cultural power to buy the state itself which ideally ought to be regulating them in the interests of workers, consumers, the environment and society itself.

So you have a state that will do nothing in the face of the bulldozer of capital. The result is a flattened social society, a wrecked public sector, slums, homelessness, disease, early death, environmental devastation, harmed consumers and crippled workers and nothing in government to stop any of this.

The housing crisis is a case in point. Contra your assertion that the New Deal failed (which is actually rightwing revisionism against the New Deal), in fact, the New Deal, in particular the financial reforms - the FDIC which restored confidence in the banks, the SEC that regulated the stock market and Fannie Mae to bring back the mortgage market - is what finally got the economy going again.

This was one of the greatest accomplishments the US government ever did, it was wholly socialist in nature, and it was opposed ferociously by the Republican Party and the entire US business sector at the time. After Roosevelt rammed it through anyway, the business class vowed to wage struggle, for decades if they had to, to overturn these things.

Finally, by the 1990's, much of this regulatory structure had been whittled away.

Whittling away this structure had been a project of Capital since this regulatory apparatus had been put in place. Now that the regulation is a shadow of its former self, we have another Depression-like phenomena with the housing crisis, all the way to failed banks, bank runs, loss of deposits, etc. As one might expect.

This is the problem. The only way to keep capitalism from being completely nightmarish is to regulate it, and the capitalist sector reflexively fights to the death any attempts to regulate it.

Furthermore, they grab the media and culture itself to brainwash gullible workers and consumers to support their elitist agenda and to get the workers, consumers and society itself to oppose their own interests and support the contrary interests of Capital. Then they grab the state itself and prevent it from enacting those very regulations necessary for a civilized capitalism.

This is one of my primary problems with capitalism. Regulation is mandatory to keep capitalism halfway civilized, but the nature of the capitalist system, as described above, works in such a way as to make such regulation often extremely difficult or impossible.

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