Capitalism, Wealth, and Power

The current moaning about neo-liberalism, tends to obscure the fact that the last two hundred years have seen nothing less than the greatest progress in human history, provided, of course, that we are willing to define progress in a purely material way. Never before did so many people enjoy so much prosperity, even today’s deaths by starvation dramatically invoked by Jean Ziegler, are negligible in percentage terms when compared to the devastations regularly suffered because of widespread famines in earlier times. Capitalism has made the capitalists immensely rich, richer than the princes and kings of lore, but it is important to note that they have become so rich only because they share their wealth with the working masses – indeed, they had to do so.

The two conflicting principles of the Industrial Revolution

This assertion may seem rather paradoxical at first glance. Is not competition between companies the driving force that leads them to cut production costs in order to increase their own share of sales and thus their own profits? And does this not invariably mean that every single company will, if it can, reduce wages to a minimum?

From the point of view of the individual company, which gains an advantage through lower production costs, this seems to be a sensible strategy indeed. But from the standpoint of all companies together, such behavior would be nothing less than collective suicide, because mass production presupposes mass consumption as its logical counterpart. Mass consumption, however, is only possible, if all companies together pay wages the total of which guarantees the selling of all goods produced.

From its very beginning the capitalist system was characterized by the antagonism between a collectively rational behavior, that inevitably aims at a sufficiently high level of wages, and an individually advantageous egoism, that induces the individual enterprise to pay lower wages in order to be better off than its competitors.

This antagonism also led to harsh contradictions in the interpretation of capitalism

Karl Marx had turned his attention exclusively to the egoism of the individual capitalist, from which he then derived his pauperization thesis. Others, such as Adam Smith or the tragic enthusiast of the French Revolution, the Marquis de Condorcet, have made a much more correct prophecy when they declared the Industrial Revolution the beginning of an epochal material boom. In the long-term historical perspective, the optimists were clearly right; instead of global misery, mankind has steadily increased its material well-being during the course of the last two hundred years. As of today, it would certainly enjoy unprecedented prosperity had population not increased sevenfold at the same time. From this perspective, it is fair to say that the capitalists, as a collective – and with the active participation of organized labor – have well understood that their own wealth directly depends on that of their workforce. The individual entrepreneur may be an exploiter and, indeed, often was, all companies together can not. The moment they forget that mass production makes no sense without mass consumption, they simply sign their own death sentence.

We should, however, beware of idealization

A development that, considered over two hundred years, presents itself as a story of resounding success, may, nevertheless, show features of outright bestiality when reviewed in more detail. Marx had described the terrible conditions that prevailed in the ‘Satanic Mills’ at the beginning of industrialization. Today, he would probably address his indictment against similar conditions in the developing world. People threatened by hunger in rural areas are still as poor as in the middle-ages, when they flock by millions to the big cities, ready to take on any work that keeps them alive. The process of building up people’s purchasing power so that it meets production has everywhere been slow and gradual – too slow in fact to give the first generation of country-side immigrants more than a living minimum. This was true at the beginning of the Industrial Revolution in England, and it is still true in our own time, wherever the process of industrialization is just taking off. Not industrialization itself is, therefore, responsible for such poverty but the fact that it does not proceed fast enough. In Asia or Africa, people would not flock to the cities if they did not feel a little better than before when they were simply starving. Only in China has it been possible, at least in the coastal provinces of that country, to turn the masses from hunger-sufferers into affluent citizens within the incredibly short span of only three to four decades.

Is the Capitalist Economic System democratic?

The answer to this question still needs some further consideration. It is certainly democratic in the above described general sense that the incredible increase in material wealth that this economic system managed to produce within no more than two hundred years, is in line with the deepest needs of the world’s population. From Mongolia to the interior of Africa, all people long for a standard of living comparable to that of the West. They want to have their own cars, cell phones and computers – and they want to have them as soon as possible, if not in their own country, then by fleeing to the most prosperous oases of the North. To prove this, there is no need for any formal democratic vote. The adoption of capitalist economic methods by Asia, India, and now also by Africa is proof enough that there is no disagreement on this basic matter. Nowhere in the world do we find even one single state explicitly committed to totally different values, let us say, to purely spiritual, philosophic, transcendental or other non-material ones. For the sake of such non-material values no state is willing to renounce the seemingly ‚trivial‘ blessings of Western civilization.

Half a millennium ago, matters used to be different almost everywhere in the world. Of course, the majority of people always wanted to survive, but apart from that, their deepest concern was of a spiritual kind – people longed for salvation in another and better world.

But the Moloch lurks just behind the Corner

The capitalist system is democratic in that it may safely appeal to a global quest for prosperity, but in individual cases it merciless crushes all democratic resistance. Wherever new resources are found – oil, copper, gold or other raw materials – the capitalist juggernaut willfully disregards the democratic will of local populations. No corner of this earth, however remote, is safe from ruthless exploitation. Weak states in Africa are easily plundered and people are sacrificed, in others popular protest is suppressed with the help of dictatorial regimes.

Not only does the Moloch greedily swallow all available resources, it does the same with people, as they are potential consumers within a world-wide market. Today, states have no choice at all – they either submit to the dominant system or they are mercilessly crushed by it. Those who adhere to the rules of the game – as Japan and the former tiger states and after these China did – share its success and may even climb up the scale to future world powers. Anyone who disregards the rules of the game is likely to be forced into a merciless program of reeducation. This happened to Greece as it consumed much more than it could produce and was not capable of servicing its debt any longer. Faced with the dictatorship of the market, nobody may count on a refuge.

But who are the dictators?

Today most people on the globe are incomparably richer than their ancestors two hundred years ago, but still more so are the captains at the top of the capitalist hierarchy. Nevertheless, the wealth of the supreme one percent at the top bears little similarity with the wealth of those erstwhile princes and kings with which one might best compare it.

A pyramid, a ziggurat, a castle, or a chateau used to be the work of generations of slave-like subjects, whose own lot was that of extreme poverty. Their dwellings were mere huts made of loam or twigs, of which, as a rule, not even traces persist nowadays. This condition also applies to the peasantry of the European Middle Ages, ie to eighty to ninety percent of the population. The splendor of their masters, who lived in castles and palaces, these working slaves were only allowed to look at from afar.

Seen against this background, the luxury of contemporary billionaires is remarkably inconspicuous. Certainly, those from the top one percent own a yacht of their own and fly private jets. They drive significantly larger cars, inhabit stately villas instead of rented apartments and may even live five to ten years longer. But a German average earner can at least afford a cruise as a passenger, and he will board a plane when going on holiday to Italy or Mallorca. On the other hand, the slave-like peasantry of earlier times did not even know the word ‚holiday‘, let alone that it had heard about pensions or health insurance. For most people, a hundred and fifty years ago, life was cruel, bitter and short. Many died already when pressed to service by their superiors.

Yet it is a fact that today’s rich are spectacularly richer than even the kings and princes of earlier times. Never before in human history could a handful of eighty people claim (this is what a study by Oxfam says) to possess the same assets as the less favored 3.6. billion people, that is half of mankind.

What are these eighty multi-billionaires doing with all their immense wealth, if they do not use it the way their ancestors did in the past, that is build pyramids or castles meant to last for thousands of years?

Wealth in former times

As far as the rich of earlier times are concerned, we know pretty well what use they had for their wealth. On the one hand, they built all those magnificent monuments already mentioned before. But in addition to the compulsory labor demanded for that purpose, they imposed heavy taxes on their subjects: at least one-tenth of all agricultural yield was demanded by the nobility, a further tenth by the clergy. Until the beginning of the Industrial Revolution, the almost unbearable poverty of large parts of the rural population was due to the levies on grain, milk, meat, etc. they had to deliver to their masters. Because most food was hard to store for extended periods of time, these levies were either squandered or handed down to dependent followers, such as mercenaries and artisans, who had to embellish the life of the upper thousand, or defend it against their enemies.

It was the privilege of people of noble birth to do what they liked with the wealth thus acquired. Not infrequently, this meant that they wasted it according to whim and desire – and even believed to have by birth a divine right to do so. In its most extreme manifestation, this sentiment was expressed by the richest one per cent of the Indian tribes of the coastal regions of Northwestern America. Heads of tribes used to demonstrate their overwhelming power by outdoing each other in the destruction of wealth – the so-called potlatch. These festivals staged, so we might say, an inverted kind of Forbes’ list, where not those ranked at the top who at a given moment possessed a maximum of wealth, but those who destroyed it.

Wealth today

The wealth of our time fulfills a singular function never heard of in previous history: Instead of being used for consumption, it serves to produce more and more new wealth out of the wealth already existing. This has a remarkable consequence. It makes wealth itself as invisible as the handful of people who own it. While every farmer of former times used to know the name of the lord from the nearest castle and yearned for catching at least once in his life a glimpse of the princes and princesses of the reigning royal family, the eighty richest people now inhabiting the globe are, for the most part, unknown to the general public; hardly anybody is aware of or even interested in their private homes and lifestyles. In stark contrast to the past, only a tiny fraction of such modern wealth is spent for the physical well-being of its owners – to say the truth this would even be quite difficult, since each person can hardly eat more than one steak per day or live in more than one single villa. But, furthermore, the wealth of present-day billionaires is neither squandered nor destroyed. And only to a rather modest extent is it used for the construction of monuments such as universities, which bear the name of the founders and thus perpetuate them.

So the question becomes all the more important what purpose all that billion-dollar wealth is meant to fulfill, even as it is in the process of constant multiplication? What is the use of such immense riches in the hands of those handful of people where it has become concentrated?

The will to power

When today’s average earner receives a salary supplement, he usually uses it for the purpose of acquiring a newer car, a better apartment, or travelling to a more distant holiday destination. He consumes more or he consumes on a qualitatively higher level. By contrast, people whose income and assets surpass those of their fellows by many times, act in a fundamentally different way. As they have long since devoted not more than an insignificant fraction of their incomes to consumption, growing wealth fails to have any marked impact on their lifestyle. Indeed, for these people it acquires a completely different meaning. Wealth means powerthe domination of other people.

When hearing with incredulous amazement that the 80 richest men own as much wealth as the poorer half of mankind, ordinary people will think of all those wonderful gadgets these people can afford! They do not see that what theses billionaires really gain is something completely different. They have acquired tremendous power – power over much more than half of humanity. It is they who determine the rules of the economic game.

On the one hand, such power emanates from official institutions, such as Central Banks, the BIS (Bank for International Settlements in Basel), the IMF, the World Bank and, of course, the men (and very few women) at the head of National Governments and the ministries of economics and finance. This is the visible face of power. Since the nineties of the last century, the world economy is, however, much more dominated by invisible forces behind the stage, that is, private shadow institutions.

Shadow banks manage much of the world’s wealth and give unprecedented power to the generals at their helm. BlackRock, the largest asset manager in the world, manages approximately $ 4,700 billion, more than twice the market capitalization of all Dax companies combined. Vanguard manages $ 3,200 billion, and Fidelity is not far behind with some $ 2 billion in managed assets.

The contrast between visible power and the real one in the shadow, which tends to be almost invisible, becomes even more obvious when we compare the fees paid to the representatives of the two camps. Ben Bernanke received an annual salary of just under $ 200,000 from the Federal Reserve in 2013. Since his departure, he is paid a minimum of $ 250,000 for a one-hour speech on the conference floor!

Capitalism presupposes covert democratic consent,

as it has been able to increase total wealth more quickly and better than any other previously tested economic system. But, as already said, it turns ruthlessly undemocratic as soon as it encounters resistance. Then national interests may be savagely sacrificed for private ones.

In the United States, this has happened on a large scale after big corporations relocated their production to low-wage countries. At home, they reduced jobs and income drastically, but increased both abroad (so that on the whole the production volume was not only maintained, but even increased). Within a few decades, China has experienced a meteoric rise due to these investments and the associated technology transfer. On the other hand, a large part of the United States population was relatively impoverished because previously flourishing branches of their home industries withered away in the infamous ‘rusty belts’ (a process that threatens to be repeated in southern Europe).

The new financial and business elite is inherently transnational

and cosmopolitan, because money knows no national colors and no national anthem. As soon as the world’s poorest people are ready to sell their labor for survival wages, big corporations are ready to relocate. In this way, capital has transformed China into a major power, while making the US a debtor country. Mind you: American capital has done so because it only serves the logic of money and knows no patriotic feelings. Trump is quite right in saying that outsourcing has turned large parts of God’s own country into an industrial desert, and many of the people living there into ‚white trash‘ with no prospect of work or wages, yet we are rightly surprised by the audaciousness with which he turns his back on his own responsibility and that of the likes of him.

Seen from a national vantage point, systematic outsourcing was a betrayal (and Trump too may range high on the list of traitors). The prosperity of other nations should not be increased if that happens at the price of reducing prosperity in ones own country. The undemocratic procedure of an economic elite pursuing nothing but private interests has shaken the position of the US as an economic super-power.

On the other hand, China owes its staggering ascent and newly acquired clout to the undisputed supremacy of its authoritarian civilian government over both the private sector and the military. Till the end of the eighties of the past century, such supremacy existed in Germany as well, and it did so under democratic auspices. The ‘Deutschland-Ag’ was still intact in the times of Helmut Schmidt. But after the rise of the so called Washington Consensus, it has become fashionable to regard national interests (or even those of supra-national bodies like the European Union) as an evil to combat. So it could happen that private interests in the West created a cosmopolitan elite, a new nobility, as it were, which has its nearest relative in the 18th century, when the European power elites from Marseille to Warsaw and Stockholm thought and spoke only French but disdained to speak to their own people. In this way it got estranged from its national base – too much so as history was to prove at the end of that century.

In a long-term perspective

It seems to me, however, that it is less decisive in what hands power gets concentrated. It may be a much more important question whether the capitalist system, which has been so successful in combating the poverty of rapidly growing populations, will be able to confront a far more demanding challenge. This entirely new challenge does not just concern future prosperity, it simply concerns survival – and possibly so in a quite short perspective. The ruthless exploitation of resources to the point of exhaustion poses a barrier to future development as does the concomitant littering of the planet, that affects air (CO2), earth and oceans.

Public and private pursuit of profit have been compatible in a long-term perspective. But when it comes to preserving the environment, both find themselves mostly in sharp contradiction. Not that this contradiction should be impossible to solve, but the superior power of private interests in Western-style capitalism does certainly not provide favorite conditions.