Commit ea295749 authored by Nicolas Lenz's avatar Nicolas Lenz

Add essay on economic system

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title: "Essay: On the Economic System"
date: 2020-08-27
tags: [Capitalism, Economy, Politics, Free Market, Cooperative, Solidarity, Company, Money]
# discussion:
link: /res/article/wall-street.jpg
alt: The New York Stock Exchange as seen from Wall Street, a well-known symbol of capitalism.
description: In this essay I try to put the main parts of my political ideas regarding economics in writing.
abstract: In this essay I try to put the main parts of my political ideas regarding economics in writing.
noIndex: true
![The New York Stock Exchange as seen from Wall Street, a well-known symbol of capitalism.[^i]](/res/article/wall-street.jpg)
The ideas here are mainly based on the concepts of [mutualism](, [free market economy]( and also [anti-capitalism](, if you want to read up on any of that. I'll probably update this article as my ideas evolve.
# A Crucial Difference
First of all, let's clear up the terminology.
On the one hand, *free market economy* is a system where the members of the economy are free to partake in economic enterprises and trade with each other. Prices of products are determined decentrally and dynamically through the laws of supply and demand. The opposite of that would be a planned economy, where prices, production and so on are determined through centralized regulating instances instead.
On the other hand, *capitalism* is a system where economic enterprises themselves, that is, the means of production, are *owned* and *traded* by private entities. The general idea is: People that have enough money can *invest* in companies, buying a part of that company and therefore receiving a share of that company's profit going forward, yielding them a return on investment later on.
Both things don't have to coincide. A market economy doesn't require a capitalist system – I will explain that beneath – and a capitalist system doesn't even require a free market (I'd even argue that experience shows that capitalism hinders free market economy, but that is a topic for another day and another article).
## Free Market Economy and Competition
The general and idealized idea of free market economy is that of competition. Many independent companies compete with their products and services for customers. Companies with bad products or too high prices will be forced out by better companies. The hope of success drives people to constantly found new, innovative companies challenging the established players, keeping the market perpetually in motion, always providing the optimal amount of products and services at the optimal prices.
Well, that's the idea. It's obviously not as simple as that (different to what a lot of market-liberals and conservatives suggest) and there are a lot of problems, but the general concept is sound (in my opinion) and already somewhat works in today's capitalistic global economy.
## Market-Compliant Wages and Capitalism
*Anti-capitalism* is common courtesy around woke and left circles (both I don't consider myself to be part of, by the way), but seemingly the amount of people who actually reflected on that beyond "capitalism bad" is far lower. Anyhow – what actually *is* the problem with capitalism?
The answer is far from new, it dates back to Karl Marx. Before someone starts screaming: You don't have to be a communist or even on the left side of the political spectrum to read and learn from Marx' works (obviously).
Let's approach this through the example of capitalist market economy. Not only the prices of resources and products are determined by the market, but the labor wages as well. Why does a soccer player get so much more money for their work than, let's say, a firefighter? Isn't the *value* of the firefighter's work, who saves lives (and prevents high material damages), far higher than the value of the soccer player's work?
The answer is: maybe. But that's irrelevant anyway because in a market economy the amount of money you get for something, the *exchange value*, is mostly independent from the *subjective value* we assign to it intuitively (if it were, the firefighter should get, well, *all* the money because lives are invaluable if you ask me). It even is mostly independent from the objective *utility value* (they depend on each other in an indirect manner of course – for a product the *utility value* influences the demand).
For example: a cleaner who works for a cleaning company cleans a building. They get paid according to supply and demand, which typically means that they get paid very little as the supply of people who can clean and are willing to do it for a small wage is very high thanks to poverty. If the cleaner demands a higher pay the cleaning company will have no problem finding someone in a desperate situation willing to work for a lower price to earn at least a little money to scrape by.
But the cleaning company of course doesn't sell the cleaning service to their customers at the same price they pay the cleaner. No, the retail price itself is once again determined by supply and demand and typically higher than the expenses (if it were lower, companies would leave the market, lowering supply and therefore increasing the price again). The margin between expenses (including wages and the prices of resources needed) and retail price is the *profit*.
So far, so good. The ability to reap profits is what drives a market economy. It is the motivation for people to start companies and take on the risks of such an undertaking.
But, and this is a big *but* (don't you dare laugh), who gets these profits? The cleaners and other employees in the company who did the work making the profit possible? No, the owners of the company because, well, it's their company. The company is owned by whoever established it or by whover bought it completely or shares of it.
This is the core of capitalism: The company and its profits are commodities just like any other product. A company receives money through investors, buying a part of the company and in return expecting a part of the company's profits in the form of dividends.
# The Problems
I mentioned it in my definition of market economy: while the concept sounds good, it's not as easy as it might sound and there are a lot of problems with its implementation. Let's aggregate some of the problems with our current market-capitalistic economic system so we can look at possible solutions afterwards.
## Where does the money go?
I *might* have done a bad job keeping the capitalism section neutral, so my opinion of the main problem with it already filtered through, but here it is again.
Workers works for a wage determined by supply and demand. The result of the work is sold for a price again determined by supply and demand. The difference between wage cost and resource cost generates profit that some other person receives because they happened to have the money to buy the company. Essentially, the dividends investors receive are generated through the labor of other people. The question now is: Is that fair?
Especially low-wage sector workers "less qualified", get applause, yay
Wages stagnating, work time unchanged since 50 years, yet productivity is rising with no change. WHERE DOES THE MONEY GO?
Don't get me wrong, this doesn't generally question the concept of loans and loan interest. This doesn't question that starting and managing a company is work and a risk that should be rewarded if successful. But the concept of ownership of a company with employees where the owner reaps profit from the work of *others* should be questioned.
## What "Market Force" Pushes for Workers' Interests?
For a market to be viable from a customer perspective, we need customers that can easily change between companies, so they actually have to worry about customers leaving. We also need enough supply so that the companies actually have to compete for customers and not the other way around.
For work, both of these prerequisites are problematic. Leaving a job and finding a new one is not as easy as changing your toilet paper brand. And while workers in highly-sought professions have the luxury of companies competing for them, trying to be a better workplace and so on, a huge number of people work in professions (mostly so-called lower qualified professions, many of which are important enough to be recognized as essential during a pandemic but seemingly not important enough to warrant a dignified paycheck) where their employers can afford to pay them badly and even mistreat them without fearing of losing too many workers.
One could invoke the customers of a company as a "market force" pushing for better work conditions, that is, customers won't buy from companies that mistreat workers. Sounds nice, obviously doesn't work, exhibit A: Amazon.
The only reason a lot of people working in the aformentioned so-called lower qualified professions can even survive are social benefits augmenting their wage. This is essentialy tax payers subsidizing companies that don't want to pay their workers even a living wage.
The point is: market economy by itself isn't enough to guarantee worthy work conditions and pay for everyone. People aren't just a product to be bought at the lowest possible price.
## Worker Representation
Companies are no democracies. If you tell that to somebody they'll probably say something along the lines of "duh" and not see a problem with that. However, it *is* a problem. As I explained in the previous section, because changing a job is a high barrier and many people can't be choosy with their job ensuring good working conditions can't just be trusted on the market.
Arguing that it's okay for companies to be lead top-down becaus PeOPlE cAn ChAnGe WoRkPlAcEs or because *our* company leadership is nice and cares for the workers is like arguing that autocratic states are okay as long as people can leave or as long as the dictator is nice and cares for their subjects. It's just not that simple.
Most working people spend about half of their wake time each day working. The right of workers to represent themselves in their companies is just as important as the right of citizens to represent themselves in the state (a.k.a. democracy). Yet the former is generally ignored in public discourse and attempts of employee organizations are only mediocrely well protected by law and even if it is protected by law these laws are often ignored or bypassed (yet again, see Amazon and their so far successful activity at curbing unionization attempts of the workers).
## Money is Power
Money is not just a means of paying for goods and service. Money is power.^*TODO foundations of the rich*^
## Monopolies
A well-known problem manifesting in market economies is that of formation of monopolies. This is especially problematic in the internet sector where network effects are huge. For example, the utility of a social network is directly proportional to its size. Everybody uses Facebook, mainly because everybody uses Facebook. Competitors essentially have zero chance in the market because their product is absolutely useless without other people on it, so nobody will use it... a vicious cyle. ^*TODO google*^
Monopolies are not a sad side effects of the market economy. It actually is an integral part of modern start-up economy. Companies are founded on huge amounts of venture capital and will often operate at a loss for years, reinvesting all the revenue to grow at a rapid rate. Competitors that have to operate profitably can't keep up. Only when a market-dominating position is reached the company starts actually monetizing their product, exploiting their monopoly to finally yield a huge return-on-investment for the investors.^*TODO citation needed*^
## Leistungsgerechtigkeit
Neoliberals here in Germany absolutely love talking about *Leistungsgerechtigkeit*, which could be traslated as *performance fairness*, which is really ironic. The idea is that people *performing* better, that is, working harder or more successfully, should get more money. This is often used as a naïve counterpoint to "socialism" where supposedly anyone gets the same wage regardless of performance.
While this might sound good on first thought and I generally agree with the idea, in practice the concept is used to frame injustices of capitalism as fair that obviously aren't.
The whole thing is pretty cynical. Imagine actually claiming that a manager earns many times the income of a nurse because they supposedly *perform* many times better. It does take a lot of mental gymnastics and selective perception to claim that the wages in our current economic system are in any way fair.
## Neofeudalism
Taking up the previous point about performance fairness, not only wage inequalities are framed as fair, but inequalities in assets as well. It's the romantic narrative of the industrious entrepreneur who accumulated a fortune in a life of hard work. The American Dream, essentially. This is even more obviously wrong. Most fortunes are inherited, not earned ^*citation needed*^. And even the fortunes that aren't inherited are not accumulated through hard work. People like Elon Musk or Jeff Bezos might be great businessmen and hard workers, but their fortunes aren't simply earned. It's the profit generated through the work of others. See the "Where does the Money go?" section above.^*TODO link*^
# Counter-Strategies
But what can we do differently? I think we should build on the concepts on free market economy, but improve them and take the capitalism out of it. I'll present some strategies that could help accomplishing that goal.
## Unions
The first and obvious thing to help with
TODO union membership vs wage graph
## Basic Income
social security
bargaining position, nobody should be driven to take on precarious jobs because of a desparate situation
## Cooperatives
The alternative is the concept of *cooperatives*.
A cooperative is a organization that is not owned by single or external entities, but instead by *its members* themselves.
Cooperatives are already somewhat common (at least in Germany), for example [housing cooperatives]( are organizations that own and "rent" real estate owned by its own residents. As there is capitalist ownership expecting profits, cooperative homes are generally cheaper and things like repairs are less troublesome. Housing cooperatives also provide better services and have more interest in things like environmental protection as the course of the organization isn't solely determined by a profit-driven landlord but democratically by the residents. Because of that, cooperative homes are in high demand here in Germany and you normally have to wait on a list for quite some time to get one.
TODO: worker cooperative
Cooperatives retain the spirit of the free market: entrepreneurship, competitiveness, progressiveness. But they take out the capitalistic aspect: there is no capitalist taking the profits, a cooperative either operates as non-profit or the profit is paid out to the members themselves. They also democratize the economic control: instead of by owners only driven by the need for profit, the cooperative's course is determined by the members themselves. And all that without state-owned enterprises and planned economy, both of which generally don't work that well if you ask me.
I firmly believe that cooperatives can lead to a better world, where people are less exploited, are more in control of their own fate und in general more free. I also believe that they could help in improving the responses to things like pandemics or climate change, as cooperative economy is democratized away from the need for profit to the members that can drive for example an enivronment-friendly course.
### Why aren't we there yet?
It somewhat is, wohnungsgenossenschaften anteil, but money
Sidenote TODO: Own article?
## Inheritance Tax
## Standardization, Patents, Copyright, Free and Open Source
# Conclusion
Anticapitalist social market economy! Mutualism!
yada yada not an economist, comments welcome
[^i]: [Image source](, licensed under CC-BY-SA-3.0
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