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    <h1>C.10 Is "free market" capitalism the best way to reduce poverty?</h1>
<p>It is far to say that supporters of "free-market" capitalism make the claim that their system not only benefits everyone, but especially working class people (indeed, the very poorest sectors of society). This was the position  during the so-called "anti-globalisation" protests at the turn of the 21st  century, when the issue of global inequality and poverty was forced to the front of politics (for a time). In response, the likes of the Economist portraying itself and the big businesses seeking lower costs and higher profits as the real champions of the poor (particularly in the third world).</p>
<p>In this perspective growth is the key to reducing (absolute) poverty rather than, say, redistribution, struggle for reforms by means of direct action  and popular self-organisation or (heaven forbid!) social revolution. The  logic is simple. Economic growth of 1% per year will double an economy in 70 years, while 3% does so in just over 23 years and 5% growth takes a mere 15 years. Thus the standard right-wing argument is that we should  promote "free market" capitalism as this is a growth machine par  excellence. In fact, any form of redistribution or social struggle is  considered counter-productive in this viewpoint as it is harms overall  growth by either scaring away capital from a country or blunts the  incentives of the elite to strive to "produce" more wealth. Over time,  wealth will (to coin a well-worn phrase) "trickle down" from the wealthy  to the many.</p>
<p>What to make of this claim? Again, it does contain an element of truth.  As capitalism is a "grow or die" economy (see <a href="secD4.html">section D.4</a>),  obviously the amount of wealth available to society increases for <b>all</b> as the economy  expands. So the poor will, in general, be better off <b>absolutely</b> in any  growing economy (at least in economic terms). This was the case under  Soviet state capitalism as well: the poorest worker in the 1980s was  obviously far better off economically than one in the 1920s. As such,  what counts is <b>relative</b> differences between classes and periods within a growth economy. Given the thesis that free-market capitalism  will benefit the poor <b>especially,</b> we have to ask: is this actually  true and, of so, can the other classes benefit equally well? This means we need to ask whether the assumption to concentrate on <b>absolute</b>  poverty or inequality rather that <b>relative</b> values makes more sense.  Similarly, we need to question the assumption that "free market"  capitalism is the growth machine its supporters assert and whether  the benefits of the growth it produces does, in fact, "trickle down."  Questioning these assumptions is essential.</p>
<p>The key problem with evaluating such claims is, of course, the fact that an economy, like a society, is a very complex system which  evolves through time. There are few opportunities for "controlled  experiments" with which to test differing analyses and theories.  This means that any attempt to analysis these claims must be based  on looking at different countries and time periods in order to  contrast them. Thus we will look at the same countries at different periods (the more social democratic post-war period to the more neo-liberal post-1980s and more neo-liberal countries with those  in which free-market "reforms" have not been pushed as far). As we will show, the track record of "free(r) market" capitalism has been, at best, distinctly unimpressive and, at worse, significantly poorer.</p>
<p>However, this appeal to reality will not convince many supporters of capitalism. For the true believer in the capitalist market, this kind  of evidence does not create doubt in their ideas, only the conviction that the experiments did not go far enough. Thus, for the ideologue,  freer market capitalism handily tell us nothing about free market  capitalism -- unless, of course, they can be portrayed as an "economic  miracle" (regardless of the facts). For "advocates of the market,"  the sanctity of private property and private contracts is held as an  inalienable natural right. To refute charges that this Will simply  benefit the already wealthy they spend much time arguing that  unfettered capitalism is also the only economic system which will  produce the greatest benefit for the greatest number. In other words,  that absolute capitalist markets and private property rights coincides  <b>exactly</b> with personal interest. A clearer example of wishful  thinking could hardly be asked for. Yet it is not hard to see what  function this plays. Few people will be persuaded by their assumptions  on property and markets, given the common sense objection that free  exchange between the weak and the strong will, obviously, benefit the  latter more. Yet more people may be convinced to go along with "free  market" proposals by considerations of economic efficiency and the hope  that the poor will see their living standards improve over time  (particularly if "experts" with economics degrees are involved as  people often assume they know what they are talking about).</p>
<p>Now, the empirical track-record of what is called capitalism is  decidedly mixed. There are three courses of action open to the  market advocate. The first is to embrace the property-rights argument  wholeheartedly, and say that we should adopt pure capitalism even if  it hurts a large percentage of the population because it is the right  thing to do. This would be unconvincing for most people as economic  austerity and serf-like working conditions in return for protecting  the power and property rights of the few who actually own the wealth  would find few (sane or disinterested) supporters. Then it could be argues that the empirical track-record of "actually existing"  capitalism should be ignored in favour of economic ideology as  reality is simply not pure enough. That, again, would be unconvincing  for the obvious reason that we would be being asked to have faith in  the validity of economics (as we have noted before, this would not be wise given its surreal assumptions and non-scientific nature).  This would have one positive side-effect, as doing this would mean  that that "market advocates" would have to stop claiming that all  the good things we have are due to something (capitalism) that does  not exist. So that option is unlikely to have many supporters or  convince many. Finally, it could be argued that contrary to  appearances capitalism really <b>does</b> benefit everyone. While this  option is not compatible with intellectual honesty, it is by the far  the most popular within the ranks of "market advocates." This is  undoubtedly because the wealth and corporations are always willing  to pay well for people happy to defend their power and profits  against the reality they produce.</p>
<p>So what of the claim that capitalism is the best way to help them poor, that capitalism will especially benefit working class people? To make sense (i.e. to be more than simply a rhetoric assertion), it must rest  on two basic notions. Firstly, that "free market" capitalism will have  a higher growth rate than alternative forms of that system (such state  capitalism or regulated capitalism). Secondly, that inequality will be  less and share of wages in the national income more in "free market"  than in other systems (this must be the case, otherwise "free market"  reforms do not <b>especially</b> help working class people). We will discuss  the first claim here, before discussing the track record of neo-liberalism  in the <a href="secC10.html#secc101">next section</a> followed a  discussion of the history of capitalism and free trade in section <a href="secC10.html#secc102">C.10.2</a>. We  then analysis the failings of the  equality defence in section <a href="secC10.html#secc103">C.10.3</a>  before ending with a discussion on the  limitations of looking at income and growth in evaluating how capitalism  benefits the working class (<a href="secC10.html#secc104">section C.10.4</a>).  As we show, there is  substantial evidence to suggest that the standard defences of "free  market" capitalism are not up to much. Let us be clear and state there  is generally a positive correlation between economic growth and the  income of the poor. We are not attacking economic growth as such but  rather asking whether neo-liberalism's own defence actually stands up.</p>
<p>Looking at the historical picture, then, yes, capitalism does produce  much more economic growth than previous social systems such as slavery  and feudalism. However, defending capitalism on the basis that it better  than a slave based economy is hardly a strong foundation (particularly  when capitalists are happy to locate to dictatorships which have  slave-like labour conditions). The more substantive argument is based  on the assumption that "free market" capitalism produces faster economic  growth than other forms of that system and that growth of the economic  pie is more important than how it is distributed. In other words, the  same (or even smaller) share of a bigger pie in the future is better  than a bigger share of the existing pie. This means we need to look at  the economic performance of capitalist economies, comparing the  neo-liberal ones to regulated social democratic ones. We would expect  the former to be performing significantly better than the latter in  addition to being more dynamic <b>after</b> reforms than before. The reality  hardly matches the claims.</p>
<p>The attempt to compare and contrast economies can be found in, say, the works of Milton Friedman to show the superiority of his beloved "free market" capitalism. However, as economist Thomas Balogh notes, to prove that <i>"socialistic policies"</i> had crippled  Britain's economic growth since 1945 Friedman began <i>"by  misrepresenting the size of the public sector . . . he chooses  a ratio which, though irrelevant, gives spurious support to his  thesis."</i> Equally, Friedman compares post-war Britain to post-war Japan and West Germany, conveniently failing to note that both  hardly had minimal states (for example, West Germany had approximately the same level of state spending as the UK and Japan had the social planning of its Ministry of Industry and Trade). As Balogh notes, the <i>"consequences of socialism are then illustrated by reference to the  weak economic performance of Britain in comparison with Japan and  Germany since 1945. This is an odd comparison to choose when judging  the impact of 'socialism' on Britain. Surely what we need is to  compare the British performance during a period of sustained boom  under 'Friedmanism', e.g. in the period 1900-13, with the record  under 'socialism,' say 1945-75."</i> However, to do that would mean  noting that the average annual rate of growth per head of GNP  between 1900 and 1913 was a mere 0.2%, compared to 2.2% between  1948 and 1975. Even taking other starting dates (such as the slump  year 1893) produces a smaller rate of growth that the post-war  period. [<b>The Irrelevance of Conventional Economics</b>, p. 181]</p>
<p>Nor do things get better when we look at the Friedman influenced  Thatcher government which turned the UK into a poster-child for  neo-liberalism. Here, yet again, the facts do not really support  the claims in favour of "free(r) markets". As Ian Gilmore, a moderate  conservative MP at the time, points out <i>"[d]uring the Thatcher years  growth was lower than in any period of similar length since the war."</i>   He notes <i>"the vast discrepancy between what the Thatcherites claimed  for their policies and what actually happened."</i> Unsurprisingly, there was an <i>"unparalleled rise in poverty,"</i> as <i>"relative poverty grew  significantly during the 1980s,"</i> from a nearly a tenth in 1979 to  nearly a fifth in 1987. In 1979, the poorest fifth had just under  10% of post-tax income and the richest fifth had 37%. Ten years  later, this had fallen to 7% and risen to 43% (<i>"The rich got rich,  and the poor got poorer"</i>). <i>"Not only did the poor not share in the  limited growth that took place between 1979 and 1990, the poor were  relatively poorer than they had been on 1979."</i> [<b>Dancing with Dogma</b>,  pp. 83-4, p. 87, p. 142, p. 138 and p. 172] we will return to this issue in <a href="secC10.html#secc103">section C.10.3</a>.</p>
<p>Things did not get any better in the 1990s. Growth in GDP per capita  was steadily decreased in the UK, from 2.3% per annum between 1950  and 1970, to 2.1% between 1970 and 1979 and to 1.9% between 1979 and  1997. For the US, a similar process was at work (from 2.0%, to 2.3%  to 1.5%). At best, it can be said that the growth rates of Germany  and France between 1979 and 1997 were worse (at 1.7% and 1.4%,  respectively). However, before 1979 their growth was much higher  (at 5.1%/4.5% between 1950 and 1970 and 2.8%/3.3% between 1970 and  1979, respectively). Growth in labour productivity per hour worked  is hardly impressive, being 2.3% between 1979 and 1997 compared to 0.8% for the US, 2.4% for France and 2.2% for Germany. This is well  below the 1950-1970 figure of 3.0% and only slightly better than  2.1% during the strike bound 1970s. In 1979, the UK was 9th of 15  EU members in OECD measures of prosperity. By 1995, it was 11th  before rising back to 10th in 1999. In summary, <i>"the idea that  Britain has a clearly superior economy to the continent is a  delusion."</i> [Adair Turner, <b>Just Capital: The Liberal Economy</b>,  p. 200, pp. 199-200 and p. 196]</p>
<p>The best that can be said of Thatcherism is that during the 1980s,  <i>"Britain put an end to three decades of relative decline and caught  up some lost ground versus continental leaders . . . But Britain's  absolute productivity and prosperity performance is still below the  European average and its pace of catch-up has been slow."</i> Combine this with longer working hours compared to the rest of Europe, we have a situation in the UK where <i>"too many companies relying on low  wages and a flexible labour market to remain competitive, rather than  on investment in capital equipment and technique."</i> Looking at the  historical picture, it should be stressed that the UK has been in  decline since the 1880s, when it remained the only developed nation  to embrace free trade and that between the 1950s and 1970s, the  <i>"absolute growth rates per capita . . . compared well with the  inter-war years and with the period of British leadership in the nineteenth century."</i> This lack of success for neo-liberal reforms can also be seen in New Zealand. The economic results of its  liberalisation project were just as poor. Between 1984-98 per  capita income grew only about 5.4%, or 0.4% per annum, well below  the EU average and one of the lowest rates of increase among the  OECD countries. [Turner, <b>Op. Cit.</b>, p. 196,  p. 212, p. 199 and  p. 240fn] Needless to say, be cause the rich got richer and  rebellious workers controlled, both the UK and New Zealand were proclaimed "economic miracles."</p>
<p>This lack of dynamism is not limited just to the UK or New Zealand. As left-wing economist Andrew Glyn notes, the <i>"fact that there was no  general improvement in growth in the 1980s could be explained away by  the fact that the . . . policies . . .  were only picking up steam.  But the real puzzle is the 15 years since 1990. Why [have these  free market policies] . . . failed to bring an increase in the growth  rate."</i> In fact, growth per year has steadily fallen since 1973 with  1990-2004 the lowest rate yet for the USA, Europe and Japan. This  applies to other economic indicators as well. <i>"The fact that output  per head has been growing more slowly since 1990 than it did in the  turbulent period 1973-9, never mind the Golden Age, must be a severe  disappointment to those who believed that unleashing the free market  would restore rapid growth."</i> He summarises the evidence by pointing out that <i>"economic performance overall has been unspectacular."</i>  [<b>Capitalism Unleashed</b>, pp. 130-1 and p. 151]</p>
<p>As Chomsky summarises, <i>"neoliberal-style programs began to take shape  in the 1970s"</i> and since then real wages <i>"for the majority have largely  stagnated or declined . . . the relatively weak benefits system has declines as well. Incomes are maintained only be extending working hours  well beyond those in similar societies, while inequality has soared"</i> (as  has personal debt). Moreover, <i>"this is a vast change from the preceding  quarter century, when economic growth was the highest on record for a  protracted period and also egalitarian. Social indicators, which closely  tracked economic growth until the mid-1970s, then diverged, declining to  the level of 1960 by the year 200O."</i> [<b>Failed States</b>, p. 211]</p>
<p>The assumption is that producing free(r) markets and a pure(r) capitalism will result in higher growth and so rising living standards. <i>"So far,"</i> note two experts, <i>"the promises have not been realised. As trade and  financial markets have been flung open, incomes have risen not faster,  but slower. Equality among nations has not improved, with many of the poorest nations suffering an absolute decline in incomes. Within nations,  inequality seems to have worsened . . . the trend to towards more  inequality."</i> In the two decades after 1980, <i>"overall income growth slowed dramatically."</i> For example, the rich countries saw annual per capita  income growth fall from 4.8% (1965-80) to 1.4% (1980-95). Medium countries  saw a fall from 3.8% to 3.1% (excluding China, this was 3.2% to 0.6% as China rose from 4.1% to 8.6%). For the poorest nations, there was a rise  from 1.4% to 2.0% but this becomes 1.2% to 0.1% when India is excluded  (India saw a rise from 1.5% to 3.2%). In fact, income dropped by -0.4%  a year between 1980 and 1995 for the least developed countries (it had  risen 0.4% a year between 1965 and 1980). <i>"In more advanced countries  . . . income growth was lower in the 1990s than in the 1980s. Over the  entire post-1980 period, it was substantially below that of the 1960s  and 1970s."</i> In America, for example, annual growth of per capita income has dropped from 2.3% between 1960-79, to 1.5% between 1979 and 1989 and 1.0% between 1989 and 1996 (per capita income growth up to 1998 was  1.4% per year, still less than the 1.6% per cent between 1973 and 1980  and 1980s and about half the growth over the 1960 to 1973 period). Given  that income equality improved during the 1960s and 1970s, before worsening  after 1980 for most countries, particularly the USA, this means that even  these most increases flowed overwhelming to those at the top of the income  hierarchy. In America, the working hours for a middle-class family has  increased by 10.4% between 1979 and 1997. In other words, working class people are working more for less. In most advanced nations, there has <i>"not been a sizeable increase in poverty,"</i> the <i>"exceptions [being] the USA and  the United Kingdom, where poverty grew, respectively, by 2.4 and 5.4  percentage points between 1979 and 1991."</i> [Jeff Faux and Larry Mishel,  <i>"Inequality and the Global Economy"</i>, pp. 93-111, Will Hutton and Anthony  Giddens (eds.), <b>On The Edge</b>, pp. 93-4,  p. 96, p. 97, p. 98, p. 101,  p. 102 and p. 100]</p>
<p>This lack of rise in growth is a definite feature of neo-liberalism. The promises of the "free market" capitalism have not borne fruit:</p>
<blockquote><p> <i>"Growth did not accelerate. It slowed down. During the 1960s, the average  rate of growth of world GDP per capita was 3.5% per annum . . . The  average rate of growth of world GDP per capital was 2.1% per annum during  the 1970s, 1.3% per annum during the 1980s and 1% per annum during the  1990s. This growth was more volatile compared with the past, particularly in the developing world. the growth was also unevenly distributed across countries . . .<br>
</i></p>
<p><i>"Economic inequalities have increased in the late twentieth century as the  income gap between rich and poor countries, between rich and the poor in the world's population, as also between rich and poor people within countries, has widen. The ratio of GDP per capital in the richest country to GDP per capita in the poorest country of the world rose from 35:1 in 1950 to 42:1 in 1970 and 62:1 in 1990. The ratio of GDP per capita in the 20 richest countries to GDP per capita in the poorest 20 countries of the world rose from 54:1 during 1960-62 to 121:1 during 2000-20002. The income gap between people has also widened over time. The ratio of the average GNP per capita in  the richest quintile of the world's population to the poorest quintile in  the world's population rose from 31:1 in 1965 to 60:1 in 1990 and 74:1 in 1997 . . . Income distribution within countries also worsened . . . Between  1975 and 2000, the share of the richest 1% in gross income rose from 8% to  17% in the US, from 8.8% to 13.3% in Canada and from 6.1% to 13% in the UK."</i>  [Deepak Nayyar, <i>"Globalisation, history and development: a tale of two  centuries,"</i> pp. 137-159, <b>Cambridge Journal of Economics</b>, Vol. 30, No. 1, pp. 153-4 and p. 154]</p>
</blockquote>
<p>In fact, between 1950 and 1973 there was a vastly superior economic  performance compared to what came before and what came after. If  laissez-faire capitalism would benefit "everyone" more than "really existing capitalism," the growth rate would be <b>higher</b> during the  later period, which more closely approximated laissez faire. It is not. As such, we should always remember that if anything is proclaimed an "economic miracle" it is unlikely to actually be so, at least for the working class. Looking at the American triumphantism of the late 1990s,  it was easy to forget that in the 1980s and early 1990s, despair at the  US economy was commonplace. Then people looked to Japan, just as they  had looked to Europe in the 1960s.</p>
<p>We must also note that there is a standard response by believers on "laissez-faire" capitalism when inconvenient facts are presented to them, namely to stress that we have not reached the market utopia yet and  more reforms are required (<i>"a feature of hard-line free-market analysis  [is] that when liberalisation does not work the reason is always timidity  and the solution is obvious. Complete the job."</i> [Glyn, <b>Op. Cit.</b>, p. 143]). Another possible defence would be to stress that the results would have been worse if the reforms had not been implemented. These are, of course,  possibilities but given the rhetoric used by the defenders of capitalism  on the wonders and efficiency of free markets, it seems strange that  making them freer would have such negative effects.</p>
<p>Looking at the history of capitalism, it appears that social-democratic  capitalism, with strong unions and a welfare state, produces not only  more growth but also more equitable growth (as one expert notes, <i>"[i]f  the 'welfare state' were abolished and taxes reduced accordingly,  society would become a great deal more unequal."</i> [John Hills,  <b>Inequality and the State</b>, p. 195]). Movements to more laissez-faire  capitalism has resulted not only in lower growth but also growth which  accumulates in fewer hands (which makes sense considering the basic  anarchist insight that a free exchange benefits the stronger of the  two parties). As such, based on its own criteria (namely economic  growth), then neo-liberalism has to be judged a failure. Do not get  us wrong. It is possible to still advocate laissez-faire capitalism  on ethical grounds (if that is the right word). It is simply doubtful  that it will produce the boost in economic growth (or employment) that  its advocates suggest. It may do, of course, as "actually existing"  capitalism is still far from the pure system of the textbooks but it  is significant that movements towards the ideal have produced <b>less</b>  growth along with greater inequality and relative poverty.</p>
<p>This is <b>not</b> to suggest that anarchists support social-democratic  capitalism rather than more laissez-faire forms. Far from it -- we seek to end all forms of that system. However, it is significant that the  more equal forms of capitalism based on strong and militant unions produced better results than "free(r) market" forms. This suggests that the standard right-wing argument that collective organising and fighting  to keep an increased share of the wealth we produce harms the overall economy and so harmful in the long run are deeply flawed. Instead, it  is the <b>lack</b> of any struggle for equality and freedom that is correlated with bad overall economic performance. Of course, such struggles are a pain for the capitalist class. Rather than produce a <i>"road to serfdom,"</i> social-democracy created the full employment environment which produced  a rebellious population. The move towards "free(r) markets" was a response to this social struggle, an attempt to enserf the population which has proven to be somewhat successful. As such, Kalecki's 1940s prediction  we quoted in <a href="secB4.html#secb44">section B.4.4</a> has been proven correct: the ruling class  would prefer social peace (i.e. obedience) rather than higher growth  (particularly if they get to monopolise most of the gains of that lower  growth).</p>
<p>Finally, we should note that there is a slight irony to see right-wingers  saying that "pure(r)" capitalism would benefit the poor especially. This  is because they usually reject the idea that aggregate economic statistics  are a meaningful concept or that the government should collate such data (this is a particular feature of the "Austrian" school of economics). As such, it would be near impossible to determine if living standards had improved any faster than under the current system. Given the history of "actually existing" capitalism, it is probably wise that many "market  advocates" do so. Moreover, any subjective evaluation, such as asking  people, which resulted in a negative response would be dismissed out  of hand as "envy." Ironically, for an ideology which says it bases  itself on "subjective" evaluations, economists are always ready to  ignore any which conflict with their ideas. Needless to say, even if  it could be proven beyond doubt that "pure(r)" capitalism did <b>not</b>  help the poor but rather enriched the wealthy then almost all "free  market" capitalists would <b>not</b> change their ideas. This is because,  for them, the outcomes of the market are hallowed and if they result  in increased poverty then so be it. It just shows that the poor are  lazy and not worth higher incomes. That they sometimes utilise the  rhetoric of social concern simply shows that most people still have  concern and solidarity for their fellows, a concern which capitalism  has not managed to totally remove (much to the chagrin of the likes  of von Hayek -- see chapter 11 of Alan Haworth's <b>Anti-Libertarianism</b>  for a short but relevant discussion of this).</p>
<h2><a name="secc101">C.10.1 Hasn't neo-liberalism benefited the world's poor?</a></h2>
<p>Until the wave of so-called "anti-globalisation" protests (a more  accurate term would be "global justice" protests) erupted in the late  1990s, there was no real need for the neo-liberal agenda to justify its performance. When opposition could not be ignored, then it had to be undermined. This lead to a host of articles and books justifying neo-liberalism in terms of it helping the world's poorest peoples.  This has meant denying the reality of 30 years of neo-liberal reforms in favour of concentrating on absolute poverty figures.</p>
<p>This is understandable. As we discuss in the  <a href="secC10.html#secc104">section C.10.4</a>, absolute  inequality and poverty is a good means of making discussion of the real issues meaningless. Moreover, as noted above, as capitalism  must grow to survive wealth will tend to increase for all members of society over time. The real question is whether "free(r) markets  increase or reduce growth rates and how they impact on relative levels of poverty and inequality. Given that the last few decades  indicate how free(r) markets result in increased inequality, it is obvious why defenders of capitalism would seek to focus attention on absolute income. While denied by some, inequality has risen under  globalisation. Those who deny it usually do so because the doctrines  of the powerful are at stake. Some, in spite of the evidence, are  that world-wide economic inequality has fallen thanks to global  capitalism.</p>
<p>At the forefront of such claims is <b>the Economist</b> magazine, which  played its usual role of ideological cheerleader for the ruling class.  Discussing <i>"Global economic inequality"</i>, the magazine argued that the  claim that inequality has risen is false. Ironically, their own article  refutes its own conclusions as it presented a graph which showed an upward  relationship between economic growth from 1980 to 2000 and original income  level for a large group of countries. This means that global economic  inequality <b>has</b> increased -- as they admit, this means <i>"that the poor  are falling behind, and that cross-country inequality is getting worse."</i>  [<i>"More or less equal?"</i>, <b>The Economist</b>, 11th March, 2004]</p>
<p>However, this conclusion is ideologically incorrect and so something  must be done to achieve the correct position in order to defend capitalism against the anti-capitalist bias of reality. They did this by adding  another chart which weights each point by population. This showed that  two of the largest countries of their group, China and India, grew among  the fastest. Using this data they make the claim that inequality has, in fact, fallen under neo-liberalism. Once you look at individuals rather than  countries then the claim can be made that world-wide inequality has been  falling under "free(r) market" capitalism. While an impressive piece of  ideological obfuscation, the argument ignores changes <b>within</b> countries.  The article states that <i>"average incomes in India and China are going up  extremely rapidly"</i> but not every person receives the average. The average  hides a lot. For example, 9 homeless people have an average income of £0  but add a multi-millionaire and the average income of the ten people is  in the millions. On average, at the end of a game of poker everyone has  the same amount of money they started with. As such, to ignore the fact  that inequality increased dramatically both countries during the 1990s is  disgraceful when trying to evaluate whether poverty has actually decreased or not. And it should be obvious that if inequality is increasing <b>within</b>  a country then it must also be increasing internationally as well.</p>
<p>Significantly, <i>"where governments adopted the [neo-liberal] Washington  Consensus, the poor have benefited less from growth."</i> [Joseph E. Stiglitz,  <b>Globalization and its Discontents</b>, p. 79] The mantra that economic growth  is so wonderful is hard to justify when the benefits of that growth are being  enjoyed by a small proportion of the people and the burdens of growth (such  as rising job insecurity, loss of benefits, wage stagnation and decline for  the majority of workers, declining public services, loss of local communities  and so forth) are being borne by so many. Which does seem to be the case  under neo-liberalism (which, undoubtedly, explains why it is portrayed so positively in the business press).</p>
<p>To be fair, the article does note the slow and declining incomes in  the past 20 years in sub-Saharan Africa but rest assured, the magazine  stresses, this area <i>"suffers not from globalisation, but from lack of  it."</i> This means that this area can be ignored when evaluating the results  of neo-liberalism. Yet this is unconvincing as these nations are hardly  isolated from the rest of the world. As they are suffering from debt  and western imposed structural adjustment programs it seems illogical  to ignore them -- unless it is a way to improve neo-liberalism's outcomes  by evading its greatest failures.</p>
<p>Then there is the comparison being made. The Economist looks solely at  the years 1980-2000 yet surely the right comparison would be between this  period and the twenty years before 1980? Once that is done, it becomes clear why the magazine failed to do so for <i>"economic growth and almost  all of the other indicators, the last 20 years have shown a very clear  decline in progress as compared with the previous two decades."</i> While it is <i>"commonly believed that the shift towards globalisation has been a  success, at least regarding growth,"</i> in fact <i>"the progress achieved in  the two decades of globalisation has been considerably less than the  progress in the period from 1960 to 1980."</i> For low and middle-income  countries, performance is <i>"much worse . . . than the period from 1960  to 1980."</i> <i>"Summing up the evidence on per capita income growth,  countries at every level of per capita GDP performed worse on average  in the period of globalisation than in the period from 1960 to 1980."</i> [Mark Weisbrot, Dean Baker, Egor Kraev and Judy Chen, <b>The Scorecard  on Globalization 1980-2000: Twenty Years of Diminished Progress</b>] In  fact:</p>
<blockquote><p> <i>"The poorest group went from a per capita GDP growth rate of 1.9 percent  annually in 1960-80, to a decline of 0.5 percent per year (1980-2000).  For the middle group (which includes mostly poor countries), there was  a sharp decline from an annual per capita growth rate of 3.6 percent to  just less than 1 percent. Over a 20-year period, this represents the  difference between doubling income per person, versus increasing it by  just 21 percent."</i> [<b>Op. Cit.</b>]
</p></blockquote>
<p>Nor should we forget that there is a <i>"gallery of nations whose economies  soured shortly after their leaders were lauded by the global policy elite  for pursuing sound economic fundamentals."</i> [Jeff Faux and Larry Mishel,  <b>Op. Cit.</b>, p. 94] This process of proclaiming the success of neo-liberalism before it implodes started with the original neo-liberal experiment, namely Pinochet's Chile whose economy imploded just after Milton Friedman proclaimed  it an "economic miracle" (see <a href="secC11.html">section C.11</a>).</p>
<p>Latin America has suffered the most attention from neo-liberalism and its  institutions so it would be useful to look there for evaluating the claims of its supporters (<i>"the IMF talks with pride about the progress that Latin  America made in market reforms"</i> [Stiglitz, <b>Op. Cit.</b>, p. 79]). Rather than success story, there has been <i>"a long period of economic failure: for the  prior 20 years, 1980-1999, the region grew by only 11 percent (in per capita  terms) over the whole period. This is the worst 20-year growth performance  for more than a century, even including the years of the Great Depression."</i>  By comparison, <i>"for the two decades from 1960-1979, Latin America experienced  per capita GDP growth of 80 percent."</i> In fact, <i>"using the 1960-1979 period  as a baseline, the quarter century for 1980-2004 is dismal. Annual growth  in GDP per capita registers a mere 0.5 percent, as opposed to 3.0 percent  over the previous period. Countries that are now considered relatively  successful are not doing very well compared to past performance. For  example, Mexico registers 0.8 percent annual per capita growth for  1980-2004, as compared with 3.3 percent for 1960-79. For Brazil, which  one had one of the fastest growing economies in the world, per capita  growth is only 0.8 percent annually for 1980-2004, as compared with 4.9  percent for 1960-79."</i> For Latin America as a whole, real per-capita growth  was 3.0% in the 1960s, 2.9% in the 1970s, -0.3% in the 1980s and 1.4% in  the 1990s. This means that for 1980-1999, <i>"the region's per capita GDP grew  at an annual rate of only 0.5 percent, a cumulative total of 11 percent for  the two decades."</i> By comparison, <i>"from 1960-1979, per capita growth was 3.0  percent, or 80 percent for these two decades."</i> [Mark Weisbrot and David  Rosnick, <b>Another Lost Decade?: Latin America's Growth Failure Continues  into the 21st Century</b>] Looking at Mexico, for example, since NAFTA per  capita GDP growth in Mexico has averaged less than 1.0% annually. This  is an extremely poor growth record for a developing country. Successful  developing countries, such as South Korea and Taiwan have managed to  sustain per capita GDP growth rates that have averaged more than 4.0%  since the sixties. In fact, Mexico managed to sustain a per capita GDP  growth rate of more than 4.0% in the period from 1960 to 1980, when it  was following a path of import substitution. But, then, neither South  Korea nor Taiwan followed the dictates of neo-liberalism.</p>
<p>Over all it is important to stress that neo-liberalism has failed its own test:</p>
<blockquote><p> <i>"Economic growth over the last twenty years, the period during which  [neo-liberalism] policies . . . have been put into place, has been  dramatically reduced . . . to assume that the World Bank and the IMF  have brought 'growth-enhancing policies' to their client countries  goes against the overwhelming weight of the evidence over the last  two decades . . . In short, there is no region of the world that the  Bank or Fund can point to as having succeeded through adopting the  policies that they promote -- or in many cases, impose -- upon  borrowing countries."</i> [Mark Weisbrot, Dean Baker, Robert Naiman, and  Gila Neta, <b>Growth May Be Good for the Poor -- But are IMF and World  Bank Policies Good for Growth?</b>]
</p></blockquote>
<p>As Chomsky summarises, the periods of fastest and prolonged growth have  not coincide with phases of extensive liberalisation. In fact, neoliberal  reforms have <i>"been accompanied by much slower rates of growth and reduced  progress on social indicators . . . There are exceptions to the general  tendency: high growth rates were recorded among those who ignored the  rules (and with tremendous inequality and other severe side effects in  China and India)."</i> Growth rates have, in fact, fell by <i>"over half"</i>  compared to the preceding period of statist policies (particularly  when measured per capita). [<b>Op. Cit.</b>, pp. 216-7] For most countries,  growth was higher in the 1950s, 1960s and even the 1970s. This suggests  that neo-liberalism fails even its own tests as noted by one economist who compared the reality of successful development to the neo-liberal myth:</p>
<blockquote><p> <i>"the poor growth records of developing countries over the last two decades  suggest this line of defence [i.e. it brings higher growth] is simply  untenable . . . The plain fact is that the Neo-Liberal 'policy reforms'  have not been able to deliver their central promise -- namely, economic  growth."</i> [Ha-Joon Chang, <b>Kicking Away the Ladder</b>, p. 128]
</p></blockquote>
<p>Then there is the issue of what the magazine fails to mention. For a  start, it excludes the ex-Stalinist regimes in Eastern Europe. This is  understandable for obvious reasons. If these nations were included, then  their rising inequality and poverty since they became part of the global  market would have to be mentioned and this would make its defence of  neo-liberalism much harder (as would the fact life expectancies fell  to Third World levels). As economist Joseph Stiglitz points out, the neo-liberal reforms brought the ex-Stalinist countries <i>"unprecedented  poverty."</i> In 1989, only 2% of Russians lived in poverty, by the late  1998 that number had soared to 23.8%, using the $2 a day standard. More  than 40% had less that $4 a day. Other post-Stalinist countries <i>"have  seen comparable, if not worse, increases in poverty."</i> Overall, these reform package has <i>"entailed one of the largest increases in poverty in history."</i> [<b>Globalization and its Discontents</b>, p. 6, p. 153 and p. 182]</p>
<p>The GDP in the former Stalinist states fell between 20% and 40% in the  decade after 1989, an economic contraction which can only be compared  to the Great Depression of the 1930s. Of the 19 ex-Stalinist economies,  only Poland's GDP exceeded that of 1989, the year transition began.  In only 5 was GDP per capita more than 80% of the 1989 level. [Chang, <b>Op. Cit.</b>, p. 129] Only a small minority saw their real wages rise; the  vast majority experienced a spectacular fall in living standards. It  took the Czech Republic, for example eight years until average real  wages reached their 1989 level. Unemployment became widespread. In  2005, Slovakia had 27% of its under-25s are unemployed while in  Poland 39% of under-25s were without a job (the highest figure in  Europe) and 17% of the population were below the poverty line.</p>
<p>Overall, between 1985 and 2000, growth in GDP per capita was negative  in 17 transition countries while the <i>"incidence of poverty increased  in most countries of Latin America, the Caribbean and Sub-Saharan  Africa during the 1980s and the 1990s. Much of Eastern Europe and  Central Asia experiences a sharp rise in poverty during the 1990s."</i> East, Southwest and South Asia did experience a steady decline in the  incidence of poverty, but <i>"most of this improvement is accounted for  by changes in just two countries, with large populations, China and  India."</i> [Deepak Nayyar, <b>Op. Cit.</b>, p. 154, pp. 154-5 and p. 155] Hardly  an inspiring result.</p>
<p>And what of the actual economic regimes in China and India? One  left-wing economist notes that <i>"in the early stages of China's high  growth period there was an expansion of state employment, including  in the dynamic and crucial manufacturing sector . . . in its most  recent phase, private capital accumulation dominates the growth  process in China, although the state still strongly influences the  pattern of investment through its control of the credit system and  its policy of creating 'national champions' in sectors such as cars  and steel."</i> Not to mention, of course, its role in the labour market.  There is no freedom to organise -- the country is, in effect, one big  workplace and the state bosses do not tolerate freedom of association,  assembly and speech any more than any other company. Unsurprisingly,  labour discipline <i>"is very harsh"</i> and workers may find it difficult to  change jobs and migrate to urban areas. [Andrew Glyn, <b>Op. Cit.</b>, p. 87  and p. 94]</p>
<p>As one expert notes, in the case of both India and China <i>"the main  trade reforms took place <b>after</b> the onset of high growth. Moreover,  these countries' trade restrictions remain among the highest in the  world."</i> In India, its <i>"trend growth rate increased substantially in  the early 1980s"</i> while <i>"serious trade reform did not start until  1991-93 . . . tariffs were actually higher in the rising growth  period of the 1980s than in the low-growth 1970s."</i> Thus claims of  <i>"the beneficial effects of trade liberalisation on poverty have to  be seen as statements based on faith rather than evidence."</i> [Dani  Rodrik, <b>Comments on 'Trade, Growth, and Poverty by D. Dollar and  A. Kraay</b>] As Chomsky notes, there is a deliberate policy which  <i>"muddles export orientation with neo-liberalism, so that if a  billion Chinese experience high growth under export-orientated  policies that radically violate neo-liberal principles, the  increase in average global growth rates can be hailed as a triumph  of the principles that are violated."</i> [<b>Op. Cit.</b>, p. 217] It should  also be mentioned that both these states avoided the 1980s debt  crisis by avoiding Western banks in the 1970s. They also maintain  capital controls, so that hot money cannot flow freely in and out,  and have large state sectors.</p>
<p>At least the <b>Economist</b> itself notes that <i>"[n]either country is an  exemplar of free market capitalism -- far from it."</i> That says it all  about the defenders of free market capitalism; they defend their ideas  by pointing to countries which do not apply them!</p>
<p>It should be stressed that this praise for the "free market" using  regimes which hardly meet the criteria has a long history. This has  included both Japan and the East Asian Tigers in the 1970s and 1980s  as <i>"the spectacular growth of these countries . . . is fundamentally  due to activist industrial, trade and technology policies (ITT) by  the state."</i> [Chang, <b>Op. Cit.</b>, p. 49] As an expert on these economies  notes, <i>"the legend is not fully consistent with the way the  governments have in practice behaved,"</i> namely adopting <i>"over a long  period of time a much more aggressive, dirigistic set of industrial  policies than free-trading principles would justify."</i> In fact, their  <i>"governments were deeply committed to increasing and sustaining  high levels of investment and to steering its composition."</i> He  bemoans the <i>"assumption that only those features of economic policy  consistent with neoclassical principles could have contributed to  good economic performance"</i> and so explanations for such <i>"accordingly  ignore non-neoclassical features."</i> [Robert Wade, <i>"What can Economics  Learn from East Asian Success?"</i>, pp. 68-79, <b>Annals of the American  Academy of Political and Social Science</b>, vol. 505, pp. 70-1, p. 72  and p. 68]</p>
<p>This analysis was proved right when, ironically, the praise turned to  attack when the 1997 crisis erupted and all the features previously ignored or denied where brought onto the central stage to explain the slump (<i>"When their bubbles imploded, the same countries were denounced  by the policy elites for something called 'crony capitalism' -- a  year earlier, the term had been 'business-friendly environment.'"</i>  [Jeff Faux and Larry Mishel, <b>Op. Cit.</b>, p. 94]). As Robert Wade noted,  <i>"the perception shifted from 'miracle Asia' to 'Asian crony state  capitalism' almost over night,"</i> a term used <i>"to convey a told-you-so  moral about the dangers of government intervention."</i> [<i>"From 'miracle'  to 'cronyism': explaining the Great Asian Slump"</i>, pp. 673-706,  <b>Cambridge Journal of Economics</b>, Vol. 22, No. 6, p. 699 and p. 700]  Ironically, Japan's 1990s woes and the 1997 crisis both occurred  <b>after</b> those states liberalised their economies (as recommended by, of course, economists and the IMF). Unsurprisingly, we discover  Milton Friedman pointing (in 2002!) to the <i>"dramatic success of the  market-orientated policies of the East Asian tigers"</i> as if they gave  support to his ideological position of laissez-faire capitalism.  [<b>Op. Cit.</b>, p. ix]</p>
<p>Then there is the issue of "economic liberty" as such. Milton Friedman  stated in 2002 that the <i>"limited increase in economic freedom has changed  the face of China, strikingly confirming our faith in the power of free  markets."</i> [<b>Op. Cit.</b>, pp. viii-ix] Faith is the right word, as only the faithful could fair to note that there is no free market in China as  it does not have basic freedoms for labour. How much "economic freedom"  is there for workers under a brutal dictatorship? How can it be claimed,  with a straight face, that there is an <i>"increase in economic freedom"</i>  in such regimes? It seems, therefore, that for right-wing economists that  their <i>"faith"</i> in "free markets" is <i>"confirmed"</i> by an authoritarian system  that obviously and constantly violates the freedom of labour. But then  again, workers have never been considered highly by the profession. What  has always counted is the freedom of the boss and, consequently, a regime  that secures that is always praised (and we discuss in <a href="secC11.html">section C.11</a>,  Friedman has a track record in this).</p>
<p>The selectively of the supporters of "free market" capitalists is truly  staggering. Take, as an example, globalisation and anti-globalisation  protests. Supports of the trade deals accused critics as being against  "free trade" and, by implication, against freedom. Yet the deals they  supported were based on accepting the current labour standards across  the world. This means accepting the labour conditions of states, usually  dictatorships, which habitually deny a free market (even a capitalist  one) to its workers -- all in the name of the free market! Which makes  the "free market" supporters of neo-liberalism utter hypocrites. They  are happy to accept a "free market" in which the denial of freedom of  workers to form unions is an intrinsic part. It also suggests that the  much attacked critics of "trade" deals who demand that basic standards  of freedom for workers be incorporated into them are those who truly  support "free trade" and the "free market." Those who advocate  unrestricted trade with dictatorial regimes (where workers are thrown  in prison, at best, or assassinated, at worse, if they organise or talk  about unions and protests) are engaging in the worse form of doublethink  when they appropriate the term "freedom" for their position.</p>
<p>It is easy to understand why supporters of capitalism do so. In such  regimes, capital is free and the many abuses of freedom are directed  towards the working class. These suppress wages and the resulting  competition can be used to undermine workers wages, conditions and  freedoms back home. This is why neo-liberals and such like agree to  a range of global policies that give substantial freedoms to  capitalists to operate unhindered around the world while, at the  same time, fiercely resistant to any demands that the freedom of  workers be given equal concern (this why Chomsky talks about the  <i>"international global justice movement, ludicrously called  'anti-globalisation' because they favour globalisation that  privileges the interests of people, not investors and financial institutions."</i> [<b>Op. Cit.</b>, p. 259]). In other words, free markets are  fine for capitalists, but not for workers. And if anyone disagrees,  they turn round and accuse their critics of being opposed to "freedom"! As such, anti-globalisation protesters are right. People in such regimes  are not free and it is meaningless to talk of the benefits of "free  markets" when a free market in labour does not exist. It does, of  course, show how genuine the defenders of capitalism are about freedom.</p>
<p>So has global poverty fallen since the rise of neo-liberalism in 1970s?  Perhaps it has, but only if you apply the World Bank measure (i.e. a living  standard of less than a dollar a day). If that is done then the number of  individuals in dire poverty is (probably) falling (although Joseph Stiglitz  states that <i>"the actual number of people living in poverty . . . actually increased by almost 100 million"</i> in the 1990s and he argues that  globalisation as practised <i>"has not succeeded in reducing poverty."</i>  [<b>Op. Cit.</b>, p. 5 and p. 6]). However, the vast bulk of those who have  risen out of dire poverty are in China and India, that is in the two  countries which do not follow the neo-liberal dogma. In those that did  follow the recommendations of neo-liberalism, in Africa, Latin America  and Eastern Europe, poverty and growth rates are much worse. Chang states the obvious:</p>
<blockquote><p> <i>"So we have an apparent 'paradox' here -- at least if you are a Neo-Liberal  economist. All countries, but especially developing countries, grew much  faster when they used 'bad' policies during the 1960-1980 period than when  they used 'good' ones during the following two decades . . . Now, the interesting thing is that these 'bad; policies are basically those that the  NDCs [Now Developed Countries] had pursued when they were developing countries  themselves. Given this, we can only conclude that, in recommending the  allegedly 'good' policies, the NDCs are in effect 'kicking away the ladder' by which they have climbed to the top."</i> [<b>Op. Cit.</b>, p. 129]
</p></blockquote>
<p>Hardly a glowing recommendation for the prescriptions favoured by the Economist  and other supporters of free market capitalism. Nor very convincing support for  solving the problems of neo-liberalism with yet more globalisation (of the same,  neo-liberal, kind). One thing is true, though. The accepted wisdom of the age  if that the road to prosperity and international acceptance is "economic  liberalisation" or some of euphemism for opening economies to foreign investment.  What this really means is that authoritarian regimes that allow their subjects  to be exploited by international capital rather than state bureaucracies will  find apologists among those who profit from such transactions or get paid by  them. That this involves violation of the freedom of working class people  and the labour "market" does not seem to bother them for, they stress, in  long term material benefits this will create outweigh such restrictions  on the eternal and sacred laws of economics. That "freedom" is used to  justify this just shows how debased that concept has become under  capitalism and within capitalist ideology.</p>
<h2><a name="secc102">C.10.2 Does "free trade" benefit everyone?</a></h2>
<p>As we discussed in the <a href="secC10.html#secc101">last section</a>, the post-1980 era of neo-liberal  globalisation and "free(r) markets" has not been as beneficial to the developing world as the defenders of neo-liberalism suggest. In fact, these economies have done worse under neo-liberalism than they did  under state-aided forms of development between 1950 and 1980. The  only exceptions post-1980 have been those states which have rejected the dogmas of neo-liberalism and used the state to foster economic development rather than rely on "free trade."</p>
<p>It would, of course, be churlish to note that this is a common feature  of capitalist development. Industrialisation has always been associated  with violations of the sacred laws of economics and freedom for workers.  In fact, the central conceit of neo-liberalism is that it ignores the evidence of history but this is unsurprising (as noted in  <a href="secC1.html#secc12">section C.1.2</a>,  economics has a distinct bias against empirical evidence). This applies to the notion of free trade as well as industrialisation, both of which show the economists lack of concern with reality.</p>
<p>Most economists are firm supporters of free trade, arguing that it benefits  all countries who apply it. The reason why was first explained by David  Ricardo, one of the founding fathers of the discipline. Using the example  of England and Portugal and wine and cloth, he argued that international  trade would benefit both countries even if one country (Portugal) produced  both goods more cheaply than the other because it was relative costs which  counted. This theory, called comparative advantage, meant that it would be  mutually beneficial for both countries to specialise in the goods they had  a relative advantage in and trade. So while it is cheaper to produce cloth  in Portugal than England, it is cheaper still for Portugal to produce excess  wine, and trade that for English cloth. Conversely, England benefits from  this trade because its cost for producing cloth has not changed but it can  now get wine at closer to the cost of cloth. By each country specialising  in producing one good, the sum total of goods internationally increases  and, consequently, everyone is better off when these goods are traded.  [<b>The Principles of Political Economy and Taxation</b>, pp. 81-3]</p>
<p>This argument is still considered as the bed-rock of the economics of  international trade and is used to refute arguments in favour of policies like protectionism. Strangely, though, economists have rarely compared the outcome of these policies. Perhaps because as Chomsky notes, <i>"if you want  to know how well those theorems actually work, just compare Portugal and  England after a hundred years of development."</i> [<b>Understanding Power</b>,  p. 254] One economist who did was the German Friedrich List who, in 1837, urged people <i>"to turn his attention to Portugal and to England and to compare the economies of these two countries. I am sure that he can have  no doubts as to which country is prosperous and which has lost its economic  independence, is dead from an intellectual, commercial and industrial point  of view, and is decadent, poverty stricken and weak."</i> [<b>The Natural System of  Political Economy</b>, pp. 169-70] Unsurprisingly, List used this example to bolster his case for protectionism. Little has changed. Allan Engler notes that <i>"[a]fter nearly 200 years, comparative advantage had given Portugal  no noticeable advantage."</i> While the UK became the leading industrial  power, Portugal remained a poor agricultural economy: <i>"Britain's  manufacturing industries were the most efficient in the world, Portugal  had little choice but to be an exporter of agricultural products and raw  materials."</i> In 1988, Portugal's per capita GDP was less than one third  that of the UK. When "Purchasing power parity" is factored in, Portugal's  per capita GDP was barely more than half of the UK. [<b>Apostles of Greed</b>,  p. 132]</p>
<p>Nor should we forget that free trade takes the economic agent as the  country. Unlike an individual, a nation is divided by classes and  marked by inequalities of wealth, power and influence. Thus while  free trade may increase the sum-total of wealth in a specific country,  it does not guarantee that its benefits or losses will be distributed  equally between social classes, never mind individuals. Thus capitalists  may favour free trade at specific times because it weakens the  bargaining power of labour, so allowing them to reap more income  at the workers' expense (as producers and consumers). Taking the example  of the so-called "free trade" agreements of the 1990s, there was no  reason to believe that benefits of such trade may accrue to all within  a given state nor that the costs will be afflicted on all classes.  Subsequent developments confirmed such a perspective, with the working  class suffering the costs of corporate-led "globalisation" while the  ruling class gained the benefits. Not that such developments bothered  most economists too much, of course. Equally, while the total amount of  goods may be increased by countries pursuing their comparative advantage  it does not automatically follow that trade between them will distribute  the benefits equally either between the countries or within them. As with  exchange between classes, trade between countries is subject to economic  power and so free trade can easily lead to the enrichment of one at the  expense of the other. This means that the economically powerful will  tend to support free trade as they will reap more from it.</p>
<p>Therefore the argument for free trade cannot be abstracted from its impact  or the interests it serves, as Joan Robinson pointed out:</p>
<blockquote><p> <i>"When Ricardo set out the case against protection he was supporting British economic interests. Free trade ruined Portuguese industry. Free trade for <b>others</b> is in the interests of the strongest competitor  in world markets, and a sufficiently strong competitor has no need for  protection at home. Free trade doctrine, in practice, is a more subtle  form of Mercantilism. When Britain was the workshop of the world,  universal free trade suited her interests. When (with the aid of  protection) rival industries developed in Germany and the United  States, she was still able to preserve free trade for her own exports  in the Empire."</i> [<b>Collected Economic Papers</b>, vol. 5, p. 28]
</p></blockquote>
<p>This echoes the analysis of List who that the British advocacy of free  trade was primarily political in nature and not to mention hypocritical.  Its political aim was to destroy potential competitors by flooding their  markets with goods, so ruining their industrial base and making them  exporters of raw materials for British industry rather than producers  of finished goods. He argued that a <i>"study of the true consequences"</i> of free trade <i>"provide the key to England's commercial policy from that day  to this. The English have always been cosmopolitans and philanthropists in theory but always monopolists in practice."</i> [<b>Op. Cit.</b>, p. 167] Moreover,  such a position was hypocritical because Britain industrialised by means  of state intervention and now sought to deny that option to other nations.</p>
<p>List advocated that the state should protect infant industries until such  time as they could survive international competition. Once industrialised,  the state could then withdraw. He did not deny that free trade may benefit  agricultural exporters, but only at the expense of industrial development  and spill-over benefits it generates for the economy as a whole. In other  words, free trade harmed the less-developed nation in terms of its economic  prosperity and independence in the long run. Protectionism allowed the development of local industrial capitalism while free trade bolstered the  fortunes of foreign capitalist nations (a Hobson's choice, really, from an  anarchist perspective). This was the situation with British capitalism, as <i>"Britain had very high tariffs on manufacturing products as late as  the 1820s, some two generations after the start of its Industrial  Revolution . . . Measures other than tariff protection were also deployed"</i>  (such as banning imports from competitors). [Chang, <b>Op. Cit.</b>, p. 22]  Needless to say, trade unions were illegal during this period of  industrialisation and troops were regularly deployed to crush strikes,  riots and rebellions. Economist Thomas Balogh confirms this analysis:</p>
<blockquote><p> <i>"The fact is that Britain's economic growth forged ahead of its European  competitors while it was exploiting an effective monopoly of the steam  engine, from 1780 to 1840. Through most of that period the nation had a  high and complicated tariff . .  ., massive public investment and spending  . . . and an extensive public welfare system with wage supplements and welfare allowances indexed to basic costs of living . . .<br>
</i></p>
<p><i>"There followed a long period, from about 1840 to 1931, when Britain  did indeed have the freest trade and relatively speaking the cheapest  government and (until 1914) the smallest public sector among the  industrially developing nations, Yet, for competitiveness, that  century saw the relative decline of the country. Numerous competing  countries, led by the US and Germany, emerged and overtook and passed  Britain in output and income per head. Every one of them had protective  tariffs, and a bigger (relative) public sector than the British."</i> [<b>Op. Cit.</b>, p. 180]</p>
</blockquote>
<p>Significantly, and highly embarrassingly for neo-classical economists, the one nation which embraced free trade ideology most, namely the UK in the latter half of the 19th century, suffered economic decline in  comparison to its competitors who embraced protectionist and other  statist economic policies. It would be churlish to note that this is the exact opposite of what the theory predicts.</p>
<p>In historical terms, List has been proven correct numerous times. If  the arguments for free trade were correct, then the United States and  Germany (plus Japan, South Korea, etc., more recently), would be economic  backwaters while Portugal would have flourished. The opposite happened.  By the 1900s, Britain was overtaken economically by America and Germany,  both of whom industrialised by means of protectionism and other forms  of state intervention. As such, we should not forget that Adam Smith  confidently predicted that protectionism in America would <i>"would retard  instead of accelerating the further increase in the value of their  annual progress, and would obstruct instead of promoting the progress  of their country towards real wealth and greatness."</i> He considered it  best that capital be <i>"employed in agriculture"</i> rather than manufacturing.  [<b>The Wealth of Nations</b>, p. 328 and p. 327]). The historical record  hardly supports Smith's predictions as <i>"throughout the nineteenth  century and up to the 1920s, the USA was the fastest growing economy  in the world, despite being the most protectionist during almost all  of this period . . . Most interestingly, the two best 20-year GDP per  capita growth performances during the 1830-1910 period were 1870-1890  (2.1 per cent) and 1890-1910 (two per cent) -- both period of particularly high protectionism. It is hard to believe that this  association between the degree of protectionism and overall growth  is purely coincidental."</i> [<b>Op. Cit.</b>, p. 30]</p>
<p>As with the UK, America <i>"remained the most ardent practitioner of infant  industry protection until the First World War, and even until the Second."</i>  Like UK, the state played its role in repressing labour, for while unions  were usually not technically illegal, they were subject to anti-trust laws  (at state and then federal level) as well as force during strikes from  troops and private police forces. It was <i>"only after the Second World  War that the USA -- with its industrial supremacy unchallenged - finally  liberalised it trade and started championing the cause of free trade."</i>  [Chang, <b>Op. Cit.</b>, p. 28 and p. 29] Unsurprisingly, faced with growing  international competition it practised protectionism and state aid  while keeping the rhetoric of free trade to ensure that any potential  competitor has its industries ruined by being forced to follow policies  the US never applied in the same situation. Chomsky summarises:</p>
<blockquote><p> <i>"So take a look at one of the things you don't say if you're an economist  within one of the ideological institutions, although surely every economist  has to know it. Take the fact that there is not a single case on record in  history of any country that has developed successfully through adherence to  'free market' principles: none."</i> [<b>Op. Cit.</b>, p. 255]
</p></blockquote>
<p>Not that this has disabused most economists from repeating Ricardo's  theory as if it told the full story of international trade or has been  empirically verified. As Chang puts it, his approach of studying the actual history of specific countries and generalising conclusions <i>"is  concrete and inductive"</i> and <i>"contrasts strongly with the currently  dominant Neoclassical approach based on abstract and deductive methods."</i>  This has meant that <i>"contemporary discussion on economic development  policy-making has been peculiarly ahistoric."</i> [<b>Op. Cit.</b>, p. 6] This  is unsurprising, as there is a distinct tendency within mainstream  economics not to check to see if whether the theory conforms to  reality. It is as if we <b>know</b> that capitalist economics is true, so why  bother to consider the evidence. So no matter how implausible a given  theory is, capitalist economics simply asks us to take them on trust.  Perhaps this is because they are nothing more than logical deductions  from various assumptions and comparing them to reality would expose not  only the bankruptcy of the theory but also the bogus claims that economics  relates to reality or is a science?</p>
<p>That these theories survive at all is due to their utility to vested  interests and, of course, their slightly complicated logical beauty.  It should be noted, in passing, that the free trade argument is based  on <b>reducing</b> international competition. It recommends that different  countries specialise in different industries. That this would make  sense for, say, a country with industry (marked by increasing returns  to scale and significant spill-over effects into other areas of the  economy) rather than one based on agriculture (marked by decreasing  returns to scale) goes without saying. That the policy would turn the  world into a provider of raw materials and markets rather than a  source of competitors for the most advanced nation is just one of  these co-incidences capitalist economics suffers from.</p>
<p>As such, it is not a coincidence that both the classic "free trade" and  current neo-liberal position does allow a nation to secure its dominance  in the market by forcing the ruling elites in <b>other</b> nations to subscribe  to rules which hinder their freedom to develop in their own way. As we  discuss in <a href="secD5.html">section D.5</a>, the rise of neo-liberalism can be viewed as the  latest in a long series of imperialist agendas designed to secure benefits  of trade to the West as well as reducing the number of rivals on the  international market. As Chang notes, Britain's move to free trade after  1846 <i>"was based on its then unchallenged economic superiority and was  intricately linked with its imperial policy."</i> The stated aim was to halt  the move to industrialisation in Europe by promoting agricultural markets.  Outside of the West, <i>"most of the rest of the world was forced to practice  free trade through colonialism and . . . unequal treaties."</i> These days, this policy is implemented via international organisations which impose Western-dominated rules. As Chang notes, the <i>"developed countries did  not get where they are now through policies and the institutions that  they recommend to developing countries today. Most of them actively used  'bad' trade and industrial policies . . . practices that these days are  frowned upon, if not actively banned, by the WTO."</i> [<b>Op. Cit.</b>, p. 16,  p. 23, p. 16 and p. 2]</p>
<p>In other words, the developed countries are making it difficult for the  developing countries to use policies and institutions which they themselves  so successfully used previously. This, as with the "free trade" arguments of the 19th century, is simply a means of controlling economic development in other countries to reduce the number of potential competitors and to secure markets in other countries. In addition, we must also stress that the  threat of capital flight within western countries also raises competitive  pressures for labour and so has the added benefit of helping tame rebellious  workers in the imperialist nations themselves. These factors help explain  the continued support for free trade theory in economic circles in spite of  the lack of empirical evidence in its favour. But then again, given that  most economists cannot understand how one class exploits another by means  of exchange within a national market due to its economic power, it would be  surprising if they could see it within international markets.</p>
<p>To generalise, it appears that under capitalism there are two main options  for a country. Either it submits itself to the dictates of global finance,  embracing neo-liberal reforms and seeing its growth fall and inequality rise  or (like every other successful industrialiser) it violates the eternal laws  of economics by using the state to protect and govern its home market and  see growth rise along with inequality. As Chang notes, looking at the  historical record a <i>"consistent pattern emerges, in which all the  catching-up economies use activist industrial, trade and technology (ITT) policies . . . to promote economic development."</i> He stresses <i>"it was the UK  and the USA, the supposed homes of free trade policy, which used tariff  protection most aggressively."</i> The former <i>"implemented the kinds of ITT  policies that became famous for their use in . . . Japan, Korea and Taiwan."</i>  [<b>Op. Cit.</b>, pp. 125-6, p. 59 and pp. 60-1] In addition, another aspect of this process involves repressing the working class so that <b>we</b> pay the costs for industrialising. Unions were illegal when Britain used its ITT policies while the <i>"labour market in Taiwan and Korea, for example, has  been about as close to a free market as it is possible to get, due in part  to government repression of unions."</i> [<i>"What can Economics Learn from East  Asian Success?"</i>, <b>Op. Cit.</b>, p. 70] Given that unions are anathema to  neo-classical and Austrian economics, it is understandable why their  repression should be considered relatively unproblematic (in fact,  according to economic ideology repressing unions can be considered to  be in the interests of the working class as, it is claimed, unions harm non-unionised workers -- who knew that bosses and their states were  such philanthropists?).</p>
<p>Neither option has much to recommend it from an anarchist perspective.  As such, our stating of facts associated with the history of "actually  existing" capitalism should not be construed to imply that anarchists  support state-run development. Far from it. We are simply noting that  the conclusion of history seems to be that countries industrialise and grow faster when the state governs the market in significant ways while,  at the same time, repressing the labour movement. This is unsurprising, for as we discuss in <a href="secD1.html">section D.1</a>, this process of state intervention is  part and parcel of capitalism and, as noted in <a href="secF8.html">section F.8</a>, has always  been a feature of its rise in the first place (to use Marx's expression,  a process of <i>"primitive accumulation"</i> has always been required to  create capitalism). This does not mean, just to state the obvious,  that anarchists support protectionism against "free trade." In a class  system, the former will tend to benefit local capitalists while the  latter will benefit foreign ones. Then there is the social context.  In a predominantly rural economy, protectionism is a key way to create  capitalism. For example, this was the case in 19th century America and  it should be noted that the Southern slave states were opposed to  protectionism, as where the individualist anarchists. In other words,  protectionism was a capitalist measure which pre-capitalists and  anti-capitalists opposed as against their interests. Conversely, in  a developed capitalist economy "free trade"  (usually very selectively  applied) can be a useful way to undermine workers wages and working  conditions as well as foreign capitalist competitors (it may also change  agriculture itself in developing countries, displacing small peasant  farmers from the land and promoting capitalist agriculture, i.e. one  based on large estates and wage labour).</p>
<p>For the anarchist, while it is true that in the long run option two does  raise the standard of living faster than option one, it should always be  remembered that we are talking about a <b>class</b> system and so the costs and  benefits will be determined by those in power, not the general population.  Moreover, it cannot  be assumed that people in developing countries actually  want a Western lifestyle (although the elites who run those countries  certainly do, as can be seen from the policies they are imposing). As  Bookchin once noted, <i>"[a]s Westerners, 'we' tend to assume out of hand  that 'they' want or need the same kind of technologies and commodities  that capitalism produced in America and Europe . . . With the removal of  imperialism's mailed fist, a new perspective could open for the Third  World."</i> [<b>Post-Scarcity Anarchism</b>, pp. 156-7]</p>
<p>Suffice to say, there are other means to achieve development (assuming that is desired) based on working class control of industry. Given this,  the only genuine solution for developing countries would be to get rid of  their class systems and create a society where working people take control  of their own fates, i.e. anarchism. Hence we find Proudhon, for example,  stating he <i>"oppose[d] the free traders because they favour interest, while  they demand the abolition of tariffs."</i> He advocated the opposite, supporting  free trade <i>"as a consequence of the abolition of interest"</i> (i.e. capitalism).  Thus the issue of free trade cannot be separated from the kind of society  practising it nor from the creation of a free society. Abolishing capitalism in one country, he argued, would lead to other nations reforming themselves,  which would <i>"emancipate their lower classes; in a word, to bring about  revolution. Free trade would then become equal exchange."</i> [<b>The General  Idea of the Revolution</b>, pp. 235-8] Unless that happens, then no matter whether protectionism or free trade is applied, working class people will suffer its costs and will have to fight for any benefits it may bring.</p>
<h2><a name="secc103">C.10.3 Does "free market" capitalism benefit everyone, <i>especially</i>  working class people?</a></h2>
<p>One defence of capitalism is that, appearances and popular opinion to the contrary, it is benefits working class people <b>more</b> than the ruling class.</p>
<p>This argument can be found in right-liberal economist Milton Friedman's  defence of capitalism in which he addresses the claim that <i>"the extension  and development of capitalism has meant increased inequality."</i> Not so, he  states. <i>"Among the Western countries alone,"</i> he argues, <i>"inequality appears  to be less, in any meaningful sense, the more highly capitalist the country  is . . . With respect to changes over time, the economic progress achieved  in the capitalist countries has been accompanied by a drastic diminution  in inequality."</i> In fact, <i>"a free society [i.e. capitalism] in fact tends  towards greater material equality than any other yet tried."</i> Thus,  according to Friedman, a <i>"striking fact, contrary to popular conception,  is that capitalism leads to less inequality than alternative systems of  organisation and that the development of capitalism has greatly lessened  the extent of inequality. Comparisons over space and time alike confirm  this."</i> [<b>Capitalism and Freedom</b>, p. 168, pp. 169-70, p. 195 and p. 169]</p>
<p>Friedman makes other claims to the superiority of capitalism. Thus he states that not only do non-capitalist societies <i>"tend to have wider  inequality than capitalist, even as measured by annual income"</i> in such systems inequality <i>"tends to be permanent, whereas capitalism undermines  status and introduces social mobility."</i> Like most right-wingers, he stresses the importance of social mobility and argues that a society  with little change in position <i>"would be the more unequal society."</i>  Finally, he states that <i>"[o]ne of the most striking facts which run  counter to people's expectations has to do with the source of income.  The more capitalistic a country is, the smaller the fraction of income for the use of what is generally regarded as capital, and the larger  the fraction paid for human services."</i> [<b>Op. Cit.</b>, pp. 171-2, p. 171  and pp. 168-9]</p>
<p>Friedman, as he regularly did, failed to present any evidence to support  his claims or any of his <i>"striking fact[s]"</i> so it is hard to evaluate the  truthfulness of any of this specific assertions. One possible way of doing  so would be to consider the actual performance of specific countries before  and after 1980. That year is significant as this marked the assumption of  office of Thatcher in the UK and Reagan in the US, both of whom were  heavily influenced by Friedman and other supporters of "free market"  capitalism. If his claims were true, then we would expect <b>decreases</b> in  equality, social mobility and the share of <i>"human services"</i> before 1980 (the period of social Keynesian policies) and <b>increases</b> in all three  after. Sadly for Friedman (and us!), the facts are counter to his  assertions -- equality, mobility and share of income for <i>"human services"</i>  all decreased post-1980.</p>
<p>As we showed in <a href="secB7.html">section B.7</a>, inequality rose <b>and</b> social mobility fell  since 1980 in the USA and the UK (social democratic nations have a better record on both). As far as the share of income goes, that too has failed  to support his assertions. Even in 1962, the facts did not support his  assertion as regards the USA. According to figures from the U.S.  Department of Commerce the share of labour in 1929 was 58.2% and this  rose to 69.5% by 1959. Even looking at just private employees, this was  a rise from 52.5% to 58% (income for government employees, including the  military went from 5.7% to 12.2%). In addition, "proprietor's income"  (which represents income to the owner of a business which combines work  effort and ownership, for example a farmer or some other self-employed  worker) fell, with farm income going from 6.8% to 3.0%, while other such  income dropped from 10.1% to 8.7%. [Walter S. Measday, <i>"Labor's Share  in the National Income,"</i> <b>The Quarterly Review of Economics &amp; Business</b>,  Vol. 2, No. 3, August 1962] Unless Friedman would argue that 1929 America was more statist than 1959, it seems that his assertion was false even when it was first made. How did his comment fare after he  made it? Looking at the period after 1959 there was continuing increase  in labour share in the national income, peaking in the 1970s before  steadily dropping over the following decades (it dropped to below 1948 levels in 1983 and stayed there). [Alan B. Krueger, <i>"Measuring Labor's  Share"</i>, <b>The American Economic Review</b>, vol. 89, No.2, May 1999] Since then the downward trend has continued.</p>
<p>It would be churlish to note that the 1970s saw the rise of influence of  Friedman's ideas in both countries and that they were applied in the early  1980s.</p>
<p>There are problems with using labour share. For example it moves with  the business cycle (rising in recessions and falling in booms). In  addition, there can be other forms of labour compensation as well as wages. Looking at total compensation to labour, this amounts to  around 70% of total US income between 1950 and 2000 (although this, too, peaked in the 1970s before falling [Krueger, <b>Op. Cit.</b>]). However,  this "labour" income can be problematic. For example, employer provided  health care is considered as non-wage compensation so it is possible  for rising health care costs to be reflected in rising labour compensation  yet this hardly amounts to a rising labour share as the net gain would be  zero. Then there is the question of government employees and welfare  benefits which, of course, are considered labour income. Unfortunately,  Friedman provides no clue as to which statistics he is referring to, so  we do not know whether to include total compensation or not in evaluating  his claims.</p>
<p>One group of economists have taken the issue of government transfers into account. Since 1979, there has been an <i>"increased share of capital income  (such as rent, dividends, interest payments, and capital gains) and a  corresponding smaller share earned as wages and salaries."</i> Most families  receive little or no capital income, but it is <i>"a very important source  of income to the top 1% and especially the top 0.1% (who receive more  than a third of all capital income)."</i> In 1959, total labour income was  73.5% while capital income was 13.3% of market-based income (personal  income less government transfers). By 1979, these were 75.8% and 15.1%,  respectively. The increases for both are due to a fall in "proprietor's  income" from 13.3% to 9.1%. By 2000, capital income had risen to 19.1%  while labour's share had fallen to 71.8% (proprietor's income remained  the same). This <i>"shift away from labour income and toward capital income  is unique in the post-war period and is partly responsible for the ongoing  growth of inequality since 1979."</i> [Lawrence Mishel, Jered Bernstein, and  Sylvia Allegretto, <b>The State of Working America 2006/7</b>, p. 76 and p. 79]</p>
<p>It should be noted that Friedman repeated the standard economist (and  right-wing) argument that a better way to increase wages than unions or  struggle is to make workers more productive. That lifts everyone's standard  of living. At least it used to. Between 1945 and 1980, worker wages did,  indeed, track productivity increases. This was also the high period of union  density in America. After 1980, that link was broken. By a strange co-incidence, this was the Friedman-inspired Reagan effectively legalised and encouraged  union busting. Since then, productivity increases are going almost entirely  to the top tenth of the population, while median incomes have stagnated.  Without unions and robust worker bargaining power, productivity increases  have not been doing much for workers. Not that people like Friedman actually mentioned that rather significant fact.</p>
<p>Then there is the issue of <i>"human services"</i> itself. This is <b>not</b> the same as labour income at all as it includes, for example, management pay. As we indicated in <a href="secC3.html">section C.3</a>, this "labour" income is better thought of  as <b>capital</b> income as that specific labour is rooted in the control of  capital. That this is the case can be seen by the numerous defences of exploding CEO pay by right-wing think tanks, journals and economists as well as the lack of concern about the inflationary nature of such  massive "pay" rises (particularly when contrasted to the response over very slight increases in workers' pay). This means that "labour" income  could remain constant while CEO salaries explode and worker wages  stagnant or even fall, as is the case in both the US (and UK) since  1980. In such circumstances, looking at "human services" becomes  misleading as returns to capital are listed as "labour" simply because  they are in the form of bosses pay. Equally, CEO perks and bonuses would  be included as "labour" non-wage compensation.</p>
<p>To see what this means we must use an example. Take a country with 100 people with a combined income of £10,000. The average income would be £100 each. Taking a labour/capital split of 70/30, we get an income of labour of £7000 and an income to capital of £3000. Assuming that 5% of the population own the capital stock, that is an average income of £600 each while labour gets an average of £73.68. However, 10% of the population are managers and assuming another 70/30 split between  management and worker income this means that management gets £2100 in  total (an average of £210) while workers get £4900 (an average of  £57.65). This means that the owners of capital get 6 times the national  average income, managers just over twice that amount and workers just  over half the average. In other words, a national statistic of 70% labour  income hides the reality that workers, who make up 85% of the population,  actually get less than half the income (49%). Capital income, although less, is distributed to fewer people and so causes massive inequality (15% of the population get an average income of £340, nearly 6 times more than the average for the remaining 85% while the upper 5% get  over 10 times). If the share of management in labour income rises to 35%, then workers wages fall and inequality rises while labour income  remains constant at 70% (management's average income rises to £363.33  while workers' falls to £53.53). It should be stressed this example  <b>underestimates</b> inequality in capitalist economies, particularly ones  which had the misfortunate to apply Friedman's ideas.</p>
<p>Looking further a field, this pattern has been repeated everywhere  "free(r) market" capitalism has been imposed. In Chile equality and  labour's share increased during the 1960s and early 1970s, only for  both to plummet under Pinochet's Friedman-inspired neo-liberal regime  (see <a href="secC11.html">section C.11</a> for the grim details of <i>"economic liberty"</i> there).  In Thatcher's Britain, inequality rose while labour share and social  mobility fell. Between 1978 and 1990, the share of wages and salaries  in household income in the UK fell from 65.8% to 57.4%. The share for  capital income (rent, interest and dividends) more than doubled (from  4.9% to 10.0%).Unsurprisingly, this rise <i>"directly contributed to the  increase in overall inequality"</i> (48% of all investment income went to  the richest tenth of households). [John Hill, <b>Inequality and the  State</b>, p. 88]</p>
<p>Looking at how increases in income and wealth were distributed, we find that gains since 1979 went predominantly to the rich. Before that, the income of all sections of society grew at roughly the same  level between 1961 and 1979. Most of the increase was near the mean, the one exception was the lowest tenth whose incomes rose significantly  higher than the rest). This meant that <i>"over the 1960s and 1970s as a  whole all income groups benefited from rising incomes, the lowest rising fastest."</i> After 1978 <i>"the pattern broke down"</i> and incomes for  the highest tenth rose by 60-68 percent while at the medium it grew  by about 30% between 1979 and 1994/5. The lower down the income  distribution, the lower the growth (in fact, after housing costs the  income of bottom 10% was 8% lower in 1994/5 than in 1979). As in  America during the same period a fence turned into stairs as the  nearer to the bottom the slower income grew, the nearer the top the  faster income grew (i.e. roughly equal growth turned into growth  which increased as income increased -- see  <a href="secB7.html#secb71">section B.7.1</a>). Between  1979 and 1990/91, the bottom 70% saw their income share fall. During  the Major years, from 1992 to 1997, inequality stopped growing simply  because hardly anyone's income grew. Over all, between 1979 and 2002/3,  the share of all incomes received by the bottom half fell from 22% to  37%. This is more than the whole of the bottom half combined. The bottom  10% saw their share of income fall from 4.3% to 3% (after housing costs,  this was 4.0% to 2.0%). Only the top tenth saw their income increase  (from 20.6% to 28%). About 40% of the total increase in real net  incomes went to the top tenth between 1979 and 2002-3. 17% of the  increase in after-tax incomes went to the top 1%, about 13% went to  the top 0.5% (<i>"Wealth is much more unequally distributed than incomes."</i>).  [John Hills, <b>Op. Cit.</b>, p. 20, p. 21, p. 23 and p. 37]</p>
<p>Unsurprisingly, income inequality widened considerably (which more than  reversed all the moves towards equality of income that had taken place  since 1945) and Britain went from being one of the more equal countries  in the industrialised countries to being one of the most unequal.  The numbers below half the median income rose. In the 1960s, this was roughly 10%, before falling to 6% in 1977. It then <i>"the rose  sharply"</i> and peaked at 21% in 1991/92 before stabilising at 18-19%.  After housing costs, this meant a rise from 7% to 25% below half  the average income, falling to 23%. It should be noted that the pre-Thatcher period gives <i>"the lie to the notion that 'relative'  poverty can never be reduced."</i> In summary, by the early 1990s  <i>"relative poverty was twice the level it had been in the 1960s,  and three times what it had been in the late 1970s."</i> It seems  needless to add that social mobility fell. [John Hills, <b>Op. Cit.</b>,  p. 48, p. 263 and pp. 120-1]</p>
<p>The same can be said of Eastern Europe. This is particularly significant,  for if Friedman's assertions were right then we would expect that the  end of Stalinism in Eastern Europe would have seen a decrease in inequality.  As in Chile, Britain, New Zealand and America, the opposite occurred --  inequality exploded. By the start of the 21st century Eastern Europe was  challenging neo-liberal Britain at the top of the European income  inequality tables.</p>
<p>The historical record does not give much support to claims that free(r) market capitalism is best for working class people. Real  wage growth rose to around 5% per year in the early 1970s, before  falling substantially to under 2% from the 1980s onwards for 13  OECD countries. In fact, <i>"real wage have growth very slowly in  OECD countries since 1979, an extraordinary turn-round from the  3-5% growth rates of the 1960s."</i> In the US, the median wage was  actually less in 2003 than in 1979. Average wages actually  declined until 1995, then they increased somewhat so that the  average growth rate for the 1990s was less than 0.5% a year.  Europe and Japan have done only a little better, with growth of  around 1% per year. This is unsurprising, given the rise in  returns to capital after 1979 for <i>"real wages do not automatically  grow as fast as labour productivity. The general increase in the  share of profits . .   pulls real wage growth behind productivity  growth."</i> Within the labour force, inequality has risen. Wage  differentials <i>"are considerably higher in the UK/US group than in  Europe"</i> and have grown faster. Real wages for the top 10% grew by  27.2% between 1979 and 2003, compared to 10.2% in the middle (real  wages for the bottom 10% did not grow). In Europe, <i>"real wages grew at the bottom at a similar rate to the average."</i> The top 1%  of wage-earners in the USA doubled their total wage share between  1979 and 1998 from 6.2% to 10.9%, whilst the top 0.1% nearly tripled  their share to 4.1%. Almost all of the increase in the top 10% went  to the top 5%, and about two-thirds to the top 1%. In France, the share of the top 1% remained the same. Overall, <i>"labour's  position tended to be more eroded in the more free market economies  like the USA and UK than in European economies where social protection  [including trade unionism] was already stronger."</i> [Andrew Glyn,  <b>Op. Cit.</b>, p. 6 p. 116, p. 117,  p. 118 and  p. 127]</p>
<p>Looking at inequality and poverty, the conclusion is that liberalisation  of markets <i>"tend to bring greater inequality."</i> In fact, the rise in the  UK was strongest in the 1980s, the Thatcher period while New Zealand  <i>"saw as big an increase in inequality as the UK."</i> The USA <i>"maintained  its position as the most unequal country with inequality increasing in  both decades."</i> In summary, <i>"the increase in inequality has been noticeably  greater in the inegalitarian liberal economies than in Northern Europe."</i>  Moreover, <i>"liberal countries have larger proportions of their populations  in poverty"</i> than European ones. Unsurprisingly, New Zealand and the UK  (both poster-childs for neo-liberalism) <i>"had the biggest increases in  numbers in poverty between the mid-1980s and 2000."</i> In the mid-1990s,  20-25% of workers in the UK, Canada and USA were earning less than 65%  of median earnings, compared to 5-8% in Scandinavia and Belgium. This rise income inequality <i>"tend to reproduce themselves through the  generations."</i> There <i>"is far <b>less</b> social mobility in the USA"</i> than  in Scandinavia, Germany and Canada and there has been a <i>"severe decline  in social mobility"</i> in the UK after the Friedman-inspired Thatcherism of the 1980s and 1990s. Unsurprisingly, there has been <i>"a rise in the  importance of property incomes."</i>, with the ratio of property income to  labour income rising from 15% in the USA in 1979 to 18% in 2002. In  France it went from 7% to 12% and is around 8% in Norway and Finland.  [<b>Op. Cit.</b>, p. 167,  p. 168, p. 169, p. 171, p. 169, p. 173, p. 174 and  p. 170]</p>
<p>Needless to say, given the lack of evidence presented when Friedman  first published his book in 1962, the 40th anniversary edition was  equally fact free. Given that 40 years is more than enough time to  evaluate his claims particularly given that approximately half-way  through this period, Friedman's ideas became increasingly influential  and applied, in varying degrees in many countries (particularly in  the UK under Thatcher and the US under Reagan). Friedman does not  mention the developments in equality, mobility or labour share in  2002, simply making the general statement that he was <i>"enormously  gratified by how well the book has withstood time."</i> Except, of  course, where reality utterly contradicted it! This applies not  only to his claims on equality, income shares and poverty, but also  the fundamental basis of his Monetarist dogma, namely the aim to control the <i>"behaviour of the stock of money"</i> by means of <i>"a  legislated rule instructing the monetary authority to achieve a  specified rates of growth in the stock of money."</i> [<b>Op. Cit.</b>, p. ix  and p. 54] As we indicated in <a href="secC8.html">section C.8</a>,  the devastating results  of applying this centre-piece of his ideology means that it  hardly <i>"withstood time"</i> by any stretch of the imagination! In  other words, we have a case of self-refutation that has few equals.</p>
<p>To conclude, as defences of capitalism based on equality are unlikely to survive contact with reality, the notion that this system is really  the best friend of the working person and the poor needs to be defended  by other means. This is where the growth argument we debunked in the  last two sections comes in. Neither has much basis in reality.</p>
<p>Of course, the usual excuse should be noted. It could be argued that  the reason for this lack of correlation of reality with ideology is  that capitalism is not "pure" enough. That, of course, is a valid  argument (as Friedman notes, Thatcher and Reagan <i>"were able to curb  leviathan, through not to cut it down."</i> [<b>Op. Cit.</b>, p. vii]). State  intervention has hardly disappeared since 1980 but given the lush  praise given to the "magic" of the market you would expect <b>some</b>  improvement. When Friedman died in 2006, the praise from the  right-wing and business press was extensive, listing him as one of  the most, if not <b>the</b> most, influential economist of the late 20th  century. It seems strange, then, to suggest that the market is now  <b>less</b> free than at the height of the post-war Keynesian period.  To do so would suggest that Reagan, Thatcher and Pinochet had  little or no impact on the economy (or that they made it worse in terms of state intervention). In other words, that Friedman was, in  fact, the <b>least</b> influential economist of the late 20th century (as  opposed to one of the worse, if we compare his assertions to reality  before and after the policies they inspired were implemented).  However, he helped make the rich richer, so the actual impact of  what he actually suggested for the bulk of the population can be  cheerfully ignored.</p>
<h2><a name="secc104">C.10.4 Does growth automatically mean people are better off?</a></h2>
<p>In the above sections we have discussed the effects of neo-liberal reforms purely in terms of economic statistics such as growth rates and so on.  This means we have critiqued capitalism in its own terms, in terms of its  supporters own arguments in its favour. As shown, in terms of equality, social mobility and growth the rise of "free(r) market" capitalism has  not been all its supporters have asserted. Rather than produce more  equality, less poverty and increased growth, the opposite has occurred.  Where some progress on these areas have occurred, such as in Asia, the  countries have <b>not</b> embraced the neo-liberal model.</p>
<p>However, there is a deeper critique to be made of the notion that  capitalism benefits everyone, especially the poor. This relates to the  <b>quality</b> of life, rather than the quantity of money available. This is  an extremely important aspect to the question of whether "free market"  capitalism will result in everyone being "better off." The typical  capitalist tendency is to consider quantitative values as being the  most important consideration. Hence the concern over economic growth,  profit levels, and so on, which dominate discussions on modern life.  However, as E.P. Thompson makes clear, this ignores important aspects  of human life:</p>
<blockquote><p> <i>"simple points must be made. It is quite possible for statistical  averages and human experiences to run in opposite directions. A per  capita increase in quantitative factors may take place at the same  time as a great qualitative disturbance in people's way of life,  traditional relationships, and sanctions. People may consume more  goods and become less happy or less free at the same time . . .  [For example] real wages [may have] advanced . . . but at the cost of longer hours and greater intensity of labour . . . In statistical  terms, this reveals an upward curve. To the families concerned it  might feel like immiseration.<br>
</i></p>
<p><i>"Thus it is perfectly possible . . . [to have an] improvement in  average material standards . . . [at the same time as] intensified exploitation, greater insecurity, and increasing human misery . . . most people [can be] 'better off' than their forerunners had been fifty years before, but they had suffered and continued to suffer this . . . improvement as a catastrophic experience."</i> [<b>The Making  of the English Working Class</b>, p. 231]</p>
</blockquote>
<p>Thompson was specifically referring to the experience of the British industrial revolution on the working class but his analysis is of general note (its relevance goes far beyond evaluating past or  current industrialisation processes). This means that concentrating  on, say, absolute poverty or income growth (as defenders of  neo-liberalism do) means to ignore the quality of life which this increased income is associated with. For example, a peasant farmer who has to leave his farm for employment in a factory may consider  having bosses dictating his every move, an increased working day and intensity of work more significant than, say, a net increase in his income. That this farmer may have been driven off his farm as a result of neo-liberal or other "reforms" is another factor which has to be taken into account. If, to suggest another possibility, Health  and Safety regulations reduce work speeds, then national output will  be reduced just as unions will stop firms making their workers labour  more intensely for longer. However, increased output at the expense  of those who do the work is not unproblematic (i.e. real wages may  increase but at the cost of longer hours, less safety and greater  intensity of labour). Another obvious example would be the family  where the husband gets "downsized" from a good manufacturing job. He may get a lower paying service industry job, which forces his  wife (and perhaps children) to get a job in order to make ends meet.  Family income may increase slightly as a result, but at a heavy cost  to the family and their way of life. Therefore the standard of living  in the abstract may have increased, but, for the people in question,  they would feel that it had deteriorated considerably. As such,  economic growth need not imply rising standards of living in terms  if the <b>quality</b> of life decreases as incomes rise.</p>
<p>This is, in part, because if the economy worked as neoclassical  theory demanded, then people would go to work not knowing how much  they would be paid, how long they would be employed for or, indeed,  whether they had a job at all when they got there. If they rented  their home, they would not even know whether they had a home to  come back to. This is because every price would have to be subject to constant change in order to adjust to equilibrium. Insecurity,  in other words, is at the heart of the economy and this is hardly  productive of community or "family" values (and other expressions  used in the rhetoric of the right while they promote an economic  system which, in practice, undermines them in the name of profit).  In other words, while a society may become materially better off  over time, it becomes worse off in terms of <b>real</b> wealth, that  is those things which make life worth living. Thus capitalism has  a corrosive effect on human relationships, the pleasure of productive  activity (work), genuine freedom for the many, how we treat each other  and so on. The corrosive effects of economics are not limited simply  to the workplace but seep into all other aspects of your life.</p>
<p>Even assuming that free market capitalism could generate high growth  rates (and that assumption is not borne out in the real world), this  is not the end of the matter. How the growth is distributed is also  important. The benefits of growth may accumulate to the few rather  than the many. Per capita and average increases may hide a less  pleasant reality for those at the bottom of the social hierarchy. An obvious example would be a society in which there is massive  inequality, where a few are extremely rich and the vast majority  are struggling to make ends meet. Such a society could have decent growth rates and per capita and average income may grow. However, if  such growth is concentrated at the top, in the hands of the already wealthy, the reality is that economic growth does not benefit the many as the statistics suggest. As such, it is important to stress  that average growth may not result in a bettering for all sections  of a society. In fact, <i>"there are plenty of instances in which the  poor, and the majority of the population. have been left behind in  the era of globalisation -- even where per capita income has grown."</i>  This is not limited to just developing countries. Two episodes like this occurred in the United States, with data showing that <i>"the per  capita income of the poor falling from 1979-84, and 1989-94, while  per capita income rose."</i> Overall, the US has seen its median wage and real wages for the bottom 20th of its populations fall between  1973 and 1997 while <i>"per capita income in the US has risen by 70  percent. For the median wage and bottom-quintile wage to actually  <b>fall</b> during this same period is an economic change of momentous  proportions, from the point of view of the majority of Americans."</i>  [Mark Weisbrot, Dean Baker, Robert Naiman, and Gila Neta, <b>Growth  May Be Good for the Poor -- But are IMF and World Bank Policies  Good for Growth?</b>] This is a classic example of society with  substantial inequality seeing the benefits of growth accrue to  the already rich. To state the obvious, <b>how</b> the benefits of  growth are distributed cannot be ignored.</p>
<p>In addition, consumerism may not lead to the happiness or the "better  society" which many economists imply to be its results. If consumerism  is an attempt to fill an empty life, it is clearly doomed to failure.  If capitalism results in an alienated, isolated existence, consuming  more will hardly change that. The problem lies within the individual  and the society within which they live. Hence, quantitative increases  in goods and services may not lead to anyone "benefiting" in any  meaningful way. Similarly, there is the issue of the quality of the production and consumption produced by economic growth. Values like  GDP do not tell us much in terms of what was produced and its social and environmental impact. Thus high growth rates could be achieved by the state expanding its armed forces and weaponry (i.e. throwing money  to arms corporations) while letting society go to rot (as under  Reagan). Then there is awkward fact that negative social developments, such as pollution and rising crime, can contribute to a rising value for GDP). This happens because the costs of cleaning up, say, an oil spill involves market transactions and so gets added to the GDP for an economy.</p>
<p>As such, the notion of growth <b>as such</b> is good should be rejected in  favour of a critical approach to the issue which asks growth for what  and for whom. As Chomsky puts it, <i>"[m]any indigenous people apparently  do not see any reason why their lives, societies, and cultures should  be disrupted or destroyed so that New Yorkers can sit in SUVs in traffic  gridlock."</i> [<b>Failed States</b>, p. 259] Under capitalism, much "productivity"  is accounted for by economic activity that is best described as wasteful:  military spending; expanding police and prison bureaucracies; the  spiralling cost of (privatised) healthcare; suburban sprawl; the  fast-food industry and its inevitable ill effects on health; cleaning  up pollution; specifying and defending intellectual and other property  rights; treating the illnesses caused by over-work, insecurity and  stress; and so on. As Alexander Berkman once noted, capitalism spawns many forms of "work" and "productive" activity which only make sense  within that system and could <i>"be automatically done away with"</i> in a  sane society. [<b>What is Anarchism?</b>, pp. 223-5] Equally, "productivity"  and living standards can stand at odds with each other. For example, if  a country has a lower working week and take longer holidays, these  would clearly depress GDP. This is the case with America and France, with approximately equal productivity the later spends less time in work and more time off. Yet it takes a capitalist ideologue to say  that such a country is worse off as a nation for all that time people  spend enjoying themselves.</p>
<p>These issues are important to remember when listening to "free market"  gurus discussing economic growth from their "gated communities," insulated  from the surrounding deterioration of society and nature caused by the  workings of capitalism. In other words, quality is often more important  than quantity. This leads to the important idea that some (even many) of  the requirements for a truly human life cannot be found on any market, no  matter how "free" it may be. Equally, a "free" market can lead to unfree people as they driven to submit themselves to the authority of bosses do to economic pressures and the threat of unemployment.</p>
<p>So it can be said that laissez-faire capitalism will benefit all,  <b>especially</b> the poor, only in the sense that all can potentially  benefit as an economy increases in size. Of course, the mantra that  economic growth is so wonderful is hard to justify when the benefits  of that growth are being enjoyed by a small proportion of the people  and the burdens of growth (such as rising job insecurity, loss of  benefits, wage stagnation and decline for the majority of workers,  declining public services, loss of local communities and so forth)  are being borne by so many (as is the case with the more to freer markets from the 1980s). If we look at actually existing capitalism,  we can start to draw some conclusions about whether a pure laissez-faire  capitalism will actually benefit working people. The United States has  a small public sector by international standards and in many ways it is  the closest large industrial nation to the unknown ideal of pure  capitalism. It is also interesting to note that it is also number one,  or close to it, in the following areas [Richard Du Boff, <b>Accumulation  and Power</b>, pp. 183-4]:</p>
<blockquote><ul>
<li>lowest level of job security for workers, with greatest   	chance of being dismissed without notice or reason.</li>
<li>greatest chance for a worker to become unemployed without  	adequate unemployment and medical insurance.</li>
<li>less leisure time for workers, such as holiday time.</li>
<li>one of the most lopsided income distribution profiles.</li>
<li>lowest ratio of female to male earnings, in 1987 64% of  	the male wage.</li>
<li>highest incidence of poverty in the industrial world.</li>
<li>among the worse rankings of all advanced industrial nations  	for pollutant emissions into the air.</li>
<li>highest murder rates.</li>
<li>worse ranking for life expectancy and infant morality.</li>
</ul>
</blockquote>
<p>It seems strange that the more laissez-faire system has the worse job  security, least leisure time, highest poverty and inequality if  laissez-faire will <b>especially</b> benefit the poor or working people.  In fact, we find the more free market the regime, the worse it is for  the workers. Americans have longer hours and shorter holidays than Western Europeans and more people live in poverty. 22% of American  children grow up in poverty, which means that it ranks 22nd out of  the 23 industrialised nations, ahead of only Mexico and behind all  15 of the pre-2004 EU countries.</p>
<p>According to a 2007 United Nation report, the worse places to be a  child are in neo-liberal societies such as the UK and USA (the UK was  bottom, at number 21 one below the US). The UNICEF report dealt with  the condition of children in advanced capitalist countries and found  that both the UK and US are way down the list on education, health,  poverty, and well-being. While UNICEF preferred to state that this is  because of a "dog eat dog society", it is hardly a coincidence that  these two societies have most embraced the principles of neo-liberalism  and have repeatedly attacked the labour movement, civil society in  general as well as the welfare state in the interests of capital. In  contrast, the social democratic northern European countries which have  best results. One could also point out, for example, that Europeans  enjoy more leisure time, better health, less poverty, less inequality  and thus more economic security, greater intergenerational economic  mobility, better access to high-quality social services like health  care and education, and manage to do it all in a far more environmentally  sustainable way (Europe generates about half the CO2 emissions for the  same level of GDP) compared to the US or the UK.</p>
<p>A definite case of what is good for the economy (profits) is bad for  people. To state the obvious, an economy and the people in that economy  are not identical. The former can be doing well, but not the latter -- particularly if inequality is skewing distribution of any rising incomes.  So while the economy may be doing well, its (median) participant (and  below) may see very little of it.</p>
<p>Of course, defenders of laissez-faire capitalism will point out that  the United States, like the UK and any other real country, is far  from being laissez-faire. This is true, yet it seems strange that the  further an economy moves from that "ideal" the better conditions get  for those who, it is claimed, will especially benefit from it. As such, non-believers in pure capitalism have cause for dissent although for the typical "market advocate" such comparisons tell us littler -- unless they happen to bolster their case then "actually existing" capitalism can be used as an example.</p>
<p>Ultimately, the real issue is to do with quality of life and relative changes. Yet the argument that capitalism helps the poorest most via high economic growth is rooted in comparing "free market" capitalism with  historical example, i.e. in the notion of <b>absolute</b> inequality rather  than <b>relative</b> inequality and poverty. Thus poverty (economic, cultural  and social) in, say, America can be dismissed simply on the grounds that  poor people in 2005 have more and better goods than those in 1905. The logic  of an absolute position (as intended, undoubtedly) is such as to make even  discussing poverty and inequality pointless as it is easy to say that  there are <b>no</b> poor people in the West as no one lives in a cave. But,  then again, using absolute values it is easy to prove that there were no  poor people in Medieval Europe, either, as they did not live in caves and,  compared to hunter gatherers or the slaves of antiquity, they had much  better living standards. As such, any regime would be praiseworthy, by the  absolute standard as even slavery would have absolutely better living  standards than, say, the earliest humans.</p>
<p>In this respect, the words of Adam Smith are as relevant as ever. In <b>The Wealth of Nations</b> Smith states the following:</p>
<blockquote><p> <i>"By necessaries I understand not only the commodities which are indispensably  necessary for the support of life, but whatever the custom of the country  renders it indecent for creditable people, even of the lowest order, to be  without. A linen shirt, for example, is, strictly speaking, not a necessary  of life. The Greeks and Romans lived, I suppose, very comfortably though  they had no linen. But in the present times, through the greater part of  Europe, a creditable day-labourer would be ashamed to appear in public  without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall  into without extreme bad conduct . . . Under necessaries, therefore, I  comprehend not only those things which nature, but those things which the  established rules of decency have rendered necessary to the lowest rank  of people."</i> (Book Five, Chapter II, Article IV)
</p></blockquote>
<p>As usual, Adam Smith is right while his erstwhile ideological followers are  wrong. They may object, noting that strictly speaking Smith was talking of  <i>"necessaries"</i> rather than poverty. However, his concept of necessaries implies a definition of poverty and this is obviously based not on some  unchanging biological concept of subsistence but on whatever <i>"the custom  of the country"</i> or <i>"the established rules of decency"</i> consider necessary Marx made the same point his later works, when he distanced himself from his earlier notion that capitalism resulted in <b>absolute</b> impoverishment. As he put it in volume 1 of <b>Capital</b>, <i>"the number and extent of [the  worker's] so-called necessary requirements, as also the manner and extent  they are satisfied, are themselves products of history, and depend therefore  to a great extent on the level of civilisation attained by a country . . . In  contrast, therefore, with the case of other commodities, the determination of  the value of labour-power contains a historical and moral element."</i> [p. 275]</p>
<p>It is ironic that those today who most aggressively identify themselves as  disciples of Smith are also the people who are most opposed to definitions  of poverty that are consistent with this definition of "necessaries" (this is unsurprising, as those who invoke his name most usually do so in pursuit  of ideas alien to his work). This is done for the usual self-interested  motives. For example, Thatcher's government originally had little problem with the concept of relative poverty and <i>"[o]nly when its policies had led  to a conspicuous growth of relative poverty was the idea denounced, and the  decision taken by the government . .  . that absolute poverty (undefined and  unqualified) was the only reality."</i> [Ian Gilmore, <b>Op. Cit.</b>, p. 136] Smith's  perspective, significantly, is that followed by most poverty researchers,  who use a relative measure in evaluating poverty rates. The reason is  unsurprising as poor is relative to the living standards and customs of  a time and place. Some sceptic might regurgitate the unoriginal response  that the poor in the West are rich compared to people in developing countries,  but they do not live in those countries. True, living standards have improved  considerably over time but comparing the poor of today with those of centuries  past is also meaningless. The poor today are poor relative to what it takes to  live and develop their individual potentials in their own societies, not in  (for example) 18th century Scotland or half-way across the globe (even Milton Friedman had to grudging admit that <i>"poverty is in part a relative matter."</i>  [<b>Op. Cit.</b>, p. 191]). Considering the harmful effects of relative inequality  we indicated in <a href="secB1.html">section B.1</a>, this position is perfectly justified.</p>
<p>The notion of absolute poverty being the key dates back to at least Locke  who argued in his <b>Second Treatise</b> on government that in America <i>"a King  of a large and fruitful Territory there feeds, lodges, and is clad worse  than a day Labourer in England."</i> (section 41) Ignoring the dubious  anthropological assertions, his claim was made as part of a general  defence of enclosing common land and turning independent workers into  dependent wage slaves. The key to his argument is that the accumulation of property and land beyond that useable by an individual along with the elimination of customary rights for poor individuals was justified because  owners of the enclosed land would hire workers and increase the overall wealth available. This meant that the dispossessed workers (and particularly  their descendants) would be better off materially (see C.B MacPherson's <b>The Political Theory of Possessive Individualism: From Hobbes to Locke</b> for an excellent discussion of this). The links with the current debate on globalisation are clear, with so-called "market advocates" and  "individualists" providing extensive apologetics for capital moving to authoritarian regimes which systematically violate individual rights and the principles of the "free" market precisely in terms of the increased material wealth this (eventually) produces. But then it is easy for bosses,  tenured professors and well paid think-tank experts to pontificate that  such sacrifices (for others, of course) are worth it in the long run.</p>
<p>This apparently strange transformation of "individualists" into  "collectivists" (justifying the violation of individual rights in  terms of the greater good) has a long precedent. Indeed, it can  only be considered strange if you are ignorant of the nature and  history of capitalism as well as the contortions its defenders have  inflicted on themselves (and by yet another of these strange  co-incidences that so regularly afflicts capitalism and its supporters,  the individuals whose liberty and rights are considered expendable are  always members of the working class). So the notion of absolute poverty  has always been associated with defending inequalities of wealth and  power as well as providing justification in terms of long term benefit  for the violation of the "freedom" and "individual rights" they claim  to defend. Significantly, the contemporary representatives of the  landlords who imposed enclosures framed their arguments precisely in terms of restricting the independence (i.e. freedom) of the working population. As Marxist David McNally summarises after providing extensive quotes, it was <i>"precisely these elements of material and spiritual  independence that many of the most outspoken advocates of enclosure  sought to destroy."</i> They <i>"were remarkably forthright in this respect.  Common rights and access to common lands, they argued, allowed a degree  of social and economic independence, and thereby produced a lazy, dissolute mass of rural poor . . . Denying such people common lands  and common rights would force them to conform to the harsh discipline  imposed by the market in labour."</i> [<b>Against the Market</b>, p. 19] This  would only be considered paradoxical if you equate freedom with  capitalism.</p>
<p>The underlying assumption under all this is that liberty (at least for working class people) is less important than material wealth, a vision  rightly attacked when Stalinism seemed to be out-performing the West  in terms of growth before the 1970s. Yet the question, surely, is would individuals freely agree to be subjected to the dictates of a boss for 10-12 hours a day if other alternatives had not closed off by state  intervention? As we discuss in <a href="secF8.html">section F.8</a>, the answer has always been no. This is the case today. For example, Naomi Klein interviews one boss of a third-world sweatshop who explained that <i>"for the lowly  province worker, working inside an enclosed factory is better than  being outside."</i> One of his workers rebutted this, stating <i>"Our rights  are being trampled"</i> and the he said that <i>"because he has not experienced  working in a factory and the conditions inside."</i> Another noted that <i>"of  course he would say that we prefer this work -- it is beneficial to him,  but not to us."</i> Another states the obvious: <i>"But we are landless, so we  have no choice but to work in the economic zone even though it is very  hard and the situation is unfair."</i> [quoted by Klein, <b>No Logo</b>, p. 220 and p. 221] It should noted that the boss has, of course, the backing of a great many economists (including many moderately left-wing ones) who argue that sweatshops are better than no jobs and that these countries cannot afford basic workers' rights (as these are class  societies, it means that their ruling class cannot afford to give their workers the beneficial aspects of a free market, namely the right to organise and associate freely). It is amazing how quickly an economist or right-liberal will proclaim that a society cannot expect  the luxury of a free market, at least for the working class, and how  these "individualists" will proclaim that the little people must  suffer in order for the greater good to be achieved.</p>
<p>As for the regimes within these factories, Klein notes that they are  extremely authoritarian. The largest free-trade zone in the Philippines is <i>"a miniature military state inside a democracy"</i> and the <i>"management  is military-style, the supervisors often abusive."</i> As would be expected, <i>"no questioning of authority is expected or permitted"</i> and in some  <i>"strikes are officially illegal"</i> (rather than unofficially banned). [<b>Op. Cit.</b>, p. 204, p. 205 and p. 214] As with the original industrial  revolution, capitalism takes advantages of other forms of social  hierarchy in developing countries. As Stephen A. Marglin noted, the  women and children, <i>"who by all accounts constituted the overwhelming majority of factory workers in the early days, were there not because they choose to be but because their husbands and fathers told them to be. The application of revealed preference to their presence in the  factory requires a rather elastic view of the concept of individual choice."</i> [<i>"What do Bosses do?"</i>, pp. 60-112, <b>The Review of Radical Political Economics</b>, vol. 6, No. 2, p. 98] In other words, while  the workers <b>may</b> be better off in terms of wages they are not better  off in terms of liberty, equality and dignity. Luckily there are economists around to explain, on their behalf, that these workers  cannot afford such luxuries.</p>
<p>Looking beyond the empirical investigation, we should point out the  slave mentality behind these arguments. After all, what does this  argument actually imply? Simply that economic growth is the only way for working people to get ahead. If working people put up with exploitative working environments, in the long run capitalists will invest some of  their profits and so increase the economic cake for all. So, like  religion, "free market" economics argue that we must sacrifice in  the short term so that (perhaps) in the future our living standards will increase (<i>"you'll get pie in the sky when you die"</i> as Joe Hill said about religion). Moreover, any attempt to change the "laws of  the market" (i.e. the decisions of the rich) by collective action will  only harm the working class. If the defenders of capitalism were  genuinely interested in individual freedom they would be urging the  oppressed masses to revolt rather than defending the investing of  capital in oppressive regimes in terms of the freedom they are so  willing to sacrifice when it comes to workers. But, of course, these  defenders of "freedom" will be the first to point out that such revolts  make for a bad investment climate -- capital will be frightened away to  countries with a more "realistic" and "flexible" workforce (usually  made so by state repression).</p>
<p>In other words, capitalist economics praises servitude over independence, kow-towing over defiance and altruism over egoism. The "rational" person of neo-classical economics does not confront authority, rather he  accommodates himself to it. For, in the long run, such self-negation will pay off with a bigger cake with (it is claimed) correspondingly bigger  crumbs "trickling" downwards. In other words, in the short-term, the gains  may flow to the elite but in the future we will all gain as some of it will trickle (back) down to the working people who created them in the first place. But, unfortunately, in the real world uncertainty is the rule  and the future is unknown. The history of capitalism shows that economic  growth is quite compatible with stagnating wages, increasing poverty and  insecurity for workers and their families, rising inequality and wealth  accumulating in fewer and fewer hands (the example of the USA and Chile  from the 1970s to 1990s and Chile spring to mind). And, of course, even  <b>if</b> workers kow-tow to bosses, the bosses may just move production  elsewhere anyway (as tens of thousands of "down-sized" workers across  the West can testify). For more details of this process in the USA see  Edward S. Herman's article <i>"Immiserating Growth: The First World"</i> in Z Magazine, July 1994.</p>
<p>For anarchists it seems strange to wait for a bigger cake when we can  have the whole bakery. If control of investment was in the hands of those it directly effects (working people) then it could be directed into socially and ecologically constructive projects rather than being used as a tool in the class war and to make the rich richer. The  arguments against "rocking the boat" are self-serving (it is obviously  in the interests the rich and powerful to defend a given income and  property distribution) and, ultimately, self-defeating for those working  people who accept them. In the end, even the most self-negating working  class will suffer from the negative effects of treating society as a  resource for the economy, the higher mobility of capital that accompanies  growth and effects of periodic economic and long term ecological crisis.  When it boils down to it, we all have two options -- you can do what is  right or you can do what you are told. "Free market" capitalist economics  opts for the latter.</p>
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