Why You Might Not Actually Like Capitalism

Put aside what you think you know about capitalism for a second--the ideas of competition, of the invisible hand, of supply and demand, of higher pay for more work. Those are not the defining aspects of capitalism, despite what a lot of people might think. Rather, there is one central tenet of capitalism: private ownership of the means of production.

What does that mean? It means that companies are run not by the people doing the work, but by somebody else--whether a slew of investors with varying degrees of ownership, one single person, or whatever. The key thing is, the workers are not the ones who own and manage the company, and the owners collect the profit. That is what separates capitalism from socialism.

"That's not the only thing that separates capitalism from socialism, though," you might be saying now. But no, it actually is--pretty much anything else you can name that people tend to associate with capitalism is compatible with socialism. If you don't believe me, take a moment to learn about market socialism, where enterprises owned by their workers compete in a market system--so there are all the same tenets of supply and demand, the invisible hand, and competition all exist.

(Taken from Wikimedia)

Nor does socialism mean everyone gets paid the same thing or that people are only paid according to their needs; we can debate the merits of those ideas, and certain forms of socialism may embrace them, but other forms of socialism reject them wholeheartedly. Nor does socialism mean the government runs everything; some forms of socialism--anarchist forms--think there should be no government at all. There have been, and are, socialists who advocated all services be provided by worker-owned companies in a market system, with no centralized government.

So if you don't think that having the means of production--that is, companies--be privately owned, with workers essentially renting themselves and receiving less than the fruit of their labor, is the best possible system, you might actually be a socialist and just not have realized it yet. There are certainly other models out there that are working--there are companies where the workers own all or at least part of the company, and they've been working pretty well. Robert Reich recently wrote an article about this trend, but failed to realize that if the workers own the company, it's not actually capitalism anymore.

But maybe having investors or businessman own companies and workers just rent themselves seems okay to you. What's the problem with it? Well, for one thing, it means the workers aren't receiving the full fruits of their labor. With many successful companies, we have investors who have gotten very rich off of them while workers, well, haven't. That's not surprising when you consider that workers are generally paid wages or a salary, meaning they're paid based on either the hours they put in or just on a monthly or yearly basis, neither of which really take into account how hard they're working and how much money they're bringing in. Some workers earn a commission, but even then they only get a relatively small portion of the money they bring in.

But the person or people who own the business own all of the stuff the workers use to do their jobs, right? The building, the machinery, that sort of stuff--and without that, there would be no job, right? Well, sure. But clearly, the business owner is looking to make more money than she or he would just by selling the capital they own; otherwise, they would just sell the capital they own. After all, that would be a lot quicker and more painless than starting a business with it.

So the workers are still kind of getting a raw deal, since they're basically paying for the means of production, but don't actually get to ever own them. We know that as renting, and it kind of sucks, if we're honest with ourselves. While of course renting can be nice in the short-term since it's cheaper than buying, in the long-term it just means you pay, and pay, and pay, without ever owning the thing you're paying for. Which sucks.

"But investors are risking their money. Shouldn't we reward risk?" Well, maybe--we should certainly be willing to reward people who take a risk to achieve something worthwhile. But the idea that people taking a risk by making an investment is valuable is only true when we're in a system that has to rely on private investments, i.e., where companies are privately owned. If the workers owned the companies, they would be taking the risk, and accordingly could reap the reward.

As it currently stands, the reward goes to people who are wise enough, or lucky enough, to risk their money on something that pans out, which is called gambling, and is actually illegal in a lot of places (though obviously investments stand as an exception to anti-gambling laws). The difference between investments and gambling in a card game, though, is that if you win, your reward comes from someone who never actually agreed to take part in the bet--that is, the workers. And, like only the stupidest or most unlucky of gamblers, the workers never win.

The point here is obviously not to demonize anyone who owns a business or owns stock in a company--currently, that's the system we have, so
it's understandable, sometimes only practical, to work within it. The point is to ask whether that system is really the best and most fair we could have--because even if you love the ideas of competition in the marketplace, and higher pay for people who do more work, that doesn't actually mean you support capitalism. Maybe after all of this, though, you do still support capitalism, in which case, okay. But whatever the case may be, we have to actually understand what capitalism is if we're going to ever have an honest discussion about its merits and pitfalls.