ABSTRACT

This essay surveys and interprets historical trends and interactions which led to the emergence and predominance of capitalism in modern times in spite of the class conflict it perpetuates. Constant growth of the supra-system (which I will refer to as America Incorporated) generated the system-wide affluence necessary to keep this conflict suppressed. The entropy costs of conflict suppression within the supra-system have been and continue to be externalized. The costs of subsidizing America Incorporated surface as resource depletion and environmental degradation. To keep this conflict suppressed requires continued system growth, which is not a system-stable strategy for the future. Due to the inertia of highly developed capitalist economies, planned intervention seems essential to re-orient human interactions and system outcomes in less self-destructive patterns. Some modifications are proposed for debate.

INTRODUCTION

This document is offered not as a blueprint for overhauling the capitalist economies of developed nations but rather as an essay which outlines the writer's efforts to come to grips with pressing social and environmental problems endemic to capitalism and free market economies. The simple fact that these systems currently work quite well does not mean that they will continue to do so indefinitely. Symptoms of instability indicate they have inherent systemic flaws. I regard these flaws as grave ones and feel that they can be corrected only by political intervention at the supra-system level because the system has not evolved the self-correcting mechanisms necessary to remain viable in the environment our species will soon encounter. To the contrary, America Incorporated may have developed sufficient inertia since the Industrial Revolution to drive it and the biosphere which supports it to the point where Homo sapiens may qualify for a place on this planet's ever-lengthening list of endangered species.

I have no intention of developing an argument to convince anyone that the conclusions stated above are valid ones. If they are not, in the main, self-evident to your informed intelligence, then you are advised to bail out at this point because what follows is certain to strike you as pure nonsense. If, on the other hand, you share my general concerns, then perhaps you will find some food for thought in this impressionistic critique of how these systems operate and related thoughts concerning what sorts of interventions might merit consideration.

I will begin with a rather long preamble, a very general sketch of major trends and system attributes which, to my way of thinking, culminated in these maladapted supra-systems and then offer, in hypothetical terms, some interventions and projected outcomes as topics for debate. Though expressed in general terms, my thinking is focused on the United States of America because that nation has the most developed of the free market economies and because I am more familiar with it than with any other.

CAPITAL vs. THE WORK FORCE

One of the major flaws of these systems is that they perpetuate unnecessary and counterproductive conflict. If one wished to set the stage for system-wide economic conflict, here is one scenario: Divorce returns to the work force from subsystem profits and marry them instead to wages or salaries controlled by owners/agents whose vested interests compel them to be very parsimonious in distributing those wages and salaries. With Karl Marx's seminal critique of capitalism in mind, I will express my impressions regarding how continuous growth evolved as a system stable strategy for containing internal class conflict.

How is it possible to mobilize the behaviors of a diverse and often spatially dispersed population group for the purpose of undertaking enterprises of a scale and complexity that can be accomplished only by collective action? A glance into the past to see how compliance has been accomplished.


Volunteerism:

1. Territorial Imperatives: from the dawn of history, population groups (usually bound by consanguine ties) have rallied to defend the territory they claim or to expand that territory by invading that claimed by a neighboring population group. In pre-agrarian (hunter/gatherer economies), this collective action was necessary to control access to the critical resources (plants/animals) within the territory. Chiefdoms emerge.

2. Religion: Construction of the grand cathedrals of Europe was deemed essential for the spiritual welfare of the people. Nobles not only contributed funds for construction but also were known to have drug stones along with the common people.


No-option Compliance

1. Slavery is commonly an outcome of success in territorial expansion or captures made during raids. Pyramids of Egypt [but some indications that the labor was contracted]; The glory that was Greece and the grandeur that was Rome emerged from the toils of slaves. Tobacco and cotton. Soviet slave camps under Stalin and Jews under Hitler.

2. Serfdom: Territory = land = resource base for agrarian societies. If you control the resource base, you also have power over the population group dependent on it. During the Middle Ages, Europeans were beset by constant warfare. the rise of castles as fortresses designed to provide relatively small societies/groups with a refuge commoners could retreat to for protection. The protection provided by the lord of the land had its price: serfdom -- a share of the productivity of the serfs was required in exchange for safety.

3. Capitalism: Emergent property of supra-systems based on market economies. Maritime trade required vast investments and risks. Selling of equities (shares) in the enterprise to amass the finance capital. Distribution of profits by shares. Also dispersed the risk. Fortunes amassed in trading enterprises. Rise of absentee owners.


Conflicting Interests

In their present configuration, capitalist dominated economies and their related subsystems have evolved in ways that make sub-optimal use of human potentials. This is due primarily to the manner in which benefits are allocated between capital and those directly producing goods and services. The latter group consists of that broad class of system actors who derive their income mainly from wages and salaries rather than from capital investment (rents and interest). For convenience, I will refer to this class as the 'work force,' which includes managers because of their essential operational roles.

Every capitalist organization operates on the basis of a simple strategy: internalize benefits, externalize costs. From this perspective, one might assume slavery to be the ideal source of labor because of the low costs associated with maintaining the human capital. However, slave ownership as a form of capital investment was abandoned some time ago, not for humanitarian reasons but for economic ones. For similar reasons, the European estates societies dominated by aristocrats withered and passed on. Entrepreneurs in Europe and Euro-America developed alternative economic strategies -- ones more viable than slavery or serfdom -- to capitalize on potentials inherent in a growing complex of free market interactions and to exploit exciting discoveries which revealed the enormous work potential of fossil energy.


The Emergence of Conflict

Recognizing the potential of fossil energy, entrepreneurs invested their effort and capital in the development of related technologies in order to tap that potential. Factories sprang up near sources of this new energy. Alienated from their source of subsistence -- the land -- and concentrated in urban settings, workers quickly became wage-dependent. Inevitably, total system conflict emerged from the polarized interests of capital and the work force. That conflict escalated to levels that would have caused capitalist-dominated systems to self-destruct long before now had those systems not adapted to the endemic stress.


The Institutionalization of Conflict

Capitalist systems adapted to their common flaw rather than evolving beyond it or collapsing. They adapted by institutionalizing the counterproductive conflict between capital and the work force. Labor organizations emerged to counterbalance the dominance of capital and used collective power to wrest higher returns to the work force. Capital could afford to pay more because the added cost was more than offset by increased productivity from a work force using labor-efficient techniques and technological innovations to accomplish highly specialized tasks. This conflict was also institutionalized in the political systems of representative governments.

Political parties are inherent properties of class interests that coalesce and then emerge as formal associations. When this polarization occurs, the political system adapts to the attendant conflict by dedicating an inordinate amount of its energy to conflict management. Under these stresses, representative government eventually degenerates into an arena in which the ongoing struggle between classes with conflicting interests is ritualized and the outcomes fixed in special interest legislation. With some notable exceptions, that legislation has been designed to maintain and fortify the stronghold of finance capitalism. It has a fortress within America Incorporated, and it is all too evident that the political system itself has now been drawn within the walls of that fortress.

MANAGEMENT vs. THE REST OF THE WORK FORCE

Complex hierarchies evolved long ago as a solution to the problem of controlling discrete actor behaviors within complex systems. As the subsystems of capitalist enterprises became more complex, hierarchy became the predominant management model. The advent of joint stock companies -- and corporations later on -- created the phenomenon of absentee ownership, leaving corporate management at the operational level to an organizational hierarchy. This is not, in and of itself, problematic. The problem is infra-organizational conflict. We need to recognize that the 'business' of capitalists is not to provide jobs or health care or public service. Nor is it to conserve diminishing resources or restore an environment degraded by supra-system outcomes. Capitalists are in the business of making money. Finance capital provides the means for managing material resources and productive activities within various corporate entities. Hierarchies do the managing.


Definitions

Natural resources:

Cultural capital: Note -- without cultural capital (which has been generated over eons by millions and is thus collectively 'owned') complex industrial enterprises would not exist.

Finance capital: Money provided by or made available to entrepreneurs for the purpose of motivating the complex behaviors necessary to establish/operate/expand an enterprise mobilized for the purpose of producing goods or services for sale at a profit in a market external to the enterprise itself.

Vested capital: The material resources of an enterprise (bldgs./land/technology/techniques/reputation/syst.org)

Operating costs: Simply the costs of doing business (salaries, wages, taxes, marketing, maintenance -- and, dividends.

Profits: Money generated by the marketing/sale of goods and services after all costs are deducted.

Dividends: Profits for a given period that are divided among those with an equity in the enterprise. The equity is commonly vested in 'shares of stock' which are often owned by absentees who have provided finance capital but play no other role in actual production. These stock shares may be bought and sold in a market in the same way as goods and services that have actual use-value.

Conflicts within Organizations

Hierarchies place decisions concerning work force welfare in the hands of owner-appointed agents who are charged with delivering an acceptable return on investments and whose economic welfare depends on their doing so. The fact that those same executives are often major stockholders themselves helps to explain why they regard cost-containment as a sacred obligation. Reducing work force costs translates directly into higher returns to invested capital. With their loyalties focused on absentee owners, corporate executives are constantly aware that higher compensation for the work force means lower returns to invested capital. The economic welfare of all others in the management hierarchy also depends, though less directly, on their satisfying the profit expectations of absentee owners.


Counterproductive Competition

In the current work environment, the hierarchies installed to manage America Incorporated erode horizontal loyalties within the entire work force. And that is a flaw at the supra-system system level. Allocating system benefits solely on the basis of wages and salaries alienates executives from the rest of the work force because it establishes the critical relationship between them on the basis of competition rather than cooperation. At the operational level, this competition replicates, on a smaller scale, the system-wide class struggle. The level of cooperation under these circumstances is superficial and hence sub-optimal.

The interrelated, cooperative behaviors of the work force -- those behaviors necessary to produce and distribute system goods and services efficiently -- are motivated not by the desire for a share of collectively-generated benefits but rather by the need to exchange time and talent for money. And that of course requires that workers cooperate in doing, cheerfully or not, what management wants done. He who pays the piper also calls the tune. This superficial cooperation is counterproductive. Those alienated from the management hierarchy have few if any incentives to improve the way things are done.


Alternative Approaches

Motivating the work force by offering income benefits solely in the form of wages, salaries, and related benefits makes sub-optimal use of the potentials inherent in truly cooperative enterprises. A different approach is worth considering. We need to recognize that true cooperation between actors is largely an emergent property of co-dependency and that sharing cooperatively produced benefits spins webs of horizontal loyalties. This is most evident in the way members of co-dependent clans cooperate in generating system benefits and in the ways they distribute them to maintain the horizontal loyalties essential to system stability.

Tentative steps towards profit sharing indicate that the viability of what might be termed the 'family model' is becoming more widely recognized within America Incorporated; however, its full potential will remain unrealized as long as returns to invested capital are confined to such a narrow class of citizens. The conflicting interests of capital and the work force will continue to compel each to seek more from the other for less in return. To meet profit expectations, executives are currently pursuing two main strategies. On the one hand, they demand higher productivity (buzz-words: raising the bar; 'raising the level of expectations') and on the other, they reduce costs by cutting both the work force and employee benefits.

I find it quite amazing that, even in the adverse environment, there still remains so much affinity and cooperation among folks in their workplaces. It's not surprising, however, to find that the sense of being part of a cooperating community and sharing its benefits has been reduced to its least common denominator: the nuclear family. This isolated social entity is an emergent property of the system attributes I have touched upon. Obviously, more could be said about this.

CLASS CONFLICT AND SYSTEM ENTROPY

At this point someone may be tempted to ask, "What's your point, other than to say that Karl Marx had it about right?" The point is this: System conflicts generate system entropy. The level of entropy generated by the class struggle in capitalist economies cannot be measured, but it must nevertheless be extremely high. The obvious question comes to mind, Why has this supra-system entropy not already caused the system to change -- that is to say, to breakdown and to re-configure itself in ways that eliminate or significantly lower the entropy costs of class struggle? I will hazard an opinion as to how these systems have adapted to contain endemic conflict.


Growth as a System-stable Strategy

Change at the supra-system level has not occurred because the entropy costs of its internal conflicts have been externalized. That is to say, they have been shifted elsewhere as the system adapted to class polarization. It adapted by evolving a system-stable strategy. That strategy is total system growth, exponential in its early stages. The pattern of its evolution is worth a brief review.


Growth-promoting Circumstances

Capitalist systems acquired their structural attributes under extraordinary circumstances. They evolved in and adapted to a new environment, an environment characterized by abundant, inexpensive natural resources. Their rapid development was stimulated by the discovery of what is referred to as the New World and nurtured by an unparalleled flow of wealth from that virgin land -- mainly gold, natural resources, and various cultigens. That land was also vast enough to absorb millions of European immigrants. Massive immigration reduced Europe's population to less stressful levels and thereby raised the standard of living throughout the land. To exploit the abundant resources of the New World and convert them into commodities required labor, which became quite expensive due to its scarcity relative to demand. Natural resources, on the other hand, were cheap because they were so abundant.

This set of circumstances posed few if any constraints on exponential system growth. Rather, such economies and the supra-systems they support thrived as their populations exploded and as their levels of per-capita consumption spiraled upward along with wages and salaries. Capital responded to escalating work force cost by sponsoring the development and introduction of technologies and techniques to increase productive output per unit of human-time input. Especially in recent years, these constantly increasing work force costs motivated the replacement of human actors in the work force with substitute technologies driven by inanimate energy sources. And while these trends were emerging, population growth was also adding to the pool of available workers.


Affluence and Conflict Suppression

Returns to the Work Force. The dynamics described above placed more disposable income in the pockets of the work force. That in turn increased overall demand for goods and services, further stimulating growth throughout the system. It is my belief that this ever-increasing level of affluence prevented institutionalized economic conflict from splitting capital and labor into warring camps. To this day, the masses who work for America Incorporated remain relatively quiet in spite of the fact that their share of supra-system benefits -- relative to that distributed as rents, interest, and returns on capital investments -- has changed very little in the past half-century.

[statistics]

Nevertheless, one cannot ignore the symptoms of unrest. For example, the U.S. Department of Labor reported 1,004 workplace killings during 1992. These were commonly committed by employees enraged at management decisions. Something is amiss when executives resort to disguising security guards as delivery drivers or receptionists and post them near offices.

Returns on Capital Investments. Needless to say, the interests of capital were also well served by exponential system growth. Competition among industries kept prices low, reducing profit per unit of goods produced and marketed. The subsystems adapted by cutting costs and, more importantly, by increasing the number of units produced and sold in the competitive free market environment. The strategy is effective if there is complementary consumer demand.


Price Completion and Consumerism

Aggressive and increasingly more sophisticated marketing strategies created that demand; the strategy of planned product obsolescence complemented it. As more and more enterprises marketing virtually identical products competed for consumer dollars, the related price competition continued to erode profit margins. A new strategy emerged to capture more consumer dollars. That strategy was to entice consumers to indulge their desires: Enjoy Now, Pay Later.

This strategy encouraged consumers to ignore the fact that the actual cost of a product consists of its price and any interest on credit extended to purchase it (not to mention the value of the resources inherent in it and the disposal costs). The credit industry thrived. Consumerism was held up as a lifestyle model for America Incorporated and consumer loans held out to subsidize it. The model was adopted and consumer debt accepted as a necessary evil, even though both spouses of a nuclear family commonly must now work to maintain that lifestyle and service that debt. In her book, The Overworked American, Harvard economist Juliet Schor estimates that dual-income families now work 1,000 hours more each year than they did 25 years ago. Nor should we overlook the fact that credit stimulates a demand for goods and services that is artificial (hence inflationary) in that it is based on deferred productivity.


Military Expenditures and System Growth

Enormous though it was, consumer demand still did not tap the full productive potential of developed economies. From the perspective of capitalist enterprises, government demand for military equipment is a marvelous black hole. Expensive commodities ordered by governments are sucked into it, never to be seen again. Marketing costs are minimal -- though co-opting the allegiance of legislators can be quite expensive. A corporation producing trucks can also produce armored tanks, but tanks do not reduce consumer demand because they do not compete for consumer dollars in the marketplace. Military expenditures do, however, create millions of new jobs and thereby stimulate economic growth to astronomically high levels. And the most wonderful feature of all this is that the production costs of military equipment (commonly inflated to boost profits) are externalized, shifted to the public in the form of higher taxes.

To repeat myself, free market economies based on capitalism evolved in a unique, growth-stimulating environment. That growth was initiated by entrepreneurs and facilitated by technological innovations. That growth was subsidized by a reliable supply of inexpensive natural resources and regulated by free market dynamics. And the pattern of that growth was maintained by an ever-increasing population, by escalating demand for consumer goods, by exported surpluses, and by enormous expenditures for military equipment.


Growth-dependent Systems

Constant growth emerged as a system-stable strategy to such an extent that developed capitalist economies now depend on continued growth to maintain that stability. Without constant growth, I think it unlikely that these systems can continue to satisfy the conflicting demands of both capital and the work force. When that growth is seriously retarded or stops, I believe class conflict, which is presently dormant in America Incorporated, will emerge and disrupt the supra-system.

EXTERNALIZED ENTROPY COSTS

Continued growth has been possible to this point in the development of capitalist economies because the systems have been able to externalize their conflict-containment costs. Those costs are now coming due in the form of resource depletion and environmental degradation -- realities that have created a new economic environment. They are largely the outcome of inexpensive resources and high work force costs interacting in a free market environment. From this dynamic interplay emerged free market incentives which encouraged system actors to be extremely parsimonious and efficient in the use of human time but offered few if any incentives to be anything other than prodigal in using the endowment of resources nature has provided. Quite to the contrary: Resources are wasted in order to conserve time.


Maladapted Systems

As a result of their evolutionary success in an abundant environment, systems sustained by capitalism did not evolve fail-safe mechanisms to regulate either population levels or those behavior patterns related to the exploitation, production, exchange, consumption, and disposal of natural resources. This is another serious flaw at the supra-system level. To maintain their stability they must continue to grow, and doing so requires that they continue consuming the natural resources on which that growth depends. This is problematic, to say the very least, and especially so with regard to stock resources, such as minerals and fossil fuels.


Deferred Depletion Costs

The price of stock resources remains relatively inexpensive even though they are being depleted at an alarming rate. This oddity can be attributed to free market dynamics in that the market will react to resource scarcity or exhaustion, but it will not react to resource depletion. Obviously, if the demand for a resource exceeds the supply, the price will rise and so will the incentive to conserve. Likewise, the price will rise when the exhaustion of readily available deposits forces shifting to marginal ones. The higher recovery costs will result in higher prices and, again, encourage efficient resource use. But as a general rule, the free market reacts too late. It closes the barn door after the horse is loose.


Market Failures

The free market does not discriminate between abundant stock resources and ones that are depleted to dangerously low levels. We are all aware that an automobile will run just as well on a pint of gas as it will on a full tank. But it won't go as far. The machine itself does not understand that it is depleting its supply of fuel. A copper smelter can operate just as effectively on a five-year supply of copper ore as it can on a five-hundred-year supply. But it can't operate as long. Market forces will drive it in response to demand in the same way the car will respond to pressure on the accelerator. Both will run until they stop. Depletion costs cannot be deferred indefinitely. Eventually they will come due as scarcity begins to drive prices up. When scarce resources are also private property, owners can charge whatever the market will bear.

The free market is indeed controlled by an invisible hand; but it has no eyes to guide that hand, no vision of the future, no brain to evaluate the consequences of the behaviors it motivates. In organic terms, the free market is like an amoeba, a blind, aimlessly drifting life form that consumes whatever is tasty and withdraws from whatever is not. And it remains oblivious to whatever problems its environment may have with the excrement left in its wake.

A RATIONALE FOR INTERVENTION

Perhaps the chain of reasoning I have put together in getting to this point has fatal flaws not evident to me. If so, I am certain someone will detect them and bring them to my attention. Though I invite and anticipate rigorous criticism. I am, nevertheless, going to proceed as though my assessment of what's going on has withstood the critical scrutiny of experts better informed than I on these matters. Unless I am badly mistaken, developed free market economies are incapable of correcting the problems they create because, under capitalism, the only strategy the system has evolved to deal with them is growth, which makes the problems even worse. With so much of the world currently looking to these economies as models to emulate, not to call attention to their problematic attributes is a disservice of monstrous dimensions.

To my way of thinking, these systemic flaws can be corrected only by intervention at the supra-system level. That, quite obviously, would require political action. [amendments to the Const.] Specifically what action would depend on circumstances unique to a given system. In all cases, intervention would require changes in laws related to what are called property rights. Rather than prescribe a detailed set of interventions, I will instead assume a role -- that of a person who is reporting on a fact-finding mission to a hypothetical nation.

Let us assume that this nation has survived interventions at the supra-system level -- interventions conceived and democratically implemented to stimulate behavior patterns at the micro-level with the expectation this would cause the supra-system to adapt and stabilize in a posture more harmonious socially and less threatening environmentally. This nation now operates on the basis of what it calls democratic capitalism. The extent to which this hypothetical nation has corrected the systemic problems I have surveyed and how well it might be expected to function is debatable. Hopefully, such a debate will generate more light than heat.


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The nation's unconverted natural resources were declared to be its material capital. Under private ownership in a free market environment, that capital was being squandered. Consequently, the public reclaimed ownership of those resources, restored them to the public domain, and mandated to the sovereign the responsibility of administering them as a national endowment in perpetuity.

Using income as a basis for taxation was abandoned because it had become impossibly complex and totally corrupted by special interest tax legislation. Some government revenues are now derived from a tax on new births; however, an indirect consumption tax generates most revenues. The sovereign is empowered to sell or lease resources, now part of the public domain, to collectively-owned enterprises at prices calculated to provide government with the revenue it must have.

No citizen is able to avoid or shift this tax to others because the value of the public resources in every product sold is locked into its price. The tax is self-graduating because those with the most wealth also consume the most; hence, they pay a proportionately greater share of the cost of supporting government services. In addition, market prices keep the public constantly in touch with how much the government is spending.

Of greater significance, however, is that the sovereign's mandate to manage public resources in perpetuity required that resource prices be set at levels that directly reflect depletion costs. Thus, prices are set and adjusted to encourage efficient resource use, penalize waste, and stimulate alternative technologies -- ones less environmentally disruptive than those in use at any given time. Once this consumption tax was factored into products, consumer choices in the free market became more conservation oriented.

Enterprises producing and marketing goods and services were declared to be part of the nation's assets. Those owners and shareholders displaced by this act were given an appropriate annuity for life, paid for with funds from the Public Welfare Trust. Corporate ownership was then transferred in usufruct to the work force active in the enterprises at any given time. In exchange, part of each corporation's profits were dedicated to making amortized payments to provide a financial base for the Public Welfare Trust.

As corporate owners in usufruct, the work force is required to set aside sufficient funds to provide for maintenance, expansion, modernization, and research. Salary floors for various work roles were established and adjusted in accordance with market demand for workers with various skills and talents. Hiring remains open to competition, and any person hired to work for an organization producing goods or services for sale on the free market automatically becomes a shareholder in it. After cost obligations are accounted for, all remaining profits of collective effort are distributed annually to the work force according to how many shares have been assigned to a given work role. After trial and error, most enterprises began distributing these shares as a percentage of base salaries.

The Public Welfare Trust was established simultaneously. Its initial financing came from the redistribution of those corporate assets described above. After that, its cash flow came from four sources: (a) from withholding a percentage of each citizen's income; (b) from insurance premiums paid by citizens required to insure themselves against loss due to theft, accident or liability; (c) from interest paid on loans granted to citizens who wish to purchase a home or expensive consumer goods; (d) from returns on money (venture capital) loaned by the Trust to finance new and promising enterprises or to encourage the development of competitive enterprises in case an existing one should become monopolistic.

This Public Welfare Trust provides the funds necessary to subsidize education and health services and to support the aged and infirm during their non-productive years. Moreover, the Trust is almost the sole source of venture and finance capital. Actuaries establish the insurance premiums, and investment officers assess the risks involved in loaning Trust funds to individual applicants or in financing corporate enterprises. These public servants are responsible for keeping the Trust solvent by maintaining an equilibrium between its income and its expenses.

Entrepreneurs denied financing by the Public Welfare Trust may then offer shares in their proposed venture on the open stock market. Except for this high-risk stock market, there is no other place for a citizen to invest accumulated wealth and derive income from it.

Millions of workers were displaced as a result of these radical changes in the system; however, millions of new jobs were created by environmental restoration projects and by the salvage enterprises which emerged to reclaim and re-use valuable resources in products formerly discarded as if worthless. And millions more were needed to overhaul the transportation infrastructure when the constantly increasing cost of travel by private vehicles stimulated widespread demand for a mass transportation network.