        C.10 Is "free market" capitalism the best way to reduce poverty?

   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).

   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.

   What to make of this claim? Again, it does contain an element of truth.
   As capitalism is a "grow or die" economy (see [1]section D.4),
   obviously the amount of wealth available to society increases for all
   as the economy expands. So the poor will, in general, be better off
   absolutely 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 relative differences between classes and
   periods within a growth economy. Given the thesis that free-market
   capitalism will benefit the poor especially, 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
   absolute poverty or inequality rather that relative 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.

   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.

   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
   exactly 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).

   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 does 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.

   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 especially help working class people). We will discuss
   the first claim here, before discussing the track record of
   neo-liberalism in the [2]next section followed a discussion of the
   history of capitalism and free trade in section [3]C.10.2. We then
   analysis the failings of the equality defence in section [4]C.10.3
   before ending with a discussion on the limitations of looking at income
   and growth in evaluating how capitalism benefits the working class
   ([5]section C.10.4). 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.

   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 after reforms than before. The
   reality hardly matches the claims.

   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 "socialistic policies" had crippled Britain's economic growth
   since 1945 Friedman began "by misrepresenting the size of the public
   sector . . . he chooses a ratio which, though irrelevant, gives
   spurious support to his thesis." 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 "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." 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. [The Irrelevance of
   Conventional Economics, p. 181]

   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 "[d]uring the Thatcher years
   growth was lower than in any period of similar length since the war."
   He notes "the vast discrepancy between what the Thatcherites claimed
   for their policies and what actually happened." Unsurprisingly, there
   was an "unparalleled rise in poverty," as "relative poverty grew
   significantly during the 1980s," 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% ("The rich got rich, and the poor got
   poorer"). "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." [Dancing with Dogma, pp. 83-4, p. 87, p. 142,
   p. 138 and p. 172] we will return to this issue in [6]section C.10.3.

   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, "the idea that Britain has a clearly superior economy to the
   continent is a delusion." [Adair Turner, Just Capital: The Liberal
   Economy, p. 200, pp. 199-200 and p. 196]

   The best that can be said of Thatcherism is that during the 1980s,
   "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." Combine this
   with longer working hours compared to the rest of Europe, we have a
   situation in the UK where "too many companies relying on low wages and
   a flexible labour market to remain competitive, rather than on
   investment in capital equipment and technique." 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 "absolute
   growth rates per capita . . . compared well with the inter-war years
   and with the period of British leadership in the nineteenth century."
   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, Op. Cit., 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."

   This lack of dynamism is not limited just to the UK or New Zealand. As
   left-wing economist Andrew Glyn notes, the "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." 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. "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." He summarises the evidence by pointing out that "economic
   performance overall has been unspectacular." [Capitalism Unleashed, pp.
   130-1 and p. 151]

   As Chomsky summarises, "neoliberal-style programs began to take shape
   in the 1970s" and since then real wages "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" (as has personal debt). Moreover, "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." [Failed
   States, p. 211]

   The assumption is that producing free(r) markets and a pure(r)
   capitalism will result in higher growth and so rising living standards.
   "So far," note two experts, "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." In the two decades after 1980, "overall
   income growth slowed dramatically." 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). "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." 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 "not been a sizeable increase in poverty," the
   "exceptions [being] the USA and the United Kingdom, where poverty grew,
   respectively, by 2.4 and 5.4 percentage points between 1979 and 1991."
   [Jeff Faux and Larry Mishel, "Inequality and the Global Economy", pp.
   93-111, Will Hutton and Anthony Giddens (eds.), On The Edge, pp. 93-4,
   p. 96, p. 97, p. 98, p. 101, p. 102 and p. 100]

   This lack of rise in growth is a definite feature of neo-liberalism.
   The promises of the "free market" capitalism have not borne fruit:

     "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 . . .

     "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."
     [Deepak Nayyar, "Globalisation, history and development: a tale of
     two centuries," pp. 137-159, Cambridge Journal of Economics, Vol.
     30, No. 1, pp. 153-4 and p. 154]

   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 higher 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.

   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 ("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." [Glyn,
   Op. Cit., 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.

   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]f
   the 'welfare state' were abolished and taxes reduced accordingly,
   society would become a great deal more unequal." [John Hills,
   Inequality and the State, 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 less growth along with
   greater inequality and relative poverty.

   This is not 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 lack 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
   "road to serfdom," 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 [7]section B.4.4 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).

   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 not help the poor but rather enriched the
   wealthy then almost all "free market" capitalists would not 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
   Anti-Libertarianism for a short but relevant discussion of this).

C.10.1 Hasn't neo-liberalism benefited the world's poor?

   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.

   This is understandable. As we discuss in the [8]section C.10.4,
   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.

   At the forefront of such claims is the Economist magazine, which played
   its usual role of ideological cheerleader for the ruling class.
   Discussing "Global economic inequality", 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 has increased -- as they admit, this means
   "that the poor are falling behind, and that cross-country inequality is
   getting worse." ["More or less equal?", The Economist, 11th March,
   2004]

   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 within countries. The article states that
   "average incomes in India and China are going up extremely rapidly" 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 within a country then it must also be increasing
   internationally as well.

   Significantly, "where governments adopted the [neo-liberal] Washington
   Consensus, the poor have benefited less from growth." [Joseph E.
   Stiglitz, Globalization and its Discontents, 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).

   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 "suffers not from globalisation, but from lack of
   it." 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.

   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 "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."
   While it is "commonly believed that the shift towards globalisation has
   been a success, at least regarding growth," in fact "the progress
   achieved in the two decades of globalisation has been considerably less
   than the progress in the period from 1960 to 1980." For low and
   middle-income countries, performance is "much worse . . . than the
   period from 1960 to 1980." "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." [Mark Weisbrot, Dean Baker, Egor Kraev and Judy Chen,
   The Scorecard on Globalization 1980-2000: Twenty Years of Diminished
   Progress] In fact:

     "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." [Op.
     Cit.]

   Nor should we forget that there is a "gallery of nations whose
   economies soured shortly after their leaders were lauded by the global
   policy elite for pursuing sound economic fundamentals." [Jeff Faux and
   Larry Mishel, Op. Cit., 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
   [9]section C.11).

   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 ("the IMF talks with pride about the progress
   that Latin America made in market reforms" [Stiglitz, Op. Cit., p.
   79]). Rather than success story, there has been "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." By comparison, "for the
   two decades from 1960-1979, Latin America experienced per capita GDP
   growth of 80 percent." In fact, "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." 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, "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." By comparison, "from
   1960-1979, per capita growth was 3.0 percent, or 80 percent for these
   two decades." [Mark Weisbrot and David Rosnick, Another Lost Decade?:
   Latin America's Growth Failure Continues into the 21st Century] 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.

   Over all it is important to stress that neo-liberalism has failed its
   own test:

     "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." [Mark Weisbrot, Dean Baker, Robert Naiman, and
     Gila Neta, Growth May Be Good for the Poor -- But are IMF and World
     Bank Policies Good for Growth?]

   As Chomsky summarises, the periods of fastest and prolonged growth have
   not coincide with phases of extensive liberalisation. In fact,
   neoliberal reforms have "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)." Growth rates have, in
   fact, fell by "over half" compared to the preceding period of statist
   policies (particularly when measured per capita). [Op. Cit., 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:

     "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." [Ha-Joon Chang, Kicking Away the
     Ladder, p. 128]

   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
   "unprecedented poverty." 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 "have seen comparable, if not worse, increases in poverty."
   Overall, these reform package has "entailed one of the largest
   increases in poverty in history." [Globalization and its Discontents,
   p. 6, p. 153 and p. 182]

   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, Op.
   Cit., 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.

   Overall, between 1985 and 2000, growth in GDP per capita was negative
   in 17 transition countries while the "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." East, Southwest
   and South Asia did experience a steady decline in the incidence of
   poverty, but "most of this improvement is accounted for by changes in
   just two countries, with large populations, China and India." [Deepak
   Nayyar, Op. Cit., p. 154, pp. 154-5 and p. 155] Hardly an inspiring
   result.

   And what of the actual economic regimes in China and India? One
   left-wing economist notes that "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." 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 "is very harsh" and workers may find it difficult to change
   jobs and migrate to urban areas. [Andrew Glyn, Op. Cit., p. 87 and p.
   94]

   As one expert notes, in the case of both India and China "the main
   trade reforms took place after the onset of high growth. Moreover,
   these countries' trade restrictions remain among the highest in the
   world." In India, its "trend growth rate increased substantially in the
   early 1980s" while "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." Thus claims of "the beneficial
   effects of trade liberalisation on poverty have to be seen as
   statements based on faith rather than evidence." [Dani Rodrik, Comments
   on 'Trade, Growth, and Poverty by D. Dollar and A. Kraay] As Chomsky
   notes, there is a deliberate policy which "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." [Op. Cit.,
   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.

   At least the Economist itself notes that "[n]either country is an
   exemplar of free market capitalism -- far from it." That says it all
   about the defenders of free market capitalism; they defend their ideas
   by pointing to countries which do not apply them!

   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
   "the spectacular growth of these countries . . . is fundamentally due
   to activist industrial, trade and technology policies (ITT) by the
   state." [Chang, Op. Cit., p. 49] As an expert on these economies notes,
   "the legend is not fully consistent with the way the governments have
   in practice behaved," namely adopting "over a long period of time a
   much more aggressive, dirigistic set of industrial policies than
   free-trading principles would justify." In fact, their "governments
   were deeply committed to increasing and sustaining high levels of
   investment and to steering its composition." He bemoans the "assumption
   that only those features of economic policy consistent with
   neoclassical principles could have contributed to good economic
   performance" and so explanations for such "accordingly ignore
   non-neoclassical features." [Robert Wade, "What can Economics Learn
   from East Asian Success?", pp. 68-79, Annals of the American Academy of
   Political and Social Science, vol. 505, pp. 70-1, p. 72 and p. 68]

   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 ("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.'" [Jeff Faux
   and Larry Mishel, Op. Cit., p. 94]). As Robert Wade noted, "the
   perception shifted from 'miracle Asia' to 'Asian crony state
   capitalism' almost over night," a term used "to convey a told-you-so
   moral about the dangers of government intervention." ["From 'miracle'
   to 'cronyism': explaining the Great Asian Slump", pp. 673-706,
   Cambridge Journal of Economics, Vol. 22, No. 6, p. 699 and p. 700]
   Ironically, Japan's 1990s woes and the 1997 crisis both occurred after
   those states liberalised their economies (as recommended by, of course,
   economists and the IMF). Unsurprisingly, we discover Milton Friedman
   pointing (in 2002!) to the "dramatic success of the market-orientated
   policies of the East Asian tigers" as if they gave support to his
   ideological position of laissez-faire capitalism. [Op. Cit., p. ix]

   Then there is the issue of "economic liberty" as such. Milton Friedman
   stated in 2002 that the "limited increase in economic freedom has
   changed the face of China, strikingly confirming our faith in the power
   of free markets." [Op. Cit., 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 "increase in
   economic freedom" in such regimes? It seems, therefore, that for
   right-wing economists that their "faith" in "free markets" is
   "confirmed" 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 [10]section C.11, Friedman has a
   track record in this).

   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.

   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 "international global
   justice movement, ludicrously called 'anti-globalisation' because they
   favour globalisation that privileges the interests of people, not
   investors and financial institutions." [Op. Cit., 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.

   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 "the actual number of people living in
   poverty . . . actually increased by almost 100 million" in the 1990s
   and he argues that globalisation as practised "has not succeeded in
   reducing poverty." [Op. Cit., 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:

     "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." [Op. Cit., p.
     129]

   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.

C.10.2 Does "free trade" benefit everyone?

   As we discussed in the [11]last section, 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."

   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
   [12]section C.1.2, 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.

   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. [The Principles of Political Economy and
   Taxation, pp. 81-3]

   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, "if you want to know how well those theorems actually work, just
   compare Portugal and England after a hundred years of development."
   [Understanding Power, p. 254] One economist who did was the German
   Friedrich List who, in 1837, urged people "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." [The Natural System of Political
   Economy, pp. 169-70] Unsurprisingly, List used this example to bolster
   his case for protectionism. Little has changed. Allan Engler notes that
   "[a]fter nearly 200 years, comparative advantage had given Portugal no
   noticeable advantage." While the UK became the leading industrial
   power, Portugal remained a poor agricultural economy: "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." 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.
   [Apostles of Greed, p. 132]

   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.

   Therefore the argument for free trade cannot be abstracted from its
   impact or the interests it serves, as Joan Robinson pointed out:

     "When Ricardo set out the case against protection he was supporting
     British economic interests. Free trade ruined Portuguese industry.
     Free trade for others 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." [Collected
     Economic Papers, vol. 5, p. 28]

   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 "study of the true
   consequences" of free trade "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." [Op. Cit., 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.

   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 "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" (such as banning imports from competitors). [Chang, Op. Cit.,
   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:

     "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 . . .

     "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."
     [Op. Cit., p. 180]

   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.

   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
   "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." He
   considered it best that capital be "employed in agriculture" rather
   than manufacturing. [The Wealth of Nations, p. 328 and p. 327]). The
   historical record hardly supports Smith's predictions as "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." [Op. Cit., p. 30]

   As with the UK, America "remained the most ardent practitioner of
   infant industry protection until the First World War, and even until
   the Second." 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
   "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." [Chang, Op. Cit., 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:

     "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." [Op. Cit., p. 255]

   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 "is
   concrete and inductive" and "contrasts strongly with the currently
   dominant Neoclassical approach based on abstract and deductive
   methods." This has meant that "contemporary discussion on economic
   development policy-making has been peculiarly ahistoric." [Op. Cit., 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 know 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?

   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
   reducing 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.

   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 other nations
   to subscribe to rules which hinder their freedom to develop in their
   own way. As we discuss in [13]section D.5, 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 "was based on its then
   unchallenged economic superiority and was intricately linked with its
   imperial policy." The stated aim was to halt the move to
   industrialisation in Europe by promoting agricultural markets. Outside
   of the West, "most of the rest of the world was forced to practice free
   trade through colonialism and . . . unequal treaties." These days, this
   policy is implemented via international organisations which impose
   Western-dominated rules. As Chang notes, the "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." [Op. Cit.,
   p. 16, p. 23, p. 16 and p. 2]

   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.

   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
   "consistent pattern emerges, in which all the catching-up economies use
   activist industrial, trade and technology (ITT) policies . . . to
   promote economic development." He stresses "it was the UK and the USA,
   the supposed homes of free trade policy, which used tariff protection
   most aggressively." The former "implemented the kinds of ITT policies
   that became famous for their use in . . . Japan, Korea and Taiwan."
   [Op. Cit., pp. 125-6, p. 59 and pp. 60-1] In addition, another aspect
   of this process involves repressing the working class so that we pay
   the costs for industrialising. Unions were illegal when Britain used
   its ITT policies while the "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." ["What can
   Economics Learn from East Asian Success?", Op. Cit., 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?).

   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 [14]section D.1, this process of
   state intervention is part and parcel of capitalism and, as noted in
   [15]section F.8, has always been a feature of its rise in the first
   place (to use Marx's expression, a process of "primitive accumulation"
   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).

   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 class 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, "[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." [Post-Scarcity Anarchism,
   pp. 156-7]

   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 "oppose[d] the free traders because
   they favour interest, while they demand the abolition of tariffs." He
   advocated the opposite, supporting free trade "as a consequence of the
   abolition of interest" (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
   "emancipate their lower classes; in a word, to bring about revolution.
   Free trade would then become equal exchange." [The General Idea of the
   Revolution, 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.

C.10.3 Does "free market" capitalism benefit everyone, especially working class
people?

   One defence of capitalism is that, appearances and popular opinion to
   the contrary, it is benefits working class people more than the ruling
   class.

   This argument can be found in right-liberal economist Milton Friedman's
   defence of capitalism in which he addresses the claim that "the
   extension and development of capitalism has meant increased
   inequality." Not so, he states. "Among the Western countries alone," he
   argues, "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." In fact,
   "a free society [i.e. capitalism] in fact tends towards greater
   material equality than any other yet tried." Thus, according to
   Friedman, a "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." [Capitalism and Freedom, p. 168, pp. 169-70, p.
   195 and p. 169]

   Friedman makes other claims to the superiority of capitalism. Thus he
   states that not only do non-capitalist societies "tend to have wider
   inequality than capitalist, even as measured by annual income" in such
   systems inequality "tends to be permanent, whereas capitalism
   undermines status and introduces social mobility." Like most
   right-wingers, he stresses the importance of social mobility and argues
   that a society with little change in position "would be the more
   unequal society." Finally, he states that "[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." [Op.
   Cit., pp. 171-2, p. 171 and pp. 168-9]

   Friedman, as he regularly did, failed to present any evidence to
   support his claims or any of his "striking fact[s]" 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 decreases in equality, social mobility and the share of
   "human services" before 1980 (the period of social Keynesian policies)
   and increases in all three after. Sadly for Friedman (and us!), the
   facts are counter to his assertions -- equality, mobility and share of
   income for "human services" all decreased post-1980.

   As we showed in [16]section B.7, inequality rose and 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, "Labor's Share in the National Income," The
   Quarterly Review of Economics & Business, 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, "Measuring Labor's Share", The American
   Economic Review, vol. 89, No.2, May 1999] Since then the downward trend
   has continued.

   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.

   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, Op. Cit.]). 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.

   One group of economists have taken the issue of government transfers
   into account. Since 1979, there has been an "increased share of capital
   income (such as rent, dividends, interest payments, and capital gains)
   and a corresponding smaller share earned as wages and salaries." Most
   families receive little or no capital income, but it is "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)." 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 "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."
   [Lawrence Mishel, Jered Bernstein, and Sylvia Allegretto, The State of
   Working America 2006/7, p. 76 and p. 79]

   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.

   Then there is the issue of "human services" itself. This is not the
   same as labour income at all as it includes, for example, management
   pay. As we indicated in [17]section C.3, this "labour" income is better
   thought of as capital 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.

   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 underestimates inequality in capitalist economies,
   particularly ones which had the misfortunate to apply Friedman's ideas.

   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 [18]section C.11 for the grim details of "economic liberty"
   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 "directly
   contributed to the increase in overall inequality" (48% of all
   investment income went to the richest tenth of households). [John Hill,
   Inequality and the State, p. 88]

   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 "over the 1960s and 1970s as a whole
   all income groups benefited from rising incomes, the lowest rising
   fastest." After 1978 "the pattern broke down" 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 [19]section B.7.1). 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% ("Wealth is much more unequally distributed than
   incomes."). [John Hills, Op. Cit., p. 20, p. 21, p. 23 and p. 37]

   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 "the rose sharply"
   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 "the lie to the notion that 'relative' poverty can never be
   reduced." In summary, by the early 1990s "relative poverty was twice
   the level it had been in the 1960s, and three times what it had been in
   the late 1970s." It seems needless to add that social mobility fell.
   [John Hills, Op. Cit., p. 48, p. 263 and pp. 120-1]

   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.

   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, "real wage have growth very slowly in OECD countries since
   1979, an extraordinary turn-round from the 3-5% growth rates of the
   1960s." 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 "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." Within
   the labour force, inequality has risen. Wage differentials "are
   considerably higher in the UK/US group than in Europe" 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, "real wages grew at the bottom at a similar rate to
   the average." 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, "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." [Andrew Glyn, Op.
   Cit., p. 6 p. 116, p. 117, p. 118 and p. 127]

   Looking at inequality and poverty, the conclusion is that
   liberalisation of markets "tend to bring greater inequality." In fact,
   the rise in the UK was strongest in the 1980s, the Thatcher period
   while New Zealand "saw as big an increase in inequality as the UK." The
   USA "maintained its position as the most unequal country with
   inequality increasing in both decades." In summary, "the increase in
   inequality has been noticeably greater in the inegalitarian liberal
   economies than in Northern Europe." Moreover, "liberal countries have
   larger proportions of their populations in poverty" than European ones.
   Unsurprisingly, New Zealand and the UK (both poster-childs for
   neo-liberalism) "had the biggest increases in numbers in poverty
   between the mid-1980s and 2000." 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 "tend to reproduce themselves through the generations."
   There "is far less social mobility in the USA" than in Scandinavia,
   Germany and Canada and there has been a "severe decline in social
   mobility" in the UK after the Friedman-inspired Thatcherism of the
   1980s and 1990s. Unsurprisingly, there has been "a rise in the
   importance of property incomes.", 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.
   [Op. Cit., p. 167, p. 168, p. 169, p. 171, p. 169, p. 173, p. 174 and
   p. 170]

   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 "enormously gratified by how
   well the book has withstood time." 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 "behaviour of the
   stock of money" by means of "a legislated rule instructing the monetary
   authority to achieve a specified rates of growth in the stock of
   money." [Op. Cit., p. ix and p. 54] As we indicated in [20]section C.8,
   the devastating results of applying this centre-piece of his ideology
   means that it hardly "withstood time" by any stretch of the
   imagination! In other words, we have a case of self-refutation that has
   few equals.

   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.

   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 "were able to curb
   leviathan, through not to cut it down." [Op. Cit., p. vii]). State
   intervention has hardly disappeared since 1980 but given the lush
   praise given to the "magic" of the market you would expect some
   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 the most, influential economist of the late 20th century. It seems
   strange, then, to suggest that the market is now less 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 least 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.

C.10.4 Does growth automatically mean people are better off?

   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 not embraced the neo-liberal model.

   However, there is a deeper critique to be made of the notion that
   capitalism benefits everyone, especially the poor. This relates to the
   quality 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:

     "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.

     "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."
     [The Making of the English Working Class, p. 231]

   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 quality of life decreases as incomes rise.

   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 real 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.

   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, "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." This is not limited to just developing countries.
   Two episodes like this occurred in the United States, with data showing
   that "the per capita income of the poor falling from 1979-84, and
   1989-94, while per capita income rose." Overall, the US has seen its
   median wage and real wages for the bottom 20th of its populations fall
   between 1973 and 1997 while "per capita income in the US has risen by
   70 percent. For the median wage and bottom-quintile wage to actually
   fall during this same period is an economic change of momentous
   proportions, from the point of view of the majority of Americans."
   [Mark Weisbrot, Dean Baker, Robert Naiman, and Gila Neta, Growth May Be
   Good for the Poor -- But are IMF and World Bank Policies Good for
   Growth?] This is a classic example of society with substantial
   inequality seeing the benefits of growth accrue to the already rich. To
   state the obvious, how the benefits of growth are distributed cannot be
   ignored.

   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.

   As such, the notion of growth as such 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, "[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." [Failed States, 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 "be automatically done
   away with" in a sane society. [What is Anarchism?, 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.

   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.

   So it can be said that laissez-faire capitalism will benefit all,
   especially 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, Accumulation
   and Power, pp. 183-4]:

     lowest level of job security for workers, with greatest chance of
   being dismissed without notice or reason.

     greatest chance for a worker to become unemployed without adequate
   unemployment and medical insurance.

     less leisure time for workers, such as holiday time.

     one of the most lopsided income distribution profiles.

     lowest ratio of female to male earnings, in 1987 64% of the male
   wage.

     highest incidence of poverty in the industrial world.

     among the worse rankings of all advanced industrial nations for
   pollutant emissions into the air.

     highest murder rates.

     worse ranking for life expectancy and infant morality.

   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 especially 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.

   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.

   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.

   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.

   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 absolute inequality
   rather than relative 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 no 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.

   In this respect, the words of Adam Smith are as relevant as ever. In
   The Wealth of Nations Smith states the following:

     "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." (Book Five, Chapter II,
     Article IV)

   As usual, Adam Smith is right while his erstwhile ideological followers
   are wrong. They may object, noting that strictly speaking Smith was
   talking of "necessaries" 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 "the custom of the country" or "the established rules of
   decency" consider necessary Marx made the same point his later works,
   when he distanced himself from his earlier notion that capitalism
   resulted in absolute impoverishment. As he put it in volume 1 of
   Capital, "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." [p.
   275]

   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
   "[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." [Ian Gilmore, Op. Cit., 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 "poverty is in part a relative matter." [Op.
   Cit., p. 191]). Considering the harmful effects of relative inequality
   we indicated in [21]section B.1, this position is perfectly justified.

   The notion of absolute poverty being the key dates back to at least
   Locke who argued in his Second Treatise on government that in America
   "a King of a large and fruitful Territory there feeds, lodges, and is
   clad worse than a day Labourer in England." (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 The Political Theory of Possessive
   Individualism: From Hobbes to Locke 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.

   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 "precisely these elements of material and spiritual independence
   that many of the most outspoken advocates of enclosure sought to
   destroy." They "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." [Against the Market, p. 19] This
   would only be considered paradoxical if you equate freedom with
   capitalism.

   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 [22]section F.8, 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 "for the lowly
   province worker, working inside an enclosed factory is better than
   being outside." One of his workers rebutted this, stating "Our rights
   are being trampled" and the he said that "because he has not
   experienced working in a factory and the conditions inside." Another
   noted that "of course he would say that we prefer this work -- it is
   beneficial to him, but not to us." Another states the obvious: "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." [quoted by
   Klein, No Logo, 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.

   As for the regimes within these factories, Klein notes that they are
   extremely authoritarian. The largest free-trade zone in the Philippines
   is "a miniature military state inside a democracy" and the "management
   is military-style, the supervisors often abusive." As would be
   expected, "no questioning of authority is expected or permitted" and in
   some "strikes are officially illegal" (rather than unofficially
   banned). [Op. Cit., 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, "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." ["What do Bosses do?", pp. 60-112, The Review of
   Radical Political Economics, vol. 6, No. 2, p. 98] In other words,
   while the workers may 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.

   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 ("you'll get pie in the sky when you die" 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).

   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 if 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 "Immiserating Growth: The First World" in Z Magazine,
   July 1994.

   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.

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/secD4.html
   2. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC10.html#secc101
   3. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC10.html#secc102
   4. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC10.html#secc103
   5. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC10.html#secc104
   6. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC10.html#secc103
   7. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB4.html#secb44
   8. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC10.html#secc104
   9. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC11.html
  10. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC11.html
  11. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC10.html#secc101
  12. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc12
  13. file://localhost/home/mauro/baku/debianize/maint/anarchy/secD5.html
  14. file://localhost/home/mauro/baku/debianize/maint/anarchy/secD1.html
  15. file://localhost/home/mauro/baku/debianize/maint/anarchy/secF8.html
  16. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB7.html
  17. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC3.html
  18. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC11.html
  19. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB7.html#secb71
  20. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC8.html
  21. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB1.html
  22. file://localhost/home/mauro/baku/debianize/maint/anarchy/secF8.html
