Capitalism is a waste

August 18, 2015

In an article published in Red Flag, Australian socialist Allen Myers shows how capitalist innovation that once drove society forward now holds it back.

THERE ARE some things that no Australian politician would ever publicly oppose. Motherhood. Democracy. Friendship. Economic efficiency.

These days, economic efficiency probably ranks higher than the other three in politicians' scale of values. But what is it?

We are told that capitalism is an efficient system, but at the same time, we're told that we have to strive to make the economy more efficient, usually by giving up hard-won working conditions. So it seems then that the alleged efficiency of capitalism is not automatic; we have to keep doing things or giving up things to make it efficient, and it never seems to be efficient enough.

In the physical sciences, a machine or process is efficient if it minimizes the waste of material or energy. An electric pump that delivers 98 percent of the input energy to move water is more efficient than one that delivers only 95 percent. (Because of friction, 100 percent efficiency is impossible.)

Economic efficiency is harder to pin down. In some cases, it might be very similar to efficiency in the physical sense--a machine that loses or destroys only 3 percent of the raw material in the course of turning it into a product is more efficient than a machine that wastes 7 percent.

A closed-down sugar factory in Brooklyn
A closed-down sugar factory in Brooklyn



Workers who are fired because the bank decided it was more efficient (profitable) to call in their company's loan than to extend it will have a different view of efficiency.

EARLY CAPITALIST businesses were more efficient than feudalism; that is a major reason that feudalism in Western Europe was eventually overcome. Back then, greater economic efficiency was of benefit not only to business owners. It also increased the overall level of social welfare. Of course, workers were exploited, but they had previously been exploited as serfs or peasants forced off the land.

More efficient labor meant a larger number of products at a lower price, allowing working people a slight increase in living standards. And as agriculture became more efficient, labor power was freed up for industry and to power overall economic growth.

But over the subsequent centuries, that situation has been reversed. Today, business practices that are efficient and therefore profitable for the individual capitalist or corporation are increasingly inefficient for society. This is sometimes referred to as the contrast between private profit and public cost.


The power plants producing electricity are also required to be efficient--that is, to produce at the lowest possible cost for each kilowatt, and so they burn coal or some other slightly less dangerous fossil fuel. And even if it's clear that electricity produced by wind or solar power would be cheaper than that produced by present methods, those power plants would not be efficient in capitalist terms if they were shut down now--the money for their construction has already been spent, and it has to be recovered, which means the plants have to continue operating for as long as they can.

So on the individual corporate level, it is efficient to continue mining and burning fossil fuels. The fact that doing this is causing major disruptions to the Earth's climate, which will have incalculable impacts on people everywhere, is a social inefficiency, which the fossil fuel corporations don't have to take into consideration.

Even if climate change were as trivial a problem as Australian Prime Minister Tony Abbott seems to think it is, the whole transport industry would still display the same contrast between private efficiency and social inefficiency. The entire private car industry exists only because it is massively subsidized with public funds: governments have poured billions of public taxpayer funds into building roads for cars to travel on (and often more billions in wars to ensure that gasoline would be available to power the cars).

Public transport has been downgraded or destroyed (like the trams in Sydney, for example), even though it is usually more efficient than private transport in terms of the resources required per passenger kilometer. That is indisputably true in most cities, where it has become almost impossible to move at more than a walking pace in a private vehicle during large parts of the day. But it is also true that rapid intercity transport could have been created by rail at a fraction of the economic cost of building the highway network (not to mention the human cost of the people killed in traffic accidents).


I did a Google search for "commercial lawyers" in Australia and got nearly 84,000 results, some of them for firms that had several lawyers. These lawyers are a necessary part of the functioning of Australian capitalism. They protect capitalist property and devise ways to avoid annoyances like taxes and government regulations, but they don't produce anything useful for people who aren't capitalists. Corporations pay fees when they use these lawyers, but much of the cost of their legal education is borne by taxpayers.

Capitalism requires many people to work in jobs that are not part of actual production; mostly, these are directly or indirectly connected with collecting money--at supermarket checkouts, toll booths, nearly every shop. In a more rational system, these people would instead produce useful goods or services, reducing the amount of time that everyone would need to work.

Then there are the military, police and other "security" forces. Australia has not been threatened by foreign invasion since the Second World War, so for six decades, we've been spending billions a year, ostensibly to fend off nonexistent threats, but really to defend Australian capitalists' interests in the region and also to keep the rest of us in line if things get dicey (Sir John Kerr lined up the military before he sacked Whitlam).

Most police activity is protecting the property of capitalists. All this wasted money and effort is also part of capitalist inefficiency.


Last but certainly not least, there are the millions of hours of human labor wasted on assaulting our senses with obnoxious appeals to buy something we don't need or to convince us that one of several identical products is superior to the others.

THE FUNDAMENTAL idea behind treating economic efficiency as the first priority is that markets should determine what we do: if it pays, do it; if it doesn't, don't. But while markets were a necessary part of humanity's escape from the stagnation of feudalism, they long ago ceased to be a vehicle for further human progress.

Capitalist ("neoclassical") economic theory says the market won't give you a reliable indication of the most efficient way to produce something unless all actual and potential "factors of production" are subject to the market. That is, markets have to be generalized.

To put it a bit more starkly, capitalist production can be "efficient" because producers of land mines are able to sell them on the "free market" and because entrepreneurs can sell Thai children to sex tourists. If everything produced by the free market is efficient, and that's the way the theory has it, then child prostitution is efficient, nuclear weapons are efficient, wood-chipping old growth forests is efficient--everything that is vile and destructive about capitalism is efficient, for it is all a product of the capitalist market.


For instance, controlled by a working people's government, the banking system could be a means for providing productive resources to areas of high unemployment or to particular important industries such as renewable energy or to groups of people who are trying to overcome the effects of past discrimination.



As Karl Marx stressed, a market economy characterizes a situation in which producers do not have control over their own production; with socialism, humanity takes control of its own existence and by doing so enters the realm of freedom.

First published in Red Flag.

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