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Salient. An Organ of Student Opinion at Victoria University College, Wellington N.Z. Vol. 21, No. 4. April 23, 1958

A Social Democrat Looks at Capitalism

page 7

A Social Democrat Looks at Capitalism

The major economic defects of the Capitalist economic system lie in its essential unco-ordinated nature, "the boom-and-slump cycle", and the tendency towards over-production in certain industries.

Strictly speaking it is inaccurate to speak of the Capitalist system: there is no system, only the play of inpalpable forces. Amidst the chaos of competition, advertising and duplication of functions any co-operation is purely unconscious—unless in their own interests and not those of society capitalist employers co-operate to fixe prices, all the time sheltering behind the facade of "free competition".

Capitalism is defended on the grounds that it is automatic, elastic and responsive. By a spontaneous process supply is adjusted to demand and production to consumption. What these visionaries overlook is the unsatisfactory nature of the boom-and-slump cycle and the tendency owards over-production leading to a periodic saturation of markets. Again Capitalism is defended on the grounds that under it the multitudinous economic activities of the world are, so to speak, democratised; that they govern themselves with all the liberty and elasticity and variety of freedom; that a magnificent scope is offered to individual judgment and initiative and courage; that vested interests are hurled aside out of the path of economic progress. Such an analysis ignores the fundamentally despotic and undemocratic nature of Capitalism as illustrated by the general tendency towards "oligopolies" and the undue concentration of ownership in the hands of a few. It evades the fact that scope for initiative under an individualistic system leads inevitably to opportunism, anti-social speculation, exploitation and in-equalities. Again, vested interests are often a hindrance to economic progress. A business corporation will deliberately suppress a new invention if its marketing will interfere with the company's sales and profits.

A cardinal fallacy that finds favour only too often among the credulous public is the theory that production is controlled by demand. This is not the case. In most instances production is controlled purely by the plant's capacity to produce. Where the profit motive has the upper hand production tends to outstrip consumption. The gap can only be bridged by a genuine increase in purchasing power brought about by allowing the workers to have a proportionate share of the increased wealth which they assisted to produce. But as the well-nigh universal policy of capitalists is to secure all the advantages of increased production for themselves, this gap between production and consumption is not bridged. The result is a slump. The only solution to this fundamental paradox in Capitalism is to replace its chaos by an orderly economic system based upon economic planning. Only by such a method can we ensure that production is controlled by demand.

Automation—the mechanization of control in production—presents a signal threat to the Capitalist system. Because of the more rapid productivity increase that it implies, automation will aggravate any tendency towards over-production and threaten our economy with a slump. The social consequences will no doubt be worsened by the fact that the introduction of automation will be sporadic and unplanned. A more immediate problem is the large investment outlays that automation demands. A large and sudden change-over which may entail the scrapping of valuable existing equipment may well be beyond the re-sources of even the largest enterprises. A sort of "law of the jungle" will operate; the small and the weak must go under. It seems too that the imposition of automation from above can offer in the transition period only dismissals and unemployment for the workers and increased profits for the capitalists.

Recently Hugh Gaitskell illustrated a new trend in Capitalist development by pointing out that an increasing number of shareholders have no control over the companies in which they invest. This is a trend away from what one economist has described as almost Capitalism's Golden Rule—the association of control with risk. This is the proposition that where risk lies, there the control should likewise lie. Now what Gaitskell buttoned onto is the practise of issuing voteless shares. "Tribune", the English Labour weekly, gives us a few examples. Marks and Spencer has a capital of £208 million but only £4½ million of the stock carry voting rights. Control is in the hands of the Marks and Sieff families. Charles Clore's Sears Holdings has a capital of £27,600,000, yet only £7,800,000 have voting rights. Thus with only a small proportion of the capital, Mr. Clore can still control the empire. Great Universal Stores has capital of over £100 million. Only £15 million of shares carry votes, ensuring that control stays in the Wolfson family. This modern Capitalist development illustrates that no useful purpose is served by associating control with financial risk. It is not true that the power of making decisions will be most wisely exercised if it rests in the hands of those that stand to lose most heavily if the decision turns out badly. Nor is it true that the risks of industry will be most bravely shouldered if those who shoulder them are not obliged to hand over to others the power of making decisions about the use of the resources which they put to the hazard. What should be associated with control is not financial risk but rather actual production. If the producers themselves exercise control, this will act as a powerful incentive and stimulus. Since passable decisions, as Gaitskell has shown, are actually made in many companies by those who do not bear predominant financial risks, the spirit of the trusteeship which here receives a real if limited application is obviously capable of further development. It is only one further step to giving shareholders a purely passive role in industry with active conduct of affairs resting in the hands of the workers themselves.

The major anti-social feature of the Capitalist economic system is the distasteful inequality in the distribution of industrial power. Capitalism, being an oligarchy of Capital, by its very nature entails a sharp differentiation between those who own and plan and control and those who execute orders. Herein is the source of class-antagonism. The oligarchical nature of Capitalist industry is particularly objectionable in an age where there is a growing trend towards a diffusion of political power. Ultimately, as Strachey points out in his "Contemporary Capitalism", democracy and capitalism are incompatible; Strachey argues that the concentration of economic power must subvert democracy unless democracy succeeds first in transforming the economic system. This is the recognition of the fact that democracy is primarily an equalitarian institution; that it is not so much governed by consent (as Locke thought) or government by discussion (as Linsey and Barker suggest) but rather the recognition of the principle of equality in its political application. Political forms being largely related to property ownership, it is becoming only too apparent that a political system based on the recognition of equality cannot continue to go hand in hand with an economy based on inequalities. One must give way to the other. Which one will it be?

T.J.K.

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