Stumbling and Mumbling

Author: chris dillow   |   Latest post: Tue, 7 Jun 2022, 1:50 PM


Capitalism's self-preservation society

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Here are three recent items:

- E.On boss Michael Lewis calls for "very substantial" government help with fuel poverty.

- CBI Director-General Tony Danker says the government must "help people facing real hardship now"

- Some "patriotic millionaires" want higher taxes on the rich: #taxmenow

These people are not revolutionaries nor even moral crusaders, despite Danker's words. Instead, they see that egregious rates of exploitation, inequality and poverty are not in the interests of at least parts of capital. They want some redistribution and a solution to the cost of living crisis not because of a fit of morality but because they are a
self-preservation society. Michael-caine-the-italian-job-01-600x350

One reason for this lies in the simple fact of the circular flow of income. Lewis, I suspect, doesn't give a damn about fuel poverty; if he did he would cut prices himself. What he does care about - because he is paid to - is that increasing numbers of his customers are in arrears and cannot pay their bills. "Very substantial" help for them means very substantial help for him; it improves E.On's cashflow.

And not just him. Supermarket sales are falling, and discount retailers are gaining market share. That's another effect of falling real incomes. Anything that boost incomes will help to slow or stop this trend and hence support the profits of retailers. Welfare benefits aren't so much a payment to claimants as a payment through claimants. Which is one reason why Justin Webb isn't entirely right to claim that a windfall tax on oil and gas companies will hurt pensioners because it will reduce the share prices of Shell and BP. Maybe it will, to an extent. But the revenues generated thereby will be spent in the wider economy, thus supporting profits and dividends elsewhere.

But there's a second reason why smarter capitalists favour redistribution. It's that, as James O'Connor pointed out in his famous book, The Fiscal Crisis of the State, capitalism requires more than economic conditions favourable for profits. It also requires legitimacy, which requires that the system be regarded as fair.

This isn't just because without such a feeling there is a threat of revolution - although it might be no accident that inequality in capitalist countries declined after the Russian revolution and increased after the collapse of Communism. It's also because inequality can generate political uncertainty - and as Nick Bloom has shown, this depresses what he calls investment and what Marxists call capitalist accumulation. What's more, a sense of unfairness is likely to undermine respect for property rights. It's no accident that retailers are reporting increased levels of shoplifting.

For both these reasons, capitalism sometimes requires a degree of equality not because of romantic notions of justice, but because it is in the interests of capital. Two big facts tell us as much.

One is that in the UK the era of social democratic capitalism was for years better for many capitalists themselves than what followed. UK non-financial company profits rose by 4% a year in real terms between 1948 and 1973, compared to just 2.3% a year between 1979 and 2019.

The other is that the most egregiously unequal nations have rarely been happy places even for investors. Back in 1996 Roland Benabou pointed out that South Korea's economic performance had far exceeded (pdf) that of the more unequal Philippines. The point broadens: several very unequal countries (such as South Africa, Brazil or Argentina) have delivered poor long-term returns for equity investors because high inequality (pdf) can retard accumulation.

Of course, this is not to tell some just-so story about how capitalism and a degree of fairness can be compatible.

For one thing, the extent of this compatibility depends upon economic conditions and so varies from time to time and place to place. If profit margins are squeezed by worker power and militancy (as they were in the mid-70s), capitalism requires an attack upon workers' living standards, not support for them.

And for another thing, the interests of capital can themselves conflict. Whereas customer-facing businesses sometimes want decent incomes for the masses, finance capital's priority is more often low interest rates. Social democratic capitalism might have been good for Ford, but extractive neoliberalism better suits Goldman Sachs.

Which is the context for the Tories' divisions over the cost of living crisis. Whilst some of them do see that capitalism needs shoring up with redistributive measures, others (and their corrupt cronies) regard capitalism in the same way that looters regard a burning supermarket: they don't want to put the fire out, but just grab what they can before the roof collapses.

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