Capitalism is a unique, surprising and remarkable system. For thousands of years humans have engaged in economic activity but not within a capitalist form of economy. Then around 1400-1500 AD it suddenly burst onto the scene. Historians still debate why it emerged but there is considerable agreement that it was a totally new system. Previously during the long medieval period there had been more or less stable traditional arrangements whereby surplus produce and labour flowed routinely from peasants to the lords, via procedures which did not involve markets, profits, wages, entrepreneurs, innovation, money, interest payments or investment. The most plausible explanation of the change seems to be in terms of the development of conditions, including reduction in farm labour due to the plague, which pushed the land-owning lords into obliging richer tenants to compete for licences to plots according to their capacities to produce surpluses. (This is argued by Brenner and Meeksins-Wood: see Alston and Philpin 1985 and Meeksins-Wood 2002.) Thus came the role of competition, pressure to invest in increasing productivity, and market forces. Previously kings, lords and merchants accumulated wealth to spend, not to reinvest in order to increase their productive efficiency and drive competitors out of the market.
Following are the essential characteristics of capitalism.
A relatively few people own most of the capital, including factories, productive land and money.
The owners of capital invest it in producing goods and services to sell.
These are sold in a market, where there is competition between producers, and the most “efficient” producers win most sales.
Thus there is deadly competition between capitalists to survive in the market. This drives a constant quest for innovation and greater efficiency, maximising profit, and reinvestment of surpluses.
Everyone in capitalist society is dependent on the capitalist investment system; it is more or less impossible to live outside it providing for your family or group in other ways. People have to sell labour to someone who owns capital, to get a wage that enables necessities to be acquired.
Labour, land and money are treated as commodities, i.e., things that can be bought and sold in a market. Money can be “hired”, that is borrowed, to be paid back with interest.
The economy is driven by the quest by the owners of capital for maximum profit. It is not driven by considerations of morality, justice, ecological sustainability, welfare, social cohesion or what is needed. They invest in what will most benefit themselves. It is not the case that the industries a society develops, or the ways goods are distributed, are decided by society considering what it needs.
In the real world no economy functions purely according to these principles. Governments always to some extent intervene and regulate and provide various goods and services. But they typically do so in order to facilitate the capitalist system, and to save it from itself by correcting its socially destructive tendencies.
Let’s now look critically at some of these elements, beginning with three most important ones that have been introduced above.
This is the fundamental defining principle of capitalism and the most serious criticism of it. A sensible society would make sure that its capacity to produce things was geared to meeting its needs, and would apply that capacity first to its most urgent needs. But this is not what happens in a capitalist economy. The only consideration on the part of those who own the productive capital and who are therefore either rich or very rich is what applications of the capital will add most to their wealth. Always the answer is producing something people with more money to spend will buy. The answer is never producing what is most urgently needed by people, the environment or society. As a result vast productive capacities, factories, minerals, land, forests, etc. go into producing vast quantities of unnecessary throwaway trivia and building cruise ships and oversized houses and luxury cars, while large numbers of people remain poor and unemployed and suffer difficult conditions. Governments are left to deal in a grudging and miserly way with the neglected needs, and the damage to lives and ecosystems.
Little more needs to be said on this topic. Limitless growth on a planet with limited resources will lead to trouble, and there is abundant documentation that we have gone far past the point where it begins to do so. A sensible economy would provide that stable and low amount of output enabling all to have sufficient goods and services for a secure, relaxed, stress-free and satisfying life. A capitalist economy cannot do this. It pits those owning most of the capital in mortal competition against each other to produce and sell more and more. As Marx pointed out long ago, this is not the fault of those who own capital: it is a fundamental characteristic of, and fault within, this kind of economy. It is not an element in a household or aboriginal or medieval town economy. The capitalist is as trapped as the worker; he must constantly strive to produce and sell more, more efficiently, to beat the competitors trying to kill him off.
The third major fault in this economic system is that it allows market forces to be the major determinant of what happens in the economy. But as noted above, what is done should be determined by rational and democratic discussion of problems and needs according to considerations of morality, justice, environmental sustainability, social cohesion and what’s good for people. Markets totally ignore all these factors. What they always do is allocate scarce and valuable things to richer people and nations, simply because those bidders can pay more for them. And market forces always produce development that is primarily in the interests of the rich. When an investor is looking for the most profitable venture in Guatemala he is not going to set up a plantation to grow food for impoverished peasants; he is going to look for ventures that provide luxuries for richer local or overseas consumers. Not only does that do little to meet urgent local needs, it draws local resources such as land and labour into producing things to go to rich people overseas.
There are many more important considerations that should be taken into account in economic decisions than merely the monetary costs and benefits, but those are all that the market takes into account. Making the market the only consideration is delightful for the owners of capital because it allows them to ignore all the social, psychological and ecological costs involved in their investment and productive activities.
On the recommendation of the IMF Bolivia sold off its water supply system to private corporations, who immediately raised the price and cut off delivery to poor areas where good profits could not be made.
— Wikipedia, 2021
Two giant corporations own 90% of Chilean water supply. People in Chile pay the highest water rates in Latin America. The President is auctioning off 38 rivers to transnational corporations. Around 67% of the population live in “water emergency” areas.
— CIVICUS, 2020
When the water supply had been privatised, “prices immediately tripled. Locals were not even allowed to collect rainwater. They were expected to pay for every drop of water they used.”
— Driver, 2021
Thus, in a market system the poor don’t get much, Third World countries with nothing else to export have to compete against all the others to offer low prices for their exports, their “development” is mainly development of industries to produce goods the world’s rich want, and their governments have to minimise expenditure on needs so that they can build the infrastructures the exporters want. And if the market is the main determinant of who gets things and what industries are developed then inequality inevitably increases. Those who are richer in the first place have greater “effective demand” and thus producers attend to their wants. Thus owners of capital can make more money than they would if they had to invest in the most needed activities, and they are able to buy up more assets such as housing and rent them out, again getting richer. Ordinary and poor people can do little or none of this. The astounding levels of inequality which inevitably result are discussed below.
A fundamental claim made by defenders of the market system is that the economy does not need to be regulated because if it is left alone it will “self-regulate”. The “hidden hand of the market” which Adam Smith drew attention to is claimed to automatically make things work out best because it rewards “factors of production” according to the value of their contributions. This doctrine is hardly worth discussion in view of the above explanation of how the hidden hand has such a powerful tendency to deliver wealth to the already rich. (Adam Smith said it would only work well if guided by good moral values, but this is confused; good values can only lead to good outcomes if there is regulation of market forces to prevent the market forces from operating normally.)
But what about the common claim that “the market makes the most efficient allocations of resources and investment.” This is absurdly wrong. It is only true if “efficient” is defined merely in terms of the monetary return on sales or investment. If on the other hand we are concerned with using resources and capital to meet needs most effectively, or to do what is morally right, or to develop what is sensible, or best for the environment, then market forces are not only appallingly inefficient, they will almost always result in precisely the wrong outcome! Resource producers never sell vital resources to those in most need of them. Foreign investors in the Third World never develop industries to supply what most poor people need. Market forces never result in outcomes likely to preserve the environment.
Conventional economists, and most people in rich countries, think the market system is effective, but this is because it has had such desirable consequences…for them! What they overlook is the fact that they are rich. They are among the few in the world who win and take when markets determine production, distribution and development. The market system does work well…for them. They have “effective demand”, i.e., the money to buy things. But there are three large groups who have no power to bid in the market and therefore will get nothing from it; the poor majority of people on the planet, all future generations, and all other species. Before you claim that the market works well ask those groups how well it works for them.
Conventional economic theory says these non-monetary factors and effects are “externalities”, not really aspects of economic functioning but side effects. This is grotesque and totally unacceptable. A theory that is supposed to account for what happens in production, consumption, distribution, exchange and development obviously should concern itself with all the effects of the system. Unemployment has massive psychological and social costs, but these are ignored because conventional economic theory only counts monetary costs. The environmental damage and costs are also ignored. Firms do not have to take them into account, or pay for them, and thus these costs can be left for someone else to pay. It is therefore a theory, a frame for analysis and decision making, which allows private firms to avoid massive costs of their activities.
This does not mean that the market can have no place in a good economy. It means that its role must be carefully and democratically decided in terms of what it is sensible to leave to it. It will be argued below that a great deal of minor decisions could be left to it, such as what kind of bicycles are produced. Most of the (small) firms and farms could (and I argue below should) be privately owned, because for quality of life reasons it is desirable that people be in control of their own little productive venture. But: a) the big industries and social services such as railways and steel works should be run by public agencies (under rigorous public scrutiny and accountability), and b) the activities of the small firms should be governed by strict guidelines designed to gear them to community benefit. (More detailed discussion in Chapter 10.)
So entrenched is the market mentality that it functions as the determinant of policy thinking. Issues like housing policy or prison reform are approached as marketing problems, to be determined by considerations of what tax and investment rules might enable supply to meet demand. As Johnson (2024) says, “Healthcare reform centers on insurance market regulations rather than treating health as a public good. Climate change is filtered through carbon markets and tax incentives rather than democratic planning.” How will communities develop over time? Market forces are allowed to form them, resulting in the US in the destruction of local economies when Walmart sets up a big outlet. It is taken for granted that power lies with market forces and those who can exploit them, not with people and communities.
Endorsement of the market as the central mechanism is typically justified in terms of ensuring “freedom of enterprise”. The trouble is that there is far too much freedom…for rich people to do and to get what they want, and to get more than their fair share by being able to pay more in the market. It is not possible to have a satisfactory society unless many freedoms are limited or prevented, such as the freedom to drive on whichever side of the road you feel like today. There will always be many difficult choices over which freedoms to limit and how much, and it is easy to be too restrictive, but grappling with these issues is unavoidable and it is important that constant effort goes into improving the decision making systems.
The strong commitment to so-called “free trade” also shows how this obsession with freedom suits the rich, especially the corporations and consumers in rich countries. It ensures that they can get, that is buy up, most of the world’s resources, including especially those in poor countries, simply by paying more for them. Those resources should be going into developing simple basic industries to produce for the poor, but that could only happen if there was strong regulation of trade to limit or prevent many current practices. At present poor countries with little to export must compete against each other to win the export sales, thereby lowering the prices we in rich countries need to pay.
Similarly in the Neoliberal era governments have been eager to implement trade policies which let foreign corporations drive local producers out of business and dump large numbers of workers into unemployment, by reducing the regulation of trade which could protect industries and workers. Of course, protection can involve problems such as propping up inefficient producers, but support for local industries should be decided by reference to many factors in addition to minimising monetary costs, such as maintaining national self-sufficiency and thus resilience, saving towns from decline, and maintaining the livelihoods and welfare of people.
It is the freedom that corporations and the rich few have to invest and trade as they wish that has generated the astronomical and ever-rising levels of inequality in the world. The solution is not primarily to redistribute their wealth by taxing or transferring some of it to the poor, it is to set up arrangements whereby they cannot accumulate so much in the first place, and to ensure that the resources and livelihoods they would otherwise take can be put into benefiting the rest of us. These measures should include making banks lend primarily to people and firms in need of capital (but presently unable to pay the interest rates) rather than to already super-rich investors, and hindering or preventing many lucrative ventures that further enrich the rich (such as investment in sports cars, cruise ships or luxury housing.) Above all the goal should be to stop the few giant corporations from taking all the opportunities to produce things; these should be spread across many little firms, giving enjoyable livelihoods to people now unemployed. (This is “Distributivism”, discussed below.) Obviously, such things cannot be done without interfering with the freedom of capital to go where it likes to do what it likes. Before the Neoliberal era many such limits were in place, such as obliging Australian banks to set aside money to lend at limited interest rates for lower-cost housing.
You might want to argue that a corporation of rich individuals should be free to do what it likes with its own capital, but when capital is invested it draws our resources into producing something. Bill Gates’ luxury house used up more than $100 million worth of the planet’s scarce cement, glass and energy. So the freedom involved here is a freedom to take more of the dwindling resource wealth that all the world’s people have a claim on.
It should be said that the market mechanism has important merits and might have a significant role to play in a good society. It is acknowledged below that the market can be an extremely powerful motivator of effort, research, innovation, investment and restructuring. It can get rid of inefficient firms and reallocate resources quickly, with no arguments. Above all it removes the difficult decisions from the political sphere where favouritism, ideology and corruption can maintain undesirable arrangements. But we have to work out how to achieve these goals through other mechanisms and these will have to involve considerable social control, and they might involve considerable difficulties.
However there are two factors that will make the required social control much more viable than might have at first been thought. Firstly, the total economy (sketched in Chapter 10) will be far smaller than it is now and without growth, meaning there will be far less concern with establishing new firms or finding outlets for accumulated capital. Secondly, much and probably most of the economy will function on a not-for-profit basis, including for instance town co-operatives providing fish, fruit, poultry, etc. Much of the economy will not involve any money, such as the free fruit from the commons and the free concerts and outings organised by the local leisure committee. Small firms in some sectors might be paid at rates the community sets to ensure secure and sufficient lifestyles for producers and low cost produce for townspeople. Add the non-existence of a growth imperative and there would be relatively little need for social control of the economy.
As Neoliberal doctrine has become more dominant since the 1970s it has increasingly been taken for granted that in principle governments should not run firms because (it is assumed) they are more efficiently run by private enterprise. Consequently, there has been a huge transfer of operations such as water and power supply to private corporations. But there is an overwhelmingly strong case that in many important areas privatisation has been a huge mistake, yielding little or no public benefit, providing inferior and more costly services, and in many instances having to be reversed.
The evidence from many studies of firms that have been privatised does not show that in general their performance has improved; often it deteriorates as costs are cut, services cut back, staff are dumped, prices hiked and profits siphoned out. Some kinds of enterprises are best left to private firms but governments can run many things quite well and can run some things far better than private firms. (See below.) The privatisations have mostly been of public utilities such as power supply where the goal should be to provide good service to all people even though this might be more costly in some regions or for some groups. Governments can decide that they should accept higher monetary costs for the public good, whereas private corporations will try to reduce all costs to a minimum and cut services, and terminate them in more costly areas. Given that the corporation’s only interest is in maximising its profits it is not surprising that frequent outcomes of privatisation are higher prices and cutting provision to the bone. A good example is the privatising of water supply in Bolivia noted above; the corporations immediately raised the price to levels poor people could not afford, and actually ceased supplying the poorest regions.
There is a large literature documenting the grossly unsatisfactory history of privatisation in Australia. Menadue (2017) provides several examples. The NSW government sold Port Botany and Port Kembla to the same buyer, eliminating competition between the two ports. The result was increased rental charges of up to 400%. “All the airport and shipping ports are private monopolies so can charge what they like.” (ABC, 2025.)
Australian airport services were privatised and charges, for parking etc., skyrocketed. Menadue says, “The biggest failure of all in privatisation has of course been in electricity generation and distribution. Wholesale prices are now double what they were.” Quiggin (2017) makes much the same point regarding power supply; the privatisation of “systems has delivered no benefits, while incurring huge costs rises.” The recent privatisation of the NSW Land Titles office illustrates the typical effect on charges for services; they rose by up to 1800%.
Perhaps the most disturbing fields illustrating the issue are to do with health and aged care. Private provision in these industries in Australia can be seen as a comical disaster. The public Medicare component of the health system has operating costs one third of those of the private health insurance firms. And this is despite the fact that the government pays $12 billion of taxpayers’ money each year as subsidies to prop up the private health insurance sector. Foote (2022) reports “the big players in the Australian retirement village sector—Lendlease, Stockland and Mirvac—pay no income tax.” Gittins (2018) says, “Private health insurance is a con job.
Simms and Reid (2013) report that health care is typically much more expensive in countries with heavily privatised systems. By far the worst case is the US. For instance, in one year the US, with predominantly private health care, spent around $7,000 per person on health while the UK National Health Scheme spent around half that sum, yet, judging by outcomes such as life expectancy at birth, the UK National Health System did just as well. The private health care arena provides abundant opportunities for inflating charges, for instance by doing more tests than are necessary, prescribing unnecessary and expensive drugs, imposing unsatisfactory insurance conditions, and enabling outrageous fees. Doctors and hospitals can refuse to treat someone or take on a costly chronic illness case unless the patient guarantees he can pay the fees. The US demonstrates the appalling result; vast flows of money to the corporate providers, Rolls-Royce care for the very rich, and very poor or no health care for the majority. Over 30 million Americans cannot afford health insurance and an accident or illness can ruin a family. Hartman (2024) reports that in the US “500,000 bankruptcies occur every year because people cannot afford to pay heath bills. Nader (2024) reports that in America “About two thousand Americans a week lose their lives because they cannot afford health insurance.”
There is surely no Australian sector where skimping on provision and costs is more evident than with respect to aged care. Private aged care operators feed their old people on an average expenditure of $6 a day (Hugo et al., 2018.) Could you feed each person in your family well on that? It’s far under half the average Australian household expenditure on food per person at that time (ABS 6530, 2020.) Maggie Beer, aged person advocate, says 78% of residents were found to be malnourished or at risk of malnutrition. (ABC News, 2021.) Another report stated that 40% of those in old persons homes are actually malnourished.
Discontent with the system is widespread and intense, evident in comment surrounding the recent aged care royal commission. For instance, the Doctor’s Reform Society (2020) says the “Royal Commission into Aged Care is deeply concerned about the appropriateness of market forces to deliver care to those needing Aged Care.” and “Nothing in this interim report suggests that a way forward is to privatise anything. Indeed, the report has clear concerns about ‘the market’.” In October 2017, the Carnell-Paterson review concluded that “the market is an inadequate mechanism to ensure the safety and wellbeing of highly vulnerable residents”.
West (2018) points out that, “In Australia’s aged care sector, governments pick up some 70 per cent of the chit while private providers rake in the profits, often deploying aggressive tax avoidance schemes … The six largest for-profit companies were given over $2.17 billion in government subsidies in 2017, representing 72 per cent of their total revenue of more than $3 billion.” Buckly (2020) says that in the 2015-6 year the four biggest aged care providers made over $400 million in profit.
The comments of a previous federal health minister summarise the situation: “It was a mistake to privatise aged care. Private providers who operate for profit too often have scarce regard for the welfare or needs of older people.” (Baume, 2020.) Bricknell (2020) is another who says, “It is time to conclude that aged care should no longer be framed as a private market.” Edgar (2020) agrees, “The overwhelming evidence is that the private-for-profit market model has not resulted in expected improvements—more competition, more choice, improved efficiency, improved access and so on.”
The main way the private providers cut costs is by understaffing. Sutton (2021) reports, “Only 3.8% of Australian aged care homes would meet new mandatory minimum staffing standards …” Many of the Covid-19 deaths in aged care facilities were due to too few staff.
An accountant’s report for the royal commission into aged care found that “for-profit aged care providers in the second-highest quartile had a profit margin of 16 per cent, compared with … 4 per cent for state government providers in 2018. Return on equity was 12 per cent for non-profit providers and 72 per cent for for-profit providers.” (Gittins, 2021.)
The superannuation sector provides another glaring example of the inefficiency of a service run for profit. A recent survey found that not one of the forty best performing providers was run for profit. (Gruen, 2017.) The main reason why non-profit providers of superannuation services deliver more to their members is that they are not siphoning off a large proportion of earnings to send to shareholders. This applies to all other areas; how much lower might your electricity bills be if your payments did not include dividends to investors in your power supplier? In 2006 Bolivia took pension funds into state control, saving $500 million that was previously flowing out of privatised funds to investors. (Dowson, 2018.) Murry and Fritjers estimate that an astounding 27% of potential retirement savings are lost to Australian retirees through fees and other provisions. (Pp. 75, 212.) In Denmark and the Netherlands governments run the retirement systems at far lower cost to ordinary people.
Another disturbing area is banking. In Chapter 10 it is explained that governments can “raise” all the capital they need without any interest cost. They can do this if the central bank is publicly owned, but the Australian Commonwealth Bank was privatised decades ago and now governments seek finance from private banks and investors…and pay it back with interest. Simms and Reid (2013) note that this is much more expensive than when governments do the job and invest public funds; they can borrow more cheaply and have no incentive to add profitable scams to the cost of the project. They report that for 2011 the cost of capital under the heavily used private finance initiative was estimated to have added £20 billion to the taxpayers’ bill.
Total bank profits are now around $40 billion each year, meaning that every year almost $1,600 is flowing from each Australian to shareholders in private banks, when none would be if the banks were publicly owned utilities. (Murray and Fritjers, 2022, p. 143.) That’s an incredible $4,300 per household! Hudson is one of many who stress that “Money and credit, land, public services and natural resources should be controlled by the government so that they can be provided at cost or on a subsidised basis, thereby lowering the cost of living and doing business.” This would also mean that society could decide what projects money is to be invested in, not banks focused on maximising their profits. Reference will be made below to the publicly owned Bank of North Dakota, which thrives largely because it does not pay anything to shareholders.
The same pattern is evident with respect to child care. Bryant (2020) says, “we know that the for-profit sector generally delivers lower quality education care. Only 18% of for-profit providers reach the National Quality Standard, yet these providers are the beneficiaries of the $8 billion in subsidies the government grants to the sector every year.” Menadue (2021b) concludes, “It is extraordinary that about 70% of our long-day care services are now run by for-profit operators when we know that the for-profit sector generally delivers lower quality education care.”
The privatisation of provision of technical and further education in Australia has been another highly unsatisfactory chapter in the story. Many claim that it has not only been hugely damaging to the system but has involved a readiness to resort to blatant exploitation. Providers have strong incentives to generate courses of little value, enrol as many students as possible, often in courses they had little chance of completing, while skimping on costs. Simon (2020) says, “To say that unscrupulous for-profit private providers have cost taxpayers $7.5 billion vastly under-estimates what went on in this policy catastrophe.” Quiggin (2016) notes how this could have been foreseen given that for-profit provision in the US has been a disaster area.
Governments have been eager to allow private corporations to build toll roads as this saves them the cost. But NSW Premier Minns noted that in the long run road users end up paying six times as much for road use, because of the lucrative conditions governments agree to. For instance the Sydney cross-city tunnel contract ruled out governments constructing other roads that might reduce traffic in the tunnels. Contracts allow prices to be raised 4% p.a., or higher if inflation is higher, when it is almost never 4% p.a. As Levinson says, “Toll roads are run to maximise profits, not improve traffic flow and conditions.” If you want to check on the conditions set in the contracts you can expect to find blacked out passages where the most challengeable concessions are stated. (Levinson, 2024.) He adds that in the five years to 2024 the project delivered $6.5 billion to shareholders.
Regarding the Sydney WestConnex project Standen (2018) reports that it will reduce the number of traffic lanes on roads competing with it, will cost the users more than three times its construction cost, and is “the biggest waste of public funds for corporate gain in Australian history.”
Many studies and reviewers express general condemnation for the practice of privatisation. Here is a selection of general comments.
Chiu (2020) says, “There is growing evidence privatisation has not delivered better services or lower costs.” He quotes Rod Simms, head of Australian Competition and Consumer Commission, saying recent privatisations had “severely damaged” the economy, and that there is widespread “recognition that the private sector does not inherently deliver better outcomes for the community than the public sector.”
Similarly, Ellen Brown (2016) says regarding the US, “studies have found that on average, private contractors charge more than twice as much as the government would have paid federal workers for the same job. A 2011 report by the Brookings Institution found that “in practice [Private-Public-Partnerships] have been dogged by contract design problems, waste, and unrealistic expectations.” In their report Public Services International (PSIRU, 2015) stated that “Experience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure. … Public-private partnerships are a good deal for investors but a bad deal for the public.”
Roberts (2018) says, “A global review of water, electricity, rail and telecoms by the World Bank in 2005 concluded, ‘the econometric evidence on the relevance of ownership suggests that in general, there is no statistically significant difference between the efficiency performance of public and private operators’” (See also Estache and Rossi, 2005). Simms and Read (2013) say it’s worse than that; “The largest study of the efficiency of privatised companies looked at all European companies privatised during 1980-2009. It compared their performance with companies that remained public and with their own past performance as public companies. The result? The privatised companies performed worse than those that remained public and continued to do so for up to 10 years after privatization.” Godrej (2015) agrees.
The Centre for Full Employment and Equity (undated) concluded: “After 35 years of public sector retrenchment there is little evidence to support the repeated claim that outsourcing and privatisation would improve the quality and lower the cost of providing what were useful public services.”
Driver (2021) says, “The US has one of the most privatised healthcare systems of any advanced nation, yet it is far more expensive than any other country’s, without noticeably better results.” When the world’s steel industries were compared, the most efficient steel companies were found to be the government-owned businesses in South Korea and Taiwan.
West (2021a) says, “there is zero evidence that politicians ought to be selling off essential monopolies, assets which belong to all of us, at all. … How about the privatisation of Australia’s nursing homes, the electricity grid, our city toll roads? Is it the elderly, the energy customers or the motorists who benefit? No, it is the fee-takers and financiers, every time. … an increasingly craven press, funded by corporations, has relentlessly pushed the line—against all evidence—that privatisation is efficient. … It is bizarre that despite the blatant, irrefutable evidence that privatisations fail, we keep doing it.”
Note that much of this evidence is on efficiency defined narrowly in terms of monetary values, showing that even on mere dollar measures privatised service provision is in general no better. But most public firms are geared to achieving non-monetary goals as well, such as locating offices in areas needing jobs even though this increases monetary costs, of providing water and postage to all at a standard rate when charging more in some areas would raise income. Despite foregoing these many opportunities to maximise income, public provision is in general no less “efficient” in purely monetary terms. This is largely because they do not ship out large amounts of income to shareholders.
Another cost is that publicly owned agencies used to be major trainers of apprentices. Now there are too few learning trades, because private corporations do not want to do it.
Finally, note the astronomical mark-ups monopoly private suppliers impose. “Pfizer-BioNTech and Moderna are charging governments as much as $41 billion more for their vaccines than the cost of production. Colombia, for example, has been paying twice as much as the United States for Moderna vaccines, and the country has potentially been overcharged by as much as $375 million for Moderna and Pfizer-BioNTech doses combined.” “The vaccines, which were created with the help of billions of dollars in public funding, could be produced as cheaply as $1.20 per dose. However (consuming agencies) … have been paying an average of nearly 500% more. … wealthy nations … are paying up to 24 times more than production costs.” (Common Dreams, 2021.)
When the privatisers got Bolivia’s water supply, they immediately tripled the price. “Locals were not even allowed to collect rainwater. They were expected to pay for every drop of water they used.” (Driver, 2021.)
The mania for privatisation in Britain included British Airways, British Telecom, British Gas, British Rail, British Aerospace, Cable and Wireless, British Steel, British Petroleum (BP), Britoil, Rolls Royce, Jaguar, and water, council housing, coal, electricity, Tote betting, Northern Rock and other national banks, the Royal Mail, the probation services, roads, large sectors of education and the NHS (all of the dentistry sector), and sections of the police force. The total was over 40 previously state-owned businesses, mostly carried out by Thatcher. Over 92% of the net profit made by the privatised British Rail went to shareholders. The chairman of the electricity corporation was paid $8 million per year. (Surin, 2022.)
The privatisation issue shows that monetary “efficiency” is not the only factor that matters in an economy. Governments should retain control of many industries in order to achieve social goals, such as making sure all have access to satisfactory services like water supply, health care and low-cost pharmaceutical goods, locating outlets and branches in needy areas, keeping prices as low as possible, and in general making sure that important things are done. If governments give up their role in running firms they give away their capacity to determine the development of society. Revenue from public operations can be used to achieve non-monetary goals. In the Third World, Neoliberal doctrine, especially via the Structural Adjustment Packages (see Chapter 6), forces governments to privatise and thus lose revenue that could have been used to strengthen communities. It also makes them give up much of their power to even make development decisions, by insisting that it is undesirable for governments to own firms, that development should be left to market forces, and that governments should devote scarce funds to facilitating private ownership of firms. This means governments can’t make sure national resources are devoted to developing what will meet national needs, and that corporations are left free to decide what will be developed and what those resources will be used for, and that they will make these decisions according to what maximises their profits.
Note how this reveals the absurdity of conventional economic theory which asserts that allowing profit maximisation in the market to determine everything results in what is best. A similar illustration comes from pharmaceutical R&D where the health problems affecting most people on earth are ignored while drug companies develop new hair-restorers, de-wrinkling creams and cough syrups to market in rich countries. Malaria is one of the most deadly diseases in the Third World, but drug companies have put little effort into researching anti-malarial drugs, because few people in rich countries suffer from malaria. Barrenho, Mirldo and Smit (2019) find that only about 1% of new drugs developed are relevant to Third World illnesses.
Because the top priority, usually the only consideration, for private firms is profit maximisation, the quality of the provision typically deteriorates when a public firm is privatised. Quality includes all the non-monetary outcomes the operation ought to be trying to maximise, such as how pleasant the retirement home experience is for old people, how good the diets are, how many staff are on hand, how often health checks are carried out, how many activities and outings are organised.
Similarly privatised prisons are not inclined to hire lots of teachers and psychologists to improve the chances that, when released, inmates will be respectable and contented citizens capable of securing a job.
Privatisation is a modern form of “enclosure”, the process whereby European lands that had been used for centuries by peasants were taken by the aristocratic class. Both are processes whereby resources owned by all—the “commons”—end up in the hands of a small group of rich people. The iron ore in the Pilbara and Sydney Kingsford Smith airport were once owned by Australians and operated for our benefit. But they are now owned by tiny groups of very rich people who are accumulating most of the wealth produced. Of the wealth earned by iron ore mining in Australia Gina Rhinehart has taken $30 billion and Twiggy Forrest has taken $27 billion. (ABC, 2021.) Why on earth is that allowed? It is, or was, our iron ore. This is what happens when governments grant licences to corporations to build and then own or operate freeways, airports, mines, harbours, power stations, etc. This simply gives away to shareholders vast amounts of money that the state could have kept. It might make some sense if private corporations could always do things better than public firms, but this is well known not to be the case. It is another illustration of the way government is set to do what suits the business class.
These cases also illustrate what happens when, as Polanyi points out (see below), the economy is separated from the moral rules governing the rest of society. Economic activity becomes a realm in which social and moral considerations (which should govern all our actions) can be ignored, meaning that what’s just or good for people or the environment need not be considered and all that matters are monetary costs and benefits. Polanyi points out that in medieval towns the moral code included rules such as “do not take advantage of another’s misfortune”, and this applied to all situations including economic transactions. But now that rule does not prevent someone pouncing on a bargain when a person in an emergency has to sell cheaply, or when a person does not realise a proposed transaction would be bad for them.
In a satisfactory economy many things might best be left to carefully monitored private firms operating in a market (see Chapter 11), but major or important firms and industries should be publicly owned and controlled democratically (not by authoritarian states) so that non-monetary factors can determine their goals and conduct. It is then possible to ensure high quality and social benefit, if necessary at the cost of lower revenue. The state-owned NSW railways are obviously crucially important and of very high quality but they run at a large monetary loss.
Another highly unacceptable aspect is that when governments decide to sell off firms they first seek to make them attractive to buyers by removing the less profitable operations. So the buyers get the juicy bits and the state has to deal with the costly bits that are left, notably in the health sphere the care of chronically ill and poor people. In addition, governments tempt buyers by setting lucrative conditions such as reducing regulation, lowering taxes and prohibiting competition. (Menadue, 2017.) The sales make the government’s next budget look good, but they dump higher costs on customers of the privatised firms for many years to come.
Similarly, the government saves money on infrastructure projects by allowing private corporations to build them and pay the costs, again looking good by getting things done, while shunting higher costs onto society in the long run.
This is an increasing trend. Hudson (2021) says, “America doesn’t build infrastructure these days unless it’s monopolized.” As noted above, often the deal for a toll road includes a guarantee that the government will not build roads that might draw drivers away from the toll road. In other words, if it becomes evident that such a new road is in the public interest, too bad.
Keep in mind that often government agencies develop new technologies…and give them to private corporations to sell for profit. “Covid vaccines are a classic example—taxpayers footed the bill to develop them but the results are now legally the intellectual property of Pfizer, Johnson & Johnson, etc. It’s blatant theft. Even the internet that I’m using to write this essay was developed with public funding and then privatized.” (This Bear, 2021.)
Also consider the never-questioned implications of patent law here. When a firm develops a new drug it can be given a 20 year monopoly on its sale, meaning it can sell it at as high a price as it likes without any competition. But if the drug firms were public institutions, as the admirable Australian Commonwealth Serum Laboratories used to be, prices could be minimised. Baker (2020) says, “When … drugs are subject to generic competition, they can often sell for less than 1 percent of the patent-protected price. The private firm is not going to be better at developing drugs than the public firm, because the firm does not develop the drugs; that is done by the scientists who work in it, trained by the state.
A major force for privatisation is the constant push by the capital owning class to get access to more opportunities for good business and rent collecting. This is a large group including many small business owners, banks, financial agencies and people with savings to invest, all eager to see more public operations turned over to private operators who will provide them with investment incomes. Governments must be careful not to threaten the interests of this class, so even left-leaning governments try not to irritate them. The situation is another illustration of the way government is strongly inclined to favour the interests of the rich. (See further below.)
The mania for privatisation goes with the “financialisation” of the economy, which is discussed in more detail below. Capitalism has changed greatly from the era when producing and selling things was the major source of profit, to a form in which most income comes from getting hold of assets to rent, without producing anything new. The owners of capital have increasing difficulty selling stuff, largely because everyone who can afford a fridge has already got one, and most people are struggling to pay the bills on stagnant wages and don’t have enough disposable income to do a lot of purchasing. So the owners of capital have turned to buying up property to rent and getting governments to sell them things like prisons to run for a fee. These assets bring in nice rents such as bloated toll road charges. It is in the short-term interests of governments to facilitate all this because they then have less to do and the income from the sale makes their budgets look good. But they are saddling the public with having to pay higher fees and get worse service for many years to come.
A final testament to the unsatisfactory privatisation business is the rate at which they are reversed because they have failed. Many have been quietly returned to public ownership. There have been over forty cases in recent Australian history and over 500 in Europe since 2000. (Christophers, 2020.)
There is strong public opposition to privatisation. As Chiu (2020) says, “Australians hate privatisation.” Why then has there been such a plethora of privatisations, and why do the major parties still push for it energetically? Several commentators point out that this is largely due to the dominant Neoliberal ideology that private is the right way and public ownership isn’t (e.g. CPSU/CSA, 2017), and to the immense power of the big corporations. (See below on how they demolished a government attempt to increase taxes on the mining industry and how they engineered the dumping of the Chifley government when he sought to nationalise the banks.)
To summarise, the privatisation commitment is deeply entrenched, widely accepted, but it is a myth. The extensive evidence is that private firms are not more efficient than publicly owned firms. Some might be but many are not. Privatisation often results in worse service provision and higher costs. Yet governments are strongly inclined to help private capital to get hold of as many opportunities as possible to do good business. The results include losing the capacity to gear businesses to public needs, and losing the wealth that is taken out for shareholders and overpaid management fees. The continuing practice shows the power of the capitalist class to get what it wants and the power of capitalist ideology in keeping criticism of capitalism at a safe low level.
As West (2021c) says, “Suffice also to say that there should be no privatisation of essential government monopolies.”
It is argued in Chapter 10 that in a good economy it is highly desirable to have lots of small private and cooperative firms and farms, operating under guidelines set to ensure socially satisfactory outcomes. These would not be capitalist ventures as the capital involved, for instance the shops, would really only be the tools people need to produce things, and there would be no concept of investing money in order to get an income without working for it. In a good society no one would be able to do that (except for people unable to work.) But why should we have any big firms that deliver dividends to shareholders? Why shouldn’t the big firms be owned and run as public enterprises?
Consider the mining industry in Australia. In 2018 the Australian mining industry exported $250 billion worth of minerals, but royalties paid to the government amounted to only $12 billion. And the companies received $4 billion in subsidies from the government. Around 2020 the profits of the big coal producers equalled 30-45% of sales value. (CFMEU, 2020.) The average net profit rate for the world’s top ten mining companies in 2017 was 27%. (Basov, 2018.)
So Australians got 2.4% of the wealth generated by the mining export industry while 97.6% of it went to investors, many of them overseas. What is the sense of that?! Why aren’t Australia’s mines owned by all Australians? Gina Rhinehart has accumulated $30 billion dollars in wealth because her father secured mining rights (to deposits he did not discover). Twiggy Forest has accumulated $27 billion.
Some countries do own their resource industries. But such is the power of the dominant pro-free enterprise ideology, and such is the frenzied reaction the rich would engineer, that no Australian government would ever propose nationalising the mining companies. Around 2014 when the mining industry was making “super profits” an effort was made to increase taxes, but the mining corporations reacted with frenzied outrage and quickly crushed the Mining Resource Rent Tax proposal.
Similar figures are evident regarding privatisation of prisons. In 2020 the Serco corporation paid an $80 million dividend to its shareholders while GEO Group paid a $31.5 million dividend to its shareholders, double the $15 million they paid out in 2019. Taxation data show that in one year “GEO Group raked in $1.46 billion of revenue without paying a cent of tax.” (Tran, 2021.)
If we ran the mining or prison industries as public enterprises that operated at only 10% of the efficiency of private companies the public would still be well ahead! But more important is the moral problem that nobody seems to see or care about. It is not acceptable for rich people to receive incomes without having to do any work for them, especially when most people have to work hard for their incomes and many cannot even get work, while rich people consume things those workers produce. (Of course, some rich people work hard, but many people, rich and not so rich, receive income without working for them.)
In a world where resources are scarce we should be trying hard to reduce the amount used. But because growth in output and sales is the overriding goal in this economy there is powerful incentive to get people to buy vast and increasing amounts of unnecessary stuff. If we all lived with what is sufficient this economy would collapse. Over a trillion dollars is spent every year on advertising, that is, on the effort to get us to buy more than we would if we were not badgered. The amount is growing at about 11% p.a. In addition, there is the effort to change fashions so that you will throw away last year’s style, and the effort to design items that will not last long. A major factor driving this is the consumer culture which has defined normal living as involving and enjoying shopping for new and expensive things and keeping up with the style trends. Again, billions are spent to maintain those ideas, desires and habits.
Economists tell us that a basic law of economics is that when goods get scarce their price rises. This is true…in a market economy. But when things get scarce in your household economy their price doesn’t rise. And in a market economy the price rises only because participants raise it: it doesn’t have to rise. And they will raise it as far as they possibly can, regardless of its value or whether this means some people can’t afford it. Large numbers of people cannot afford to pay the prices doctors and dentists demand.
This is another way in which this economy involves undesirable structures, procedures and motives. Participants are driven by a competitive struggle to get more than others and to take advantage of the disadvantage of others. Here is what tends to happen at the big end. “In the late 1990s pharma was selling AIDS medicines in South Africa for $10,000 per treatment-year while Indian generics were selling for $350 per treatment-year. A high margin for the well-off would yield more profit than a thin margin for ordinary folk. The fact that the death rate among ordinary folk would be thus inflated was immaterial.” (Legge, 2021.)
Another of the most irrational, costly and absurd aspects of this economic system is that it routinely oscillates between periods of over-production and periods of too little activity. Recessions and depressions occur, inflicting great harm on firms and people. In a satisfactory economy we would manage levels of investment and production to ensure that at all times there were enough of these to meet needs comfortably.
Why do booms and slumps occur? Simply because what happens in this economy is determined by what people with capital choose to do. At times they can see great opportunities to invest in new ventures, so they rush in but before long too many have done so and are soon producing more than can be sold, and then many go bust. Workers lose their jobs and incomes and thus demand goes down, and capital owners don’t invest in new firms because they would not be able to sell the goods these might produce. Again, this erratic process could only be fixed by more effective regulation. Governments do make some effort to smooth out the booms and slumps, mainly by adjusting interest rates, but they do not make a sufficient effort because they believe they shouldn’t “interfere with market forces.”
Booms and slumps also reveal the invalidity of the conventional economic theory’s claim that a market economy tends to stability, for instance where supply equals demand, so it is best not interfered with. What it quickly tends to result in if unregulated is concentration of wealth and property in the hands of a few.
In Australia about one quarter of the population receive welfare payments of some kind, costing around $200 billion p.a. In addition, a lot of charity, voluntary effort and resources are going into looking after “disadvantaged” people. Why are there so many who are playing little or no productive role and needing to be provided for by the government?
Of course there are many who cannot provide for themselves and need to receive incomes and assistance from the national budget, but much of this could and should be delivered through spontaneous and non-monetary community functioning. (The mechanisms are discussed in Chapter 10.) The core point here is that this economy is not designed to make sure all can have a useful role, a contribution to make, and thereby receive sufficient income to live well on. Opportunities to produce and contribute are not shared out sensibly; some take more than they need and some are prevented from making the contributions they could. For instance, corporations automate factories and eliminate jobs thereby forcing many to be unemployed and idle. In the alternative economy to be discussed in Chapter 10 we would make sure older people with a lifetime of experience and many skills could continue to make valuable contributions to local production and the management of systems at a leisurely pace. Above all, everyone would have a livelihood, some important and appreciated work to do, meaning that opportunities to produce would be shared well. This is much more socially sensible and resource-efficient than allowing big transnational corporations to take all the producing activity just because they can provide cheaper goods.
Chapter 10 explains how organising local economies according to this kind of principle would harness up all the bits of time and energy that the wide variety of people in the town could be putting into doing useful things, some in firms and jobs producing goods for sale but many occasionally dropping into co-operatives to help out and chat to old people or assist at the school or help clean up the recycling racks in the community workshop.
So not only would no one be forced into idleness, there would be far less need to spend resources paying them unemployment benefits or providing professional care for many who had been put into aged care “homes”. And much of the care needed would be via voluntary rosters and given spontaneously by people within the community.
In a sensible economy if someone invented a machine that would do boring work people once had to perform that would be an unmixed blessing, but in this economy it’s a serious problem because it pushes workers into unemployment. The factory owner gets all the benefit, in the form of a reduced wages bill, while those who used to work there lose their jobs. In a sensible economy the benefits would be shared by all, in the form of having less boring work to share around.
This phenomenon provides a good illustration of what Marx saw as the many and serious contradictions built into the nature of capitalism. The interests of the factory owner contradict those of the worker. He argued that these contradictions would eventually cause the system to self-destruct. Let us assume that the owners of capital could gradually move to total replacement of all workers with cheaper machines, what would happen? They would all produce much cheaper products…and go broke, because no one would have jobs and incomes so no one could buy any of the products, and the whole economy would collapse.
The ever-worsening inequality in capitalist economies moves us towards this kind of system-destroying outcome. Add in the contradiction between the drive to make profits and the need to care for the planet’s ecosystems. Even more worrying might be the damage to the social bond as the contradiction between market forces and concern for the underdog and the public good intensifies.
The market mechanism built into the foundations of this economy has a powerful and inevitable tendency to create and increase inequality. The market heaps goods, income, wealth and opportunities on those who are richer in the first place.
Consider the following indicators of how great inequality has now become.
In 2020 “the combined net worth of the top 1% of Americans was $34.2 trillion (about one-third of all U.S. household wealth), while the total for the bottom half was $2.1 trillion (or 1.9% of that wealth). (Hudson, 2022, p. 61.)
In the US most of the large increase in GDP over the last thirty years has gone to the richest 1% or less of the people, while the real incomes of workers have hardly increased at all.
Around 2018 1% of Americans possessed nearly as much wealth as the bottom 90 percent. (Street, 2021.)
In the year to 2020 the richest 200 Australians increased their wealth by 24%. (McIlroy, 2020.)
One-fifth of the world’s people get 86% of world income, while the poorest one-fifth get only 1.3%.
About 1% of the world’s people own half the world’s wealth.
The wealth of the world’s billionaires rose $5 trillion amid the Covid pandemic. (Thorbecke, 2021).
“In 2018 in Australia, the highest 10 per cent of households by wealth owned 46 per cent of all household wealth. The lowest 60 per cent of households owned just 16 per cent of the wealth.” (A per capita ratio of 17/1.) (Hutchens, 2021.)
These disturbing figures are an automatic, inevitable built-in consequence of an economy which allows a few to own most of the resources and productive capacity and to put these into whatever purposes are most likely to increase their own wealth. Over time those with a lot of wealth accumulate more of it, simply by investing it, whereas the lowest 50% or more of people have no wealth to invest. Obviously if you have $1 million to invest in normal times you might get $100,000 richer every year but if you have no money to invest you will not get richer. One consequence is that most interest payments flow from poor to rich, because low-income people need to borrow more than high-income people, and they borrow from richer people. In this economy inequality can only escalate. In the Neoliberal era of the past forty years governments have greatly increased the freedom for the rich to take more wealth.
Inequality does not just affect the conditions low-income receivers experience, it lowers the quality of life for all. Wilkinson and Picket (Dowson, 2018) make this clear; the greater the inequality in a society the more there are public health costs, law and order costs, welfare costs, unpleasant surrounding, etc. impacting on all.
Most people seem to think that great inequality is quite acceptable because there is “equality of opportunity”, that is, all have the opportunity to get ahead, to do well at school, start a business, and become rich. But there is an important distinction between equality of opportunity and equality of outcomes in society. You could have a society in which a very few were very rich and most were very poor, but all had an equal chance of getting into the rich group. In a good society we would not be content just to have given every one an equal chance to become rich or impoverished. We would not want there to be any serious inequality of outcomes and we would not want anyone to be deprived of basic necessities. Again, this could not be achieved unless steps were taken contrary to market forces to prevent serious inequality from emerging. When people are free to or forced to compete in a market, extreme inequality will in time result because some will become the winners and take most of the wealth.
The inequality evident between rich and poor countries is similarly explained. Third World nations are locked into the global market system, having to find something to export in order to earn money needed to pay for vital imports, and to pay the interest on their large debt. They must compete against each other by lowering the price of their fish or timber exports, keep wages low to attract corporations, and pay huge sums to construct the infrastructures foreign investors want, the ports and power stations. They get relatively little benefit from this “trickle down” form of development as their resource wealth flows out to benefit rich country corporations and shoppers. (See Chapter 5.)
It will be argued in Chapter 10 that the solution to inequality is not primarily to redistribute wealth, that is, it is not to increase taxes on higher-income earners. It is to shift to an economy which does not generate unacceptable differences in wealth. The new economy will (have to) be highly localised, made up of many mostly small-scale firms and farms close to where we live. We will make sure that opportunities to produce will be widely available (this is “Distributivism”, see below), and we will make sure that everyone has a livelihood performing a share of the producing the town or suburb needs. Town banks run by boards of elected citizens will hold most of our savings and will lend primarily to ventures that are of value to the town. And it must be a zero-growth economy, meaning there can only be investment in maintaining or adjusting productive plant, not in increasing it. Therefore there will be few if any opportunities for capital accumulation. More importantly, the new world view, the values and dispositions we will have in these economies, will recognise that monetary and property wealth is not important for a good life. What will matter is living in a thriving, supportive and culturally rich community.
These new arrangements, ideas and values are very different to those that are predominant today. At present most people strongly desire wealth and luxurious living standards and engage energetically in the competition to get them, for instance in working hard for educational credentials and struggling in the labour market for higher-paying jobs.
It seems that there is not that much discontent with the level of inequality that exists in our present society, indeed there is readiness to see great wealth as an admirable sign of initiative, energy, and well-earned success. Certainly luxurious living standards are seen as highly desirable, and few would be content with just sufficient income or property for a modest but enjoyable life. As discussed above, this fierce and largely unquestioned commitment to limitless affluence, more appropriately referred to as greed, is the fundamental cause of our planet’s woes.
The basic justification for conventional development in rich and poor countries is that although it mostly enriches the rich, in time “wealth will trickle down to benefit all.” There is indeed a tendency for this to happen, but there are several reasons for strenuously rejecting this rationale for being content with crumbs from the tables of the rich.
Firstly, not much ever trickles down. In the global economy the amount of benefit that trickles down is evident in the fact that one-fifth of the world’s people now receive about 70 or 80 times the amount of world income the poorest one-fifth get, and according to a number of studies such as by Hickel (2017) the ratio is getting worse. Edward and Summer (2013) report that between 1990 and 2010 global consumption increased by $10-15 trillion, but 1% of people received 15% of it. The gain for each of them was 637 times as much as the gain for the poorest 53% of the world’s people. Rhodes (2024) says, “Among the G20 countries, “the share of national income sequestered by the wealthiest 1% has grown by 45%.” Kinderlin (2023), says, “the richest 1% of people amassed almost two-thirds of new wealth created in the last two years.” The Australia Institute (2023) found that “the bottom 90% got just 7% of economic growth” since 2009.
The strongest justification for the trickle down strategy is the claim that world poverty has been greatly reduced. The conditions large numbers experience have indeed improved greatly, but the situation is complex and the overall effects are debated. Firstly, there is the issue of the definition of the poverty line, commonly taken to be an income of $1.90 or $2 a day. (Hickle, 2017.) Roser and Ortiz-Ospina (2017) confirm this figure and say it is “not even enough for people to secure decent nutrition, to say nothing of other basic requirements.” The income necessary for a minimally acceptable lifestyle would be much higher. This means that the numbers still experiencing the serious hardship of “extreme poverty” would be far greater than the official poverty statistics indicate. In addition, the fact that several billion struggle in bad conditions after many decades of trickle down development is a significant indicator of its ineffectiveness.
A good indicator of the significance of trickle down in even the richest countries is the fact noted above that the real income of almost all American workers has hardly increased in 40 years, while the GDP and the wealth of the rich has increased greatly.
Secondly, some argue that much of the reduction in global poverty rates has been due to achievements in China. (Hickel 2017, Edward and Summer 2013.) In addition, whether or not China is a satisfactory example of development is debatable. McRae (2008) believes it mostly benefits a small proportion of the people, leaving perhaps 800 million in rural poverty. He says inequality in China is “appalling and getting worse.” (For detailed accounts of China’s precarious social and ecological situation see Smith, 2020.)
Conventional economists typically enthuse about gains and benefits but fail to attend to the losses and costs. Conventional development drives many people into poverty, mainly by depriving them of resources and livelihoods they once had. For instance, Structural Adjustment Packages (below) require removal of protection and subsidies and permit foreign corporations to enter and take over markets and productive activity that poorer people used to enjoy. When governments allow corporations to log forests and build dams and mines, tribal and peasant people are typically removed from their ancestral lands.
At the macro level it is evident that many poor countries have not benefited from trickle down policies. Fletcher (2016) quoting the U.N. Human Development Report says that in 2003, after decades of Neoliberal development, 54 nations were poorer than they had been in 1990 and Sub-Saharan Africa had a lower per capita income than 40 years before. (See also Hickel, 2017.) The poor in Third World countries that are most integrated into the global economy have fared worse than those in other countries. (Woodin and Lucas, 2006, p. 55.)
It is not clear how big the net gains in income, employment and welfare have been but the above evidence on global poverty changes suggest that they have been much less spectacular than is commonly claimed.
At present rates it would probably take more than a hundred years for the “living standards” of the poor majority in the Third World to rise to present rich-world levels. Yet if the available resources could be applied directly by people to meet their own needs rapid improvements would easily be achieved.
The trickle down rationale promises to improve the welfare of those in great need via crumbs from the tables of the rich who are consuming most of the world’s resources. Most of the benefit of conventional development goes to national elites, foreign corporations and rich-world consumers. A morally acceptable development process would prioritise improving the conditions of the poorest.
Perhaps the most effective argument against trickle-down doctrine derives from the above sustainability considerations. The limits to growth rule out any chance that development which promises to lift the poor to rich world affluence via trickle down benefits can succeed, simply because there are far too few resources for this to be achieved.
The trickle down myth is widely debunked. “Trickle down economics generally does not work …” (Amadeo, 2021.) Hail says, “There is no credible evidence that trickle down economics works. It is a fallacy. An article of faith, perhaps—but not science.” (2017 p. 9.) Keating (2018) says, “Pleas for company tax cuts by big business and their media lackeys, on the grounds that the benefits will trickle down, are the height of self-interested hypocrisy. They are not supported by any evidence, not by any authoritative commenters who have explored that evidence.”
The trickle down doctrine is a con trick persuading people that the basically capitalist economic system is acceptable because it is lifting poor people out of poverty. This is not to say its advocates intend to deceive; many genuinely believe “a rising tide lifts all boats”. But it should be glaringly obvious that this is far from a satisfactory way to lift poor people to reasonable living conditions, and yet the claim is widely accepted as justifying the capitalist approach to development.
Globalisation has been primarily a response to the essential problem a capitalist economy creates, which is where to find profitable investment outlets for all the capital that is constantly accumulating. In the twenty-year boom after World War 2 this was not difficult, because of the pent-up demand and the need for reconstruction. But by the early 1970s it was becoming increasingly difficult to invest profitably. Globalisation is essentially about corporations and banks wanting to get rid of the barriers hindering their access to more business opportunities. The doctrine enabling this push, eagerly accepted by governments, is Neoliberalism. It involves:
Deregulating, i.e., reducing government control of the economy and capacity to direct or restrict what firms can do.
“Freeing” trade and investment, i.e., allowing more to be determined by market forces and profit.
Privatising, i.e., selling government businesses to private corporations.
Corporations have therefore been increasingly able to enter markets previously out of bounds for them, to move to where the wages and conditions are lowest, to drive local producers out of business by undercutting their prices and taking their trade, to take over local firms, to divert local land and resources from producing for local people via local firms and to put these into producing for export via transnational corporations.
Under the new doctrine governments have less and less power to block or control what corporations want to do. Third World governments are legally restricted or prevented from protecting their people against what the corporations want to do, e.g., by the trade agreements they have had to sign to be able to export to rich countries. Some governments have been fined hundreds of millions of dollars for trying to restrict what corporations are doing, e.g., to ban a corporation’s ecologically undesirable products from sale…because that would be seen as “interfering with the freedom of trade”.
Around 1990 the US banned importation of tuna from Mexico on the grounds that the nets used to catch it caused the death of many dolphins. The world trade governing body ruled that this ban must be dropped.
“… the panel viewed preserving the multilateral free trade system as more important than any one country’s evaluation of the need to protect the environment … the GATT dispute resolution panel gave priority to free trade over environmental protection.” (Globalisation 101 2020, Palmer 2016.)
Mexico lodged a demand to be paid $472 million in compensation. (Wikipedia, 2019.)
Monbiot (2021) reports that after Italy banned new oil drilling in coastal waters, a UK oil company is currently suing the Italian government for the loss of its “future anticipated profits.”
These cases show how the rules of world trade have become extremely favourable to the corporations while contradicting the interests of the poor majority of the world’s people. It can be argued that one major consequence has been the rise of Trump. The North American Free Trade Agreement (NAFTA) removed restrictions previously limiting foreign investment by corporations, especially in Mexico where small farmers and others had been protected by government regulation. Many poor Mexican farmers were immediately put out of business as cheap grain flooded in from the US (where it was produced by farmers receiving large subsidies!), and there was a massive closure of factories in the US as they were relocated to low-wage countries. The resulting devastation has fed into the festering discontent among poor Americans finally bursting out as support for Trump.
The goal more recently has been to extend the kinds of freedoms the corporations and banks have achieved in the trade area to foreign investment, the provision of services by governments, and the purchasing governments undertake; i.e., to drive back or eliminate government regulatory control and involvement in these areas.
Thus, globalisation has meant that what happens in a country increasingly depends on what it suits the transnational corporations to do there. Small and economically weak countries have little choice, given that they have few products that can earn export income, and competition between them to export drives down the prices rich countries have to pay. If it does not suit corporations to do anything in your country then you can have no development. The corporations therefore have an open world in which to do business, and great power to go into a country and produce or develop or buy what they want because the country is desperate to earn income.
Another very important consequence of this more open interconnected and little-regulated global economy is that governments have little control over financial flows. Vast amounts of investment capital can now suddenly rush into a country, or out, chasing speculative opportunities, causing very destructive booms and crashes. About 97% of the transfers of money around the world are not to pay for products or trade, they are just to speculate, that is gamble, on currency rate changes. In the 1997-8 “Asian meltdown” millions of people who had jobs and could feed themselves one day were plunged into poverty the next day because financial markets suddenly decided to sell a country’s currency or withdraw investments. In some cases food prices suddenly multiplied by four. Neoliberal doctrine upholds this freedom for banks and corporations to destroy whole economies in the pursuit of maximum profit.
And in a globalised world involving huge amounts of international trade there are abundant opportunities for big firms to avoid taxes through “transfer pricing”. A firm can register in a low tax country and send its products to an Australia subsidiary at a highly inflated price so that when they are sold here the subsidiary makes little profit in this country where taxes are relatively high. The high payments the subsidiary makes to the firm’s head office are transferring the sales income to head office, which is located in a country with low taxes.
There is now a very large literature critical of Neoliberalism and globalisation. Unfortunately most people who are dismayed see them as having failed or as being irrational, because they are not solving our problems. This is a fundamental mistake. It is to assume that the World Bank and the IMF are run by fools who can’t see that their Structural Adjustment Packages and the privatisation, deregulation and enforcement of market forces solutions do not work. This is quite wrong; these policies do not fail, they work like a dream! But they were not intended to work for the poor, or for you. The most charitable interpretation is that they are intended to “get the economy going again”…via conventional free enterprise strategies. Obviously the best way to crank up GDP is indeed to free up corporations to invest and produce and sell more…isn’t it?
The recent Indian example
President Modi’s proposals have recently been defeated but the case illustrates what is happening in many places.
In the 1990s, under pressure from Washington and agribusiness, the World Bank demanded African and other governments in developing countries end their agriculture subsidies (while agriculture in the USA and EU remains heavily subsidised.)
India, with 1.4 billion people, perhaps half in agriculture, “is the last bastion where global agribusiness has been unable to dominate the production of food.” That’s what Modi was determined to enable. He set out to end laws which protected India’s 650 million small farmers by guaranteeing minimum prices and restraining the access of transnational corporations and their capacity to buy up peasant land.
This would have resulted in the ruin of an estimated tens of millions of marginal or smallholder farmers and small middlemen in India’s fragile food chain.
The new Modi laws were measures the IMF and World Bank have been demanding since the early 1990s to bring Indian agriculture and farming into the corporate agribusiness arena.
— Engdahl, 2021
In 2019 over 10,000 Indian farmers committed suicide because of their impossible economic circumstances.
— Down To Earth, 2021
Under the proposed new laws, farmers would have had to sell directly to corporations, which in India often assert monopoly control over markets and so can dictate low prices to farmers. The new situation would have led to small and marginalised farmers, who make up 85% of all of India’s farmers, being unable to survive and having to sell out, losing their land to corporations. The three laws, which were passed without any consultation with farmers and in violation of parliamentary procedure, are so blatantly pro-agribusiness that they even forbid farmers from suing corporations, leaving the former completely at the mercy of the latter.
Globalisation, whether deliberately intended or an unwitting side effect, has been a stunningly successful drive by the corporations and banks and their few highly paid lawyers and managers to bring in rules for the global economy which allow them to take even more of the world’s wealth and resources. Since 1970 they have been astoundingly successful in increasing their wealth. Globalisation has been described as the most massive transfer of wealth in human history, mostly from the billions of very poor Third World people who now have less access to the land, forests, fisheries and markets they once had. (Chussudowsky, 2004.)
They have done it without using (much) military force. For the most part they have done it simply by changing the rules by which the global economy functions, to give greater freedom for trade, lending and investment, meaning that the corporations and banks have greater access to resources, markets and labour.
You might be thinking that the people who work for agencies such as the World Bank must not understand that globalisation and the Neoliberal agenda have brought economic and social destruction to many countries over three decades while enriching the corporate rich. “Surely they do not grasp that the SAPs they inflict on the poor nations have these effects.” Firstly this could only be possible if they had never read any of the vast critical literature. But have a look at the book Confessions of an Economic Hit Man (2004) by John Perkins’ detailing his previous work in getting poor countries so heavily indebted that they become trapped into a form of “debt slavery”, unable to pay off debts and thus having to go on endlessly paying out interest and accepting policies that are in the interests of creditor banks and nations. (The full title of the associated 2005 video interview with Perkins is Confessions of an Economic Hit Man: How the U.S. Uses Globalization to Cheat Poor Countries Out of Trillions).
Why have governments gone along with all this, doing everything possible to facilitate globalisation, thereby serving the corporations and banks while betraying their own people? Firstly, Neoliberal think tanks have convinced everybody that liberalising is the way to “get the economy going again.” But the main reason they went along was because they had no choice. They had to cut corporate taxes (meaning less money to spend on hospitals etc.), entice corporations in, be seen by the credit rating agencies as a good country for foreign investment, reduce costs of production for exporters, or else their country would not be competitive in the global market place. If a government said it was going to raise wages and pensions and unemployment benefits and going to raise taxes to pay for it all, its export production costs would rise reducing export sales, and foreign corporations would cease investing in a more costly environment. The government would have ruined its own economy. Thus the saying which sums the situation up well is, “no government now can defy the global capital markets”. All must do what the corporations and banks want, or be trashed, i.e., abandoned by investors, unable to get loans and unable to compete in trade.
A hundred years ago this was not possible. Nations and even small regions were highly self-sufficient and independent. Most of their food came from within their own borders. If a big bank in New York crashed it would make no difference to local economies because they would still have their small town bank and local jobs.
The massively unjust global economy must be seen not as a result of unfortunate and unintended mistakes, but as the result of a deliberate and stunningly successful drive by the corporate rich to bring in new rules which increase their freedom to accumulate wealth at the expense of everyone else. It has been created by the drive built into capitalism to ceaselessly strive for more investment opportunities, more sales, more accumulation of capital.
Over the last forty years there has been a remarkable increase in the amount of effort going into financial activity, that is into lending, managing investments, insurance, purchasing of assets especially land and housing to rent or resell, bankruptcy procedures, currency exchange, and dealing with debt. In that time the proportion of US GDP generated by financing quadrupled. The finance industry doesn’t produce any goods or services; it just manages money and draws interest and rent for doing this. Much of the effort goes into sheer speculation, buying and selling assets and debt in gambles on possible price rises and falls.
A major activity is simply acquiring assets to lend in order to receive rent. For instance, much investment goes into buying real estate in areas where prices are rising, and reselling later at higher prices. Macfarlane (2020) reports that since 1995 three quarters of all wealth accumulated in the UK, totalling £5 trillion, has come from rising house prices alone. Another is buying bankrupt firms cheaply and selling off their assets.
Much banking activity involves shifting money into and out of these ventures, by lending it to investors eager to get hold of assets. Most of this is just money seeking to “earn” more money and is of no benefit to society, while it siphons wealth out to speculators. As Christophers (2020) says, it “produces nothing; just suctions in more of the wealth pie, impoverishing the rest of society.” Mazzucato (2021) says, “In the USA and the UK only about a fifth of finance goes into the productive economy: the other four-fifths is cycled through the finance sector itself.” Hudson’s works (e.g., 2022) show how this is not just non-productive but is damaging to the economy because the rents and interest payments on assets the investors are getting hold of siphon wealth out of ordinary consumers and thus depress demand for goods and services. He explains that in the past this process has destroyed many societies. (See further below.)
A lot of effort goes into acquiring infrastructures, such as roads and ports, in order to derive rental income, e.g., from road tolls. Often this is done by getting government contracts to build roads, tunnels and bridges but also involved are large-scale services the state could and once did provide, often free to the public users, such as health care, education, transportation, prisons, “welfare” services, communications and information technology.
Consider the things we can enjoy freely because they are public assets, such as national parks and beaches. Now these are opportunities for good business profits to be made. At present you can go onto any Australian beach freely. The government could sell the beaches to private firms which could then charge an entry fee. The investors buying such an asset could draw a nice rent, the government would add to its revenue and the banks and other financial agencies which organised the deal could get fat fees. The GDP would rise. But nothing of any value would have been added to the real economy, money would be being siphoned out of people’s pockets to those of investors, and in fact the national quality of life would have been lowered. This is what the privatisation discussed above usually does; that is, transfer to private firms operations that were carried out by government cheaply or without cost, and then the buyers jack up prices, provide poorer service and rake off profits for ever more.
The transfer of wealth is surprisingly large. The authors of the book Rigged (Murray and Fritjers, 2022) estimate that around an incredible 50% of an ordinary person’s income is siphoned out via debt and interest! One consequence is that people now cannot afford to get things they need without borrowing money, such as for houses, cars, education, aged care and health cover. Borrowers then have to pay out interest for years, sometimes more or less doubling the total amount eventually paid out for an item. About 80% of lending is for housing and often the amount the borrower has eventually paid out is twice as much as the house costs. That indicates the vast wealth transfers involved when financialisation has occurred.
Higher education used to be free in Australia, but now large fees have to be paid and students have to take out big loans. Student debt in the US is a major burden. Over 40% of college students have debt averaging over $33,000. The cost of an Arts degree in Australia is set to rise to over $100,000. So a student will have to borrow this and pay back maybe twice as much. The finance corporations take out their fees for arranging all these deals and the banks cream off interest on the large loans students have to take on. Thus huge amounts of wealth now flow to lenders because the sector and many others have been “financialised”, when this was not necessary. University courses were free in Australia a few decades ago. The finance industry used to account for about 3% of profits made in the US economy but in a recent year the figure was over 40%.
The profits banks make is another indicator of how big this sector is. In 2017 four Australian banks accumulated $32 billion in profits. In 2022 it was $39 billion. That is around $4,000 per household! If banks were publicly owned, as the Australian Commonwealth Bank once was, most of that amount could be avoided, or added to public revenue.
Another field is speculation on exchange rates. A lot of money constantly flows across national borders to pay for investment and trade, but that makes up only about 3% of the actual amount that flows from one nation to another. Around 97% of the flow simply goes into buying and selling foreign currencies to speculate (gamble) on rises and falls in their values.
A similar and largely unrecognised fault in this economy is that people can buy up land and premises, sit on them for years while development in the vicinity raises land and building prices, then sell them often making huge “capital gains” profits without having done any work or producing anything of value. This is easily stopped; in the Australian Capital Territory, the government takes some of the increased value, although there is no good reason why it should not all be taken.
This increased volume of financial activity has come about partly because people are now forced to borrow more to get by than they used to (Australian house prices and household debt are now very high) and because corporations have increasingly focused on getting hold of assets, property and service provision, which they can then rent out. The money they siphon off reduces the amount people can spend on other goods and services, thereby depressing the “real” economy.
Those getting this rent and interest money do not spend much of it back into the economy as investment in factories to produce things, because that is not very profitable, because people can’t afford to buy lots of stuff, because their disposable incomes are being reduced by all those interest payments! Thus finance is the major factor transferring wealth from the poor to the rich.
The housing arena illustrates what is happening. Prices are “being driven by hedge and private equity funds buying residential real estate to rent it back to those who can no longer afford to buy a house.” (Urie, 2021.) In an effort to deal with the 2008 GFC central banks resorted to “Quantitative Easing”, in effect creating vast sums of money and giving them to banks to lend in order to get economic activity going again. This enabled large sums to be lent to speculators eager to buy up housing and rent it out.
Hudson (2022) details how the rise of financialisation has been an enormous and radical change in the nature of capitalism. Once most profit was made producing goods and services, but now it comes from getting hold of assets to lend or rent and drawing income without producing anything. As noted above, this burdens people with having to devote much of their income to paying rents and interest, and therefore depresses the economy because people have less to spend on goods and services. The process inevitably accelerates over time, because interest paid goes into acquiring more assets to rent, and thus compounds, while wages do not. The trajectory is therefore towards impossible levels of debt and eventually social collapse. Hudson explains how this process has been a major factor in the collapse of whole societies, including the Roman empire, and is now undermining western society (but not China because financialisation is prevented there.)
A hundred years ago there were fierce theoretical and parliamentary battles to get rid of rentiers siphoning off unearned income but Hudson explains how the rentiers have now conquered economic theory and practice. A good indicator of this is that economists count income in the form of interest and rent as adding to the GDP when in fact it produces nothing and adds nothing to national wealth; it actually diminishes the real economy because it transfers large amounts of purchasing power out of the hands of ordinary people.
This shift towards financial operations can be seen as an indicator of the deterioration of the capitalist economy. Again, it has come about largely because it is increasingly difficult for the owners of capital to make good profits producing things people might buy such as fridges, meaning that the best profits now are to be made in getting hold of already-produced assets to rent. Governments have become fiercely determined to facilitate this, by privatising many of the functions and services that once were publicly owned and operated. Financialisation is a major element in the “cannibalism” which Collins (2018) identifies as a central factor in capitalism now. It is eating itself. Effort increasingly goes into getting hold of previously produced wealth, not producing more wealth. Chapter 8 discusses this dynamic as a major factor in the self-destruction of capitalism.
Varoufakis (2024) points out that financialisation represents a return to a kind of feudalism. Previously capitalists had to invest in producing goods to sell, but now the owners of capital do not do this; they just get hold of assets they can rent, just as the feudal lords didn’t have to produce anything.
In any economy investment is needed, to establish new productive establishments and to maintain old ones. In tribal and peasant economies it usually takes the form of all the people turning out to build a new garden or storage hut. In our economy it mostly takes the form of private individuals or firms deciding to lend some of their money to enable the building of a new factory etc. In many instances, especially in small-scale local economies involving mostly family firms and farms, this would seem not to raise serious theoretical or moral problems as it is in effect spending savings or getting a loan to buy or build new tools to use. But significant problems arise when we move to the large scale.
Firstly, there is the basic problem market systems involve discussed above, which is that private investment will enable a few to get large incomes without having to do any work at all. And these people are, surprise surprise, mostly rich people; poor people can’t do it. And they consume food and goods produced by those who do have to work. Interest and dividends from invested capital is of course the major factor generating the obscene levels of inequality in the world. Sayer (2014) puts it this way: “interest is … unearned income that accrues without any effort … As the poor become poorer and the rich become richer, the rich acquire increasing control over another crucial asset: money. Interest payments, overwhelmingly, are a transfer of money from the poor to the rich.” Macfarlane (2020) reports that in the UK one third of all income received each year comes from investments, not from work.
It is astounding that this is not seen as grotesque, a stupid arrangement and morally outrageous. This testifies to the domination of capitalist ideology. Alternative arrangements for getting together sufficient capital to establish new firms can easily be imagined. For instance in Maleny, a town in Southern Queensland, a community bank was set up by local people who voted for a charter which stated the kinds of purposes for which funds would be lent. These had to be of benefit to the town and its inhabitants. The board, elected from local people, made the decisions, via procedures for public debate and review etc. Many agencies like this are “mutuals”, set up to provide services to participants by pooling some of their savings to enable others to be given loans to build houses etc. while paying out no dividends to shareholders. The very large Mondragon collective system in Spain which includes big exporting firms, operates its own bank and has experienced expert business people in “business incubators” who help to shape up proposed ventures people bring to them. It provides funds and advice to get the promising proposals going. Because the bank is owned and run by the cooperative all repayments benefit its members and enable further lending. There is a bank in the US, only one, which operates this way, the State owned bank of North Dakota and it is an outstanding example of a publicly owned bank. On all the standard measures it performs far better than any privately owned American bank, mainly because none of its earnings are siphoned out to shareholders. (Brown, 2013.) Why can’t this kind of thing be standard practice at the state and national level?
In the kinds of cases mentioned interest is at times paid, but it need not be and in the stable or zero growth economy we must shift to there can be no interest paid. What few understand is that the entire issue and problem of investment, dividends and interest will be totally different in the new economy we have to move to. Interest payments for instance will and must cease. This is because the economy must be a zero-growth economy and it cannot be if interest on loans is paid. As noted above, if at the start of a year money is borrowed and this sum must be paid back at the end of the year plus interest, that cannot be done unless the economy has by then created the additional money that goes into the interest to be paid. That is, the total wealth then in existence must have grown from what it was when the loans were made. In a much reduced and stable economy very little investment would be taking place, only enough to maintain or adjust society’s stable amount of productive capacity, but the most important point is that in addition no interest can be paid on loans. This is not optional or a recommendation; the fact is that if it is to be a zero-growth economy then there cannot be any interest payments. Thus, Degrowth to a small and stable economy will greatly simplify many things, especially the investment scene. It will eliminate most of the present finance industry and most investment decisions will be made via public discussion and public banks.
What about the argument that the worker makes a contribution of labour to production and his wages are his reward, while the investor makes a contribution of capital and interest is his reward for this, including the reward for taking the risk? In general there is little risk; in general investors get richer. But what is the investor risking? He is risking losing his money and then having to work for an income like the rest of us! A dreadful risk! Why don’t we work out a system that enables the required capital to be raised without providing anyone with unearned income?
The second problem with investment goes almost completely unrecognised. Investors receive incomes without having to do any work for them. In a world where most people have to work hard and long just to get enough money to live tolerably, where billions can’t live well even though they work hard, and where many cannot get jobs or earn anything, why is it OK for some people to receive an income without having to do any work?
A “dole bludger” is a poor person who wants to get an income without doing any work for it; they are despised.
An “investor” is a rich person who wants to get an income without doing any work for it; they are admired.
Many sections of this book document the way governments are eager to do what business wants. This is inevitable because the biggest concern of government is how to “get the economy going again” and they believe the best (or only) way to do this is by assisting the business sector to invest and produce more to sell. In addition, there are large numbers of rich people who expect to see their investments and assets yield well, so if the government does not focus on increasing opportunities for producing things to sell these influential people are going to get angry.
But above all there is the strong and never-questioned assumption that it’s important to do what business wants, maybe because of beliefs such as “it creates jobs and wealth”, “it runs things best” and “it is not good for the state to run everything.” The result is lots of outrageous scams where corporations are allowed to get business opportunities and siphon off huge amounts of wealth. Sometimes it’s approving dubious development proposals, or giving licences to corporations when public companies would do the job at least as well and save the money siphoned off by shareholders, and often it’s about granting subsidies and tax relief. Often it would be much better if the venture was run by a public agency but it goes to a private corporation.
How do you explain these cases?
“Chevron’s Gorgon gas project earned $32 million every day, but in the 2019-20 year paid only $7 million in tax. Two-thirds of WA gas production, including the output from Chevron’s Wheatstone, Shell’s Prelude and Woodside’s Pluto LNG projects, paid no tax of royalties at all last year.”
“Oil and gas companies like Woodside and Chevron are being given this valuable and finite resource virtually for free, making huge profits from its sale, creating few jobs and returning almost nothing to everyday West Australians.” (Mazengarb, 2022.)
In 2019-20, the fossil fuel industry earned $115 billion from selling Australia’s petroleum and coal resources and paid state and federal governments an estimated $7.3 billion in royalties. But in 2020-2021 the industry received more than $10.7 billion in subsidies from the Australian government.
Another report found a return of less than 10% to Australia … on mining exports worth $2.1 trillion. (Foote, 2021.)
It costs $20/t to produce iron ore. It sells today at $120/t. (The Money Show, 2024.) No wonder “Super Profits” are made.
Australia has ten facilities that export gas as liquified natural gas (LNG). Six of these projects—four of the five operating in Western Australia, along with both of the Northern Territory’s facilities—“pay no royalties, either state or federal. These facilities represent 56% of Australia’s gas export capacity. This means that more than half the gas exported from Australia is given for free to the companies exporting it … in the last four years alone, Australians have given away the gas that made $149 billion worth of LNG, for free.” (Ogge, Campbell and Vestegan, 2024.)
This very common kind of situation is absurd and infuriating, yet there is no criticism of it. It is accepted that the right to mine Australia’s energy and minerals can be given to private corporations for low royalty payments, and they then have the right to ship the resources out making huge profits for foreign shareholders, while paying little or no tax. If the Australian government owned and ran the mines we would get all the wealth produced, not just a pathetically small proportion.
To add insult to injury, around 2022 gas prices in Australia more or less trebled and large numbers of people were not able to afford enough energy. Yet the corporations were producing a huge amount and exporting it at the high global scarcity prices and making fabulous “super-profits”. Supply to Australians could have been maintained, at no price rise, by meeting our demand first, but no, the corporations are allowed to sell it to foreigners for maximum profit in the world market, while depriving Australians of sufficient supply, then charging them the high prices they can get overseas! (One state does have the power to meet local demand first.)
As if that’s not enough, the industry is 95.7% foreign owned, meaning that about 83% of profit goes out of the country to foreign owners, equal to $5,000 per household. (Murray and Fritjers, 2022 p. 119.)
And most pay no tax at all! (Verender, 2022.) Their profit margins have been over 30% for half the years since 2001. (Murray and Fritjers, 2022, p. 121.) And they pay negligible if any royalties. In 2019 royalties paid by petroleum producers totalled 2.9% of export income. (Foote, 2021.) Royalties and taxes paid are actually lower than subsidies received from the government! Murray and Fritjers (2022, p. 117) report that the government pays miners over $18 billion p.a. in subsidies. We are paying them to ship our wealth out!
Meyer (2019) reports Taxation Office figures show that in 2017-18 the giant mining companies in Australia earned $53.8 billion without paying any tax. “… one-third of companies with revenues over $100 million, or 710 firms, didn’t pay any tax at all …” He says, “While the average single Australian worker pays 25 per cent of their income in tax, large companies earning over $1 billion averaged tax payments of only 2 per cent of total income.”
And then there are the lax rules for cleaning up abandoned mine sites. Murray and Fritjers, (2022, p. 111) refer to a report that in Queensland there is a $3.2 billion gap between the clean-up bonds the miners have undertaken and what the cost would be. Even the state’s Auditor General estimated it at $1 billion. In Victoria the bonds established for three coal mines totalled $42 million but the cost has been estimated at between $652 and $957 million. (Murray and Fritjers, 2022, p 117.)
Possibly the most lucrative favours are to be found under the heading of privatisation. Murray and Fritjers (2022) detail many cases where governments contract private companies to build roads etc. on terms that yield high returns to the companies at an avoidably high cost to the public. They actually claim that we pay twice as much for such projects as we would if the government did the job. (p. 41.)
This strong pro-business bias is often evident in the reduction in tax rates for rich individuals and corporations. Driver (2021) says, “Tax rates have generally decreased for the richest people over the last few decades. At the same time there has been an increase in other taxes that affect the poor.” Quiggin (2020) noted that, “The Australian government intends to introduce tax cuts which … will benefit high-income earners the most … while the government begins to wind back income-support measures, such as free child care …” Murray and Fritjers (2022, p. 169) say that in the year 2019-2020 33% of the biggest 2,400 companies in Australia paid no tax at all. They quote an estimate that transnational corporations operating in Australia dodge $50 billion in taxes they ought to be paying and that the total amount avoided is around $70 billion p.a.
Generous laws governing capital gains, negative gearing and the taxing of superannuation all constitute favourable treatment of the rich. In recent years taxation has shifted from wealth and assets, for instance in the dropping of inheritance taxes.
Murray and Fritjers say that the favourable treatment of the pharmacy industry has resulted in Australians paying eight times as much for drugs as the New Zealanders pay. (p. 177.)
Another example of how routine policy favours the mega-rich is evident in “Quantitative Easing”, the strategy employed to solve the 2008-2009 GFC by giving trillions of dollars to the banks to lend in order to stimulate the economy. Who ends up with this money…the small businesses and impoverished people who would spend it immediately? No, it goes to (i.e., is lent by the banks to) rich people and corporations on the pretext that they will invest it and create jobs. But given the depressed economy investors are not borrowing from banks to do that. They can’t make good profits doing that can they, because the economy is seriously depressed and people can’t afford to buy much. So the borrowers use the cheap loans to buy up assets they can rent, and to pay their CEOs big bonuses. In fact the $178 billion the Australian government recently created to get the economy going is sitting in banks because they can’t get anyone to borrow it! (West, 2021.) The action that would rapidly get the economy going again is of course totally unacceptable; that is, hiring a helicopter and dumping a few billion dollars over poor suburbs. But of course that’s not acceptable, yet giving money to the rich is. As Urie (2020) says, “If hedge funds, private equity and various and sundry financial speculators can be bailed out, then why couldn’t black homeowners have been bailed out …?” As Hudson says, somehow the helicopters only hover over Wall St.
Urie explains that during the GFC the US government conjured up “five trillion dollars … ‘out of thin air’ to bail out financial speculators and the corporate looting class …” but “… where was this power when Joe Biden claimed that ‘we’ can’t afford a functioning healthcare system?”
Numerous other examples of governments being kind to business could be given, especially from US Presidents Reagan and Trump, usually justified with a trickle down rationale. Tax rates reveal the effect, often enabling corporations to pay little or no tax. The average American billionaire today pays less than 8% in income taxes. (Hartmann, 2024.) Bant (2024) says one in three big corporations in Australia pays no tax at all.
The Haynes royal commission into the Australian banking sector unearthed appalling practices including criminal acts. It made many recommendations, which have been largely ignored by governments. “Even in those rare cases where the crimes of the capitalist class are so egregious that they cannot be ignored by the State, the penalty is rarely more than a fine—and usually a fine far smaller than the profits of the crime. Individual capitalists are virtually never held accountable.” (This Bear, 2021.) Not one of the executives who made the decisions has gone to jail. “In study after study, political scientists have shown that the U.S. government is highly responsive to the policy preferences of the wealthiest people, corporations, and trade associations—and that it is largely unresponsive to the views and needs of ordinary people.” (Karagianis, 2020.)
In reference to one Australian budget Menadue (2020) said, “It is no surprise then that in the budget we see largesse for business …” It is prepared “to commit to further business concessions to lift business investment. Yet we know that direct incentives will not promote a significant increase in investment unless companies see an increase in community spending.” He quotes Gittins (2020) saying, “This ‘Liberal values’ business-directed tax reducing approach to fiscal stimulus explains why the budget didn’t include the two measures economists most wanted to see because they would do most to boost consumer spending and jobs: a big spend on social housing … and a permanent increase in unemployment benefits (almost every cent of which would be spent).”
Tingle (2020) made much the same case; “The government’s apparently obstinate determination to push all its support through the private sector also means ruling out something obvious such as spending money on jobs in the public sector … The very sectors that conspicuously need more staff and the fastest-growing part of the workforce before Covid-19 are in the public sector in areas such as aged-care, disability-care, health, education, mental health, employment services and child care.”
Menadue (2020) points out that various commentators say this bias is well understood by the public. “If the Government thinks the community does not see through all this then it is badly mistaken. The Election Study conducted by the Australian National University told us in December last year that “only 12% of Australians believe the government is run for ‘all the people’ …” In contrast, 56% said the government is run for a “few big interests”. “The recent budget confirms the public view that the Coalition fails to understand and act in the interests of all the community. It acts on behalf of business interests.” (Menadue, 2020.)
The main point of the foregoing criticism of the market system is that to the extent to which market forces are allowed to operate, inequality, injustice and social and ecological damage will result. This explains much about the global situation. But we have to add the fact that in many of the important areas of the economy outcomes are not left to market forces because governments regulate and make decisions which suit particular interest groups, especially in the corporate sector. Under Presidents G. W. Bush and Donald Trump astounding tax benefits were given to the very rich, massive contracts awarded without competition to favoured corporations (for example for reconstruction projects in Iraq after the invasion), vindictive labour and welfare laws were put through, and the military sector received ever-increasing contracts. Similarly, in Australia the 2006 labour legislation greatly benefited business at the expense of workers. None of these actions has anything to do with market forces. It was not that in these instances corporations competing in the market led to some succeeding and accumulating great wealth. It was that particular corporations exercising their great power to influence government decisions were given the contracts, deals, laws, etc. that enabled them to secure lucrative business or operate on terms that favoured them.
As explained above, the market’s worst effects are seen in the unacceptable way it distributes goods and services. These inevitably go mostly to richer people. But where power has its most unacceptable effects is in determining who gets productive opportunities, and in determining production conditions such as wages and safety laws. Big corporations can threaten to move their factories to another country if governments do not grant them concessions or lower wages or safety standards. They can remind a government of the donations they made to its election campaign. Above all a great deal of productive capacity is allocated by governments when they grant contracts or licences, for instance to open a mine. Much of the law-making which governments engage in sets the conditions corporations can operate within, such as to do with minimum wages, taxes and subsidies, right to strike, and safety rules. As was noted above, there are huge numbers of lobbyists constantly badgering governments to do what corporations and others want; in the US 12 thousand at the federal level alone.
Power beyond the market is also evident in the operations of agencies such as the World Trade Organisation, IMF and World Bank. The coming of the era of Neoliberal globalisation can be seen as the introduction of new rules regulating the way trade, debt, foreign investment, etc. are to be handled. These rules massively suit the corporate sector, for instance by stipulating that indebted countries must leave most economic activity to the “free market” (while agribusiness in rich countries enjoys huge subsidies.)
The power of the business sector to avoid market forces takes many forms, including the ownership of the media, the ability to hire teams of lobbyists and lawyers, the capacity to direct “philanthropic” donations to particular causes, to fund think tanks, and to mount campaigns.
So two apparently contradictory things are happening. The Neoliberal ideology insists on free market policies and eliminating government assistance and intervention and regulation etc., in those areas where the rich benefit from the elimination, while at the same time governments often pass laws which ignore the market and settle big economic issues in the interests of the rich.
In other words, sheer power determines much that happens in the economy. This situation inevitably gets worse in a capitalist economy. This economy began in the form of individual entrepreneurs competing against each other only in terms of the price at which they could sell. But over time corporations have acquired a great deal of power beyond the market to determine what happens, often working with governments that are usually eager to please them but often prevailing despite government opposition.
The total amount of debt in the global economy is enormous and has grown rapidly in recent years. The US debt has trebled since 2008 and by 2020 world debt had reached about 3.7 times world GDP. The US national debt passed $36 trillion, only four months after it passed $35 trillion. It rose $2 trillion in one year. Federal government interest payments as a percent of tax receipts rose to 37.8% in the third quarter of 2024. It is widely recognised that this bubble must burst before long, and that it will have hugely destructive consequences. (Tverberg 2021, Hudson 2022.)
In a capitalist economy a small amount of debt is considered to be desirable as it represents borrowing to invest in growing the economy and if the amount is moderate you can expect that output and earnings in future from the new ventures set up will enable the debt plus interest to be repaid. But these days debt grows faster than the economy, so in the long term there’s trouble.
It is very important to realise the resource implications of debt. If someone borrows money the expectation is that it can be invested in producing things that can be sold generating enough income to repay the debt plus interest. That cannot be done unless resources are obtained and put into producing factories and goods. To pay off the $33 trillion debt of the US Federal government (far less than the total debt of the US) would involve producing and selling things equivalent to 35 billion tonnes of steel at its current price, equivalent to 700,000 Titanics. Where are you going to get enough resources to do that?
Resources are getting scarcer and more costly, and the household disposable income to buy the stuff is shrinking. This indicates one major reason why debt is now commonly seen as totally impossible to pay off.
Governments desperate to stimulate their economies eagerly pump more money into their economies by in effect “printing” it and giving it to the banks to lend, and by lowering interest rates to encourage people and firms to borrow it to invest.
The main effect is that richer people and firms pounce on the availability of lots of “cheap” (low interest) money and take out loans to invest in acquiring assets; hence for example the early 2021 Australian housing price boom. Governments will not adopt the glaringly obviously best way to get the economy going, again the “helicopter money” strategy of flying over poor suburbs and shaking out bags of notes. People would grab them and run straight to the shops. Ellen Brown has made the obvious point; “The way to stimulate economies is to get money into the pockets of people who will spend it.” Why don’t governments do this? As has been explained, because that would be giving money to poor and ordinary people! It’s OK to give it to the rich and the banks and corporations, for instance in tax relief and “Quantitative Easing”, on the pretext that the rich will invest it in setting up factories. But in recessions the rich don’t do this simply because they know they can’t sell the stuff new factories might produce. They typically use the money to invest in acquiring assets and to pay their managers bonuses, which after the GFC left the global economy more or less in recession for over a decade. (A rare occasion when a helicopter strategy was used was when the Australian Rudd-Swann government gave everyone $900…and saved the country from the GFC.) Money dumping helicopters somehow seem to hover over rich people not poor people.
The Bank of England’s own research has shown that quantitative easing made each of the richest 5% over £128,000 richer, at a time when politicians are using the absence of a “magic money tree” to justify austerity. (Positive Money, 2017.)
Hudson (2022) and others point out that the acquisition of more assets to rent out siphons more spending power out of the hands of ordinary people and therefore actually depresses the real economy, and then in order to get it going they pump in more money hoping it will boost investment and purchasing…but it doesn’t. And because the newly created money is made available to banks to lend, it just increases the overall debt burden. Their answer to the debt problem is to increase the debt.
Perhaps the most worrying aspect of debt is that if there is any debt at all then there must be economic growth. As has been explained, the money borrowed cannot be paid back in future plus interest unless more “value” is produced than the money represented when it was lent. This means that in the steady-state economy we need there can be no interest payments. Hardly anyone seems to realise this.
The magnitude that debt has now risen to is an indicator of the sickness of the economy. Tverberg (2021) points out that in the 1951-1976 period a 60 cent rise in US debt was associated with a $1 rise in GDP, but now it takes an $8.80 increase, in deflated terms, to raise GDP $1. That is, it now takes 13 times as much debt to get the spluttering economy to lift the GDP $1. And in 2020-2022 interest rates have been at extremely low levels, so any rise in them will drive large numbers of people into bankruptcy and risk collapsing the economy.
The debt situation is one of the main factors leading towards catastrophic global economic breakdown. Tverberg (2021) says that before long “the worldwide debt bubble will start to collapse, bringing oil prices down by more than 50%. Stock market prices and prices of buildings of all kinds will fall … International trade will dramatically fall. The standard of living of most people will fall precipitously.” Hudson’s works explain at length how the historical accumulation of debt has strangled and killed off whole societies and empires. He says that’s the path we are on, with global debt levels now far greater than could ever be paid off.
It might at first sight seem like an extreme claim, but capitalism has destroyed work. Producing, creating the things we want in order to live well should be a major source of life satisfaction and enjoyment, but in this society work for most people is at best just tolerated as necessary and inescapable, and for many it is a more or less unpleasant burden. Some studies report that 80% of Americans do not like their jobs. (Ivanhoe Newswire, 2019.) In addition, we do far too much of it; we could have a very satisfactory society in which on average we need to do perhaps only one-third as much producing, while enjoying it. (See Chapter 10.)
Job satisfaction surveys can be misleading. Many who say they are satisfied with their job mean that in view of their circumstances they could not expect a much better one. The right questions are rarely asked, such as, do you enjoy doing the work, and would you happily continue to work on holidays? It will be argued in Chapter 10 that production could be organised in ways whereby we would answer yes to these questions, the work/leisure distinction would not exist, and we wouldn’t need to do a lot of “work”.
In our present economy the worker’s only involvement in production is that he or she sells labour to the owner of the factory for a wage. He or she typically has no control over the work conditions or processes, often must repeat one narrowly defined task again and again, does not own the product made, cannot vary the process, or keep an especially good product, and cannot go fishing when he or she would prefer to. Marx criticised this as “alienated” labour; the worker’s labour has been separated from other possible values, meanings and sources of satisfaction and fulfilment. This is because in this economy the major factor determining working conditions is cost minimisation, getting as much product out of the worker as possible. This certainly yields low-priced goods but workers pay a heavy cost in terms of work experience.
As noted above, people working within the kind of settlements discussed in Chapter 10 would very likely say yes they would like to go on “working” on weekends and holidays. Firstly, the amount of work to be done is greatly reduced by living frugally and self-sufficiently, eliminating among other things most of the work presently going into producing cars and trucks, throw-away products and too-big houses. Secondly, most producing would take place in small family-run firms and farms and in cooperatives under the control of participants. You would have pride in your skills as a baker or carpenter or fruit grower. The pickles and jams you use would be made by people who enjoy processing small batches of local produce, developing their own recipes, and being complimented by the friends and neighbours who use them. They would not need to “work” at this for more than a day or two a week, because they would not need much money to live well when many goods and services come “freely” from local commons and working-bees. They would not have to struggle to pay their way because the community would have the sense to make sure no one is poor or goes bankrupt and loses their livelihood. Where adjustments have to be made the community would work out how best to redeploy people and resources. Above all, there would be the sense of your produce contributing to the maintenance of your thriving and supportive and admirable community.
Workers would be living in highly self-sufficient and resilient communities, largely independent and secure from the whims of the predatory and fragile global economy. At present an event on the other side of the globalised world, such as a major bank failure, can devastate economies and throw people into unemployment and poverty all round the world. We have become totally dependent on the global economy for jobs and goods on the supermarket shelves. Before the advent of capitalism people were able to provide for themselves via their fields and collective arrangements such as village commons. But in a capitalist economy people cannot do this and are dependent on getting a wage from an employer, to buy things employers produce. The settlements and economies discussed in Chapter 10 restore the capacity of people and communities to be independent of the global economy and safe from the whims of employers and investors.
One of the most interesting and overlooked elements in the dominant world view is the way work has come to be thought about. The hard worker is admired, even though he might work at advertising cigarettes. Much effort goes into teaching kids in schools to be hard workers, and to accept the importance of slogging away at tasks that are unpleasant. Laziness is a sin and we beat up on ourselves for not “getting back to work”. In his essay, In praise of idleness, Bertrand Russell (1932) got it right when he said, “I think that there is far too much work done in the world, that immense harm is caused by the belief that work is virtuous … the road to happiness and prosperity lies in an organised diminution of work … If the ordinary wage-earner worked four hours a day, there would be enough for everybody and no unemployment.”
The “hidden curriculum” we experience through many years of schooling teaches us very effectively that it is appropriate that our fate in life depends on how hard we work at our studies. If you work hard at school and earn credentials you will have access to good jobs but if you drop out early then you can expect only a lousy job, and maybe none at all. Thus radical education theorists point out that school is a powerful legitimiser of social placement. It gets everyone to believe that where they end up in the social hierarchy is rightly determined by their brain power and how hard they worked at school, so they have little justification for complaining. They also point out that for large numbers of kids school work is about getting used to doing things that are of no interest or meaning to them; you just come to accept doing what you are told without expecting it to be of any value to you. It’s not so surprising then that they accept work in the factory or office that has no meaning or value to them.
Schools spend most of their time training kids in working, but spend hardly any effort teaching them how to do leisure. In my firm opinion one of the most important thing kids should learn is hobbies. They should be introduced to a wide range of arts, crafts and activities, and to people who are obsessed with various creative pursuits, and above all they should learn that this realm is of great importance in a satisfying life.
Surely the point of life is not to grind away at unpleasant work, but that’s what most people do without protest. We should be able to spend most of our time enjoying life, improving things and contributing to a better society, and especially helping other people thrive and flourish. How unsatisfactory it is then to define “education” primarily in terms of acquiring productive skills. The less time we have to spent producing things the more we would have to devote to such pursuits.
Now how come we suffer from this costly mistake, this syndrome of delusion that work is supremely important, to be accepted no matter how boring and that idleness is sinful? Whose interests do these taken-for-granted and never-questioned convictions serve? Not workers, who could have nice lives on, Bertrand Russell thought, four hours work a day. Obviously they serve the interests of employers. They want you to work diligently, obey orders, not question the point of the work being done, and to be satisfied when a wage is all you get out of your work.
The goal should be to make all producing enjoyable creative activity, including the most simple things like making a dinner or shaping a garden peg. And as William Morris said, products should be seen as artistic works: beautiful, well made, durable and satisfying to contemplate.
What a disaster that capitalist ideology has made work into drudgery that most people get nothing from but money, and has denied many the option to work at all. We produce things all day: situations, conversations, tidy sock draws…in a sensible society we would try to make all these activities enjoyable works of art. (And automate or share the intractable nasty jobs if we can’t eliminate them. Working-bees can turn them into enjoyable social activities.)
Be aware of the notion of “working beautifully”. Watch a skilled craftsman and you see no wasted movements or time, just the right hammer blow at the right place, the right touch on the spinning clay…the capacity to get the material into the shape you want with no bungles. That’s the kind of “power” we should cultivate; far more admirable than the power to conquer.
More work is actually done in the non-monetary domestic economy than in the monetary realm economists confine themselves to. That is, more work is done washing up, making beds, helping kids with their homework, caring for elders etc. than is represented by the GDP. Women usually do most of this. All this work is totally ignored by conventional economic theory and practice; it is regarded as having no economic value whatsoever. (Hence the title of Marilyn Waring’s book, Counting for Nothing, 1999.)
The issue goes beyond the “unpaid work” of women. Chapter 11 points out that it is not possible to understand economic phenomena unless reference is made to cultural factors, especially the ideas and values that energise and direct people’s efforts to produce and exchange things. Conventional economic theory totally ignores all but the incentives people experience to work for money. However in a tribe customs can be powerful determinants of what is produced and how it is distributed. In a family a lot of work and production takes place but it is motivated by non-monetary incentives and values related to concern for the welfare of all.
Eco-feminists such as Maria Mies, Vandana Shiva (Mies and Shiva, 1993) and Ariel Salleh (2001) have drawn attention to the overlooked role of women in economics, especially with respect to the reproductive “work” they do. The term refers to more than biological reproduction of children. It includes the maintenance or reproduction of social conditions and relations. They do most of the informal work that keeps the household and community in good shape, and much of this is caring: for children, aged people animals, invalids, gardens and men who come home tired from the factory. Their interactions with each other help to maintain values, good behaviour, social stability and cohesion. (Men do this too of course, but they are away much of the time.) They socialise infants into citizens. This could be labelled the “nurturing” sector of the economy. None of this work involves money. The wider economy could not survive without it.
Capitalist society is very “patriarchal”. There is hierarchy, competition and winners, inequality, domination and power. These contradict the values and procedures traditionally associated with social reproduction, and their prominence today obscures the importance of nurturing for the economy. Chapter 11 will show how communities functioning according to Simpler Way principles require and reward nurturing values, attitudes and behaviour. All people will realise that their individual welfare and quality of life depend entirely on whether they care for each other, their ecosystems, their society. There will be few if any differences between the roles and contributions of women and men. They will work and play side by side with no incentives for status differences to emerge.
Some of the most unsatisfactory aspects of this economy are evident in the money and banking systems. Unfortunately, these tend to be not well understood, partly because money can be puzzling stuff.
Money should just be something that facilitates economic exchange, the safe keeping of savings, and the keeping of accounts. But in our economy it is also a commodity, something that can be “hired” for a fee, i.e., borrowed and paid back with interest. Consequently there is now a vast and largely parasitic financial industry lending and managing money.
The essential fault is again due to the market system. As explained above, in a market system things go to those who are able and prepared to pay most for them. So it is no surprise that money is lent to, hired out to, mostly richer people, those able and willing to pay the highest interest rates the lenders can get. This means that most of a society’s capital goes into setting up industries that are most profitable simply because they produce goods that richer people want. Hence there are few if any firms producing very small, cheap, humble but adequate housing. A bank is not going to lend to a firm intending to produce housing that poorer people can afford when it can lend to a firm that is building McMansions and is able to pay much higher interest rates. This means that what is developed, that is whatever firms create in our society, is not decided by us, it is decided by the banks and all they consider is what will make most money for them. The situation can only be remedied by regulations that either make some banks provide low interest loans (which was the situation in Australia for housing loans decades ago) or by making all banks into public institutions.
So the power to decide what money is used for is in the hands of the few who have most of it, that is the rich and the banks. Your town might desperately need a youth club or meeting place for the elderly but what you are more likely to get is a fashionable boutique, high-rise units or a supermarket. Banks therefore have immense and unrecognised power to determine what happens. Greco illustrates the significance of this power by noting that the Duke of Wellington was heading to lose the Battle of Waterloo until the Rothschilds bank decided to lend to him. “The Rothschilds had decided the outcome of the Napoleonic Wars by putting their financial weight behind Britain.” (Grecco, 2009, p. 91.) There have been many similar cases in history where the capacity to persuade banks to fund armies was crucial in enabling a king to win. This means that the determination of our society’s development, the power to decide what is going to be built, is largely in the hands of the owners of capital. Governments do have the power to intervene and regulate, but they work hard not to. They are typically determined to minimise interference with the free market and to maximise freedom for business to do what it wants. This is most evident in the above discussion of privatisation where the obsession with transferring public functions and assets into private hands was shown. So if we are to develop the things our community needs most we will have to get around the power of capital owners to lend to and develop only whatever will maximise their wealth.
The mass of ordinary people are prevented from setting up the many little firms they could be operating to enable their towns to produce for themselves many of the things they need, because access to finance is decided by “market forces”. As a result, billions of people especially in the poorest countries are forced into idleness and deprivation because they can’t establish small farms and workshops. Further, the land and resources they could be using are taken (bought) by the rich and put into ventures that are most profitable to them in the global market system, such as growing crops for export.
Again we see one of the worst things about this economic system; it allows the rich to take most of the business opportunities, the producing and selling that is going on, and thereby to eliminate livelihoods and condemn people and towns and whole nations to idleness and little or no income. The old Catholic “distributivist” philosophy recognised that the redistribution of opportunities to produce is much more important than the redistribution of wealth after it has been produced. Yes Walmart can sell more cheaply than others, but it is important not to let that determine what is done. We should be happy to pay more if it means lots of people can have livelihoods. Again there are many things we should not let market forces determine, and who gets access to money is one of them.
Another undesirable consequence of the money system is that it is extremely unstable, fragile and dangerous. The occurrence of booms and slumps discussed above is to do with the way the system periodically implodes destroying the lives of millions. When people with money suspect that they will soon be unable to make good profits in an industry or a country they can quickly withdraw their capital and the credit rating agencies can classify the country as a bad place to invest, thereby terminating many productive operations and dumping the country into chaos. In the Global Financial Crisis ten million Americans lost their homes. Again, this is because the system is driven by people with a lot of money constantly chasing after the most profitable investments they can find. They can’t make good profits these days investing in the production of more fridges or vacuum cleaners (because the wages of American workers who might want to buy them have not risen significantly in 40 years and their disposable income is depleted by rent and interest payments), so they speculate on assets; e.g., buying houses hoping they can soon sell them at the higher prices, which are partly generated by the speculation. Financial institutions thrive on this; there are lots of loans banks can make to the speculators, and lots of fees. Then the boom crashes and large numbers of people lose their jobs and homes, and large numbers of lenders lose their money. Then people with capital swoop in and buy up the assets of bankrupt firms cheaply.
Governments could quickly and easily implement satisfactory monetary systems, but they won’t because to do so would involve regulation and thus would be seen as “socialist”. It would be to “interfere with market forces”, to take control of money away from the rich and their banks, and to at least regulate and cap interest rates, and to make sure that much lending goes to socially necessary purposes. But this would devastate the flows of wealth to those in the financial sector, so it would not be tolerated.
Probably the worst thing about the money and banking system is the general acceptance of the vicious “deficit myth.” (Two of the most detailed accounts are Stephanie Kelton’s The Deficit Myth, 2020 and Bill Mitchell’s Macroeconomics, 2019.) Almost all politicians, economists and ordinary people take it for granted that a government should try to avoid going into debt, so should not spend more than it can raise in taxes and the businesses it operates. The fundamental assumption here is that a government is the same as a household in that it must only spend as much as its income allows, or borrow money and go into debt if it wants to spend more. It seems obvious that if it takes on big debts that have to be paid back someday it will burden future citizens with large interest and repayment bills.
But the Modern Monetary Theorists such as Kelton and Mitchell stress that this understanding of the situation is totally wrong. Governments can and should (and do) create, “print”, money and spend it. They do not need to borrow or go into debt. When the US government carried out Quantitative Easing to remedy the GFC, who did it borrow the trillions from? No one, it simply printed the stuff, although the process is cloaked in confusing procedures and gobbledegook.
The most ridiculous aspect of the current monetary system is that governments go to private banks and rich lenders to borrow vast sums of money and pay vast sums to them in interest, from our taxes, when this is totally avoidable. In 2019 the Australian Federal government’s debt was around $540 billion and it paid out around $22 billion each year in interest on its borrowings. (Owen, 2020.) In addition. governments claim that they cannot afford to do crucial things such as provide housing for homeless people, when they could easily do so because they are able to create as much money as this would require.
The common knee-jerk response to MMT is that if a government creates money it will end up with mega inflation, as happened in Weimar Germany and Zimbabwe. This is as silly as saying if the government trebled tax rates it would ruin the economy. Of course it would. But no sane government would create and spend more money than was needed to enable available and unused resources to be put into production. If the money created is just enough to get available resources into production there will be no surplus money pushing up prices. Parliaments can always set limits on the amount to be created. Consider the fact that the trillions of dollars created by “Quantitative Easing” after the GFC did not cause inflation, and the fact that Japan has been doing this kind of thing for ages without inflation.
Here’s an illustrative example. Amy is flat broke but she can sew. She writes an IOU to Fred, who is also flat broke, to buy some of his carrots, and Fred then uses the IOU to pay Amy for repairing his shirt. Amy created a form of money that enabled trade between them. After their trading they can burn the money Amy created, the IOU. Governments can do the same on a large scale, for instance printing money to pay for the construction of a swimming pool and getting it all back later by allowing that money to pay for pool entry fees, or council rates. There is no sleight of hand or getting something for nothing here. The money creation is just a matter of enabling economic activity. (See further in Chapter 10.)
Note another bad effect. MMT would enable a lot more to be spent on things like welfare and prisons, but at present governments claim they can’t afford to fund these things adequately. So they have a water-tight alibi to privatise them. Meanwhile communities go without facilities they could be enjoying.
Because generations of economists and politicians have failed to understand MMT massive social damage and misery has been caused. During the Great Depression how many millions endured ten years of poverty because they had no money to produce and sell basic necessities to each other (among other things, contributing significantly to the rise of the Nazis.) When MMT is understood it is obvious that the unemployment plus under-employment rate should be and can easily be reduced to zero. There are always important things to be done so just create and spend enough money to set up enough farms and factories to give jobs to all who want them. (Again Chapter 10 elaborates on these themes.)
If a problem arises in your household economy, such as running out of coffee, you share the inconvenience. But when the national economy inflicts heavy costs and inconvenience on a few they are typically left to cope as best they can. For instance, when the system fails to provide enough jobs some are dumped into unemployment while the rest go on as before. The Covid-19 pandemic hit many very hard but many billionaires became much richer, especially due to online goods orders.
It is therefore not surprising that there is great resistance to proposals to phase out coal mining. The Australian National party has blocked sensible climate initiatives for years because they know the proposals would mean elimination of many mining jobs and entire towns while the rest of the nation was not affected much, if at all. Similarly appropriate steps to save the Murray-Darling river system have been blocked by farmers and townspeople who know the necessary reductions in water use would devastate them while the nation offered miserly compensation at best.
This situation is characteristic of an individualistic culture in which you sink or swim more or less on your own. A society which shared burdens well would be much more collectivist, contrary to the basic capitalist outlook.
It can be a serious mistake to think about economic issues primarily in terms of dollar values. Many have pointed out that the crucial factor for analysis is energy. This economy does an enormous amount of producing and this takes energy. The graph for the increase in world energy use is very close to that for world GDP increase. To focus on only one aspect, Tverberg (2021) points to the dilemma that has arisen regarding oil prices. A few years ago many thought the advent of “peak oil” would see prices skyrocket, but in fact around 2020 they had declined markedly. Tverberg sees that this was due to falling demand, caused essentially by rising inequality which has reduced the disposable income of most people. As a result, oil prices fell to levels at which producers cannot make normal incomes. The situation for the sector that has kept supply high in the recent past, “tight oil” from fracking, has been extremely bad; almost no producers in the industry’s short history have ever made a profit. (See below.)
Tverberg estimates that when all costs, not just those for getting oil out of the ground, are included producers would have to be paid around $120 per barrel, but actual prices recently fell to been around $50-60 per barrel. She says, “the world market cannot get prices to rise high enough for producers to cover all of their expenses, including taxes.” Yet if they charged higher prices the economy would be hit hard.
The low prices have led to major cut backs in petroleum exploration and discovery, meaning that in the next few years significant shortages are likely to occur. The tight connections between the economy and energy are thereby evident. The urgent need to get off fossil fuels will add to the volatility. (It should not be assumed that shifting to renewables will solve the problem; that shift is essential, but will probably involve significantly higher costs; see Trainer, 2017.)
It is taken for granted that trade is good and that we should do a lot of trading. The rationale is to do with Riccardo’s “comparative advantage” argument, which is that it’s best for a country to specialise in producing what it can produce most cheaply and to import other things from the countries that can produce them most cheaply than other things. Thus there is a strong inclination to avoid protection of local industries, making all countries highly dependent on imports. Big capital likes this arrangement because it means gigantic factories located in low-wage countries can be set up to capture markets all around the world. Consumers in rich countries like it because it minimises the prices to be paid for goods.
But again what the market does is not necessarily what’s best, and should never be the only determinant of arrangements. It might be wise to retain national self-sufficiency in some industries for security reasons. Often if industries are not protected cheap imports kill them off and people are thrown into unemployment and poverty and towns die. The North American Free Trade Agreement saw large numbers of US jobs lost to Mexico and China, contributing to the rise of Trump.
A major concern is the great resource consumption involved in trade, all those enormous container ships and ports and trucks. At present 55,000 carbon-emitting ships carry 11 billion tonnes of cargo every year, several tonnes for each rich-world person. That is a strong argument for localism combined with reducing the demand for stuff.
But the main reason for minimising trade is that it locks poorer countries into a form of development that enables the rich countries to exploit them savagely. Chapter 6 explains how conventional, capitalist development theory and practice assume that a poor country must sell a lot of resources to earn the money to pay for building factories and for setting up the power stations and ports the foreign investors want to enable export of resources (and to pay the associated interest on the huge loans required). But they never get ahead and typically end up with impossible levels of debt, then have to plead for assistance from the IMF, which grants more loans on condition that they, you guessed it, export more resources to pay the now greater debt. This means the economy has to be geared to the interests of the rich world’s corporations and banks and can’t afford to spend on the development of industries to meet the needs of the people. As a result vast amounts of wealth now flow from poor to rich countries in the form of cheap resources and high interest payments, and there is a need to import a lot from corporations in rich countries because national self-sufficiency has not been developed.
In Chapter 11 it is explained that a sustainable and just world can only be achieved via intensely localised economic systems which maximise the self-sufficiency of small towns and cities in which people are content to live in materially simple ways, drawing mostly on nearby small farms and firms. This would mean that very little would need to be transported within a nation, let alone imported from overseas.
Capitalism is the main factor destroying the ecosystems of the planet. This is widely understood now. As has been explained above, most of the world’s big problems are being caused by too much producing and consuming using too many resources and causing unsustainable environmental impacts. The overshoot is not minor; we are so far past sustainable levels that there is a strong case for dramatic reductions. The only way you could still be for a capitalist economic system would be if you believe technical advance could not just decouple economic growth from its resource and environmental costs, but cut these dramatically. (Chapter 2 referred to the large volume of studies and evidence showing that this cannot be done.)
Capitalism is a growth system; it involves investors trying to set up more firms all the time to produce and sell more stuff. It involves investors seeking to put their money into ventures that will pay the money back plus interest or dividends and this is not possible unless production is increased. It cannot tolerate zero growth, let alone recession, for more than a short period. Yet right now the footprint indices are telling us that doing this is using up global resources at almost twice the sustainable rate. If the normal goal of 3% p.a. growth is achieved then by 2050 the GDP and resource demand etc. will be about twice as big as they are now, and four times as big 23 years after that. To believe that such a trajectory is possible is absurd, and to pursue it is suicidal. The ecosystems of the planet are deteriorating fast. An ecologically sustainable society must have an economy that does not grow at all and has far lower rates of production, resource use, consumption and affluence than there are now.
Capitalist (and other) societies invest vast sums in building and running schools, universities, colleges and other institutions, in which all young people are forced by law to spend at least about ten years of their lives. These are called “educational” institutions, but they are not designed to Educate, very little Education occurs in them, and they do a great deal of Educational damage. The little Education that manages to take place in them is largely incidental, and it’s surprising that any occurs when you examine the situation.
These institutions are however very effective in turning out graduates who have learned a great deal and have many skills, who will work hard, accept orders and do what they are told, and compete for higher-paying jobs. That is, they turn out good diligent workers and techies able and willing to staff the factories and offices. There is no secret conspiracy here; everyone wants these agencies to enable their kids to develop skills the factories and offices need so they can get a good job, and the factory owners and governments want skilled workers who can produce lots of consumer goods. What takes place in these institutions is schooling and training, not Education.
What is Education? There’s no correct answer but here is a brief indication of the kind of goals I would argue that Education should aim at achieving.
Inquisitiveness, readiness and desire to inquire, think, ask questions, find out and learn more about the world. Interest in things, interest in everything.
Becoming more capable of interpreting the world. The point of getting to know more is to be able to understand the world better.
Sense of awe and wonder, inclination to find existence fascinating and to think about it and appreciate it.
A broad understanding of “Big History”, of the nature of the universe the origins and evolution of life on earth, the emergence of humans, our history, the emergence of “civilisations”, the importance of ecology, etc.
Good thinking: readiness to think logically, carefully, as free as possible from prejudice and dogma, readiness to question, to consider evidence and to assess claims according to the weight of evidence, concern to consider opposed views and to re-examine one’s own. Desire to sort issues out carefully and not jump to conclusions or let prejudices settle issues. Critical thinking, capacity for and readiness to analyse how satisfactory arguments and positions are.
Understanding and readiness to consider a wide range of perspectives, ideals, world-views, philosophical theories (e.g., about morality, knowledge, freedom, human nature, religion…)
Concern with personal development; what characteristics, values, ideals, goals do I want to be for? What are my weaknesses and strengths? Consideration of admirable characteristics and historical figures. Do I have characteristics I need to work on?
Concern with the nature of and evaluation of one’s society and with one’s “obligation” to contribute to it. What are its merits and faults? Interest in political philosophies such as “liberalism” and “collectivism”, different systems, their historical origins and effectiveness. How might one’s society be improved?
Altruism; concern for the welfare of other beings, involving concern to improve social systems.
The supremely important Educational themes are affective; the goals involve desires and dispositions, for instance, to develop a strong lasting concern to become a wiser and more admirable person, a constant learner, a caring person, a good citizen.
An Educational program researched and designed to achieve these goals would look nothing like what happens in existing schools and universities. This shows that those institutions are not designed to Educate. An Educational system would have nothing to do with exams, competition, teacher power, compulsory attendance, enforcement and punishment, grades, credentials, uniforms, prizes, failure, disobedience, or selection for university or jobs. Credentials have little or nothing to do with Education. A highly credentialed and skilled person with many degrees can still be a very poorly Educated person. Your typical doctor or judge has never been introduced to Buddhism or Existentialism.
Educators would be wise, friendly and caring helpers, skilled in guiding people to valuable information and experiences and suggesting how puzzles might best be sorted out. They can never use force; learners are in charge and they decide what they want to learn. But at times an Educator will have to think hard about how to get someone to tackle issues or do exercises he or she knows it is important for the learner to deal with in order to achieve goals.
Education cannot be boring, although it can be unpleasant when one is confronted by difficult ideas and issues.
It is not possible to have a good society unless we have lots of well-Educated citizens, people who have these kinds of interests, ideals and dispositions.
How can we be so sure that present institutions are not interested in these goals and thus not concerned with Educating? It is easy to tell. Enormous effort is constantly made to examine what schooling has achieved, via massive intensive exams and by the work of vast testing and research industries, but there is never any research into whether or not goals of the above kind are being achieved. They claim to be Educating, but obviously they have no intention of Educating, they make little or no effort to Educate, and they never check whether they are Educating. They don’t even think about what Education is.
In fact, it is quite likely that schooling does more Educational harm than good; it makes many people hate school, and puts large numbers off learning and inquiring. In addition, it does the serious psychological damage of convincing large numbers that they are dumb. Schooling is probably the biggest of all human rights violations, not the most severe but most widely suffered. Millions of kids are forced for years to do things they don’t want to do.
Obviously existing institutions churn out the kinds of people the capitalist system wants: good workers, with skills that are useful in producing things, managing systems and developing new products. The selection system, which grades everyone with credentials according to how well they did at school, performs a marvellous automatic social allocation function. Those who do well are allowed to get good jobs, and those who don’t then meekly accept that they only deserve lousy or no jobs and have no justification for complaining. They have also learnt to accept hierarchy and top-down authority, to compete, that competition is natural, and that those who get to the top deserve their privileges. They have learned their lowly place and they have learned that “brainy” people rule, make the decisions. They also learn that life is about struggling to achieve or at least survive as an individual; it is not about equals cooperating to take control of their social arrangements. These learnings suit the capitalist class very nicely.
But how many graduate from university courses with a deep “love of learning”, keen to read and inquire and discuss important issues etc.? Most students see their courses as work they have to grind through in order to become qualified, and some ceremonially burn their notes when they are through. That’s a characteristic of a “schooled mind.” How many ever read Shakespeare again, or do maths puzzles for the fun of it? If we were interested in Educating we would have found out.
Schooling is therefore a powerful agent of domination. Yet it is probable that no one staffing our schools and universities or managing our systems has set out consciously to design agencies that have these effects. This reveals another major criticism of the situation; the stunning failure of those who work in the system to think about what they are doing. Most are content to work in their factories, doing what they are told. And these are people think they have had a “good education”; after all, they have good credentials.
There is a considerable Radical Education literature detailing this general perspective. (See Education: The radical view, and Education: An ideal view.)
A capitalist economy involves major contradictions and conflicts. It is not a harmonious system in which all elements work together to achieve desired outcomes. In your household economy people share the jobs and help each other and adjust arrangements in a coordinated cooperative effort to achieve goals all share. But central in capitalism is the conflict between the owners of capital who want to pay the lowest wages possible and workers who want the highest wages possible. There is also mortal conflict between capitalists as they must try to beat each other competing in the market place. When governments try to protect aspects of society by regulating they are contradicting the wishes of corporations. The needs of society and the environment conflict with the desire to maximise profits. The factory owner wants to introduce automation but this clashes with the interests of the workers who don’t want to be sacked. The more rampantly successful the capitalist class is the more it moves itself and the rest of us in a suicidal direction, because if it automates all the factories, or drives wages right down there will be less purchasing power in the hands of people and the economy will go towards depression. The workers want good safety standards but this raises costs for the factory owner. Above all it is in the interest of the owners of firms to avoid paying the ecological costs of production, but this contradicts the interests of people and the environment.
The system thus involves many significant conflicts of interest and is characterised by constant struggles. Vast amounts of time, talent, energy and resources go into fighting these wars: the lawyers, think tanks, lobbyists, campaigns, advertising, etc. all gobble up resources and effort that could be going into doing socially useful things.
One of Marx’s most important insights was that these fundamental contradictions are built into the foundations of capitalism. Another was that they would in time lead the system to self-destruction. We would seem to be well down this path now. (See Chapters 7 and 8.) The system has created serious resource scarcities and social and environmental damage, but it cannot stop growing, and thereby accelerating its own difficulties.
Clearly the goal should be to develop an economic system which enables us all to cooperate in providing the things everyone needs for a delightful life, at least with a minimum of conflict over sub-goals and means.
The last perhaps 6,000 years history has been largely about the rise and fall of empires. “Elite” groups have kicked and clawed their way to domination over their society, stealing more and more of its wealth. They are never content with enough, they constantly seek to extend their territories and capacity to loot, to exploit their masses and to coerce their people into fighting wars for the ruling class. In recent centuries the Portuguese rose to the top, then the Spanish, followed by the Dutch and then the British. Through more than seventy colonial wars Britain conquered and colonised much of the world and therefore was able to siphon out vast wealth. World Wars I and II can be seen as struggles between Britain and Germany for world imperial domination. As Britain declined through the twentieth century the US rose to be top dog.
What many fail to grasp is that the process of imperial expansion continues today and is the main source of most of the world’s trouble. The ceaseless quest for more and more profitable business opportunities and outlets for the investment of the ever-accumulating amounts of capital leads to the drive for more access to resources, investment opportunities and markets in foreign countries. In recent times this has largely shifted from outright military conquest and possession of territory to financial means. In general, it is now not necessary to send a gunboat, because the transfer of wealth can be ensured with the stroke of a pen. All we have to do is get a country hopelessly indebted to us and they have no choice but to accept bail-out terms which bind them to the policies that see their resources flow out and foreign investment flow in. (See Chapter 6.)
A major mechanism has been discussed above: the Structural Adjustment Packages imposed by the World Bank and International Monetary Fund. Indebted countries are bailed out with further loans on condition that they reduce regulation of their economies, sell off government firms to private corporations, allow foreign investors in on favourable terms, cut subsidies to the poor, boost resource exporting, prioritise paying off debt, and devalue their currencies (meaning lower prices for their exports to us and higher price for their imports from us.) These policies are a delight to foreign banks and corporations and shoppers in rich-world supermarkets. They gear the economy to paying the debt by exporting resources and opening up to investment by foreign corporations. There is a vast critical literature arguing that these policies do not “fix” the economy but they inflict great social costs and fail to gear development to the urgent needs of the majority.
But in addition to these normal workings of the economy a great deal of effort goes into securing more resources and markets through forceful political and military action. Governments willing to facilitate the activities of foreign corporations are supported and those unwilling are likely to be harassed or to suffer “regime change”. The US has a long history of military intervention, including organising coups, funding rebel armies, bankrupting entire countries, and carrying out invasions designed to install regimes prepared to rule as required. It has initiated most of the estimated 600 attempts to kill Castro. (See Wikipedia, 2021b.)
The US is the dominant power controlling the empire that the rich world draws much of its wealth and affluence from. Its approximately 800 military bases on foreign soil are there to secure our empire. (China has been estimated to have less than ten, maybe only one.)
“Despite what you always hear, US interventionism has nothing to do with resisting the spread of ‘communism’ … it is independence that we have always been opposed to everywhere, and for quite a good reason. If a country begins to pay attention to its own population, it’s not going to be paying adequate attention to the overriding needs of investors. Well those are unacceptable priorities, so that government is just going to have to go.”
— Chomsky, 2003, p. 65
“Washington is driven to replace all foreign governments which resist integration into the US economy, including the Syrian, Cuban, North Korean, Venezuelan, and Iranian governments.”
— Gowans, 2020
You and I could not be so affluent, comfortable and secure if we did not have this empire. We in rich countries get far more than our fair share of the world’s resources. We could not do so in a global economy that was just or was not kept in place by military force.
This is the inevitable result of capitalism. It must constantly find more and more outlets for the investment of constantly accumulating capital, more resources to fuel more production, and more markets to sell into. This leads to strenuous efforts to persuade or force foreign governments, especially in poor but resource-rich Third World countries, to implement policies that enable corporate access.
There is a massive literature documenting the empire, including many long and heavily documented works, such as by Chomsky (2014), George (1991), Blum (2004). There is huge documentation on the appalling things that have been done to support compliant regimes and get rid of those unwilling to rule as we wish. (For a detailed summary account see TSW: Our Empire.) Yet within the general public there is almost no concern about the issue, no understanding and no disapproval, let alone roaring outrage and disgust and determination to end it and deal with the perpetrators. As Chomsky and others ask, why are not all US Presidents prosecuted for war crimes given the dictators they have supported, the subversion, the assassinations and invasions, the destruction of whole nations such as Libya and Iraq they have carried out? There is even less understanding that all people in rich countries are beneficiaries of the empire and that they can only have their affluent “living standards” because a great deal of effort goes into securing the empire from which they draw wealth.
Despite critics and criticism capitalism enjoys very strong support, especially within government circles and among general publics. This is mainly because a number of specific ideas and values are widely held, often implicitly. They are taken for granted as just being the way the world “naturally” works. These can be regarded as elements in a powerful capitalist ideology.
The term “ideology” is being regarded here as a view of the world which it is in the interests of a particular group for people in general to hold, but which is contrary to the interests of those outside the group. Long ago the dominant ideology was that kings have a divine right to rule, and kings as well as serfs believed this. Sometimes there is an element of truth in a particular ideological claim and sometimes an element can be quite correct but misleading, or can support a position that there are stronger reasons for rejecting. (For instance, it is usually true that there is trickle down, but…)
By far the best way for an elite to rule is not by force but by ensuring that their rule is regarded as “legitimate”, seen to be in order or normal or deserved. Then not only is it unnecessary to put down dissent but those being ruled are likely to support the elite and to be willing to fight its wars.
Important in maintaining legitimacy is heading off or minimising criticism. This usually involves both feeding in favourable messages and minimising attention to problems and faults. Ruling classes own the media, think tanks, foundations, etc. so it is not so difficult for them to maintain the thinking, or lack of it, that keeps people content with the situation or willing to tolerate it. They do this largely by controlling the agenda, the issues that preoccupy public attention. A powerful factor here is distraction, the flooding of consciousness with attention-grabbing trivia, the TV soap operas, celebrities, scandals, sport, block-buster movies, funny cat videos, fashion, pop music, advertising, and social media obsession. These preoccupations with trivia ensure that critical social issues do not get on the agenda, that vast numbers of people never think about them.
Another major factor is the appeal to “freedom”. People are constantly told that ours is a free society, that they are free unlike people in North Korea, that we fight to protect freedom around the world, that a free enterprise economy is the only way and “socialism” takes away freedom. This is a powerful force ensuring the freedom the corporate rich have to do what they want to do.
It is not being assumed that these effects are consciously contrived by scheming conspirators. They are mostly conditions and structures automatically generated by late capitalist society. For instance, life in dormitory suburbs is pretty boring so it is no wonder people watch mindless entertainment on screens much of the time. But in addition, a lot of expertise and money is put into deliberate effort on the part of the ruling class to maintain the ideology that it suits them for people to hold. (Herman and Chomsky’s book Manufacturing Consent, 1988, is a classic analysis of this.)
Following are some of the elements discussed in previous chapters which would seem to be essential elements in the understanding of the world most people hold, and which it is in the interests of capital for them to hold. All of these are open to challenge, some because they are simply wrong but others because even though they might be correct this does not mean present arrangements are satisfactory; there might be a better way than the one endorsed. Most of these have been discussed above.
Firstly, overt conscious propositions and theses, including:
The present economy is generally seen as acceptable; there is not much desire to replace it.
Socialism is not worth considering. It has been tried and failed.
It’s not good for the state to run or control a lot of functions.
Freedom is extremely important and this economy provides for it. You are free to buy things and own property and to set up a business.
Economic growth is desirable, in fact essential. It is the way to improve to conditions for the poorest. It is very important to grow the GDP.
The higher the GDP the higher “living standards” are.
Privately owned firms are more efficient than publicly owned firms.
Wealth and possessions are very important.
Competition is natural and good. It brings out the best in us and keeps the economy efficient.
Market forces make the best allocations of goods and capital, the most efficient ones. They reward contributions according to their value.
Some amount of unemployment is normal and acceptable.
It is alright to treat labour, money and land as commodities that can be bought and sold.
Success and failure are important. You should strive get ahead.
It is alright for investors to receive income without having to do any work for it.
The best get to the top. In general those with wealth and power deserve them.
Inequality is inevitable; some are talented and work hard and many are lazy and lack talent.
It is important to work hard.
It is alright to take advantage of another’s misfortune, or ignorance or weakness; “caveat emptor”.
It is alright that a few who own a lot of capital have the power to decide what is to be invested in and developed, and that these decisions need take into account only the maximisation of profit to the owners of capital.
The market rewards factors of production such as capital and labour in proportion to their contributions to national wealth.
Human nature is selfish, competitive and acquisitive, so it makes sense that the economy prioritises competition to maximise private benefits.
Then there are elements within the intellectual climate or culture which tend to be about taken-for-granted conditions, values and dispositions. Many people are totally unaware that these are morally problematic. Take for instance the viciously negative and punitive attitude towards poor, unemployed and homeless people. Sometimes people in these conditions have brought them on themselves but in many cases they have not. Large numbers of skilled, hard-working and responsible Australians over fifty-five have been tipped into unemployment and are never going to get another job. Some who once held high positions in companies or universities are forced to live in their cars. The situation is not due to their faults, it is due to an extremely faulty society.
This society’s attitude to large groups of “disadvantaged” people, as reflected in government policy, is brutally punitive. For many years assistance to unemployed people in Australia was $45 a day, far below the poverty line and generally agreed to be far too low to live on tolerably. (In 2021 it was raised a little.) In addition, the unemployed are forced to apply for 15 jobs a month (this was raised to 20 in July 2021) at a time when there are eight people looking for work for every job being offered! (Martin, 2021.) Rules like this are not only utterly pointless, they reinforce a climate in which there is little willingness to assist those dumped by the system, and therefore little demand to raise taxes to assist them.
Most people struggle to define the system that dominates our lives. But if you press them, they’re likely to mumble something about hard work and enterprise, buying and selling, reward for effort and talent. This is how the beneficiaries of the system want it to be understood. In reality, the great fortunes amassed under capitalism are not obtained through hard work but through investing, followed by inheritance. (Monbiot, 2021a.)
Those who have great economic wealth have great power to influence and determine what happens in society. Here are some of the ways.
They can afford lobbyists, think tanks, legal action, campaigns, advertising.
They own the media.
They can threaten governments with moving their factories to another country, thus causing unemployment.
Philanthropy; they can give money to agencies that will support them.
Funding of political campaigns is a powerful tool keeping political parties on side. Often they donate to both major parties!
They can “capture” governmental regulatory agencies.
They can produce propaganda; e.g., text books for schools.
They can provide funds to set up educational departments; e.g., offering courses at universities.
Bezos, owner of the New York Post, has ruled that it will no longer publish articles unless they assert and endorse neoliberalism. (Yousif and Halpert, 2025.) Ordinary people can’t do these kinds of things.
Here is a classic example: the mining industry’s defeat of the government’s attempt to tax it more justly. The outrageously favourable conditions the industry enjoys were indicated above, generally resulting in us paying the miners to take our minerals for little or no benefit to us. In 2010 the government announced plans for a Resource Super Profits Tax that would direct more of the excess income from mining into the public purse rather than to company profits.
Goddard (2024) says, “The reaction was swift and brutal.” “Shocking”, said the head of Rio Tinto. BHP threatened to leave the country. A major public campaign attacking the tax was launched. “The 11 separate television ads ran on average 33 times a day, reaching a total of 1,100 times across all free-to-air channels.” They spent over $21 million on the campaign, which included the country’s two richest people—Gina Rinehart and Andrew Forrest, who own as much personal wealth as the bottom 5.5 million Australians—yelling “Axe the Tax” into a microphone. Forrest accused Rudd of turning the nation into a communist dictatorship.
Over a decade later many Australians are going without sufficient gas because they can’t afford it, while foreign corporations are still making record super-profits by charging us the high prices they can get in export markets. There is no inclination to challenge arrangements that shovel our wealth out to foreign capitalists. Could there be a better example of capitalist power?
But there are many other examples. Consider the fact that most ordinary people pay much higher tax rates than many billionaires. Hartmann (2024b) says that the average American billionaire today pays less than 8% in income taxes.
Capitalism inescapably generates increasingly serious armed conflict. It involves the ceaseless drive to increase production and sales, and therefore to secure more markets and resources. The geopolitical history of the last three centuries has therefore been about nations attempting to expand their access to or control of foreign markets, resources, territories and countries, often via military violence.
It is important to think about the system’s pros as well as its cons. Capitalism does some important things very effectively. However, the argument in Chapter 10 will be that it is possible to develop a system which also does these things effectively while avoiding the problems generated by a capitalist system.
Capitalism is astoundingly productive, and over recent centuries has greatly increased living standards defined in terms of goods consumed per capita. It harnesses great amounts of human and physical energy, drawing (forcing) these into work and producing. But these are no longer merits. There is now far too much producing going on. We need an economic system that will allow us to produce just enough for very nice lifestyles, and shift to priorities other than consuming.
It has lifted many to very high living standards, and it is lifting the rest. “There is trickle down. Look at the very high living standards the system has delivered to the average Australian.” These claims are true, but quite misleading. It was explained above that Australian “living standards”, conventionally defined in terms of resource consumption, are now far too high. As well as being grossly unsustainable, we can have them only because the very unjust global economy allows us to take far more than our fair share of the dwindling world resources.
It makes producers strive for greater efficiency all the time, to survive in competition. Yes, but the mechanism is unnecessarily brutal; less efficient firms are annihilated with damaging consequences. We could easily work out how to ensure sufficient efficiency and make adjustments without scrapping factories and humans. Anyway efficiency (in dollar or resource-use terms) is in general not as important as whether the system is resilient, not conflict-ridden, looks after everyone, achieves social and quality of life objectives, and is enjoyable to operate in.
The system self-regulates: “For example it adjusts supply to demand, and sets prices. There is no need for enormous bungling bureaucracies to say how much the price of things is going to be. Above all it eliminates problems to do with deciding which weaker firms to phase out and what new firms are to survive or be set up; competition in the market does this very effectively. Imagine having a state bureaucracy deciding whether firms were to be wound up.”
But the foregoing criticism of the market has shown that the “benefit” of not having to grapple with these questions is achieved at the unacceptable cost of extreme injustice as market forces attend mostly to the whims of richer people. There are many things which should not be left to the market (although the production of many discretionary items and services could be left to market forces; see Chapter 10.) Yes. the system self-regulates to a large extent, but it arrives at many seriously unacceptable arrangements.
Note also that the adjustments which might seem to be made automatically by the market’s “hidden hand” are actually made by humans and involve an enormous amount of thought, time, worry, risk and work. Shopkeepers decide whether to raise prices, boards decide whether to close factories. Yes, the system keeps these decisions out of the parliamentary and state bureaucratic arenas, saving large and endless disputes, corruption, political favours, etc., but the question is whether at least some of them should be shifted to an arena where they can be made by public mechanisms geared to the public good.
The system provides a great deal of freedom. People can buy and produce and set up firms as they wish. Again, the problem is that some have far too much freedom to do what they wish. A good society cannot be achieved unless many things are regulated or prohibited. The task is to work out arrangements that maximise the long-term welfare of all with minimal infringement on liberties. Chapter 10 argues that the limits that might need to be put on economic activity would not constitute unreasonable and unacceptable restraints on freedom.
Easily overlooked are the serious restraints and absences of freedom capitalism inflicts. We are forced to work too hard, tolerate authoritarian bosses, struggle on inadequate incomes in dreary suburbs, watch our ecosystems deteriorate, endure unemployment, go without adequate housing, worry about insecurity, and put up with high rates of stress, anxiety and depression.
It has been argued above that in the present economy there is far too much freedom for the owners of capital to do what benefits themselves. But this does not mean that the solution should be far more power in the hands of a centralised state to regulate and run things. That solution has obvious difficulties and dangers, ranging from bloated and inefficient bureaucracies to authoritarian state power. Chapter 10 will argue that most if not all of these dangers can be avoided if we move to much simpler systems and lifestyles, firstly because there will be far less economic activity to manage, and secondly because most of the decisions can be taken by participatory assemblies in small towns, suburbs and regions.
Warren Buffett, one of the richest Americans, summed up the situation well when he said, “It’s class war … but it’s my class, the rich class, that’s making war, and we’re winning … and it’s been a rout.” (Zahn and Serwer, 2020.) Chapter 8 outlines the appalling state that capitalism has reduced the US to, showing how right he was. Reflect on the power of the ideological forces at work here, ensuring that just about no one uses the term “class conflict”.
There are different definitions of social class. Following are the class divisions I think we should focus on.
The capital-owning class. The uber-super rich tiny few, the Musk-Bezos-Gates set, each with tens of billions in assets.
The 1%, with around 40% of world wealth.
The rest of the rich, around 5% of people, owners of big firms, banking executives, top managers, consultants, and professionals, all with large financial assets invested.
The middle classes. Ranging from upper to lower including business owners, managers, bureaucrats, academics, teachers, tradespeople. Secure and comfortable beneficiaries of the system, especially the professionals with their outrageous fees happy to provide Rolls-Royce services for the rich which ensure that the poor must go without proper health, legal and dental care. Standing (2011) identifies many of these as the “salariat” and notes how this class provides much of the system’s inertia.
The working class. People working for lower and insecure wages, often struggling. Standing identifies most as the “precariat”, an expanding and deprived group including gig workers desperate for occasional work, indebted to lenders and renters.
The lumpen-proletariat. The dumped, excluded, unemployed, homeless, substance-abusing, docile human wreckage the system creates, does not need and resents spending anything on.
Capital ownership tapers down this hierarchy because even some workers derive interest on small investments. The middle class is shrinking as a few climb up while automation and IT are sending many down. The working class is extraordinarily docile, historically doing little more than grumbling about its conditions. For two hundred years the Left has been remarkably unable to do anything about this. But the situation is changing now. As the immiseration intensifies the “deplorables” are beginning to take action, predictably in the wrong directions such as blaming migrants, supporting fascism and voting for Trump. These people are likely to be the main but unwitting threat to capitalism in the near future, causing the collapse of present democratic systems and the onset of authoritarian rule.
Many books point to the astounding and alarming power the super-rich have now accumulated, such as Giridharadas’ Winners Take All (2018) and Goodman’s Davos Man (2022). (The title refers to the kind of people who meet at the elite Davos forum each year.) Goodman confirms the above discussion of the Neo-liberal triumph. “It is no exaggeration to say that through the Neoliberal era they have taken basic control of the global economy and shaped it to enrich themselves at the expense of everyone else.” The media they own, their think tanks, lobbying, legal challenges, philanthropical support, “educational” projects, and campaign contributions get governments to pass the policies, laws, subsidies, projects, tax relief, etc. they want. There are 12,000 lobbyists in Washington, spending $3.5 billion each year in their efforts to influence members of congress. (SidmartinBio 2022, Sachs 2021b.) It costs several hundred million dollars for a Presidential candidate to win a US election, so he or she is then heavily indebted to the corporations who donated large amounts to the campaign fund. In the 2020 US federal election campaign contributions totalled $14.4 billion. (Sachs, 2021b.) The blatant hypocrisy of the contribution system is evident when corporations commonly donate to each side! Obviously they are not trying to get the side whose policies they favour elected, they are simply bribing both sides.
An indication of their power is evident in the persistent acceptance of the “Trickle Down” myth as justifying policies which massively enrich the rich while depriving the poor. Goodman refers to “the … demonstrably bogus idea that cutting taxes and deregulating markets will not only produce extra riches for the most affluent, but trickle the benefits down to the lucky masses—something that has, in real life, happened zero times.” (p. 9). He refers to their “relentless plunder” and the effort they go to in reinforcing the belief that migrants are responsible for unemployment and deprivation. He notes that, “In 2020, as many as 500 million people descended into poverty, while billionaires’ wealth grew by $3.9 trillion globally.”
Goodman makes a most important point about the form capitalism has now morphed into. Classical capitalism involved firms in ruthless and unprotected competition, with government doing nothing for them but maintaining the rules of the game. But now capital has captured government, which works to give capital the conditions it wants. “The capitalism since hijacked by Davos man is not really capitalism at all. It is a social welfare state run for the benefit of the people who need it least; a sanctuary for billionaires.” Others have called it “Socialism for the rich.” The above section on how governments favour the rich at national and local levels, for instance in their obsession with privatising, aligns with this global picture. Such is the power capital has come to hold. It now more or less literally runs the world.
One does not have to postulate any grand conspiracy run by fat cats in smoke filled rooms to explain the situation (although a lot of that goes on, for instance openly in the annual Davos gatherings.) The capitalist system has built into its nature structures and forces which automatically lead to the accumulation of ever-greater wealth and power at the top. Money accumulates in the hands of a few and with it comes the power to influence to enable further accumulation.
The failure of people to think about all this in class terms is a remarkable tribute to the power of capitalist ideology. It is annoying how issues are rarely discussed in the media or the pub in terms of class privilege and the situation of the working, precariat and lumpenproletariat classes. If you refer to the capitalist class or criticise the capitalist system you are likely to be regarded as a pathetic fool who does not understand that socialism has failed, or as a communist dupe. Nothing is likely to change until people in general come to see their situation in terms of class conflict, and to see that the capitalist economic system is controlled by and works for the upper-middle class, the very rich and the super-rich, and does not work for most people even in rich countries, let alone for the six billion people in the rest of the world. Fortunately there is increasing realisation that the systems and policies which the capitalist class has engineered siphon vast wealth out of the labour and savings of the rest of us. The rapid acceleration of this plunder is evident in the above figures on skyrocketing inequality. What will this lead to?
So it is very important for us to think, discuss, analyse, complain, protest and organise explicitly and emphatically in terms of class. But don’t focus on the capitalists, it’s the system that is the source of our problems.