The transitions from feudalism and other pre-capitalist
economic systems to modern capitalism have always and everywhere been
celebrated for bringing a new epoch of human history. Freedom, democracy, and
equality were the hallmarks of those celebrations. The French Revolution of
1789 raised the slogan of liberte, egalite, fraternite. The US has long
celebrated its capitalism for producing a vast “middle class” that permanently
overcame previous societies’ tendencies toward extreme inequalities of wealth
and income. Yet the recent decades-long rise in such inequalities inside most
capitalist economies has led many today to see in capitalism not the enemy but
rather the cause of rising economic inequality. Here we take up that argument
and move it a step further to show how a transition to workers self-directed
enterprises is a necessary change to solve the problem of rising economic
inequality. Our thesis is that the many well-intentioned efforts over the last
century to overcome extreme inequalities of wealth and income failed because
they left intact the capitalist system with its inherent tendency to produce
economic inequality.
The first step in understanding income and wealth
inequalities is to grasp a basic truth about modern capitalist economic
systems. The vast majority of individuals in those systems earn most or all of
their incomes by doing labor for which they are paid wages or salaries. They
earn little or no income from owning property: little or no rent from land,
interest from money, dividends from shares of stock, and so on. In contrast,
the rich minorities in capitalist systems get all or most of their incomes in the
forms of rents, interest, dividends, and so on. They may or may not choose to
work and add income from labor to their income chiefly from property. The major payers of rent on land, interest on money lent,
and dividends on shares of stock are capitalist corporations. Typically,
corporate boards of directors (elected to their board positions by the major
shareholders of the corporation) make those decisions. They allocate specific
portions of the corporation’s net revenues (sales less direct costs of producing
whatever goods and services the corporation markets) to pay out rents, interest
and dividends. The major contributor to modern income and wealth
inequalities is thus the set of decisions about allocating net revenues made by
corporate boards of directors. The minority that already owns most of the
income-earning property thereby obtains those distributions and thereby
enhances its wealth. Wealth begets income that adds to wealth. The included minority that obtains most of the income from property includes that minority
whose decisions determine what that income will be. Capitalism’s resulting
tendency to deepening inequalities of wealth and income reasserts itself
repeatedly across the history of capitalist economies.
Like any tendency, this one occurs together with
countertendencies. For example, growing economic inequalities can beget envy,
resentment, and opposition. These may coalesce into a social movement that
reverses that growing inequality. If that movement does so without altering the
basic capitalist structure of the economy, we can expect the tendency to
increase economic inequality to reassert itself sooner or later. In the US,
social movements intensified by the Great Depression of the 1930s reversed the
growing economic inequality of the period 1870-1929. However, because those
movements left the basic capitalist structure of the US intact, increasing
economic inequality resumed after World War 2 and especially since the
mid-1970s. Similarly, in all the countries of eastern Europe and Asia
that were formerly called “actually existing socialist economies,” their
post-1990 “transitions to capitalism” display again that tendency to increase
wealth and income inequalities, indeed quite drastically. Another countertendency arises from capitalism’s own
responses to intensified wealth and income inequalities. In the US, for
example, after the mid-1970s, as wealth accumulated quickly into fewer and
fewer hands, competition among wealth managers and investment advisors
intensified as all sought clients from a shrinking pool of the very wealthy. To
secure clients, they promised rising returns obtainable only by taking bigger
risks. Speculative bubbles emerged – in technology companies focused on the
internet in the 1990s and in housing and real estate thereafter. When the
dot.com bubble burst early in 2000, it temporarily reversed wealth and income inequalities,
but the tendency toward more inequality soon reasserted itself since the
capitalist structure of the US economy was not questioned, let alone challenged
or changed. When the housing bubble burst in 2007, the reversal was also short.
By 2011, rising wealth and income inequality had returned as the Obama
“recovery” benefitted overwhelmingly the owners of income-earning property,
especially holders of stocks and bonds.
This sequence – rising wealth and income inequality,
speculative boom, bubble burst, temporary reversal of inequality, and then
resumption of rising wealth and income inequality – has repeatedly punctuated
the history of capitalism. The countertendency (lessening inequality) emerges
from the tendency (rising inequality) within this sequence. We might thus say
that capitalism’s tendency toward wealth and income inequality is itself
contradictory. It is a basic quality and dimension of capitalism that can
sometimes be absent for a while when conditions activate its contradictions or
sufficiently strengthen its countertendencies. Yet the structure of capitalism
points to what history confirms. Capitalism exhibits a recurring tendency
toward increasing inequalities of wealth and income. Moreover, those
inequalities can become extreme and socially disruptive in just the ways now in
evidence across large parts of the world. Sometimes, when economic inequalities become extreme and
threaten to become more so, cultural and political forces are set in motion
with goals beyond achieving merely another temporary reversal. Those movements
then rediscover the ways in which the capitalist structure of economies keeps
reasserting growing inequalities of wealth and income.
A new and different
demand arises, namely for a social change that takes us beyond the capitalist
structure and thereby rids us of a central cause of the inequality and its
social costs and consequences. The transition from capitalist enterprises to
workers self-directed enterprises is such a change. Workers directing their own enterprises could and likely
would NOT distribute their net revenues in ways that deepen inequalities of
wealth and income. They would not provide huge multi-million dollar pay
packages to a few top executives while the mass of employees experience difficulties
covering their lives’ basic expenses. They would not distribute major portions
of their net revenues to share-holders because they could and would likely
contest the legitimacy of income from property and indeed of private property
in productive resources altogether. A transition from a capitalist to a
WSDE-based economy represents a step toward the basic social change that can
finally end the tendencies toward extreme inequalities of wealth and income
that have provoked so many criticisms and oppositions by good people for so
long.
Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan.
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