Why Capitalism Isn’t To Blame For Unemployment

Over at AlterNet (now also reprinted at Mother Jones), there is an article which states in the title, that Massive Unemployment is Proof that Global Capitalism doesn’t work.  To summarise, the authors paint a picture of a time when people could subsist on their own if they couldn’t find employment, principally by going back to what people always did – they farmed, bartered, or did whatever it was they had to to provide a life for themselves and their families.  Only after property started concentrating in the hands of the few did the people have to start doing involuntary work in exchange for a salary that they then had to spend to obtain their livelihood.  The term “involuntary” is thrown around a lot.  Images of scores of people shifting about the country looking for work are also used.

The problems with this article are multiple.  First, while the article is long on identifying the problem, it is short on any of the solutions.  Unless one counts going back to the hard-scrabble life of having to eke each meal out of the earth is a solution, the authors don’t present any.  Frankly, I’m not all that keen on milking cows at four in the morning or slaughtering pigs, nor tending vegetable gardens.  (This latter is slightly more appealing, but I wouldn’t want to depend on my green thumb for my meals.)  I voluntarily trade some of my time and effort for a salary that allows me to obtain meals in a much easier fashion, and the throw-back to another era isn’t really a solution.  I think you’d be hard-pressed to find people willing to trade the conveniences of modern-day global capitalism to work on the farm or in the garden, which isn’t anymore “voluntary” than capitalist work when you need those carrots to survive.  Additionally, capitalistic, or near-capitalistic nations are among those with the highest standard of living; while it would be best to ensure that that standard of living is shared by everyone, throwing the baby out with the bathwater is never a good idea either.

Secondly, it conflates global capitalism with a host of other things while ignoring everywhere on the globe except the US.  I’m not an expert on Europe by any stretch of the imagination, but this whole “global capitalism” is a fairly new thing for them, and they’ve had high unemployment for some time.  (Spain comes to mind, which as I recall has largely leaned socialist, and their unemployment has always been very high, especially among their youth.  France as I recall has had similar problems in the past, though less so now – an argument that maybe global capitalism could be helping there.)  It ignores the realities that in many of the countries which are affected by this “global capitalism” that many of the tenets of that same capitalism aren’t practised there or are practised in different fashion.  So to blame capitalism exclusively for “massive unemployment” is disingenuous at best and likely just wrong at worst.  No one has ever claimed that capitalism was perfect, just that it was better than most other systems; communism, for one, might have given people full employment but as they were never paid and had to have spouses stand in line for bread all day, the alternatives could be much worse.

Additionally, the authors don’t seem to understand what capitalism even is.  In their haste to paint pictures of the jobless roaming the countryside, they seem to assume that full or near-full employment is even possible.  It’s not possible for a number of reasons; for starters, not everyone needs or wants to work.  Even if we exclude those people, there will always be a fraction of people out of work for one reason or another.  Ideally, as they point out, we want this to be as low as possible, and we want to help those who need assistance.  However, to say that the “new norm” is a bad thing is not necessarily the case.  (I’ll get into why it is in a second, but stay with this idea for a moment.)  To argue that it’s not a bad thing, one has to look at what causes unemployment.  Typically, it’s disruptive technology.  When was the last time that you saw a washer-woman?  Well, they were put out of business by that device that you have in your basement into which you throw your clothes every week.  Sometimes, increasing unemployment is a function of technological improvement.  This is no comfort to those affected, but it does happen.  Given that our technological advances from the past fifty years or so have grown exponentially, I suspect that this may be part of the “new norm”.  Admittedly, shipping jobs overseas is a fault of global capitalism; something the authors suprisingly neglect to mention.  Of course, their “global” capitalism argument only discusses unemployment in America; it ignores other countries and the fact that jobs shipped overseas provide employment overseas.  The reason there’s been an Indian tech-boom is largely because of that.  Though Americans obviously would prefer unemployment be less and that those affected be employed, the flip-side to the coin is that others elsewhere are employed and they have their standard of living raised.  This point is entirely ignored by the authors, who use the term “global” constantly but only refer to Americans in their analysis of unemployment.  A slightly more interesting (and relevant) fact that might have helped their argument would have been if more people globally were unemployed!

However, it’s more likely that the “new norm” is a bad thing, and has other reasons.  However, I suspect that capitalism, while providing the framework for employment/unemployment, is not the root cause.  The problem is more likely government interference.  With interest rates being altered and a climate of uncertainty that pervades the business market (see the VIX if you’re not convinced that people are skittish about investing), people simply have no cause to hire, and certainly have no cause to cut costs.  A perfect example is Bank of America.  This bank, too big to fail, has been bailed out by the government and yet the growing supposition is that they will lay off about 40,000 people in the next three years.  (They have not announced this as of yet officially.)  Is that a fault of capitalism?  Or is it the fault of a government that interferes by taking money from where it should have gone and misallocated it to banks that then had no incentives to properly align their acquisitions?  In this case, it could be argued that the acquisitions themselves are to blame, and partially defend the original article’s thesis; however, in a properly functioning market, the acquisitions would have been done properly at the time of inititiation and any layoffs would have been spread out over a much longer period of time.  So, instead of laying off 40,000 over the course of ten to fifteen years, the length of time Bank of America has been growing, in a way in which the market might be able to more readily absorb the affected, it now happens in a much more concentrated timeframe – three years.  In this case, while the net results are that 40,000 people lose their jobs, the shock to the system is much more pronounced in a market in which the government regularly i
nterferes and obscures both investment signals and incentives.  Remember, the only way that the government can provide money to anyone or any corporation is if it first takes it from someone else or prints it – both of which will distort the picture for those who would otherwise want to put that money to better use than some hack in DC.

This brings us to the final point – the “99ers”.  These are people who have been out of work so long that they have exhausted their unemployment benefits.  The authors of the article use this to point out that unemployment is serious, new and different this time, and demoralising.  However, the article mentions at least one time (1873-1874) in which the unemployed were organising for two years, so while it may still be objectionable, it is not new.  However, again, we have issues with interference from DC; unemployment benefits probably do not discourage job seeking, so I am not going to rehash that tired saw.  (Any rational person understands that a person would rather collect a full-check than much smaller benefits.)  However, the issue again becomes a misallocation of capital; instead of encouraging employers by getting out of the way, the government continues to rob Peter to pay Paul and print what it can’t steal from Peter.  I am certainly not going to argue that we shouldn’t have some form of assistance for the unemployed, but oftentimes in the goodness of their hearts and/or in an attempt to be seen to be doing something, the government will actually exacerbate the situation.  (President Obama’s recent jobs bill will not help matters much; it will encourage employers to hire people unemployed for less than six months and essentially leaves people unemployed for longer out in the cold.  By offering credits for hiring and not retention, it also encourages turnover.)

Is global capitalism a perfect system?  Not by any means – there is no such thing in a world that’s define by scarcity.  (Ideally, global capitalism will lead us to the post-scarcity era, and we’ll have new, less pressing issues.)  However, while it may be a framework in which undesirable things happen , it is certainly not the fault of that framework – but the actors within it who distort its normal function.

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