Hi Yves, this is a very strong critique of the notion that capitalism has helped the poor. I think there are a few problems with his argument. One is that he tries to deny that trade unions are part of capitalism. Capitalists may hate it, but trade unions trying to set prices and terms is philosophically very similar to merchants colluding in what would today be considered an oligopoly or monopoly (as even Adam Smith condemned it).
One way to read Karl Polanyi’s The Great Transformation is that the unconstrained operation of capitalism becomes so destructive to society that it provokes a backlash that seeks to moderate its operation through a kind of dialectic.
The second problem is that it is hard to imagine how a system without a market to set prices could allocate goods and affect investment. In his book Investment Biker, the famous investor Jim Rogers, who had visited the USSR in 1994 and whose memories of Soviet practices were fresh, gave several examples of how administered prices had gone wildly off the mark, creating huge distortions in demand and production.
I have not read much systematically about how the USSR functioned under the communist system. But the USSR and China are the only two major economies that achieved industrialization within a generation, something that no capitalist country had ever managed to do. The success of Communist Russia surprised Western policymakers because it suggested that a command-and-control economy could outperform the free enterprise system. This is also why economists became the only social scientists with a seat at the policy table. Government officials came to believe that they needed their guidance to better guide their economies to compete with the communists.
It seems like I am reading a study, but unfortunately I cannot find it given the circumstances of my search. The communist system, especially the production targets for various sectors and organizations, worked well for about a generation. Then the bureaucrats started to exploit the system by setting targets unfairly low, hiding inventory, and other ploys. Reader GM, who spent his childhood in a Warsaw Pact country, claims that communism was far better than capitalism for 95% of the population, and that free housing and free healthcare were very important perks. But a significant portion of the 5% met people outside the USSR for work, just as Putin did in his KGB mission in Germany. Eugene Luttwak says that he frequently corresponded with Putin at that time, and even dined with him. These elite professionals and bureaucrats realized that their standard of living was lower than their Western counterparts (Luttwak seems to have thought it was important to talk about what terrible suits Putin wore at the time). GM claims that resentment was a major driver of antipathy towards the Communist system. I can’t corroborate that, but I’d be interested to hear from informed readers.
Richard D. Wolf is Professor Emeritus of Economics at the University of Massachusetts Amherst and Visiting Professor at the School of International Affairs at the New School in New York. Wolf’s weekly show, Economic Update, is broadcast on over 100 radio stations and reaches millions of viewers on multiple television stations and on YouTube. His latest show is Books on Democracy in Practice Understanding Capitalism (2024) is in response to requests from readers of his earlier books, Understanding Socialism and Understanding Marxism. It is excerpted and adapted from books by Richard D. Wolff. Understanding Capitalism (Democracy in Action, 2024) An economy for alla project of the Independent Media Institute
Since its inception, the capitalist economic system has given rise to both critics and supporters, victimizers and celebrators. While the victims and critics have presented their own analyses, demands, and proposals for change, the beneficiaries and supporters have developed a different discourse in defense of the system.
Certain arguments have proven widely effective against critics of capitalism and in gaining popular support. These have become the fundamental myths in support of capitalism. One such myth is that capitalism creates prosperity and reduces poverty.
Capitalists and their greatest supporters have long argued that the capital system is an engine for creating wealth. Early promoters of capitalism such as Adam Smith and David Ricardo, as well as its early critics such as Karl Marx, recognized that fact: capitalism is a system designed to grow.
Because of market competition among capitalist employers, most businesses need “business growth” to survive. Capitalism is a system that fosters wealth growth, but wealth creation is not unique to capitalism. The idea that capitalism alone creates wealth, or that it creates more wealth than other systems, is a myth.
What are the other factors that create wealth? There are many other factors that create wealth. No economic system alone creates wealth: capitalism, feudalism, slavery, socialism, etc. Wealth creation depends on many circumstances throughout history (raw materials, weather, inventions, etc.) that determine if and how quickly wealth is created. All of these factors play a role alongside a particular economic system.
When the Soviet Union collapsed in 1989, some claimed that capitalism had “defeated” its only real competitor, socialism. This proved capitalism to be the greatest creator of wealth. It was said that the “end of history” had arrived, at least as far as the economic system was concerned. Nothing better than capitalism was imaginable, much less attainable.
The myth here is a common mistake and a badly worn one. There has been a lot of wealth created over the past few centuries, but As The fact that capitalism spread throughout the world does not prove that it was capitalism. Caused Increase in wealth. Wealth may have increased despite capitalism; it may have increased faster under other systems. Evidence for this possibility includes two important facts. First, the fastest economic growth (measured by GDP) in the 20th century was achieved by the Soviet Union. Second, the fastest increase in wealth so far in the 21st century has been that of the People’s Republic of China. These two societies rejected capitalism and proudly defined themselves as socialist.
Another version of this myth, which has especially grown in popularity in recent years, claims that capitalism is responsible for lifting millions of people out of poverty over the past 200 to 300 years. In this story, capitalist wealth creation has led to higher standards of living for all: better food, wages, working conditions, health care, education, and scientific advances. Capitalism has allegedly given great gifts to the poorest among us and should be celebrated for these incredible contributions to society.
The problem with this myth is the same as the problem with the wealth creation myth mentioned above: just because millions of people were lifted out of poverty when capitalism spread globally does not prove that capitalism was the cause of this change. A different system, which organized production and distribution in a different way, might have lifted more people out of poverty in the same period of time, or even sooner.
Capitalism’s profit focus has often restricted the distribution of products, inflating prices and increasing profits. Patents and trademarks of profit-seeking companies effectively slow the distribution of all kinds of products. It is unclear whether capitalism’s incentive effects outweigh its retarding effects. The claim that capitalism, on the whole, promotes rather than retards progress is a purely ideological claim. Different economic systems, including capitalism, promote or retard development in different ways and at different rates in their parts.
Capitalists and their supporters have almost always opposed measures to alleviate or eradicate poverty. They blocked minimum wage laws for years, and blocked increases to the minimum wage when such laws were passed (as has been the case in the United States since 2009). Capitalists have similarly opposed laws banning or restricting child labor, shortening the hours of work, providing unemployment benefits, establishing government pension programs such as Social Security, providing national health insurance, challenging sexism and racism against women and people of color, and providing universal basic income. Capitalists have led the charge against progressive taxation, occupational safety and health, and free universal education from kindergarten through college. Capitalists have opposed labor unions for the past 150 years, as well as limiting collective bargaining among large classes of workers. They have opposed socialist, communist, and anarchist organizations aimed at organizing the poor to seek relief from poverty.
The truth is: as poverty decreases, in spite of Capitalists are against it. Attributing the reduction of world poverty to capitalists and capitalism is a reversal of the truth. When capitalists try to take credit for the reduction of poverty that was achieved despite their own efforts, they expect their audience to be ignorant of the history of the fight against poverty in capitalism.
Recent claims that capitalism has overcome poverty are often based on misinterpretations of certain data. For example, the United Nations defines extreme poverty as an income of less than $1.97 a day. The number of poor people living on less than $1.97 a day has declined significantly over the past century. However, China, the world’s largest country by population, has experienced the world’s largest poverty escape over the past century and therefore has an outsized influence on all totals. Given China’s large influence on poverty indicators, one could argue that the decline in global poverty in recent decades is a result of the argument that the economic system is crucial to eliminating poverty. do not have Socialist rather than capitalist.
An economic system is ultimately judged by how well it contributes to the society in which it exists. How each system organizes the production and distribution of goods and services determines how well it meets its citizens’ basic needs – health, safety, enough food, clothing, shelter, transport, education, leisure – and enables a decent and productive work-life balance. How well is contemporary capitalism working in that sense?
Modern capitalism has currently accumulated about 100 individuals in the world who own more wealth than the bottom half of the Earth’s population (over 3.5 billion people). The financial decisions of these 100 richest people affect how the world’s resources are used as much as the financial decisions of the bottom half of the Earth’s population, the 3.5 billion people. That’s why in a world of modern medicine, the poor die earlier, suffer from diseases for which we know how to treat them, starve even though we produce more than enough food, get less education even though we have more teachers, and experience far more tragedies. Is this what poverty reduction looks like?
Attributing poverty reduction to capitalism is another myth: poverty was reduced by the struggle of the poor against poverty that was systematically reproduced by capitalism and capitalists, and the struggle of the poor was often supported by militant working-class organizations, including explicitly anti-capitalist organizations.
