Capitalism's growth imperative and societal engineering

By Richard K. Moore, Chapter 1, section f, of A Guidebook: How the world works and how we can change it (2000)

People of the same trade seldom meet together… but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.

Adam Smith, Wealth of Nations

Globalization is above all about capitalism, and about removing all constraints to the efficient operation of capitalist economics. The constraints which are being rapidly removed include not only tariff barriers and import quotas, but also environmental protections, anti-trust laws, health and safety regulations, and indeed the power of nations to plan or control their own economic destinies.

The reasoning behind all this, we are told, is about the creation of ‘free markets' that will enable the ‘most efficient’ operators to succeed—and thereby benefit everyone in the long run. The experience of the Robber Baron era, not to mention the condition of the world today, shows us that this reasoning is faulty. Let's look at the reasoning in a bit more detail to understand where it goes astray.

The reasoning begins with Adam Smith, whose classic “Wealth of Nations” was published in 1776 just as the Industrial Revolution was getting underway in Scotland and northern England. He developed an elegant model of a “market economy,” and showed that under the right conditions such a market can provide a system in which everyone's self-interest works naturally for the overall benefit of society. David Ricardo later expanded these notions and showed that nations could benefit from increased international trade—again under the right conditions—and when each nation specializes in producing those items where it enjoys a comparative production advantage. In “The Post-Corporate World, Life After Capitalism,” David Korten summarizes those ‘right conditions' which were identified by Smith and Ricardo (p. 38):

Conditions necessary for a market economy to function:

1. Buyers and sellers must be too small to effect the market price.
2. Complete information must be available to all participants an there can be no trade secrets.
3. Sellers must bear the full cost of the products they sell and pass them on in the sale price.
4. Investment capital must remain within national borders and trade between countries must be balanced.
5. Savings must be invested the creation of productive capital.

If these conditions were true in our society, then we might well enjoy the kind of beneficial economy envisioned by Smith and Ricardo. But these conditions are anything but true, and globalization's campaign to make capitalism ‘more efficient’ is systematically moving our society further and further from each one of those conditions:

Conditions present in today's capitalist economy:

1. Transnational corporations increasingly sell products at inflated prices, based on market domination.
2. Rights in proprietary information are being greatly extended, so as to benefit the largest corporations.
3. Corporations “externalize” (avoid) the costs of their production in many ways, including billions of dollars in government subsidies.
4. Trillions of dollars of investment capital fly across borders everyday on unregulated electronic networks, and trade is highly unbalanced, especially between the West and the third world.
5. Savings (retained earnings) are being invested increasingly in speculative financial markets rather than productive facilities.

Korten summarizes this situation in the following way:

The nature of capitalism as a market pathology can be readily demonstrated by examining how it vigorously and systematically eliminates [the] five conditions [of the market economy]…

Post-Corporate World, p. 40

Far from being a market economy, capitalism is instead a process which infects and destroys a market economy—replacing it with an economy dominated by a relatively small number of very large operators. Capitalism is the antithesis of a market economy—it is what you get when you take away the regulatory balances which keep markets competitive and socially productive. The ‘efficiency’ of a market economy is measured by its productive benefit to society. The ‘efficiency’ of a capitalist economy is measured by the rate at which the wealthy can further increase their wealth through investments, and this is what is reflected in Gross Domestic Product (GDP) figures.

When orthodox economists talk about market forces, they are referring to ideal market economies as envisioned by Smith and Ricardo. When politicians talk about market forces, they are referring to a laissez-faire economy ‘unfettered’ by those conditions which make a market economy possible. By such Orwellian doublespeak officials are able to proclaim the theoretical benefits of a market economy while ignoring the actual consequences of our real-world capitalist economy. Just as a Priest might ask us to have faith in the next world while we suffer in this, so do our politicians ask us to have faith in their matrix dream world while we suffer the consequences of capitalism.

Let us examine how capitalism arises out of a market economy, and observe how capitalism actually operates. In a market economy, there are not only producers and consumers, but also investors and bankers. Producers sometimes need to seek money in order to fund expansion, carry out renovations, or whatever, and this is supplied by bankers or investors. A bank gets its money back with interest, while an investor becomes part-owner of the producing enterprise.

There is no inherent reason, in a market economy, why an enterprise would need to grow. A village shop, for example, can remain the same size through the years, be passed on to an heir, and continue indefinitely as long as it sells things consumers want to buy at a competitive price. In my adopted town of Wexford, Ireland, a pharmacy and a butcher shop have been operated by the same families continuously since the 1600s. An ambitious operator might want to grow an enterprise, but that comes from the ambition of the operator, not because the enterprise demands it. Even today, a great many independent businesses operate on a basis of ongoing profitability, rather than constantly striving to grow.

Such stable businesses, however, are not likely to need much outside funding, especially after they are established. Banks and investors are much better off when there are lots of new businesses starting up, or when existing businesses are oriented toward growth. New businesses and growing businesses require funding, and growing businesses increase the value of an investor's share in the enterprise.

The technologies developed in the Industrial Revolution were designed to increase the scale and efficiency of production. This led to the development of new enterprises, and to growing enterprises, which applied the new technologies as they emerged. Bankers, and even more so investors, were faced with unprecedented opportunities to increase their wealth on the coattails of these growing enterprises and industries. They were quick to exploit these opportunities.

As banks and investors prospered, a new investment-oriented elite arose whose interests were distinct from those of Britain's aristocratic elite—and different as well from the entrepreneurs who were actually running the new industries. This new elite didn’t deal with production or commerce directly, but with money, shares, credit, and various kinds of financial instruments. To this elite, an enterprise was simply an “investment vehicle”—a means of using money to make more money. Over time, this new elite gained enough wealth and influence to begin making fundamental changes in British government policy—changes which both compelled and enabled enterprises to continue growing, regardless of whether any social benefit was created.

Land taxes were increased, making traditional agricultural practices unprofitable, and forcing landowners to either sell out or else adopt industrial techniques and increase the scale of their operations. Import tariffs were adjusted to maximize the growth of British industries. Some tariffs were lowered to provide cheaper raw goods, while others were raised to reduce competition from external producers. Tax policy was adjusted to encourage growth, and to favor investors. These and other pressures toward growth forced businesses to increase their borrowing—and the repayment burden increased the growth pressure still further. A stock market was developed, making it easier to buy and sell shares in enterprises. The common-stock, limited-liability corporation evolved into a finely-tuned machine whose management is always under pressure to grow—to increase the size of the corporate assets. Capitalist elites had succeeded in injecting an artificial growth imperative into the British economy.

This same pattern was followed time and time again as other nations emulated Britain, industrialized, and adopted capitalism. The growth imperative forced these nations to pursue a new wave of imperialism in search of cheaper raw materials and new markets. This led to competition for territories, and thus capitalism's growth imperative has been the root cause of European warfare from the Industrial Revolution up until 1945—a fact one would never glean from orthodox histories or mainstream literature.

The history of capitalism is the history of elites hijacking societies and using them to accumulate monetary wealth. It is not societies or market economies which need continual growth and development, rather that is an imperative artificially injected into economies by investment-oriented elites. These capitalist elites engage in an ongoing process of societal engineering aimed at maximizing capital growth and removing any existing societal barriers to growth.

Globalization is simply this engineering process unfolding on a final global scale—the implementation by elites of a global society, firmly controlled by that elite, and in which growth itself is the one and only economic imperative. Through globalization, the parasite (capitalism and its elite) seeks to permanently enslave its host organism (humanity and society.)

Recommended reading.

Jerry Fresia, Toward an American Revolution—Exposing the Constitution & other Illusions, South End Press, Boston, 1988. Online: http://cyberjournal.org/cj/fresia/

Did you think checks and balances were designed to prevent tyranny? Guess again. “…the Constitution was designed to ensure that real political power in this country would always be held by the handful of very large property owners and it is no coincidence that that is the case today.” Jerry traces elite machinations from the days of the Founding Fathers up to the present.