Talk given to the Political Economy Seminar Series at the University of Massachusetts at Amherst.

The debate between those who believe a desirable alternative to capitalism will be some kind of democratic planning and those who believe it will be some kind of market socialism is well known in some circles. My purpose here is not to review that debate. Instead I want to consider how much differences over long-run economic vision matter to how we approach economic program, strategy, and tactics in the here and now. In other words, would it be sectarian to let differences over economic vision divide us, or are there important disagreements over economic program today that logically derive from different ideas about where we eventually want to go? Before I can tackle specific planks in an economic reform program I need to summarize crucial differences between democratic planners and market socialists as I see them.

Rest Assured: Our Visions Are Different

On Markets:

Markets are an efficient way of producing and distributing a very large number of mundane items. Market incentives are a dependable way of getting our bread baked. Markets allow us to make the best use of the information dispersed throughout a society. Markets give their participants a certain kind of freedom – expanding the range of choices and giving each person a variety of partners with whom to deal.

— David Miller and Saul Estrin

Instead of efficiency machines, optimal incentive devices, cybernetic miracles, and human liberators, when we examine markets we find institutions that generate increasingly inefficient allocations of resources, unnecessarily deploy socially destructive incentives, bias and obstruct the flow of essential information, substitute trivial for meaningful freedoms, and lead to irremediable inequities in the distribution of goods and power.

— Robin Hahnel and Michael Albert

People nowadays interchange gifts and favors out of friendship, but buying and selling is considered absolutely inconsistent with the mutual benevolence which should prevail between citizens and the sense of community of interest which supports our social system. According to our ideas, buying and selling is essentially anti-social in all its tendencies. It is an education in self-seeking at the expense of others, and no society whose citizens are trained in such a school can possibly rise above a very low grade of civilization.

— Edward Bellamy

On economic rewards:

It is certainly true that under market socialism there must be some people occupying positions of key decision-making responsibility, and in all likelihood such people will have higher incomes as well as greater power than most of the rest of the population. Thus inequalities of income and power would surely develop under market socialism.

— Tom Weisskopf

Dr. Leete: You ask me how we regulate wages; I can only reply that there is no idea in the modern social economy which at all corresponds with what was meant by wages in your day.

Julian: By what title does the individual claim his particular share? What is the basis of allotment?

Dr. Leete: His title is his humanity. The basis of his claim is the fact that he is a man.

Julian: The fact that he is a man! Do you possibly mean that all have the same share?

Dr. Leete: Most assuredly.

Julian: But some men do twice the work of others. Are the clever workmen content with a plan that ranks them with the indifferent?

Dr. Leete: We leave no possible ground for any complaint of injustice by requiring precisely the same measure of service from all.

Julian: How can you do that, I should like to know, when no two men’s powers are the same?

Dr. Leete: Nothing could be simpler. We require of each that he shall make the same effort; that is, we demand of him the best service it is in his power to give.

Julian: And supposing all do the best they can, the amount of the product resulting is twice greater from one man than from another.

Dr. Leete: Very true, but the amount of the resulting product has nothing whatever to do with the question, which is one of desert. Desert is a moral question and the amount of effort alone is pertinent to the question of desert. All men who do their best, do the same. A man’s endowments, however godlike, merely fix the measure of his duty. The man of great endowments who does not do all he might, though he may do more than a man of small endowments who does his best, is deemed a less deserving worker than the latter, and dies a debtor to his fellows. The Creator sets men’s tasks for them by the faculties he gives them; we simply exact their fulfillment. The right of a man to maintenance at the nation’s table depends on the fact that he is a man, and not on the amount of health and strength he may have, so long as he does his best. From our point of view as to the collective ownership of the economic machinery of the social system, and the absolute claim of society collectively to its product, there is something amusing in the laborious, disputations by which your contemporaries used to try to settle just how much or little wages or compensation for services this or that individual or group was entitled to. Why, dear me, Julian, if the cleverest worker were limited to his own product, strictly separated and distinguished from the elements by which the use of the social machinery had multiplied it, he would fare no better than a half-starved savage. Everybody is entitled not only to his own product, but to vastly more – namely, to his share of the product of the social organism. But he is entitled to this share not on the grab-as-grab-can plan of your day, by which some made themselves millionaires and others were left beggars, but on equal terms with all his fellows.

— Edward Bellamy

It is obvious from the above quotations that market socialists like David Miller, Saul Estrin, and Tom Weisskopf do not see things the same way anti-market visionaries like Edward Bellamy, Michael Albert, and I do. For my part, I willingly concede that markets permit people to interact in ways that are often convenient and mutually beneficial. But I insist that market exchanges usually increase inequities, lead to inefficiencies that are grossly underestimated, and have disastrous effects on the quality of human relations.

Market exchanges are convenient when transaction costs of exchanges are low – which they tend to be whenever buyers, or sellers, or both are price takers, and others beside the buyer and seller are excluded from the transactions. And it is a tautology that any agreement – including a market exchange – is mutually beneficial under the assumptions of rationality and perfect knowledge. And I will stipulate that while knowledge (which includes foresight) and rationality are seldom perfect, both are “perfect enough” so that market exchanges are frequently beneficial to both buyer and seller. But unfortunately, convenience and benefits for both buyer and seller do not imply equity or efficiency, much less a positive social interaction. Below I summarize why we in the anti-market camp believe markets are unfair, inefficient, and socially destructive in order to consider implications for economic reform.

Why Markets are Unfair

Proposition 1: People do have (1) different abilities to benefit others, and (2) different abilities to secure a favorable share of the benefits from exchange.

Proposition 2: Very few, if any, of either kind of different ability carry any moral weight, i.e. bestow on those with a greater ability any moral claim to benefit more, or exercise more decision making authority, than those of lesser ability.

Proposition 3: Market exchanges will permit those with greater abilities to benefit to a greater extent and exercise greater power than those of lesser abilities. While the inequities that result are magnified by asymmetrical information and non-competitive market structures, inequities would occur in the case of fully informed exchanges in perfectly competitive markets as well.

I take proposition 1 to be self evident. Obviously proposition 2 requires philosophical justification and proposition 3 requires proof. I, and others, believe we have provided the necessary justification and proof elsewhere. Here, I consider the major sources of “different abilities” in order to discuss what market socialists propose to do about inequities that result from market exchanges.

#1: Differences in ownership of physical capital: I concede for the sake of argument that not all differences in property income are necessarily inequitable. If someone has more productive property because s/he worked harder or consumed less – i.e. s/he sacrificed more – then greater property income commensurate with the greater sacrifice may be equitable. However, all evidence I have studied about the origins of differential wealth at the end of the twentieth century, support the conclusion Edward Bellamy voiced at the close of the nineteenth century: “You may set it down as a rule that the rich, the possessors of great wealth, had no moral right to it as based upon desert, for either their fortunes belonged to the class of inherited wealth, or else, when accumulated in a lifetime, necessarily represented chiefly the product of others, more or less forcibly or fraudulently obtained.”

All market socialists want to reduce inequities that arise from differences in ownership of physical capital. Originally Oscar Lange and Abba Lerner proposed eliminating such inequities entirely by paying all an equal “social dividend” to go along with whatever wage income people commanded in the labor market. It is interesting that market socialists since Lange and Lerner have backed away from a firm commitment to equal property income. It is now conceded that John Roemer’s coupon model of market socialism does not equalize property income, and just how unequal the distribution of property income would become as people “freely” trade coupons and the values of portfolios diverge is a subject of debate. Labor self-managed versions of market socialism like those originally proposed by Branko Horvat and Jaroslav Vaneck, and more recently espoused by David Schweickart and Tom Weisskopf effectively equalize property income for workers within a given firm, but not across firms. Differences between workers at a high tech firm like Microsoft and a steel mill in the rust belt would be substantial.

#2: Different endowments of human capital: Differences in human capital are due either to genetic differences in talent or differences in education and training. Good luck in the genetic lottery hardly seems to deserve additional reward. And provided those who receive more education and training make no greater personal sacrifice than others who receive less education and training, no further reward for human capital acquired at public rather than personal expense seems merited. But market socialists either propose no correction for wage inequities due to unequal human capital (John Roemer), or partial correction through progressive income taxes (Tom Weisskopf), incomes policies (Irving Howe), or floors and ceilings on wage rates (Alec Nove). Of course market socialists oppose wage discrimination based on race, sex, or sexual preference, or what they call “non market factors.” But the inequities we are discussing here are the inequalities that result precisely for “market reasons,” i.e. marginal revenue product wage rates.

#3: Different opportunities and/or willingness to disobey the golden rule – do unto others as you would have them do unto you – and instead obey the rule of the market place – do in others before they do you in: Truth in advertising, liability, and antitrust laws, and regulation of deceptive business practices are among the policies some market socialists propose to reduce unequal opportunities among market participants to invert the golden rule. But these measures only partially correct unequal opportunities to take what are deemed unfair advantage of others. And unfortunately what competition – the famous harmonizer of the private and public interest – “enforces” regarding willingness to invert the golden rule is “lowest common denominator consciousness” by systematically weeding out the less devious.

#4: Differences in luck: The obvious antidote for unequal luck is insurance. But what kind of insurance? My view is: We cannot prevent natural disasters, old age, sickness, bad eye sight, or crooked teeth. But at least we can make sure these unfortunate experiences do not impose economic hardship as well. This logic leads to programs like disaster relief and universal, comprehensive old age and health insurance. Others reason differently: If incomes are equitable except for luck, let people buy the amount and kind of insurance they want. Don’t impose paternalistic values on people’s freedom of choice regarding risk. We consider the implications of these different visions below when considering the pros and cons of social versus private insurance.

To summarize: there are three ways market socialists can try to “socialize” the market to reduce inequities: (1) “Equitize” initial endowments, (2) intervene to prevent inequitable outcomes from occurring in the first place, and (3) correct inequities after the fact through redistributive taxes, transfers, and insurance. Equitizing endowments is an attempt to level the market playing field. Pre and post market interventions are attempts to temper the inequities of market outcomes. We shall consider predictable technical, motivational, political, and psychological problems that arise with different ways to level the playing field and tame the market game in specific contexts below. Of course, in large part it is frustration with the likelihood of successfully socializing the market that leads people like me to argue for changing to a new game, with a new logic.

 

Why Markets are Inefficient

Increasing the value of goods and services produced, and decreasing the unpleasantness of what we have to do to get them, are two ways producers can increase their profits in a market economy. And competitive pressures will drive producers to do both. But maneuvering to appropriate a greater share of the goods and services produced by externalizing costs and appropriating benefits without compensation are also ways to increase profits. And competitive pressures will drive producers to pursue this route to greater profitability just as assiduously. The problem is, while the first kind of behavior serves the social interest as well as the private interests of producers, the second kind of behavior does not. Instead, when buyers or sellers promote their private interests by externalizing costs onto those not party to the market exchange, or appropriate benefits without compensation, their maneuvering behavior introduces inefficiencies that lead to a misallocation of productive resources and consequent decrease in the value of goods and services produced.

The positive side of market incentives has received great attention and admiration, starting with Adam Smith who coined the term “invisible hand” to characterize it. The darker side of market incentives has been neglected and underestimated. Two modern exceptions are E.K. Hunt and Ralph d’Arge, who coined the less famous, but equally appropriate label, “invisible foot” to describe the kind of socially counter productive maneuvering behavior markets drive us to engage in.

A question market admirers seldom ask is where are firms most likely to find the easiest opportunities to expand their profits? How easy is it usually to increase the size or quality of the economic pie? How easy is it to reduce the time or discomfort it takes to bake it? Alternatively, how easy is it to enlarge one’s slice of the pie by externalizing a cost, or by appropriating a benefit without payment? Why should we assume that it is infinitely easier to expand profits by productive behavior than by maneuvering behavior?

The same feature of market exchanges primarily responsible for small transaction costs – excluding all affected parties but two from the transaction – is also a major source of potential gain for the buyer and seller. When the buyer and seller of an automobile strike their convenient deal, the size of the benefit they have to divide between them is greatly enlarged by externalizing the costs onto others of the acid rain produced by car production, and the costs of urban smog, noise pollution, traffic congestion, and greenhouse gas emissions caused by car consumption. Those who pay these costs, and thereby enlarge car maker profits and car consumer benefits, are easy marks because they are geographically and chronologically dispersed, and because the magnitude of the effect on each of them is small yet not equal. Individually they have little incentive to insist on being party to the transaction. Collectively they face the well known transaction cost and free rider obstacles to forming a voluntary coalition to effectively represent a large number of people, each with little, but different amounts at stake.

Moreover, the opportunity for this kind of maneuvering behavior is not eliminated by making markets perfectly competitive or entry costless, as is commonly assumed. Even if there were countless perfectly informed sellers and buyers in every market, even if the appearance of the slightest differences in average profit rates in different industries induced instantaneous self-correcting entries and exits of firms, even if every economic participant were equally powerful and therefore equally powerless – in other words, even if we embraced the full fantasy of market enthusiasts – as long as there were numerous external parties with small but unequal interests to market transactions, those external parties would face greater transaction cost and free rider obstacles to a full and effective representation of their collective interest than that faced by the buyer and seller in the exchange. And it is that inherent inequality that makes external parties easy prey to maneuvering behavior on the part of buyers and sellers. Even if we could organize a market economy so that every participant were as powerful as every other, and no one ever faced a less powerful opponent in a market exchange, this would not change the fact that each of us has smaller interests at stake in many transactions to which we are not major parties. Yet the sum total interest of all those external parties can be considerable compared to interests of the two who are presumably the most affected – the buyer and the seller. It is the transaction cost and free rider problems of those with lesser interests that create the crucial inequality in power, which, in turn, gives rise to the opportunity for individually profitable but socially counter productive maneuvering on the part of buyers and sellers. A sufficient condition for the opportunity to profit in socially counter productive ways from shifting behavior is that each one of us has diffuse interests that make us affected external parties to many exchanges in which we are neither buyer nor seller. It doesn’t matter if we made every market actor equally powerful, the problem would still persist.

But the real world bears little resemblance to a game where it is impossible to increase one’s market power, and therefore there is no reason to try. It is just as rational to pursue ways to increase one’s power visa vis others in real market economies as it is to search for ways to increase the size or quality of the economic pie or reduce the time or discomfort of baking it. In the real world there are consumers with little information, time, or means to defend their interests. There are small innovative firms for giants like IBM and Microsoft to buy up instead of tackling the hard work of innovation themselves. There are common property resources whose productivity can be appropriated at little or no cost as they are over exploited at the expense of future generations. And there is a government run by politicians whose careers rely principally on their ability to raise campaign money, begging to be plied for corporate welfare programs financed at taxpayer expense. In a world of unequal economic power the most effective profit maximizing strategy is often to maneuver at the expense of those with less economic power to re-slice the pie rather than work to expand it.

In any case, market socialists concede that externalities lead to inefficient allocations of resources, and that non-competitive market structures and disequilibrating forces are additional sources of inefficiencies. And they concede that efficiency requires “socializing” the market with policies designed to internalize external effects, curb monopolistic practices, and ameliorate market disequilibria. But what market admirers do not concede, but conveniently ignore is:

·         External effects are the rule rather than the exception.
 

·         There are no convenient or reliable procedures in market economies for estimating the magnitude of external effects. This means accurate “Pigouvian” taxes are hard to calculate even in an isolated market.
 

·         Because they are unevenly dispersed throughout the industrial matrix, the task of correcting for external effects is even more daunting.
 

·         In the real world, where interest and power take precedence over economic efficiency, the beneficiaries of accurate Pigouvian taxes are usually dispersed and powerless compared to those who would be harmed. Moreover, any hope of accurately estimating the magnitudes of external effects lies with willingness to pay and willingness to accept damage surveys which have well known biases that can be challenged, and discrepancies that can be exploited by special interests.
 

·         Endogenous consumer preferences imply that the degree of misallocation that results from predictable under correction for external effects will increase, or “snowball” over time.

All of which means that the invisible foot operates on a par with the invisible hand, the degree of allocative inefficiency due to external effects is significant, correctives are likely to fall far short of what is required, and the problem will grow worse. And since maneuvering over shares in a world that does not outlaw differences in economic power is usually the first strategy that occurs to most business people – even if it never occurs to economists – the waste of resources due to distributive struggles will be even more substantial.

In sum, convenient deals with mutual benefits for a buyer and seller should not be confused with economic efficiency. When some kinds of preferences are consistently under represented because of transaction cost and free rider problems, when some resources are consistently over exploited because they are common rather than private property, and when profits come as often from greater power as greater contribution, theory predicts free market exchange will result in a misallocation of resources. And when markets are less than perfect – which they always are – and fail to equilibrate instantaneously – which they always do – the results are that much worse.

Why Markets Undermine the Ties that Bind Us

In effect markets say to us: “You cannot coordinate your economic activities sensibly, so don’t even try. You cannot orchestrate a group of inter related tasks efficiently, so don’t even try. You cannot come to equitable agreements among yourselves, so don’t even try. Just thank your lucky stars that even such a hopelessly socially challenged species as yourselves can still benefit from a division of labor thanks to the miracle of the market system.” Markets are a decision to punt in the game of human relations, a no-confidence vote on the social capacities of the human species. Markets are a cop out. But if that daily message were not sufficient discouragement, markets harness our creative capacities and energy by arranging for other people to threaten our livelihoods, and by bribing us with the lure of luxury beyond what others have. And finally, markets reward those who are the most efficient at taking advantage of his or her fellow man or woman, and penalize those who insist, illogically, on pursuing the golden rule. Of course, we are told we can personally benefit in a market system by being of service to others. But we also know we can benefit just as easily by tricking our fellow citizens. Mutual concern, empathy, and solidarity are the appendices of human capacities and emotions in market economies – and like the appendix, they continue to atrophy.

Why Markets Subvert Economic Democracy

Confusing the cause of free markets with the cause of democracy is astounding given the overwhelming evidence that the free market jubilee has disenfranchised larger and larger segments of the world body politic. Markets empower the more “able” as I defined the term above, at the expense of the less able. Economic liberalization brings concentration of economic, and therefore political power because the spread of markets works to the comparative advantage of the more “able,” and therefore, of those who are likely to be more powerful in the first place. If the more powerful party succeeds in appropriating more than 50% of the benefits of an exchange, doesn’t it follow that the exchange further disempowers the less powerful party? And who would we expect to usually get the greater share of the benefit from market exchange?

Those who deceive themselves (and others) that markets nurture democracy ignore the simple truth that markets tend to aggravate disparities in economic power, and focus instead on less important effects. It is true that the spread of markets tends to disempower non-economic elites. But this does not imply that power will be more evenly spread and democracy enhanced. If old obstacles to economic democracy are being replaced by new, more powerful obstacles on the boards of directors of multinational corporations and multinational banks, among the free market policemen at the World Bank and IMF, and chairing adjudication commissions for international treaties like NAFTA, and if these new elites are more effectively insulated from popular pressure than their predecessors, it is not the cause of democracy that is served.

Commercial Values vs. Equitable Cooperation

Disgust with the commercialization of human relationships is as old as commerce itself. The spread of markets in eighteenth century England led Edmund Burke to reflect: “The age of chivalry is gone. The age of sophists, economists, and calculators is upon us; and the glory of Europe is extinguished forever.” Thomas Carlyle warned in 1847: “Never, on this Earth, was the relation of man to man long carried on by Cash-payment alone. If, at any time, a philosophy of Laissez-faire, Competition and Supply-and-Demand start up as the exponent of human relations, expect that it will end soon.” And of course running through all his critiques of capitalism Karl Marx complained that markets gradually turn everything into a commodity and, in the process, corrode social values and undermine community: “[With the spread of markets] there came a time when everything that people had considered as inalienable became an object of exchange, of traffic, and could be alienated. This is the time when the very things which till then had been communicated, but never exchanged, given, but never sold; acquired, but never bought – virtue, love, conviction, knowledge, conscience, etc. – when everything, in short passed into commerce. It is the time of general corruption, of universal venality… It has left remaining no other nexus than between man and man other than naked self-interest, than callous cash payment.”

More recently, Robert Kuttner bemoans the fact that the labor market is becoming even more market like in Everything for Sale: The Virtues and Limits of Markets (Alfred Knopf, 1997). “Most of us recognize work as a central source of our identity and livelihood, a valued (or resented) affiliation, and sometimes a calling. But today, downsizing, out-sourcing, leveraged buyouts, relocations, and contingent employment are reshaping the labor market into a product market where customers – employers – can buy labor for only as long as they need it.” Another recent expression of the sentiment that treating every activity as a commodity is deeply offensive at some level to all of us is provided by Margaret Jane Radin in Contested Commodities (Harvard University Press 1996), which provoked no less than Kenneth Arrow to respond with a book review in the Journal of Economic Literature (June 1997) to what he called the “oldest critique of economic thinking.” As Arrow presents them both Radin’s concern and recommendation are remarkably mild: “Her target is related to but perhaps a little different from that of the nineteenth century critics. They were primarily concerned with social relations; the market was in theory and practice replacing all social relations. Radin is somewhat more in the spirit of individualism. Her concern is that actions which are essential to personal identity fall under the sway of the market…. A basic part of her approach is the notion of ‘incomplete commodification,’ a recognition that some form of purchase and sale is called for but with restrictions of one kind or another.” While always respectful, Arrow’s sum total response to her concern and suggestion was blunt: “The market is not something one need enter. A corner equilibrium is a perfectly reasonable outcome even under conditions of full commensurability and fungibility.”

But it is not true that individuals are free to take markets or leave them. If access to the fruits of economic cooperation are available only through participation in markets, then while true that anyone can choose to be an outcast, one does so at great cost. How many of us living in a market economy are going to refuse to buy and sell? What the older, and in my view more important critique of markets amounts to, is an objection to the organization of economic cooperation in a way that is not only personally distasteful and demeaning – i.e. tends to rob us of our “personhood” – but in a way that unnecessarily sours human relations. It is a plea to our fellow citizens to come to our senses and agree to organize our economic cooperation differently. In terms Arrow surely understands, markets are a matter of social, not individual choice. And like all social institutions, markets provide incentives that promote some kinds of behavior and discourage others. Markets minimize the transaction costs of arranging some forms of economic cooperation, but do nothing to reduce the transaction costs and thereby facilitate other forms of cooperation. Not only does this bias the terms of choice individuals face leading to predictable inefficiencies, if the forms of interaction that are encouraged are mean spirited and hostile, and the forms of cooperation that are discouraged are respectful and empathetic, the negative effects on human relations are not trivial.

A few years ago at an URPE panel at the ASSA meetings in Boston David Kotz offered the following anecdote to illustrate the difference between market socialists and democratic planners:

Market socialist talking to Democratic Planner: Do you want to help me with this dangerous stallion I’m trying to tame?

Democratic planner, in horror: I don’t know what you’re talking about, but you better get down off that tiger before it’s too late!

Ultimately the question boils down to this:

·         Do we want an economy that rewards people according to differences in morally arbitrary abilities – including the “ability” to maneuver at others’ expense? Or do we want to reward people according to the sacrifices they make?
 

·         Do we want a few to conceive and coordinate the work of the many? Or do we want everyone to have an opportunity to participate in economic decision making to the degree they are affected by the outcome?
 

·         Do we want a structure for expressing our preferences that is biased in favor of individual over social consumption? Or do we want people to be able to register their preferences for parks, libraries, environmental amenities, and pollution reduction as easily as they can express their desires for potato chips, automobiles, and walkman radios?
 

·         Do we want economic decisions to be determined by competition between groups pitted against one another for their well being and survival? Or do we want to plan our joint endeavors democratically, equitably, and efficiently?
 

The social process of consciously, democratically, and equitably coordinating our interconnected economic activities is fundamentally different from the social process of competing against one another in the exchange of goods and services. When all is said and done, market socialism is about trying to fix the latter, while democratic planning is about moving on to the former.

But if Capitalism is Here for at Least Another Fifty Years…

Make no bones about it, many current trends are bleak – which is reason enough for critics of capitalism to pull together. Mindless equation of free market outcomes with efficiency and freedom in face of overwhelming evidence to the contrary, widening wage, income, and wealth differentials, callous reductions in minimal programs for the needy and elderly, corporate merger madness, desperate scrambling to consolidate international trade blocs, worship rather than resentment of power and privilege, and a wholehearted embrace of social Darwinism in racial, class, and gender forms, all make late twentieth century US capitalism a closer relative of the Robber Baron capitalism of a hundred years ago than its “kinder and gentler” post New Deal cousin. Meanwhile, understandable disillusionment with non-capitalist economies in the former Soviet Bloc, combined with unavoidable naivete about capitalism, promise a painful learning curve for the inhabitants of the second world, most of whom find themselves joining the third world rather than the first world, as they had hoped. Last, but not least discouraging, growing absolute as well as relative poverty is accelerating social dissolution in much of the third world. Obviously, none of this is moving us in the direction we want.

Moreover, fewer can find solace in old left doctrines of inevitable capitalist collapse. Many twentieth century progressives sustained themselves emotionally and psychologically with false beliefs that capitalism’s dynamism and technological creativity would prove to be its weakness as well as its strength. Grandiose Marxist crisis theories – a tendency for the rate of profit to fall as machinery was substituted for exploitable living labor, or insufficient demand to keep the capitalist bubble afloat as productive potential outstripped the buying power of wages – used to buoy the hopes of the faithful in face of crushing political defeats. And less ideological reformers were still affected by the myth that capitalism organized its own replacement. Unfortunately, none of this was ever true.

What is true is that capitalism is not satisfying essential human needs for the majority of people on the planet. Capitalism is not satisfying the need for basic economic security for most of the third world and a growing underclass in the advanced economies. Capitalism is not satisfying the need for self-managed, meaningful work that an increasingly educated populace demands. Capitalism is not satisfying needs for community, dignity, and economic justice. And capitalism is not keeping itself from devouring the environment and generating an international climate that fosters conflict and war instead of peace and cooperation. Moreover, the new Robber Baron capitalism currently unfolding virtually unconstrained on a global scale, gives every indication of escalating the pace of human immiseration and environmental degradation, which means most people will have to struggle harder than their parents to meet their economic needs. If ever there was a time for critics of capitalism to put aside their differences – particularly differences over choices that do not have to be made for fifty years or more – this would seem to be that time. But is it that simple? What if differences over long-run vision are also differences over what is wrong with capitalism? What if different visions are really differences over what is fair and how people should work together? What if different visions are also differences over who, beside capitalists, are the enemy, and who are friends?

How to Fight for Economic Justice

As best I can tell the situation is as follows: Some, like myself, reject markets in large part because we believe rewards for contributions due to greater abilities, not to mention rewards for greater ability and/or willingness to maneuver, are not fair. Some market socialists, on the other hand, think it is unfair not to reward those who make greater contributions, and convince themselves that maneuvering can be rendered impossible. These two groups fundamentally disagree about what is a fair distribution of economic burdens and benefits, and what it is possible to eliminate in a market system. Other market socialists, however, concede that reward according to contribution is not entirely fair, but are willing to sacrifice some equity to advance other goals such as efficiency or freedom. In their view, rewarding personal contribution serves the cause of efficiency and/or freedom and the gain can outweigh the loss in equity. A third group of market socialists agree that in theory only reward for personal sacrifice, or effort, is truly equitable, but they have a “stage theory” of economic justice. They reason we can only eliminate categories of economic injustice step by step. In their view, first we eliminated injustices based on a monopoly of military power – feudal exploitation. Now we are working to eliminate injustices that stem from unequal wealth – capitalist exploitation. While the moral struggle against capitalism is being waged it is counter productive in their view to raise the issue of injustice stemming from unequal endowments of human capital, because we cannot expect to eliminate “socialist exploitation” at the same time capitalist exploitation is being eliminated.

In this situation it is tempting to conclude we should all “unite and fight” unequal property income. Increase capital gains taxes. Raise inheritance taxes. Replace regressive FICA and sales taxes with a wealth tax. What could be wrong with a “soak the rich” campaign to reverse the recent trend of tax breaks for the wealthy? My answer is, it depends on how it’s done.

First of all, limiting our campaign for economic justice to opposing unequal property income is annoying. When Michael Jordan is paid more per year by Nike to endorse their shoes than all the wages paid to Indonesian workers making Nike, Reebok, and Adidas shoes in a year, its annoying to have to mute one’s criticism of injustices that stem from differences in human capital. Because Michael Jordan can jump higher and stay in the air longer than any human being, he is able to provide extraordinary sport viewing benefits and command endorsement income that dwarfs his mind boggling salary. It reeks of injustice just like the difference between the salaries of doctors and lawyers and the wages of ditch diggers and maids.

Second, it’s worrisome. What guarantee do those who are poor in physical and human capital have that after they make common cause to dispossess the wealthy with those who are poor only in physical capital, those rich in human capital will put their shoulder to the wheel in the next stage of the sequential fight for economic justice? If the movement for economic justice fails to challenge injustices resulting from unequal endowments of human capital, don’t those who are doubly capital poor run the risk of undermining their own cause? This is a problem familiar to feminists and minorities who are always encouraged to subordinate their own agendas in service of unity in progressive coalitions defined around economic goals. “Don’t rock the boat, your time will come,” is familiar enough advice. But nobody wants to be a sucker, especially those who can least afford it.

Third, the trade-off rationale is bogus, and the stage theory of justice is highly questionable. The only factor people control that affects their productivity is their level of effort. Contrary to popular opinion it follows that rewarding effort is the most efficient way to promote performance. So much for sacrificing fairness because it increases efficiency.

Few consider it a virtue to allow people “freedom” to exploit others. Free societies do not justify slavery on grounds that it allows people “freedom” to exploit slaves. Market socialists do not argue for private enterprise on grounds that it allows people with greater physical capital “freedom” to exploit employees. So why would we accept an argument for reward according to contribution on grounds that it allows people with more human capital “freedom” to exploit those with less? Of course that is not how those rich in human capital usually see themselves.

Instead, they see themselves as deserving more because they contribute more. But we have already rejected that conclusion on grounds that their greater contribution, if not the result of greater effort or sacrifice, carries no moral weight. To conclude they have no moral right to benefit from their greater endowment of human capital is to conclude that we deny no legitimate freedom by preventing them from doing so. So much for sacrificing fairness because it serves the cause of freedom.

Finally, the stage theory of justice is highly questionable – which makes complicated rationalizations for tolerating injustice based on differences in human capital smell more than a little fishy – especially given

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