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December 9, 2009

Capitalism, why is it breaking down?

Syed Imran Ali and Usman Mushtaq

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In a 1963 address, U.S. President Kennedy said, "As they say on my own Cape Cod, a rising tide lifts all the boats".

In a 1963 address, U.S. President Kennedy said, “As they say on my own Cape Cod, a rising tide lifts all the boats”.

The aphorism stuck to the public consciousness and has since been repeatedly invoked to defend capitalism, even if Kennedy never used the original phrase in that context. 

The ‘rising tide’ argument states that capitalism, as an engine for rapid economic growth, improves material conditions for all people in an absolute manner.

That unequal growth may lead to the relative conditions between different socioeconomic classes becoming worse is not something that is typically emphasized – but this is a secondary point.

The very suggestion that capitalism raises all boats is itself questionable. Moreover, such unequal growth is antithetical to the liberal underpinnings of our society.

The tide that doesn’t rise

Gene Sperling, former National Economic Adviser to Bill Clinton, suggested that the 12 years (1981-1993) of Reagan-Bush were more like a “period of rising yachts and sinking row boats”.

He argues that average incomes of the top 5 percent rose 62 percent, the top quintile rose 34 percent, while the middle remained stagnant and the bottom quintile saw its real income decline by 10 percent.

The data indicates that not only are the rich becoming richer, the poor and middle class are becoming poorer.

What’s more is that of all this coincides with a period of intense privatization of public services, further exacerbating the burden on the working poor.

As public services become privatized, they become inaccessible for many of the working poor forcing them to spend even more money on the most basic of necessities.

The economic tide does not rise for the vast majority of the population, and this is but one of the potential impacts of modern capitalism.

Unaccounted capitals

The opening of national economies in the so-called ”Global South” over the past three decades has exposed rural agrarian economies to the global marketplace.

Myriad outcomes of this exposure, from competition with industrialized country imports to ‘green revolution’ technologies, have contributed to the growing redundancy of rural labour, fuelling an explosion in urban populations.

As rural people are forced to migrate to the cities – often to slums – by the rapid restructuring of the labour economy, they suffer a near total loss of the social networks and capital they previously enjoyed in the traditional socio-cultural environment that characterized their rural communities.

With the loss of this social capital, opportunities, community support, and extended social safety nets disappear leaving the poor even more vulnerable to the vicissitudes of the market economy.

While they may be better off than a subsistence farmer in strictly income terms – and this is not necessarily true – rural-urban migrants are almost certainly more vulnerable on the basic level of food, housing and water, while being exposed to plethora forms of institutional and social violence and deprived of previous social supports.

In this way as well, the expansion of global capitalism may contribute to the absolute worsening of material and immaterial conditions for large swathes of the population in the ”Global South”.

Besides the loss of social capital, there is also the loss of ecological capital with the degradation of common goods such as clean water and air and the extraction of natural resources. As a rising tide requires sending more natural resources to market to lift everyone up, common resources are increasingly commodified and privatized removing them from the public domain.

In this way, ecological resources that were available to all become inaccessible to most of the working poor.

Communities that had access to this capital whether in the form of mining or agricultural resources lose this capital even if they receive financial capital in exchange.

Financial capital cannot simply replace ecological capital for both environmental and social reasons.

For example, those at the bottom no longer live in environments with ecological redundancy in which they have access to multiple ecological resources. These environments often have one ecological resource on which people must depend on.

Moreover, the working poor cannot simply trade ecological resources with each other strengthening community bonds and self-sufficiency.

Instead, they must sell the resources in an unforgiving and unpredictable market for financial compensation that may not match labour value. This causes the loss of self-sufficiency both ecologically and socially. No amount of increased financial capital can compensate for that loss.

Illiberal values

What has been seen in the preceding sections is that for the majority the tide rises not, but instead falls.

A critical question that then arises is for whom does it fall?

As has been noted, it is typically the poor, the vulnerable, and the marginalized that face greater barriers in accessing the benefits of the modern capitalist system, whereas privileged groups access it readily and see their dominance reinforced.

That some individuals should suffer so that many others may flourish may be justifiable on utilitarian grounds.

However, the numbers contend that the opposite is occurring, with the deprivation of the many supporting the excess of the few.

From the perspective of liberalism, the philosophical underpinning of modern Western society, that any individual person should be deprived of the means to a life of dignity and well-being for the benefit of another is entirely unacceptable.

As Columbia law professor Jeremy Waldron puts it, “It is a cardinal principle of liberal thought that no one’s interest in power, prominence, or luxury by itself justifies the coercive imposition of a restriction on others”.

Modern capitalism has become antithetical to the very liberalism upon which it is ostensibly predicated. Modern capitalism seems to have adopted illiberal values.

Decrease in the quality of life

While the rising tide may raise some boats on the water, it certainly doesn't help the boats that aren't on the water.

These “landed boats” are individuals and families who are unable to tap into the labour market.

For these working-class people with weak connections to the labour market, there is no help.

These families or individuals may have weak connections to the labour market for several reasons such as:  the head of the household not being able-bodied enough to work, potential hires facing racism, entry barriers such as professionalization to the labour market being too high.

Since these people cannot participate in the labour market, they cannot earn capital to boost their quality of living.

They are permanently excluded from the rising tide. After all, you need to work to make a living especially if public programs are cut or privatized making them inaccessible.

Syed Imran Ali is a Ph.D. candidate at the University of Guelph and Usman Mushtaq is a M.Sc. candidate at Queen's University.

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