By Hema Senanayake – 

Hema Senanayake

Without any shame, capitalists do admit that “human greed” is driving the economic progress. In a response to my previous article on this same subject, a reader of CT made a blunt comment of this fact. It is interesting. Let me quote it.

“Until JVP believes that every human has a right to work hard and become rich, JVP will not be successful in their Politics. Becoming rich through hard work and through sheer talent is one’s own right. Therefore JVP cannot dictate terms or put a ceiling or limit people working hard to make Profits in Business or become rich with their born talents. It is only those talents that bring Jobs and revenue and make societies rich. … Business, innovation and entrepreneurship are talents and skills which cannot be taught or copied or bought. It should be encouraged and helped like arts, drama and other skills.” (CT reader, Lasantha)

Do the socialists admit the above notion? I am raising this question because it is an important question to be resolved not only by socialists but also by economists of all schools too. If we do admit “human greed” as the most important element that drives the economic prosperity, then we have to admit the validity of economic mechanism that nurtures the “human greed” more and more. What is that mechanism? It is none other than the individual’s right to own the means of production; in other words, private ownership of the means of production. Capitalism has accepted it.

However, as far as I know, Karl Marx said that private ownership of the means of production leads to exploitation of workers labor power. This is also true. JVP held this view earlier. But, in its latest “Vision and Policy Framework, JVP has surrendered its earlier conviction on private ownership of production means. JVP has now accepted the existence and fostering of private businesses.

Now JVP says: “Public and private sectors will be made part of the production based economy.” (Page 15, Our Vision and Policy Framework of JVP)

So, what happened to the concept of exploitation now? Is it a redundant concept? I do not think so. For example, a capitalist economist and a Noble laureate Professor Joseph Stiglitz, who was in the committee of economic advisers of former U.S president Clinton, say that a proper distribution of income through taxation is necessary. He says” For total American consumption to be restored on a sustainable basis, there would have to be a large redistribution of income, from those at the top who can afford to save, to those below who spend every penny they can get. More progressive taxation (taxing those at the top more heavily, reducing taxes at the bottom) would not only do that but also help stabilize the economy.” (Joseph E. Stiglitz, “Free Fall”, 2010)

The above quote of Stiglitz intimates that even mainstream capitalist economists admit that there is exploitation and hence requires a redistribution of income. Any redistribution of income will put a limit on “human greed.”

My view is that the exploitation doesn’t mean the expansion of productive capital and owned it by capitalist elite. In the final analysis exploitation means that you allocate more consumable output for yourself. To do it you must own the means of production or the government or both.

In fact the separation of the distribution of consumable output from the ownership of the means of production, – no matter whether factories and banks are owned by private individuals or corporations or workers or unions or the government or cooperatives – must be a goal in socialism. Why? because, even the government can exploit.

In a money-based well-functioning democracy the distribution of consumable output can be done fairly without any significant relation to the ownership of production. Capitalist elite know that this is technically and economically possible through maneuvering three variables namely wage structure, taxation and consumer credit. But they say if you do delink the distribution from the ownership of means of production completely or to a greater degree, then you can’t ensure the economic efficiency because you destroy the element of “human greed.”

However, the recent global economic crisis clearly shows that private ownership of means of production has nothing to do with ensuring economic efficiency. All major banks and businesses in the U.S. which are privately owned, such as Bank of America, Citibank, JP Morgan Chase, Wells Fargo, General Motors, Chrysler etc. should have bankrupted by now if not propped up by the government. Therefore, it is clear that continuing economic efficiency and stability purely do not depend on the right to own the means of production. It is clear that “human greed” cannot sustain the continuing economic prosperity. Perhaps, “human creativity” and “systemic reforms” would ensure economic efficiency in capitalism and in socialism too.

Why am I talking about systemic reforms? Is there any systemic error in the present capitalist system? Yes it is. Former Federal Reserve Chairman Greenspan had openly said that he found a flaw in the system. Hyman Minsky said that the nature of capitalist system is to accumulate bad-debt by speculators which lead to periodic collapses, but interestingly he further observes that such bad-debt accumulations cannot be avoided. In general, most economists accept that the boom-and-bust cycles in the capitalist economic system, are unavoidable and they try to explain this phenomenon through what is known as business cycle theory. I reject all these views and question as follows:

The development of physical productive forces is not cyclical, but we have a macroeconomic system that follows boom-and-bust cycles. If the development of physical productive power behaves in a boom-and-bust cyclical pattern, we have to tolerate the boom-and-bust cycle of macroeconomic output and the system as a whole. But if the progress of the physical productive power or the potential of the increment of physical productive power is progressive, then it is not necessary to tolerate the cyclical behavior of the macroeconomic system.

This does not mean that the business cycles of microeconomic system (which correspond to the performance of individual enterprises) should not be tolerated; instead, such cyclical behavior is necessary to ensure business efficiency that is based on consumer preferences. Businesses should be allowed to fail and new businesses should be allowed to emerge based on efficiency and consumer preferences. But macroeconomic system failures occur not due to consumer preferences—but due to the general illiquidity of consumers arising from a cyclical bad debt crises.

The illiquidity of consumers is not a physical phenomenon but a monetary phenomenon; and money that is not “real” is an abstract quantity, which we can control. That is why I strongly argue that we could have prevented the collapse of macroeconomic systems in the US and Europe in late 2007—and the crisis could have been resolved rather quickly if we change the monetary equation. To do it what was—and is—needed is a new macroeconomic policy tool and new wisdom. Systemic error is much severe than petty Ponzi schemes.

No new socialist or capitalist society, in which people live with a feeling of liberation cannot be built if the boom-and-bust cycles persist. Former CEO of Apple Inc. said that humans are tool builders and that makes us efficient than other species. I think not only that, they equally capable of building economic systems that ensures efficiency while distributing the distributable output fairly. Then only we would feel being liberated, as mentioned in the JVP’s Policy document.