What is intrinsic in Capitalism which leads to accumulation of wealth with a minority?

Question

I know this is a broad question some would recommend me reading Marx or other critics of capitalism to find the answer.

But my question is, in almost all western world, there are left wing entities in government which try to 'amend' the system, but despite all those measures by 'left wing' entities (consider these left entities as spectrum from center left to extreme left), one thing in which systems in western nations have failed miserably: i.e., stop the accumulation of wealth. Yes, the quality of life of ordinary man has gone better as compared to one century before, but from Korea to US, Germany to Australia, gap between rich and poor is getting wider and wider.

I want to ask, is this polarization of wealth a natural corollary of capitalism? If yes, then what is that thing which, despite 'measures' by center-left/socialist/left parties - this problem- instead of receding, is getting worse and worse?

Answer 1

Very roughly, a Marxist viewpoint would hold that inequality is intrinsic to capitalism since capitalism is a system in which the means of production are privately owned and are used to make profits for their owners. Profits derive from selling the products of labour, employed to operate the means of production, at a higher price than is paid to that labour : this is the extraction of surplus value. A far more refined and nuanced statement is possible and I leave this to others. What I want to suggest here, basing myself on the work of Geoffrey Hughes, is that there are sources of inequality in capitalism, turning on 'complexity', which apply independently of a Marxist analysis.

Capitalism, complexity, and inequality

Capitalism is a social formation in which markets and commodity production are pervasive, including capital markets and labor markets. ... Its driving logic involves the expansion and diversification of multiple markets. As it expands, corporations seek ever-new opportunities for trade and gain. As competition intensifies within particular markets, profit-seeking corporations innovate and diversify their products in unceasing creation of new market niches (Chamberlin 1933; Rueschemeyer 1986). The competitive pursuit of profit pressures firms to invest in new technology or new skills. In this quest for innovation, the frontiers of science and technology are advanced, leading to new fields of knowledge and enquiry. Services are generally more diverse than manufactured goods; hence, diversity also increases with the increasing relative size of the service sector. New and varied organizational forms are devised to increase productivity and to manage an exponentially expanding number of products and processes.

Accordingly, there is a long-run tendency in capitalist economic systems toward greater complexity, driven by powerful economic forces and leading to the widening of markets and greater product diversification (Warsh 1985). There are several meanings of complexity and the definition of complexity is problematic (Pryor 1996; Rosser 199-9), but we can make an outline attempt. Complexity is not the same as variety (Saviotti 1996). Variety refers to a diversity of types. Complexity exists only when such variety exists within a structured system. In short, complexity in the sense used here is systemically interconnected and interactive variety. By this definition, increasing economic complexity means a growing diversity of interactions between human beings and between people and their technology...

The increasing diversity of products and tasks, along with the growing sophistication of knowledge, is likely to be paralleled with an increasing variety of skills and occupations. As complexity grows within the economic system, it is likely that there will be demands for higher and higher levels of skill in particular specialisms. New specialisms emerge to deal with the multiplying facets of the increasingly complex capitalist system. Workers with advanced and transferable skills, and with enhanced capacities to rapidly learn and adapt, are more and more at a premium. We have a scenario of enhanced skills and growing knowledge intensity. Some skills and professions will become obsolete. At the same time, for each individual worker, it becomes more difficult and costly to transfer readily from one specialism to another. A skills escalator can emerge, where frequent retraining is required to relocate in the more skilled and more highly remunerative jobs. Retraining is easier and less risky for those that already have acquired high skill levels. Without remedial policies and subsidies, some may never get onto the skills escalator. A further widening of inequality can result. (Geoffrey M. Hodgson, 'Capitalism, Complexity, and Inequality', Journal of Economic Issues, Vol. 37, No. 2 (Jun., 2003), pp. 471-478 : 471-2, 474-5.)

Introducing increasing complexity into the picture fits both with Marxist analysis and with an explanation independent of Marxism.

References

Chamberlin, Edward H. The Theory of Monopolistic Competition. Cambridge, Mass.: Harvard University Press, 1933.

Hodgson, Geoffrey M. 'Capitalism, Complexity, and Inequality', Journal of Economic Issues, Vol. 37, No. 2 (Jun., 2003), pp. 471-478.

Pryor, Frederic L. Economic Evolution and Structure: The Impact of Complexity on the U.S. Economic System. Cambridge and New York: Cambridge University Press, 1996.

Pryor, Frederic L., and David L. Schafer. Who's Not Working and Why. Cambridge: Cambridge UniveTsity Press, 1999.

Rosser, J. Barkley, Jr. "On the Complexities of Complex Economic Dynamics." Journal of Economic Perspectives, 13, no. 4 (fall 1999): 169-192.

Rueschemeyer, Dietrich. Power and the Division of Labor. Stanford, Calif.: Stanford University Press, 1986.

Saviotti, Pier Paolo. Technological Evolution, Variety, and the Economy. Aldershot, U.K.: Edward Elgar, 1996.

Answer 2

I pose two postulates:

1. The more wealth you have, the easier it is to accumulate wealth
2. The total potential to accumulate wealth exceeds the rate at which the available wealth grows

The first point means that, on average, the gap in wealth between people will tend to grow over time.

The second point implies a competition which, I think, tends to shape the distribution of wealth so that there are fewer high-wealth people.

Answer 3

I have another psychological approach which is that capitalism encourages non-empathetic behaviour.

When morality and ethics are a problem to most people those individuals with no remorse nor ethics who are good at emulating to have them are rewarded because in capitalism morality is expensive.

Take for instance drugs companies who won't research cure to diseases because they are making large profits out them. Or any other human experience or sensation you can think of such as the business of sex, entertainment, justice, education, health, prisons, military contractors, mainstream media, politicians, war, pitty and sadness etc. All those don't always have morality nor common interest in mind and if some changes are made in society they could go out of business.

The amount of sociopaths, psychopaths and greedy narcissists is small compared to ordinary people. Selling your ethics for wealth is not new:

Matthew 4:8 ...the devil took him to a very high mountain and showed him all the kingdoms of the world and their glory. “All this I will give You,” he said, “if You will fall down and worship me.”…

Answer 4

Think of any board game that uses a resource management mechanic... at the beginning of the game, everyone starts with the same exact quantity of resources, and by the end of the game, some have (through a combination of luck, strategy, and tactics) accumulated more resources than others.

In such a game, those who are losing have thinner and thinner margins for error as the game goes on. Any mistake in strategy or poor roll of the dice will wipe out larger and larger percentages of their available resources. Conversely, those who are winning have wider and wider margins of error... losses that would wipe out other players in a single round can be recovered in future rounds because there's more cushion.

Let's add a cooperation mechanic to the game, so that players can agree to combine resources in order to gain more resources. The players with fewer resources will find it difficult to participate... they may not have the minimum resources required, and they are in a weaker bargaining position when it comes to negotiating payouts. So the players with more resources will tend to cooperate with each other.

Let's add another mechanic -- new players can be invited into the game by current players. New players start with resources that are given to them by the player who invited them. Players with more resources can afford to give more resources to new players. New players will start in a position determined by who invited them into the game, so some players will be invited and start with more resources than existing players.

Let's add a rent mechanic to the game. Players can corner the market on certain resources, and other players will be forced to pay part of their resources to the player who holds that resource in order to stay in the game. The players who are charging rent will, of course, gain resources in excess of the cost of holding the resource. In addition, they can give such revenue generating resources to new players who they invite into the game.

Now we have a situation where new players are invited into the game, and some of those players start the game with the ability to collect resources from other new players, and some players start the game needing to pay resources to other players in order just to stay in the game.

Is it possible to gain a large number of resources in such a game, if you start out the game losing? Of course. All you need is near perfect play and good luck. Is it possible to lose a large number of resources in such a game? Of course. All you need is terrible play and a lot of bad luck. But if you start the game with a rent generating resource, you can keep winning without putting much effort into the game at all.

Capitalism is a resource management game that never ends, where those who are winning write the rules, and the only way to quit is death.

Answer 5

The purpose of Capitalism is to create wealth for the ones in power to do so. Everything else from an objective p.o.v is secondary towards irrelevant compared to that purpose, human life included. Everything else from a general p.o.v. is propaganda (**1 will detail below*).

The tendency of such a system can be interpreted mathematically and it manifested like it was planned, meaning in plain English that more and more wealth will be in the hands of less and less people. It was, is and always will be inevitable. (Rule of Acquisition 010: Greed is eternal, Rule of Acquisition 182: The cost for profit is never too high.)

Currently (actually since about 3 years ago), we got to the point that in the U.S. the top 1% own more wealth than the bottom 95%, and between them stands a buffer of about 4%.

In time, the 1% will become 1:1000, the 95% will become 99% and the rest of under 1% will be the buffer. (**1:detail* - none whatsoever will ever be able to reach top 1% unless selected, trained, formatted and approved by the ones currently in that top 1%).

The only issue relevant here is what actually happens when the wealth distribution becomes so unbalanced that will lead to a collapse of the system.

Mathematically, the numbers 0.1%, 99% and under 1% are the critical point, which is relatively close, but math is not the only factor.

The top wealthy ones also take complete measures on all aspects to make sure that they stay in power, they grow wealthier, they have the means to protect themselves and their wealth and to oppress everyone that tries anything against them.

So the math-based collapse will not work because the wealthy top controls everything: the actual wealth, the oppressive armed forces (which become more and more armed), the means of trade, the rules (they call laws, which are no longer based on morality), the resources, the top technology, the top knowledge and every other practical aspect of a society. In order for the system to re-balance itself, the % difference will have to be larger than the mathematically-anticipated one.

Therefore, the capitalism is quite a bigger failure compared to socialism and will lead inevitably to a more destructive collapse.

To convince yourselves how capitalism actually works, please study the complete Ferengi rules of acqusition and replace the word Latinum with Gold or $ or what currency you prefer and Ferengi with 'a top 1% wealthy person' or anything similar you may find convenient. The rules, as the movies series they appear in, have been created at the supervision of those time's top wealthiest people, which even used extrapolations of technologies which actually were later developed.

So to conclude: the discrepancy will become higher and higher until the system will self-balance by total collapse.

Probably the system that will replace it will be meritocracy, which is another topic.

Answer 6

Simple: freedom. It is the same as asking why the best soccer players in the world are so few and there is a huge difference between them and the rest of the soccer players? Well, because in a system that has freedom the best players emerge.

Answer 7

Inequality has been part of humanity for a long time, the relevant question is what is the trend on inequality, both recently and historically, and why.

One of the key insights here IS from Marx, and it has to do with surplus profits. Basically almost every commercial interaction operates with surplus profits for both sides -- in that the same deal could be arrived at with a range of prices. If either party would walk away if the price point moved by a small amount in the wrong direction, that party has no surplus profit from the deal.

Surplus profits gives all parties flexibility -- they can grant favors in a deal, or outright gifts to others. Those with NO excess profits, are unable to be generous. The rest of us are able to be generous, because excess profits appear in almost everything we do.

The first appearance of significant inequality was with the development of agriculture. With that development, humans became settled, our population grew dramatically, and we developed a ruling class, who granted to themselves the "ownership" of land, which was the major source of wealth. The ruling class became far more wealthy than working farmers. Whether this was due to "ownership" or "ruling" is hard to decouple. Most agricultural societies used law to force the working farmers to negotiate at a disadvantage (serf laws, etc) so that the owners/rulers could maximize how much of that excess profit they could pocket. Note, profitability had a weak relationship to competence -- inherited landowners had no particular competence, but were inordinately wealthy due to the laws of ownership, and serfdom.

There were a few factories where artisans made pottery, cloth, dye, etc en mass before the industrial age, but those organizations were rare. A few merchants also became wealthy, basically due to a large return on risk from moving goods place/place. These were anomalies. These merchants and artisans were an exception to meritless wealth. Until recently, the wealthy were landowners and/or rulers, and were not wealthy due to merit.

Note, some commentators claim that humans solely work to maximize profit, but this was not the case for the owner/rulers, who used their surplus profits to be generous to their offspring and relatives, and other "people like us". The channeling of generosity to a class or ethnicity, creates an inherited advantaged society, and is typical of human behavior.

With the industrial age, the ability to make lots of stuff much more inexpensively than before created a lot more wealth, and therefore the potential for a large amount of excess profits, far more than the world had ever seen before. The development of farming mechanization, with the mechanisms built in these factories simultaneously created a large excess of working farmers who were now unemployed. The numbers of farmers vs factory owners meant that the factory owners had a massive advantage in negotiation how much of that excess profit each won in wage negotiations -- leading to a huge spike in the return on factory ownership. An astonish wealthy class of factory owners developed, the era of the "Robber Barons". Most were actually wealthy due to merit (they were mostly competent workaholics), but their accumulation of wealth was massively in excess of their relative merit.

These early "Robber Barons" followed the landowner/rulers into controlling government for their own benefit. Anti-union, anti-education, etc laws were common, in both democracies and aristocracies. This pattern reflects a Marxist insight that government is purchasable -- it tends to act to skew markets in the interest of those with wealth. The institutional and legal advantages of ownership and rulership, plus selective generosity, then permanently advantaged their NON-meriting relatives and offspring.

In the first few decades of the 20th century, the farms were drained of most of their excess workers, leading to less of a labor surplus in the industrialized countries, and a gradual increase in the negotiating power of workers, and relative increase in wages. Simultaneously, "leftist" governments reversed course, and benefitted workers over owners. Unions often were made mandatory, maximum work days and weeks were legislated, and workplace safety rules were regulated. Many Social Democrat leftists cite these rules as the reason for the increase in wealth of workers in this era. Marxist reasoning would argue the causation went the other way, the newly wealthy workers used that wealth to capture the government from the Robber Barons, and then used the government for some additional marginal advantaging.

Note, for most of the 20th century, economic disparity DECREASED in industrialized countries, in contradiction of the premise of this question.

That trend of decreasing disparity reversed in the 1980s. Simultaneously, governments across the industrialized world began "deregulating". Social Democratic leftists argue the deregulation caused the disparity. Marxist thinking is that the increasing disparity lead to the wealthy class being more wealthy, so they could recapture government, and use it to advantage themselves more.

If the Marxist approach is correct, then we need some other explanation for the increasing disparity, besides just "capitalism". So what changed?

My answer -- the 1980s were the start of the digital era. This was the first decade of microchips. Prior to the microchip revolution, the high cost of N American or N European workers was more than compensated for by lower transport costs from their factories. Microchips allow the most value-added products to be small and easily transportable, so that suppliers don't have much of an advantage being co-located with final product factories. A days worth of production no longer needed several trains to be transported, but instead could fit in one jet. The microchip revolution started a landslide of relocation of factories to places that did not have worker shortages, but instead had worker surpluses because the farmers were still on the land. This destroyed the bargaining advantage of workers vs factory owners, and the owners recaptured most of the excess profit from their workers.

The software revolution has just amplified this trend. Now, it is not just blue collar factory work that can be relocated to low cost countries, but all labor. Worker wages, and fraction of excess profits worldwide, are in steep decline. And worldwide, "rightist" parties are suddenly more wealthy, and are capturing control of governments.

There is a limit to this rebound into inequality. Once the world is roughly equally industrialized, there will be no steady supply of new places to export factories to, and inequality will start to decrease again.

Answer 8

This question makes unclear, unstated and false assumptions about moral philosophy, political economy and the conduct of politicians. So to reply to this question it is necessary to address those assumptions.

So let's start with the assumptions about moral philosophy:

Yes, the quality of life of ordinary man has gone better as compared to one century before, but from Korea to US, Germany to Australia, gap between rich and poor is getting wider and wider.

This statement assumes that you should care about what other people have and feel a burning envy and resentment if they have more. It isn't enough to say that some people do feel such resentment, because if that's all there was to it you could advise the envious person to change his ideas so he will stop envying people. Basing your life around what other people do is a mistake because it makes you dependent on them. But other people don't control you and most of them don't know much about you. So their ability to help you is extremely limited. Should they give you more money if you have less money? Not necessarily, maybe you have less money because you suck at dealing with money.

There is another much uglier side to this envy. The idea that rich people owe poor people assumes that rich people owe stuff to poor people by virtue of having more money. In other words, a rich person are just an end to be used by a poor person. If he doesn't do what the poor person wants, he is bad and should be expropriated or punished in some other way.

There is a common idea that rich people get rich unfairly. There are two ways to get lots of money in our current political system. One is to sell stuff that makes a profit. When this happens, the material used to make the goods cost less than the goods themselves. The goods used to makes the sales goods (capital goods) could be demanded for other uses, but the person who actually uses them outbids the person who doesn't. He is willing to pay more because he judges them more suitable than the alternatives and he makes enough money to bid for them. So the other potential users have less demand for those capital goods. If there was a better use for those goods from the point of view of consumers it would be possible for somebody to work that out and outbid the current highest bidder. So problems with how things are made can be corrected by the system of profit and loss. All of the transactions involved are voluntary - a person who doesn't want to undertake them won't be forced to undertake them.

The other way people can make money is getting favours from government officials, including politicians. Government officials get their income by having the ability to use force against people who haven't initiated the use of force against them. For example, if I judge that my tax money is being wasted for purpose X and I write to the government and say "I don't agree with X and won't pay for it", then the government will not take no for an answer. I will be forced to pay or I will be imprisoned and if I resist then I may be injured or killed.

Selling stuff to make a profit is a rational way to get resources since it facilitates the correction of errors. In politics, correcting errors is a lot harder. In Western countries, where correcting political errors is easiest, at best you get the ability to cast a single vote every few years and if the government you voted for loses you a load of policies you disagree with are foisted on you. And since politicians have such poor feedback about what they're doing, they make many mistakes.

To understand these issues better you could read "The Virtue of Selfishness" or "Atlas Shrugged" by Ayn Rand, Capitalism by George Reisman or Interventionism: An Economic Analysis by Ludwig von Mises.

Answer 9

No. Inequality is not even particularly related to capitalism. And to the extent that it is, it is very weakly negatively correlated.

Note that nearly all of the countries one might think of as capitalist today are far from purely so. The USA for example collects approximately 25.5 % of the GDP as taxes. Government sets the rules, monitors the results, and actively particpates in large swathes of the economy. This is hardly pure capitalism.

One measure of wealth inequality is the Gini coefficient. "A Gini coefficient of 0 expresses perfect equality, where all values are the same, while a Gini coefficient of 1 (or 100%) expresses maximal inequality among values. "

The data pictured here is from https://www.gapminder.org/tools/ with the Gini coefficient chosen as the vertical. It is a bit of a challenge to decide what to put as the horizontal axis. What will represent the "degree of capitalism" in a country? The graph has chosen Democracy score. This is described as "Overall polity score from the Polity IV dataset, calculated by subtracting an autocracy score from a democracy score. It is a summary measure of a country's democratic and free nature." Freedom is taken as a proxy for capitalism.

If you are not familiar with Gapminder, this graph may appear quite strange. The data is from the best available sources, all cited and vetted on the web site. The data is available to download from the site. The data points are shown in this graph with the size of the ball indicating the population of the country. Green is north and south America, Yellow is Europe and the former USSR, blue is Africa, red is Asia and Australia.

There is no particular trend here. The scatter at a given democracy score is similar to that across the whole range. Democracy and freedom do no better and no worse at producing equality of wealth than does autocracy.

This is the link to the data tool with the setup I used. It is interesting to play the animation from the begining of the data set at about the year 1800. Nearly all the movement is horizontal with just a little motion vertical, very gently downward. That is, over the last two centuries as capitalism has made limited penetration, the Gini coefficient has changed only very weakly, and that very slightly downward.

That's right. The world with capitalism has very slightly less inequality than it did two centuries ago when capitalism was first spreading.

Indeed, the notion that inequality is uniquely associated with or created by capitalism is simply wrong. Inequality has existed since humans have existed. And it has existed under every political system humans have ever invented.