Most business leaders, mass media, politicians and academics keep defining capitalism, the main economic system in today’s world, as markets plus private (“free”) enterprises. That definition is wrong. Definitions matter more now than ever as people increasingly question, challenge and want to move beyond capitalism.
Consider the 20th century revolutions that overthrew a capitalism they defined as markets plus free enterprises. In Russia and China, they replaced private, free enterprises with socialized (state-owned-and-operated) enterprises and replaced market mechanisms of distribution with central state-planned distribution. They called that “socialism,” thinking they had abolished and gone beyond capitalism. However, their socialism proved unable to sustain itself and mostly reverted back to capitalism.
One reason those revolutions failed to go beyond capitalism was those revolutionaries’ definition of capitalism and socialism. That definition crucially shaped their strategies for and very conceptions of revolutionary social change. Since that definition still shapes debates over and strategies for social change today, it urgently needs to be criticized and set aside.
Because capitalism is so regularly defined as “a market system,” we may consider first the actual nonequivalence of capitalism and markets. Capitalism became the dominant economic system in England in revolt against feudalism there in the 17th century. Capitalism spread from England to the western European mainland and thereafter to the rest of the world. However, capitalism was neither the first nor the only system to utilize markets as its means of distributing resources and products. In the slave economic systems that prevailed in various times and places across human history, markets were often the means of distributing resources (including slaves themselves) and the products of slaves’ labor. In the pre-Civil War United States, for example, masters sold slaves and cotton produced by slaves in markets. Thus, the presence of a “market system” does not distinguish capitalism from a slave system.
Whatever distinguishes capitalism from such other systems as slavery and feudalism, markets and free enterprises are not it.
The same logic applies to feudalism. In many times and places across European feudalism, for example, products of feudal enterprises (called “manors”) were sold in markets to serfs and lords of other manors. During the 20th century, for example, feudal latifundias in Latin America sold their products on world markets. The presence of a “market system” does not distinguish capitalism from feudalism. Even the presence of a particular market – e.g., for wage labor – is no definite marker of capitalism’s presence. Economic history displays various examples of slaves and serfs having some or all of their labor power exchanged in markets for money or other commodities.
A parallel argument applies to “free enterprise.” The capitalist enterprise is more or less “free” to set the prices, quantities and qualities of its outputs; organize its labor processes; choose among available technologies; and distribute its profits. But much the same has often applied to slave plantations and feudal manors.
Likewise, capitalism has persisted when markets were subordinated to other mechanisms of distribution. For example, during World War 2, ration cards distributed by the US government fundamentally displaced the market system for distributing many goods. Capitalism also can and has coexisted with “unfree” enterprises. In August, 1971, President Nixon took away the freedom of capitalist enterprises to set prices or wages. Capitalism elsewhere has often continued despite markets and enterprise freedoms being variously abrogated or suppressed for differing lengths of time.
Whatever distinguishes capitalism from such other systems as slavery and feudalism, markets and free enterprises are not it. Nor will competition or the extent of government intervention serve to differentiate capitalism from other systems. The competition among capitalist enterprises had its parallels in competitions among slave plantations, feudal manors, feudal guild workers and so on. Competition varies in its forms and intensities among capitalist enterprises depending on the context and conditions of each industry across time and space. The same is true for competition among noncapitalist enterprises.
How an economic system organizes the production, appropriation and distribution of its surplus neatly and clearly differentiates capitalism from other systems.
Finally, government intervention into an otherwise “private” sector of the economy has also been a variable feature of all economic systems. In some slave systems, slaves were chiefly privately owned, while in others, states owned and worked many slaves. In Europe, the absolute monarchies toward the end of feudalism were states owning huge numbers of subordinated serfs alongside the privately run feudal manors of such kings’ subjects. Shifting constellations of private versus state production units characterize noncapitalist as well as capitalist systems.
So then how should we define capitalism to differentiate it from alternative economic systems such as slavery, feudalism and a post-capitalist socialism? The answer is “in terms of the organization of the surplus.” How an economic system organizes the production, appropriation and distribution of its surplus neatly and clearly differentiates capitalism from other systems.
In slavery, one group of persons, the slaves that are others’ property, performs the basic productive labor. Slaves use their brains and muscles to transform objects in nature into what masters desire. Masters immediately appropriate their slaves’ total output, but they usually return a portion of that output for the slaves’ consumption. The excess of the slaves’ total output over what they get to consume (plus what replaces inputs used up in production) is the surplus. The masters take that surplus and generally distribute it to others in society (e.g., police and army, church, etc.) who provide the conditions (security, belief systems, etc.) needed for this slave organization of the surplus to persist through time.
Feudalism displays a different organization of the surplus. Serfs are not property as slaves are; lords do not immediately and totally appropriate what serfs produce. Instead, serfs and lords enter into personal relationships entailing mutual obligations (in European feudalism: fealty, vassalage, etc.). In medieval Europe, lords assigned land parcels to serfs, whose labor there yielded outputs. Feudal obligations typically included either 1) serfs’ laboring parts of each week on their assigned plots and keeping the proceeds and laboring other parts of the week on the lord’s retained land, with the lord keeping the product of that labor (“corvée”); or 2) the serf delivering to the lord as “rent” a portion of the product (or its monetary equivalent) from the land assigned to and worked by the serf. Corvée and rent were forms of Europe’s feudal surplus.
Marx used the word “exploitation” to focus analytical attention on what capitalism shared with feudalism and slavery, something that capitalist revolutions against slavery and feudalism never overcame.
Capitalism’s organization of the surplus differs from both slavery’s and feudalism’s. The surplus producers in capitalism are neither property (slavery), nor bound by personal relationships (feudal mutual obligations). Instead, the producers in capitalism enter “voluntarily” into contracts with the possessors of material means of production (land and capital). The contracts, usually in money terms, specify 1) how much will be paid by the possessors to buy/employ the producer’s labor power, and 2) the conditions of the producers’ actual labor processes. The contract’s goal is for the producers’ labor to add more value during production than the value paid to the producer. That excess of value added by worker over value paid to worker is the capitalist form of the surplus, or surplus value.
While the capitalist, feudal and slave organizations of the surplus differ as described above, they also share one crucial feature. In each system, the individuals who produce surpluses are not identical to the individuals who appropriate and then distribute those surpluses. Each system shares a basic alienation – of producers from their products – located at the core of production. That alienation provokes parallel class struggles: slaves versus masters, serfs versus lords, and workers versus capitalists. Marx used the word “exploitation” to focus analytical attention on what capitalism shared with feudalism and slavery, something that capitalist revolutions against slavery and feudalism never overcame.
The concept of exploitation serves also to differentiate socialism clearly from capitalism, feudalism and slavery. In a socialism defined in terms of surplus organization, the producers and the appropriators/distributors of the surplus are identical; they are the same people. In such socialist enterprises, the workers collectively appropriate and distribute the surplus they produce. They perform functions parallel to those of boards of directors in capitalist corporations. Such “workers’ self-directed enterprises” (WSDEs) are unlike slave, feudal and/or capitalist enterprises. WSDEs represent the end of exploitation.
Significant conclusions follow. Soviet socialism from 1917 to 1989 did displace private in favor of social ownership of means of production and markets in favor of central planning. It did not displace the capitalist organization of the surplus in favor of WSDEs; surplus producers and appropriators in state enterprises were not made identical.
Workers produced and others – the USSR’s Council of Ministers and their appointed state officials – appropriated and distributed surpluses generated in state industrial enterprises and on state farms. The Soviet definition of socialism did not focus on the organization of the surplus. Most socialists over the last century, pro- and anti-Soviet alike, used the same definition. In the 19th century, Marx and Engels saw the seizure of state power as a means to transition from capitalism to socialism. In the 20th century, state ownership of the means of production and state central planning became the definition of socialism itself: the end, not just the means. That problematic definition of capitalism and its difference from socialism remains prevalent to this day.
The 20th century’s major experiments to establish socialism would have ended differently had organizers defined capitalism and socialism differently. Their policies might then have replaced not only private with social property and markets with central planning, but also exploitative with nonexploitative organizations of the surplus. As ground-level organizations, WSDEs might have secured a democratic accountability of socialist governments and thereby the survival and development of socialist economies.
The surplus-focused definitions of capitalism and socialism are available to social movements today as they engage and contest economic systems. Or those movements can stay enmeshed in old, endlessly recycled debates between more (Keynesian and welfare statist) versus less (neoliberal) government intervention in capitalist economies. Will the movements keep limiting their goals to expanded government regulation of, and intervention in, economic systems where capitalist organizations of the surplus continue to prevail?
Or will social movements – increasingly facing a hostile global capitalism – seek alliances with advocates of system change via establishing enterprise democracy through WSDEs? Such political questions become urgent as more people than ever question capitalist globalization and capitalism generally.
Cooperatives of all kinds, including worker cooperatives, have a long complex history. In many parts of the world today, they have carved out an acceptable – on condition of remaining a relatively small – place in otherwise capitalist economies. They rarely confront capitalism as an alternative economic system, likely fearing capitalism’s probable reaction.
Confrontation – putting WSDEs forward as a systemic alternative to capitalism – could take may forms. For example, labor unions could add the establishment of worker coops to their strategies vis-à-vis capital. When employers demand concessions by threatening to close enterprises, move them abroad, etc., unions could refuse and proceed instead to establish workers coops if and when the employers actually abandon enterprises. To take another example, localities could campaign for use of eminent domain to address both unemployment and poverty by organizing and supporting worker coops. The successful Mondragon Cooperative Corporation was born in a poor and unemployment-ravaged part of 1950s Spain. High school, college and university curricula could include both abstract discussions on how the US might do better than capitalism and practical courses for establishing worker coops.
Most important would be if progressive political forces saw gains from allying with, helping to build, and undertaking mass political and ideological support for worker coops. The latter could then provide a crucial communication bridge between the left and the daily struggles of workers in their enterprises, both those still capitalist and those that are WSDEs or becoming so. Workers already in WSDEs and those working for transition to WSDEs could also provide economic and political supports to left political initiatives and campaigns. In return, the left could mobilize for legal and other changes to provide worker coops with the needed legislative framework, capital and markets. Mass political campaigns eventually secured the Small Business Administration for small businesses and various levels of political supports for minority and women-owned businesses. WSDEs could benefit from parallel administrations assisting them.
Eventually, when WSDEs had become widespread enough and an allied left had grown enough, they jointly could offer the American people a real choice never before available. They might choose an economy based on capitalist, top-down hierarchical enterprise organization or one based on WSDEs, or some mixture of both. If fair and open, I have little doubt where that vote would point.
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