Questioning the Logic of Capital: A Conversation With Richard D. Wolff

Richard D. Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, where he taught economics from 1973 to 2008. He is currently a visiting professor in the Graduate Programs in International Affairs at the New School University in New York City. In this interview, Wolff discusses how market-based economies have had their critics since the times of Plato and Aristotle, how both major US political parties have become subservient to the gospel of capitalism and how technology isn’t always constructive. This interview has been edited for clarity and length.

Vaios Triantafyllou: Picking up where we left off in our previous conversation, I would like to discuss the interplay between central planning or economic organization and the direct participation in decision-making on both a political and an economic level. Do you think that there exists such an interplay? If so, how can we make sure that the former does not interfere with or limit the latter?

Richard Wolff: You can think of economies that have existed historically, in which each producing unit (I will exaggerate now, but you get the point) was self-sufficient. Think of a farming family, a peasant family, that literally makes its own clothing, builds its own house, raises its own animals; it could be in some sense self-sufficient. But, for a long time in human history, the human community has found it advantageous in some way to shift from self-sufficiency to a division of labor so that one person bakes the bread, another person makes the shirts, another person designs the software programs and so on.

The minute you have a division of labor — and the advantage there is, as Adam Smith and many others note — you get more output per hour of input. But the minute you do that, to get that advantage, you must pay, dialectically, the price. You must deal with the negatives. One of those negatives is the need for coordination. There has to be some way that the bread maker makes enough bread but not too much bread, while the shirt maker makes enough shirts, etc.

So, every society that enjoys a division of labor has a coordination problem. In capitalism the major (by no means the only) institutional arrangement for this coordination has been the market. In my opinion, the market is an extraordinarily clumsy and inefficient way to coordinate. But it is a way that human beings have done that. They have never had what is called a “pure market system.” That is a utopian fantasy of the people who love markets, and who, therefore, derive a policy that it is always better to remove anything other than the market from distribution, but no society has ever allowed that to happen. In fact, for every time any society has moved further toward the market, there has inevitably been a reaction, sooner or later, by those backing the other direction. Socialists over the last 150 years, for many reasons, ended up in a majority being against the market. There have always been critics of the market.

The basic critique of Plato and Aristotle, as of so many, was that markets destroy community, markets destroy social cohesion. It is a very socially dangerous mechanism, in part because it is inefficient, but even more importantly, because it is an engine of inequality, and always has been. So, socialists turned against it and decided that in their new world, instead of the market, they would have rational planning.

A community would get together in some presumably democratic way to organize the coordination among the individual producing units. Let’s call them “enterprises,” because that’s as good a word as any. So, the planning — some mechanism where people would get together, have a conversation, agree on a plan, a program. That planning could and has been, historically, everything from centrally done, in one center of a nation, to de-centrally done. It can be done at the regional level, at the local level. Obviously, if the planning is mostly local, and there has to be some coordination among the localities, then how much of that coordination is needed depends on the division of labor. How much each locality can do for itself. The more it does for itself, the less coordination you will need among the localities.

There will have to be some coordination among these collectivized, communistic worker self-operated enterprises. When there is coordination, as there always has been, there will be tensions. That will take place in any social arrangement because the relationship between the individual and the collective, however it’s structured, will always have its overdetermined contradictions and that is not absent in an economy of worker self-directed enterprises instead of capitalistically organized hierarchies.

Capitalism, as a system, has often been analyzed in terms precisely of the contradictions between coordination and the individual goals of producing units: institutions like the US the Federal Reserve Bank, or the government of the US, or state government in each of the 50 states or local authorities. This is a constant contradictory tension between what individual companies do and what these coordinating entities do. One of the geniuses of American capitalism has been to persuade the mass of the American people that the content of politics is just those contradictions.

For example, the Republican Party presents itself as the advocate of minimal planning, minimal interference, a kind of translation of utopian marketism into politics. So they are forever getting the support of the business community because, in effect, what they are suggesting is that coordination be subordinated to the private profit and pursuit of individual enterprises. Whereas the Democratic Party presents itself as the advocate of benefits to the mass of people by having some planning, by constraining at least a little bit what the private enterprises are doing. Not constraining them very much, but at least pretending that it is in the interest of the community.

The brilliance there is not the conflict over coordination, because that always exists. The brilliance in the United States is that politicians have persuaded the mass of people that that’s what politics is; that’s what it should be; and there should be absolutely no political discussion about the organization of the enterprise itself. As if that organization is beyond political dispute, as if that organization — the capitalist employer-employee relationship — is either emerging out of nature itself, or is dictated by technology. So if we want the benefits of modern technology, we must have the employer-employee relationship. Or, finally, that yes, there are other relationships, but they are all inferior and the modern capitalist arrangement is so far superior that there need be no dispute about it.

If that ideology had not established itself, it would have been much easier for people like me to intrude into politics; that the questions should not be “more or less coordination,” but ought to be, just as important, the organization of the enterprise, since most people spend five days a week there, i.e. most of their lives, which is much more than their engagement in the coordination among the enterprises.

Now let’s look at the most commonly employed counter-argument against socialism: the question of incentives. When we remove materialistic incentives and competition, the narrative goes, that in the absence of competition, people do not have the incentive to work as hard and innovate anymore. Do you believe that this argument has a basis? If so, do you believe that this is a matter of human nature, or is it a matter of the institutions that we put in place?

We are not driven by single motivations or single incentives. We are driven by many diverse motivations, each of which contains an incentive, and these are not compatible; they are, in fact, contradictory. So how does this translate into economics? Again, the examples are enormous: When I go to work, I want to have decent time. I want to have good relationships with my coworkers. I spend the better time of five days a week with them. I want there to be friendship, tolerance, solidarity, but I also want to get more money; I want to please the boss because the boss determines how much money I get. But if I do things to please the boss, I may very well do things that will upset my coworkers, and vice versa. I have to navigate all of that. My actual behavior is not driven either by the incentive to make more money, or by the incentive to have good relationships with my coworkers. It is driven by both of those incentives, which are contradictory.

Now, turning to the issue itself: What are the incentives to make a technical breakthrough? The very logic of that argument is that there will be breakthroughs if the inventor, the technological innovator, gets a reward for doing so. Well, I have already spoken about why this story is never enough by itself because every inventor is governed by a thousand other incentives in terms of shaping his or her behavior. Let’s focus on the relationship between reward and technical innovation. The vast majority of people who are working in any workplace will not get a reward if they come up with either a new product or a new process for making products. And the reason is the way technology is rewarded is not to reward the inventor. It’s typically to reward whoever has the legal authority over the invention. I can give you endless examples of people who made breakthroughs but didn’t have the money or the legal advice to enable them to capture anything like the benefits that come from the thing that they invented. And I can show you, at the same time, that people who became wildly wealthy because they did have the money and the legal maneuvering that allowed them to capture the technological breakthroughs made by others.

A technical change that makes workers twice as efficient often incentivizes the capitalist to buy and install the new machine and then to fire half his workers. He profits more than way assuming a reasonable price for the machine. Workers will then logically be incentivized to not find or share information about more efficient production technologies. Imagine instead a non-capitalist enterprise – a worker coop where workers are their own collective employer – they buy the machine but instead of firing half the workers they decided instead to cut the workday in half. They would do this if they value the extra leisure over the extra profits. And getting much more leisure for all is an immensely greater incentive to technical change than the capitalist approach that, in effect, punishes most workers for technical breakthroughs in production.

So, I would argue that the link that is asserted isn’t there. It is a reducing of a complicated relationship to a simple quid pro quo, and therefore, it’s invalid. It is an attempt to rationalize and justify the capitalist system on the spurious ground that it makes for technical breakthroughs that other systems could not or did not make. I don’t think that’s true, and that’s not how I interpret the Marxist argument about the technical dynamism of capitalism. I don’t think Karl Marx was saying capitalism produces more technological change, what it is, is its more dynamic. It has built in a competitive mechanism. But that competitive mechanism changes everything. That’s a very different argument from “everything is progress.” I don’t believe that. Technology today, for example, and for the past 20-30 years, has been focused on making computer chips go faster. The vast majority of the people in the world don’t even have access to computers. It would be much more progressive to provide simple computers to more people, than to provide ever more complex computer to a very limited number of people.

Lastly, in a socialist society, I would assume that people would recognize that among the many incentives that govern people’s technological innovations are your education, your relationship with other workers, your family, your larger community and also your individual reward for what you discover. And among the kinds of individual rewards, there are many: You could be celebrated in the community in which you live; at your workplace where an hour is taken out on the end of the week on Friday to celebrate each week that worker who, in the preceding week, has come up with a breakthrough, a change, an innovation that really helps the whole enterprise or community. In 99 percent of capitalist enterprises, the worker who makes a change on the assembly line or in the office is not given any recognition of any kind. And the result of that is that innovation in capitalism long ago stopped being something everybody did, looked for, hoped to achieve. It became, instead, a specialized activity that had to be paid for precisely because the incentives were not built in the overall complex and contradictory situation of each worker. In other words, capitalism produces research and development, laboratories for technical breakthrough, in large part because capitalism has destroyed, undermined, cut off the innovativeness of the mass of workers, in large part because there is very little incentive for them to do much of a breakthrough since it doesn’t help them.

This is not a system that incentivizes developing people’s capacity to make innovation. If you wanted to believe, as Americans do, that these fancy universities are the best possible place to get an education, and you really wanted to incentivize technical breakthrough, you would take the most capable students and put them in those universities. I can assure you that the most capable students in the US don’t go to those universities in large. So the notion that we are a society that is structured to provide incentives, that’s all ideological self-celebration of capitalism, pretending (precisely because it isn’t true) that it is somehow more technologically progressive than all the alternatives human beings could consider.

Further extending my question from the micro to the macro level, capitalism has managed to achieve the rapid marketization of its products and make them available, at least within what we call the developed world, through lots of schemes such as loans, monthly installments, etc. It is evident that on an individual level, there is no clear link between financial incentives and innovation, but is there a link between incentives and rapid marketization, such as making a drug readily available or making an iPhone readily available?

Absolutely. That’s what I was suggesting at the end of my response. Capitalism has, just like feudalism or slavery or any other system, its particular patterns of technological change. It’s not what one system has and what another hasn’t, or that one system is fast and the other is slow. In any society at any time, there is an infinity of areas in which it could be technologically dynamic.

So, for example, let’s take the United States. There is much to be done in making telephones more attractive so that the telephone not only allows you to speak to another person (as telephones always do), but we are now thinking about having a telephone that also takes a picture. That also can send that picture to another person someplace else. And it can give us access to the internet, send an email, and so on. And there is profit in a telephone that can do something that other telephones can’t. That’s capitalism. So that profit is an incentive in this system, and a very powerful one to make an advance, if that’s what you want to call it, in the telephone: to give it an additional capability that it did not have before.

At the same time, there are a million other areas of social life that need attending to. For example, here in the United States, for some years now, we have what is called a housing affordability crisis. That is the relationship between the cost of housing in one year and the average income of the American people. It is impossible for Americans to afford the same level of housing that the previous generation enjoyed. But the profit that this system would provide to someone who could figure out how to get that profit either isn’t there or isn’t persuasive, or isn’t big enough to compete with the profit of another advancement on your cellphone. Therefore, the engineers and the money and the laboratories of this system are devoted to enabling the telephone to do three more things next year compared to what it can do this year, and those resources are therefore not devoted to solving the housing problem.

Capitalism makes you develop the technology in some areas and not in others. To use the simplest example, the capitalist system is a unique system in the sense that the warfare that has accrued among capitalist countries has been much more devastating than any that has occurred before in other systems. We already had two world wars in the 20th century and god knows what’s going to happen in this century. So, capitalism, having had these wars, and being cheerful of its own warlike tendencies, spends an enormous amount of its energy and time to incentivize ever-bigger rockets, ever more horrible bombs, ever more drone warfare, you name it. Lots of technological innovation comes out of the mutual disruptiveness that this society has produced.