Capitalism gets blamed for many things nowadays: poverty, inequality, unemployment and even global warming. As Pope Francis said in a speech in Bolivia: “This system is by now intolerable: Farm workers find it intolerable, laborers find it intolerable, communities find it intolerable, peoples find it intolerable. The Earth itself — our sister, Mother Earth, as Saint Francis would say — also finds it intolerable.”
However, are the problems that upset Francis the consequence of what he called “unbridled capitalism”? Or are they instead caused by capitalism’s surprising failure to do what was expected of it? Should an agenda to advance social justice be based on bridling capitalism or on eliminating the barriers that thwart its expansion?
The answer in Latin America, Africa, the Middle East and Asia is obviously the latter. To see this, it is useful to recall how Karl Marx imagined the future.
For Marx, the historic role of capitalism was to reorganize production. Gone would be the family farms, artisan yards and the “nation of shopkeepers,” as Napoleon is alleged to have scornfully referred to Britain. All these petty bourgeois activities would be plowed over by the equivalent of today’s Zara, Toyota, Airbus or Walmart.
LABOR IDEAS
As a result, the means of production would no longer be owned by those doing the work, as on the family farm or in the craftsman’s workshop, but by “capital.” Workers would possess only their own labor, which they would be forced to exchange for a miserable wage. Nonetheless, they would be more fortunate than the “reserve army of the unemployed” — a pool of idle labor large enough to make others fear losing their job, but small enough not to waste the surplus value that could be extracted by making them work.
With all previous social classes transformed into the working class and all means of production in the hands of an ever-dwindling group of owners of “capital,” a proletarian revolution would lead humanity to a world of perfect justice: “From each according to his ability, to each according to his needs,” as Marx famously put it.
Clearly, poet and philosopher Paul Valery was right: “The future, like everything else, is no longer what it used to be.”
However, we should not make fun of Marx’s well-known prediction error. After all, as physicist Niels Bohr wryly said: “Prediction is difficult, especially about the future.”
We now know that as the ink was drying on the Communist Manifesto, wages in Europe and the US were beginning a 160-year-long rise, making workers part of the middle class, with cars, mortgages, pensions and petty bourgeois concerns. Politicians today promise to create jobs — or more opportunities to be exploited by capital — not to take over the means of production.
Capitalism could achieve this transformation because the reorganization of production allowed for an unprecedented increase in productivity. The division of labor within and across firms, which Adam Smith had already envisioned in 1776 as the engine of growth, allowed for a division of know-how among individuals that permitted the whole to know more than the parts and form ever-growing networks of exchange and collaboration.
A modern corporation has experts in production, design, marketing, sales, finance, accounting, human-resource management, logistics, taxes, contracts and so on. Modern production is not just an accumulation of buildings and equipment owned by Das Kapital and operated mechanically by fungible workers. Instead, it is a coordinated network of people that possess different types of Das Human-Kapital. In the developed world, capitalism did transform almost everyone into a wage laborer, but it also lifted them out of poverty and made them more prosperous than Marx could have imagined.
That was not the only thing Marx got wrong. More surprisingly, the capitalist reorganization of production petered out in the developing world, leaving the vast majority of the labor force outside its control. The numbers are astounding. While only one in nine people in the US are self-employed, the proportion in India is 19 out of 20. Fewer than one-fifth of workers in Peru are employed by the kind of private businesses that Marx had in mind. In Mexico, about one in three are.
CAPITALIST PRODUCTION
Even within countries, measures of well-being are strongly related to the proportion of the labor force employed in capitalist production. In Mexico’s state of Nuevo Leon, two-thirds of workers are employed by private incorporated businesses, while in Chiapas only one in seven is. No wonder, then, that per capita income is more than nine times higher in Nuevo Leon than in Chiapas. In Colombia, per capita income in Bogota is four times higher than in Maicao. Unsurprisingly, the share of capitalist employment is six times higher in Bogota.
In poverty-stricken Bolivia, Francis criticized “the mentality of profit at any price, with no concern for social exclusion or the destruction of nature,” along with “a crude and naive trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.”
However, this explanation of capitalism’s failure is wide of the mark. The world’s most profitable companies are not exploiting Bolivia. They are simply not there, because they find the place unprofitable. The developing world’s fundamental problem is that capitalism has not reorganized production and employment in the poorest countries and regions, leaving the bulk of the labor force outside its scope of operation.
As Rafael di Tella and Robert MacCulloch have shown, the world’s poorest countries are not characterized by naive trust in capitalism, but by utter distrust, which leads to heavy government intervention and regulation of business. Under such conditions, capitalism does not thrive and economies remain poor.
Francis is right to focus attention on the plight of the world’s poorest. However, their misery is not the consequence of unbridled capitalism, but of a capitalism that has been bridled in just the wrong way.
Ricardo Hausmann, a former Venezuelan minister of planning and former chief economist of the Inter-American Development Bank, is professor of the practice of economic development at Harvard University, where he is also director of the Center for International Development.
Copyright: Project Syndicate
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
If you had a vision of the future where China did not dominate the global car industry, you can kiss those dreams goodbye. That is because US President Donald Trump’s promised 25 percent tariff on auto imports takes an ax to the only bits of the emerging electric vehicle (EV) supply chain that are not already dominated by Beijing. The biggest losers when the levies take effect this week would be Japan and South Korea. They account for one-third of the cars imported into the US, and as much as two-thirds of those imported from outside North America. (Mexico and Canada, while
The military is conducting its annual Han Kuang exercises in phases. The minister of national defense recently said that this year’s scenarios would simulate defending the nation against possible actions the Chinese People’s Liberation Army (PLA) might take in an invasion of Taiwan, making the threat of a speculated Chinese invasion in 2027 a heated agenda item again. That year, also referred to as the “Davidson window,” is named after then-US Indo-Pacific Command Admiral Philip Davidson, who in 2021 warned that Chinese President Xi Jinping (習近平) had instructed the PLA to be ready to invade Taiwan by 2027. Xi in 2017