Who Exploits You More: Capitalists or Cronies?

Uploaded by LearnLiberty on 17.07.2012

Karl Marx famously thought that a capitalist economy promotes the systematic exploitation
of workers. For Marx, this idea was based on a labor theory of value, which most scholars
today reject. Nevertheless many still agree with Marx's basic claim that capitalism
is inherently exploitative. They simply define exploitation in broader and less contentious
terms. Instead of thinking about exploitation as involving the forced extraction of surplus
value from labor, contemporary philosophers define it as taking unfair advantage of others'
vulnerability. And defined in this way, many philosophers think that contemporary capitalism
is rife with exploitation, with economically powerful capitalists taking unfair advantage
of workers' vulnerability in order to maximize their profit. So what should we make of this
argument? Is capitalism exploitative and what's the alternative?
Well, first, it's absolutely correct that many capitalists want to exploit workers.
They want to pay as low a wage as possible and get as much work out of workers as possible
in order to maximize profit. But the fact that other capitalists also want to exploit
workers in this way makes it difficult for any of them to do so. This is because competitive
pressure forces capitalists to pay workers close to the value of what those workers produce,
whether they want to or not. If you try to pay someone less than they're worth, someone
else will offer them more because they can profit by doing so. Imagine you're in an
auction bidding against others for a dollar. Of course you'd like to pay as little as
possible for that dollar, but if someone else was bidding 60 cents for it, wouldn't it
be worth your while to bid 62? And wouldn't someone else then bid 64 and so on? In a competitive
marketplace that same process lead capitalists to pay workers close to the value of what
they produce, not because they want to, but because they have to.
The second point to keep in mind about capitalism and exploitation is this: Even when exploitative
or unfair exchanges do take place, the institutions of a free market ensure that they will at
least usually be mutually beneficial because the exchanges are voluntary. As an example,
think about an exchange that a lot of people find unfair: payday loans. A poor working
man needs money right now to meet his basic needs and so gets a loan from a payday loan
store but only by paying fees equivalent to a 400 percent annual percentage rate. Let's
grant, at least for the sake of argument, that charging such a high interest rate is
unfair. Even so, it is important to bear in mind that both parties had the opportunity
to say no to the exchange if they believed that they could do better somewhere else.
And because of this fact, because the exchange was voluntary in just this very weak sense,
this means that both parties expect to gain more from the exchange than they give up.
It means that unless one of them has made a mistake, the exchange will be mutually beneficial.
This is an important fact, important for the well being of individual laborers and important
for the growth and development of society as a whole. Mutually beneficial exchanges
are how wealth is created in society, and the more wealth the society creates over time,
the less vulnerability there is for capitalists to exploit.
Markets aren't perfect, but whether or not you think capitalism is exploitative you need
to ask, what's the alternative? The usual suggestion is political regulation and control.
But if our concern is to minimize exploitation, we need to ask whether this alternative really
makes sense. After all, citizens are in a position of tremendous vulnerability relative
to the state, and lobbyists, bureaucrats, and elected officials will often be tempted
to exploit that vulnerability for their own private gain.
Think of the way in which our political institutions subsidize large agro businesses, bail out
auto companies, cartelize the banking industry through the Federal Reserve System, and so
on. All of these policies benefit the interests of the economically powerful and politically
well connected at the expense of ordinary citizens. That's not a free market at work;
that's big government. And politics is unlike markets in that political exchanges aren't
voluntary. When the government wants to use your money to bail out GM, you don't have
the right to say no. And this means there's no guarantee that the exchange will be mutually
beneficial. When politics is involved, one party's gain usually comes at someone else's
expense. Politicians gain from the contributions they receive from big business, and big business
gains from the favors they receive from government. Sure those favors have a cost, but because
government has the power of coercion, it can force third parties to pay that cost. Those
who can afford political influence get the benefits, and those who cannot afford it suffer
the consequences. This is how politics works. And it's not because we have bad people
in office and need to get nicer people in. It's because of the structural nature of
politics, because the state has the power to impose its decisions by force on the public.
Just hoping that the state will use its power on behalf of the vulnerable isn't enough.
We need to ask ourselves, if we really want to reduce the amount of exploitation in the
world, is increasing the power of the state really the best way to do it?