Capitalism and the Growing Gap Between Rich and Poor

Introduction: Is Capitalism the Culprit?

Since Karl Marx powerfully challenged capitalism and criticized it as exploitative, capitalism as a system has always come under attack. Although by the end of the twentieth century capitalism appeared to have triumphed over communism and the socialist command economy, many people renew their criticism of capitalism in times of economic crisis. Recent protests on Wall Street, which expanded to other parts of the United States and many places around the world, symbolize growing frustration with the capitalist system. But is capitalism to blame for economic crisis and related problems — such as class inequality, the erosion of social benefits, and the domination of the world economy by corporate powers?

This paper argues that the problem is not with capitalism as such, but with the way it is understood in the corporate community today. Corporate powers that crave monopolies have their own understanding of how businesses should be run, and that understanding is at the heart of current economic problems in the United States and elsewhere.

One of the ironies of the current understanding of capitalism is that supporters of corporate and monopolistic power often invoke Adam Smith and his argument that the "invisible hand" of market economy produces social good. What is generally ignored in these discussions is that the famous British economist was deeply wary of monopolistic power. Smith argued that competition among many enterprises would ensure that the forces of supply and demand produce greater benefit for everyone.

Adam Smith and the Misuse of Free-Market Theory

The way modern capitalism functions, however, is that large companies merge and absorb small businesses, lobby governments to reduce or eliminate corporate taxes, outsource cheap foreign labor to maximize profit, and — most importantly — do not genuinely believe in the concept of laissez-faire, that is, the truly free market.

Advocates of monopoly capitalism argue that the government should stay away from — or intervene as little as possible in — the everyday functioning of the economy, allowing businesses to compete and operate more efficiently. The truth, however, is that corporate powers are not opposed to government intervention in general. They are opposed only to government intervention that does not serve their interests. Corporate powers strongly favor government action when it removes corporate taxes, dismantles antitrust laws, and creates a favorable climate for monopoly capitalism.

As David Harvey (2007) points out, multinational corporations and their spokespersons in the International Monetary Fund and the World Bank pressure smaller states in the developing world to minimize government involvement in their economies. Yet these same self-proclaimed advocates of the "free market" sometimes pressure Washington to deploy U.S. military force to reshape the economic structures of smaller nations to their advantage.

Corporate Power and Selective Government Intervention

The U.S. government has adopted numerous policies over the last thirty years that have disproportionately benefited the wealthy, and corporate powers played an important role in implementing them. Reagan's income tax cuts of 1981, for example, broadly benefited the rich while shifting the federal tax burden onto the middle class and the poor. Relaxed antitrust laws permitted the merger of numerous businesses and oil companies that now keep energy prices high despite the worst economic crisis since the Great Depression.

The consolidation of pharmaceutical and insurance companies so sharply increased healthcare costs in the United States that nearly 15% of GDP is spent on healthcare, even though the quality of care no longer meets the standards found in Europe or Japan. The outsourcing of high-paying jobs in manufacturing and service industries has continued unchecked. Throughout this period, so-called advocates of the "free market" did not remain uninvolved — they relentlessly pressured the government to implement these policies (Batra, 2011).

The consequences of growing corporate and monopoly power can hardly be exaggerated. If average U.S. GDP growth, adjusted for inflation, was 4.4% in the 1960s, by the 2000s it had fallen to just 1.9%. Meanwhile, the number of billionaires and the average salaries of CEOs and other top executives have continued to rise. The 400 richest Americans — the so-called "Forbes 400" — today own as much wealth as the bottom 150 million Americans combined. Because of this enormous gap in wealth and income distribution in the United States and other leading capitalist economies, some analysts have dubbed them "plutonomies" — systems "in which small class fractions control increasingly large portions of social wealth" (Foster & Magdoff, 2007, p. 54).

Conclusion: The Problem With Modern Monopoly Capitalism

Harvey, D. (2007). A brief history of neoliberalism. Oxford University Press.