As accurately described by Lindblom, in a market system business occupies a position of privilege (Lindblom 1977). As business (capitalists) control the means of production (Marx & Engels 1848), the rest of society is reliant on the capitalist class for employment, and the provision of goods and services. Thus government must meet certain minimum business needs (profits) in order to induce business to employ workers and produce. (Lindblom 1977). The public good is therefore met through fulfilling business needs, unless the capitalist mode of production is replaced with an alternative.
As businesses seek to maximise profits they attempt to induce from government more than the minimum profits required to produce. The current global financial crisis illustrates this point. In response to business demands financial regulation was reduced in order to allow higher profits and ‘innovation’. The race to gain higher profits created a bubble, which inevitably burst. Despite creating this problem, business is able to demand, even require taxpayers’ money in order to ‘bail’ them out of their own mess. They are able to do this legitimately because if they were not ‘bailed out’, the global recession would be far deeper and the rest of society would suffer. It may be that the post-war banking regulation was overly intrusive and should have been modified, but the current crisis shows that business was able to convince government to take it too far beyond what was required in order for them to produce.
Government must therefore (assuming that it is democratic and represents the public interest) tread a fine line between meeting the minimum and legitimate business needs in order for them to produce, and giving into their class interests. This however does not often happen in practise. Business seeks to ‘indoctrinate citizens to overlook their privileged position’ (Lindblom 1977: 203) and remove it from public discussion. Because of this the public often support excessive business interest over their own. Another reason is the inevitable links the privilege creates between government and business, they often come from common backgrounds and many business people become politicians, eg Malcolm Turnbull, bringing business/capitalist interests into politics. It should not be concluded from this that business always gets their way. Not all capitalisms are the same. In Scandinavian countries the state plays a far larger role than in Australia, one that has primarily been accomplished by the labour movement. Ultimately it is government who calls the shots, thus when the state has been acting in the public interest, it normally plays a much larger role in regulating the economy.
This leads to the conclusion that capitalism is fundamentally undemocratic as a minority class wields disproportionate influence over both economic and political decision making. Using this logic many concluded that government should take control of all means of production, entirely regulate the economy for the public good. State Socialism however has been an abysmal failure. Democracy was non-existent in all state socialist countries and as predicted by Bakunin a new bureaucratic ruling class was created (Bakunin n.d). Many state socialist countries suffered economic stagnation and formally socialist countries such as China and Vietnam are embracing market reforms in order to stimulate economic growth. It is this economic growth, resulting in increased living standards that has been the saviour of capitalism. Without this there surely would have been other attempts at a more democratic socialism.
Despite its benefits, constant economic growth may be in conflict with the public good, and should this be the case capitalism, and the privileged position of business that accompanies it, may have to be removed or at least radically altered. The Easterlin Paradox has shown that despite massive economic growth, reported life satisfaction and happiness has stayed constant in all most developed nations, showing that there is not necessarily a positive correlation between the two. (Frey & Stutzer 2002: 413) If happiness derived from increased income is in reality caused by one’s relative status in society, then increasing material wellbeing through economic growth may not make us any happier. Further undermining this legitimacy is the fact that cross country comparisons reveal that after a country reaches approx $10,000 per capita they receive massively diminished returns from further increases in wealth (Frey & Stutzer 416). Therefore government should not necessarily give in to all business demands for economic growth, beyond the minimum required to keep pace with population growth and should instead focus on providing full employment and reducing income inequality.
Even more damning is the recognition that long-term economic growth may not be sustainable. As the Earth is a closed system with a finite carrying capacity, the global ecosystem can only support the economy up to a point, beyond which we face ecological collapse. (Daly 1997) If a capitalist economy cannot exist without economic growth and economic growth is tied to increased resource/energy use then it is unsustainable. Regardless of any social inequalities or its undemocratic nature this presents fundamental flaw with capitalism. If a capitalist society cannot live within its means then it must either change or perish.
Within the existing market-capitalist system the privileged position of business, despite being undemocratic is legitimate and must be recognised. Government must therefore regulate the economy up to the point when it conflicts with businesses minimum, and legitimate needs. Despite state socialist not providing a viable alternative on social grounds, the economic growth and material wealth provided by capitalism may not help is in our fundamental pursuit, that of happiness, bringing its legitimacy into question, even more if it as a system if incompatible with staying within our ecological limits. It must therefore in the long term be replaced. A third alternative to state socialism and capitalism is needed, libertarian socialism may provide the answer. The important point that society should exist to benefit the individuals that comprise it (Goldman 1940), the shape it takes is a means to this end.
References
Bakunin, M n.d, ‘Marxism, Freedom and the State’, in the Pierre J. Proudhon memorial computer, accessed 12 May 2008, from <>
Carson, KA 2002, ‘The Iron Fist Behind the Invisible Hand’, in the Pierre J. Proudhon memorial computer, accessed 12 May 2008, from <>
Daly, H 1997, Beyond Growth: The Economics of Sustainable Development, Beacon Press, Boston
Frey, & Stutzer 2002, ‘What Can Economists Learn From Happiness Research?’, Journal of Economic Literature, vol 40, June, pg 402-35
Goldman, E 1940, The Individual, Society and the State, in the Pierre J. Proudhon memorial computer, accessed 12 May 2008, from <>
Marx, K Engels, F 1848, The Communist Manifesto, Penguin Books, New York
Lindblom, CE 1977, Politics and Markets: The World’s Political-Economic Systems, Basic Books Inc, New York
