Fallacy of capitalism

A second curse against capitalism is that: Capitalism exploits the poor. Some people believe that every benefit under capitalism has to come at someone else’s expense because the system only has limited opportunities available to its citizens. This zero-sum opinion on market economy can be easily rebuked in the textbook but the reason why it is so popular is that the explanation seems to fit the reality well. The opponents stare at the graph of Gini coefficient and data of unemployment and shout, “Don’t you see that the wealth gap is shocking? Don’t you know that there’re too many people who even cannot get a job to feed themselves? That’s ridiculous and should be changed.” Once again they call for socialism, but this time they find a famous partner, Albert Einstein. In his article “Why socialism”, Einstein says that “A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman and child.” Einstein is a famous scientist and humanist, but it doesn’t mean that his comment on economics is axiom. Generally people make judgment based on data, but what if the data doesn’t reflect the truth?

Some of the data are conducted by cross-sectional experiments. That is, people of various ages and background are assessed at the same time and their incomes are compared. Researchers are easy to get a mass of information by this kind of experiments but in fact, a lot of factors influencing income are omitted. For example, it’s not surprising in life that when an old business man can earn much more than a novice because the former is more experienced and has more business partners. But this difference isn’t shown in data. In addition, it’s generally accepted that different education levels lead to different jobs and pays, (or we won’t go to college), but not many data mark the difference of education, especially the ones concerning salaries nationwide. So the data collected without a differentiation of age, education and aptitude bracket are not convincing. But unfortunately, people don’t want to know how to conduct surveys in social science and some researchers just don’t do work seriously.

“Maybe you are right, but you can’t deny the fact that capitalists are exploiting the African people now.” Some of the scholars may fight back. Well, it’s safe that Africa remains the poorest continent in earth, but is it really the capitalism that causes the low living standard of African people? If that’s the case, why is my motherland China, once one of the poorest countries, now having a boost in economy in the same era? In my opinion, some other possible reasons, such as (1)some of the traditions of African tribes impede the growth of economy (2) governments’ bad policies (3)African people’s laziness and tardiness, can account for the poverty of Africa. With so many variables, why should people take it for granted that capitalism is the cause of poverty in Africa?

“Anyway, capitalism is not fair in distribution of incomes. We need some organizations to ask for rights.” Social activists may stand out at this moment, “We must redistribute the incomes and set up labor unions to fight for our rights.” Well, like I said before, incomes are determined by age, education and aptitude. Redistributing the incomes actually means making inequity and changing people’s incentives, which can push back and hurt the economy. “Are you kidding me? That’s impossible.” Activists may treat my argument with contempt. Well, I will use a story to illustrate my point.

Imagine one day a poor guy, Alex, wakes up and finds that he is given 100 bucks by wealth redistribution administration, “We’ve forced the rich man, Bob, to promise that he will give you the surplus income everyday.” An official shakes Alex’s hand warmly, wishes him good luck and leaves. “Oh, great I got money. Maybe I can go for a drink rather than go to do the tiring job.” Alex is exhilarated and drinks for a whole day. At night, he gets drunk and thus his friend escorts him to go home. “Don’t you work tomorrow?” “No, that stupid Bob will have to give me 100 bucks everyday, why the heck do I have to do the job just for 50 bucks?” Thus, Alex no longer goes to job.

Another protagonist, Bob, thinks, “I studied in the college for four years to get this job.  I work hard to earn the income. Why the hell do I have to give the money to that lazy poor man?” Bob, once a diligent businessman, loses incentive to work hard as before.

The result of the redistribution of income is that the country loses two workers. If the program is generalized, the country may have to face a stagnation of economic growth. Maybe the story is somewhat exaggerated, but my point is that policies with good intentions may cause bad consequences: emphasizing redistribution without scrutiny may lead to problem within the society.

“All right, all right.” Social activists don’t give up, “But we can still count on labor unions to maintain our rights.” But the truth is that labor union is no better than the wealth redistribution program. A main goal of labor unions is to ask for a better wage for their members. A labor union may organize strikes to force the employers to succumb to its request. But some members in the union simply just don’t worth a higher wage. Other workers who ask for a lower wage could have gotten the job, but since the goal of a labor union is to protect the rights of its members, these workers will face threats from the union and have to give up the jobs. The increase cost of production may also change employers’ incentives: they invest another area to seek a better profit, which in the end will make the members of labor union worse off.
 Strikes can be detrimental to the whole society. For example, the Naples strike by garbage workers in 2010 paralyzed the whole city. No tourists went to the city, local citizens were exploited of fresh air and public services. Garbage workers had to clean the trash whether they could get a rise in pay. Nobody gets profits from the strike.