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Capitalism and Equality-Prabhat Patnaik
-The Telegraph

Even reformed capitalism cannot give equal opportunity

There is a view that the real problem with capitalism is that there is no equality of opportunity under this system. Your entire life gets determined by which class you happen to get born into. If the effect of this ‘happenstance’ could somehow be eliminated, so that everyone enjoyed equality of opportunity, then even though income and wealth inequalities continued to remain in society, this fact per se would not be a cause for concern. Access to larger income and wealth would then be determined not by ‘luck’ (of being born into a particular class) but by ability and effort. In fact, one can even go further: if the capitalist system could be so reformed that equality of opportunity for everyone could be ensured within this system itself, then even the continued existence of a group of people called capitalists and another group called workers, should not really matter. Needless to say, equality of opportunity in such a ‘reformed’ capitalist society must entail the confiscation to a significant extent, through death duties, of the property of the capitalists after their death so that their children do not enjoy an unfair advantage over others.

Interestingly, the economist, Joseph Schumpeter, had argued that capitalism actually provided equality of opportunity to everyone even in the absence of death duties, in other words, that the vision that many had about a reformed ‘ideal’ capitalism was already realized within actually existing capitalism. In his view profits arose because of innovations, that is, the introduction of new processes, new products, new methods of organization and so on; and carrying out such innovations required not the ownership of the means of production but ‘entrepreneurship’ which consisted in the ability to pick out profit-making opportunities. Entrepreneurs could always obtain credit from banks for undertaking investments embodying innovations, and they were typically associated with new firms, since those associated with old firms (who would have been entrepreneurs earlier) were set in their ways of thinking and incapable of seeing new possibilities. And since new processes and products drove out old processes and products over a period of time, the old rich were always being supplanted by the emergence of the new rich. He thus had a theory of social mobility, according to which, substantial inequalities remained in society, but the top slots were occupied by an ever-changing group of persons who came there because of entrepreneurial ability, not because of inherited riches.

Equality of opportunity must not only need confiscation of wealth through death duties (although Schumpeter saw this happening automatically through old firms being driven out of business), but also full employment (which Schumpeter assumed was the normal equilibrium state of a capitalist economy). Even if it is the case that the capitalists are recruited from the ranks of the workers, through some workers periodically becoming entrepreneurs and carrying out innovations with credit from the banks, that is, even if between the capitalists and the workers we have not a rigid class divide but only a two-way social mobility, with some workers rising up to establish new firms and some owners of old firms getting pushed down to the ranks of workers, even then the absence of full employment would mean unequal opportunities between ‘the employed’ and ‘the unemployed’. Quite apart from the difference in the material conditions of these two groups which would place the former in a more advantageous position, there is also the fact that the self-esteem and self-confidence of those without work would get sapped, making it harder for them to take any initiative, such as would be required of a Schumpeterian entrepreneur. Hence any vision of a world with equality of opportunity must encompass full employment.

And that brings us to the nub of the problem. A capitalist economy cannot function without unemployment, or what Marx had called “ a reserve army of labour”. Such a reserve army is necessary for restraining money wage claims of the workers, which is a condition for the stability of the value of money. (In a system where much wealth is held in the form of money or money-denominated assets, this stability is of paramount importance.) Besides, a reserve army is required for enforcing work discipline among workers. A slave society imposes work discipline among the slaves through brutal coercion. A feudal society likewise imposes work discipline among the serfs working on the Monseigneur’s land through the use of the whip. But under capitalism, where direct coercion is not the primary instrument of instilling work discipline among the workers (though it is used pervasively), the place of the Monseigneur’s whip is taken by ‘the threat of the sack’. Anyone who is suspected to be a laggard is given the ‘sack’ and the fear of this happening makes people work. Now, the ‘sack’ obviously becomes effective only in a society where there are unemployed persons, so that being pushed out from the ranks of the employed to those of the unemployed becomes a terrifying prospect. If there was full employment then one could walk out of one job only to join another with no harm done to oneself. Hence the fear of the ‘sack’, which is essential for work discipline under capitalism, requires the existence of unemployment. A capitalist economy therefore cannot function if it maintains full employment. And this would also hold for any ‘reformed capitalism’ which sought to introduce equality of opportunity. It follows, therefore, that equality of opportunity is impossible under capitalism.

One can reject, on ethical grounds, the view that inequalities in income and wealth are to be tolerated as long as there is equality of opportunity for everyone. Hence one can reject, on ethical grounds, even the vision of a ‘reformed’ capitalist society, which unlike all capitalist societies one has known to date, does successfully offer equality of opportunity to everyone, if at the same time significant inequalities in income and wealth still persist. And since the demand for equality of opportunity itself is an ethical demand, there is no obvious reason why one should stop at equality of opportunity alone and tolerate significant inequalities in income and wealth. This whole vision, in short, which is conjured up by a section of social democracy, can be ethically questioned. But the point being made here is that it is an impossible vision in practical terms as well. No capitalist society, no matter how ‘reformed’ it may be, can do without unemployment, and hence can offer equality of opportunity in any meaningful sense.

Equality of opportunity is possible only in a society which can achieve and maintain full employment without jeopardizing work discipline, that is, only in a society where people work with discipline not because they are afraid of being consigned to the ranks of the unemployed but because they voluntarily internalize the need to work with discipline. This can only be a society where the workers collectively own the means of production. Of course, mere formal or juridical ownership of the means of production by the collectivity of workers is not enough to ensure that they internalize the necessity to work with discipline; they must feel part of a ‘community’ and transcend their individual self-interest as a condition for this. Equality of opportunity in short is possible only under socialism.

To be sure, one cannot underestimate or minimize the difficulties of achieving such a socialist society. But to think of equality of opportunity as achievable under capitalism, and therefore to believe that such a ‘reformed capitalism’ obviates any need for socialism, is a chimera. The proposition that a ‘reformed capitalism’ is all that we need, and that socialism is quite unnecessary, since equality of opportunity is what we basically value and that is achievable under capitalism, is theoretically wrong; the acceptance of this theoretically wrong proposition because of the perceived practical difficulties of achieving socialism, is just wishful thinking, a mere escapist device.

To say all this is not to suggest that the demand for equality of opportunity must wait until socialism is established. In a society like ours with its obscene inequalities in wealth, incomes and hence in access to opportunities, the struggle for equality of opportunity must be an immediate item on the agenda requiring urgent attention. And whatever steps are taken in this direction must be counted as constituting progress. But while struggling for such progress, one must not lose sight of the basic proposition that genuine equality of opportunity, which, in spite of being only a halfway house in ethical terms, is an essential component of democracy and on the achievement of which one must not make compromises and be satisfied with half-measures, is only possible in a society that transcends the use of coercion to make people work.

The author is Professor Emeritus, Centre for Economic Studies, Jawaharlal Nehru University, New Delhi