Yves here. This is a very strong criticism of the idea that capitalism helps the poor. I have problems with his argument. One is that he tries to deny that the labor movement is part of capitalism. Capitalists may hate hate hate it but a profession that tries to set prices and terms philosophically is like (as even Adam Smith criticized) merchants engaging in what we see today as oligopoly behavior or monopoly behavior.
Another way of reading Karl Polanyi’s book The Great Transformation is that unrestrained capitalist activity is so dangerous to societies that it causes a backlash to regulate its functioning, in a language of sorts.
The second is that it is difficult to imagine how a system without markets to set prices would allocate goods and influence investment. The famous investor Jim Rogers, in his book Investment Biker, had visited the USSR in 1994 so memories of Soviet practices were fresh. He gave several examples of how regulated prices have been stripped away and produced massive distortions in demand and production.
You have not actually tried to systematically study how the USSR worked under communism. However, both the USSR and China are the only two major economies to develop in a generation, something no capitalist country has ever done. That success of Communist Russia shocked Western policymakers, because it suggested that a command and control economy could do without a free enterprise system. It is also the reason that economists are the only social scientists to have a seat at the policy table. Government officials believed that they needed their guidance to better manage the economy in order to be able to compete with those Committees.
You have really read the research, but unfortunately I can’t find it given the nature of the search, that the Communist system, especially aimed at production in various sectors and organizations, has worked well for almost a generation. Then the managers began to game the system by finding ways to make their targets unfairly low and other tricks like hiding inventory. Our student GM, who lived his early years in one of the Warsaw Pact states, says that Communism was better than capitalism for 95% of the population, that free housing and free health care were the most important benefits. However, a significant portion of the 5% met people outside the USSR through work, as Putin did in his KGB assignment in Germany; Eugene Luttwak described working with him and even eating with him regularly during that time. Those high-level professionals and managers realized how much lower their standard of living was than their Western peers (Luttwak seemed to find it important to point out what ugly suits Putin was wearing at the time). GM says that anger had a major impact on the fight against the Communist system. I can’t support that and would be curious to hear from a reader.
By Richard D. Wolff, professor emeritus of economics at the University of Massachusetts, Amherst, and visiting professor in the Graduate Program in International Affairs at The New School University, New York. Wolff’s weekly show, “Economic Update,” is syndicated by more than 100 radio stations and reaches millions of people through several TV networks and YouTube. His most recent book on Democracy at Work is Understanding Capitalism (2024), in response to requests from readers of his previous books: Understanding Socialism and Understanding Marxism. Adapted and cited from Richard D. Wolff’s book Understanding Capitalism (Democracy at Work, 2024); produced by Economy for All, a project of the Independent Media Institute
From its inception, the capitalist economic system produced both critics and celebrators, those who felt victimized and those who felt blessed. When victims and critics develop analyses, demands, and proposals for change, beneficiaries and celebrants create alternative discourses that defend the system.
Certain types of arguments have proven to be more effective against critics of capitalism and in gaining mass support. These became the myths that supported capitalism. One such myth is that capitalism creates prosperity and reduces poverty.
Capitalists and their big supporters have long argued that this system is an engine of wealth creation. Early proponents of capitalism, such as Adam Smith and David Ricardo, as well as early critics of capitalism, such as Karl Marx, recognized that fact. Capitalism is a system built for growth.
Because of market competition among capitalist employers, “growing a business” is necessary, most of the time, to survive. Capitalism is a system driven by the maximization of wealth, but wealth creation is not limited to capitalists. The idea that only capitalism creates wealth or that it does so more than other systems is a myth.
What else creates wealth generation? There are a number of other wealth donors. It is not just an economic system, whether it is capitalist or feudal or slave or socialist. The creation of wealth depends on all kinds of conditions in history (such as raw materials, climate, or inventions) that determine how and quickly wealth is created. All those factors play a role that is relevant to the particular economic system in place.
When the USSR entered in 1989, some claimed that capitalism had “defeated” its only real rival—socialism—proving that capitalism is the greatest creator of wealth. The “end of history” had been reached, it was said, at least as far as economic principles were concerned. Once upon a time, nothing more than capitalism could be imagined, let alone achieved.
Myth here is a common mistake and overused. Although wealth was created in significant quantities over the past few centuries like capitalism spread all over the world, that does not prove that it was capitalism caused to grow in wealth. Perhaps wealth grew despite capitalism. Maybe it would have grown faster with another program. Evidence for that possibility includes two important facts. First, the fastest economic growth (as measured by GDP) in the 20th century was achieved by the USSR. And secondly, the fastest growing wealth in the 21st century so far is that of the People’s Republic of China. Both of those societies rejected capitalism and proudly described themselves as socialist.
Another version of this myth, which has become more popular in recent years, claims that capitalism deserves credit for lifting millions out of poverty over the past 200 to 300 years. In this context, capitalist wealth creation has brought everyone a higher standard of living and better food, wages, working conditions, medicine and health care, education, and scientific progress. Capitalism is said to have given great gifts to the poorest among us and we should be applauded for such a great contribution to society.
The problem with this myth is similar to the wealth creation myth mentioned above. The fact that millions escaped poverty during the spread of capitalism around the world does not prove that capitalism is the cause of this change. Other programs could help lift people out of poverty at the same time, or even more quickly, because they organized production and distribution differently.
Capitalism’s profit concentration tends to delay the distribution of products in order to increase their prices, and therefore, profits. Patents and trademarks of profit-seeking businesses effectively slow down the distribution of all kinds of products. We will never know whether the stimulating effects of capitalism outweigh its depleting effects. Claims that, on the whole, capitalism promotes rather than retards progress are pure ideological assertions. Different economic processes—including capitalism—promote and retard development in different ways and at different speeds in their different parts.
Capitalists and their supporters almost always oppose measures designed to reduce or eliminate poverty. They have repeatedly blocked minimum wage laws for many years, and when such laws are passed, they block raising the minimum (as they have done in the United States since 2009). Capitalists similarly oppose laws that prohibit or reduce child labor, reduce the length of the workday, provide unemployment compensation, establish government pension programs such as Social Security, provide a national health insurance program, challenge sexism and discrimination against women and people of color, or provide a universal basic income. Capitalists have led opposition to progressive tax systems, occupational safety and health programs, and free universal education from kindergarten to university. Capitalism has been against unions for the past 150 years and has put restrictions on collective bargaining for large sections of the working class. They have opposed socialist, communist, and anarchist movements aimed at organizing the poor to seek freedom from poverty.
The truth is: the way poverty has been reduced, it has happened in spite of opposition to capitalism. To credit capitalists and capitalism with reducing world poverty is to distort reality. When capitalists try to praise the poverty reduction achieved through their efforts, they count on their audience who do not know the history of anti-poverty under capitalism.
Recent claims that capitalism has conquered poverty are often based on a misinterpretation of some data. For example, the United Nations defines extreme poverty as an income of less than $1.97 per day. The number of poor people living on less than $1.97 a day has fallen significantly over the past century. But one country, China—the world’s largest country by population—has experienced the greatest escape from poverty in the world over the past century, and as such, has the greatest influence in all contexts. Given China’s significant influence on poverty trends, one might say that the reduction of global poverty in recent decades is the result of an economic system that emphasizes not capitalist but rather socialist.
Economic programs are ultimately evaluated based on how well they serve the community they exist in. How each system organizes the production and distribution of goods and services determines how it meets people’s basic needs for health, safety, adequate food, clothing, shelter, transportation, education, and recreation to lead a dignified, productive working life. How well does modern capitalism work in that sense?
Modern capitalism has now gathered about 100 people worldwide who own more than half the wealth of the world’s population (more than 3.5 billion people). Those financial decisions of the richest people have as much influence on how the world’s resources are used as the financial decisions of 3.5 billion, the poorest half of the planet’s population. This is why the poor die in the early days of modern medicine, suffer from diseases we can cure, starve when we produce enough food, lack education when we have many teachers, and face so many disasters. What does this look like to reduce poverty?
Crediting capitalism with reducing poverty is another myth. Poverty is reduced by the struggle of the poor against poverty which is reproduced by the capitalist and capitalist system. In addition, the struggles of the poor were often supported by militant workers’ organizations, including anti-capitalist organizations.
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