Wednesday, January 11, 2012

Let’s talk about the market economy


The Financial Times is debating capitalism, but what it is really debating is the future of the market economy [..].

[T]he term [capialism] came to describe the system of business organisation which had made the industrial revolution possible. By the mid-19th century that system was central to the economic landscape. Werner Siemens in Germany, Andrew Carnegie and John D. Rockefeller in the US, and in Britain Richard Arkwright’s successors. As individuals or with a small group of active partners, they built and owned both the factories and plants in which the new working class was employed, and the machinery inside them [..].

If the first half of the 20th century was a time of fundamental change in the nature of business organisation, the second half was a time of fundamental change in the nature of business success. The value of raw materials is only a small part of the value of the production of a complex modern economy, and the value of physical assets is only a small part of the value of most modern businesses. The critical resources of today’s company are not its buildings and machines but its competitive advantages – its systems of organisation, its reputation with suppliers and customers, its capacity for innovation. These attributes are not, in any relevant sense, capable of being owned by anyone at all.

The typical reader of this article works in front of a computer at a desk in an office block. He or she probably does not know who owns any of these things. It is quite likely that each is owned by someone different – a pension fund, a property company or a leasing business – none of whom is their employer.

People do not know who owns their work tools because the answer does not matter. If your boss pushes you around, exploits you or appropriates your surplus value, the reasons have nothing to do with the ownership of capital. While control over the means of production and exchange matters a great deal to the organisation of business and the power structures of society, ownership of the means of production and exchange matters very little.

Sloppy language leads to sloppy thinking. By continuing to use the 19th-century term capitalism for an economic system that has evolved into something altogether different, we are liable to misunderstand the sources of strength of the market economy and the role capital plays within it.

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