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capitalism’s downfall was the result of its own obsession with growth. Perhaps this is the point to examine that obsession further. And to understand why it exists in the first place.

Moses and the prophets

      First, of course, we should be clear that growth is not exclusive to capitalism. Communist countries have also routinely set growth targets for almost as long as capitalist ones have – and still do so today. There’s a sense in which the myth of growth could legitimately be called meta-cultural. It sits above individual differences in ideology as a more or less universal conception of social progress. Both capitalist and socialist ideals of society have been captured by it.²⁵

      But there is a particularly intense relationship between capitalism and economic growth. So much so that capitalism without growth has sometimes quite explicitly been called ‘bad capitalism’. Whole books have been written about this apparent ‘growth imperative’. Teasing out a simple logic for it is tricky. Much depends on how capitalism itself is defined. Marx, for instance, saw capitalism as a process. And for him, that process was intrinsically about growth. ‘Accumulate, accumulate! That is Moses and the prophets,’ he wrote in Das Kapital. ‘To accumulate is to conquer the world of social wealth.’²⁶

      The Polish-born socialist Rosa Luxemburg believed she had found a flaw in Marx’s logic. In pure capitalism, she argued in The Accumulation of Capital, growth wouldn’t actually be possible, because there wouldn’t be enough income to purchase the expanded production. Her analysis led her to assume that the relentless drive for profit in capitalism (which she didn’t deny) could only be satisfied by the continual exploitation of non-capitalist regions. Her most powerful writing was reserved to condemn the violent imperialism to which she believed this expansionary drive must inevitably lead.

From the perspective of 1915, a year into the First World War, when Luxemburg penned the Junius Pamphlet, this must have seemed like a very obvious conclusion. Capitalism, in the words of my second epigraph above, stood shamed and dishonoured. As we’ll see in a moment, her premises weren’t quite correct, even though her documentation of capitalism’s culpability for inexcusable suffering was spot on. But more importantly, there’s a danger of tautology in defining capitalism as a process of growth and then arguing that capitalist economies have to grow. It leaves unanswered the question of where this expansionary drive comes from.²⁷

      Neither is that question resolved by the most common definition of capitalism in terms of the ownership of the ‘means of production’ – the factories and the resources required to produce the goods and services we need: food, housing, clothing, technology. In a capitalist economy, the means of production are mostly owned by private individuals. In a non-capitalist economy, the means of production belong to ‘the people’ – they are owned by the state, for example, by the local community or by workers.

      Consistent with this ‘privatization’ of the means of production, capitalism also distinguishes itself by relying mainly on the ‘market’ to distribute goods and services. Prices are set according to what people are prepared to pay – the ‘exchange value’ – on the market. In a non-capitalist economy, prices tend to be set by the state or by the community. Sometimes, of course, that price might be set at zero. In socialism, for instance, it’s entirely legitimate for the state to take the position that its obligations include the universal provision of certain basic goods and services to all its citizens. Many capitalist economies also take this kind of position in relation to specific kinds of goods: healthcare, education, broadband, for instance. And quite often, market prices are either taxed or subsidized by governments of all colours and creeds.²⁸

      In practice, then, there’s no such thing as a pure capitalist economy. Equally, most socialist or communist countries will rely to some extent on markets to distribute goods and set prices. Certainly, the most powerful communist country in the world, China, has now internalized much of the machinery of capitalism. So there’s no such thing as a pure non-capitalist economy either.

As these boundaries dissolve, the precise origins of the ‘growth imperative’ in capitalism seem less and less obvious. The most likely candidate lies in another key ingredient alongside private ownership and market price-setting: the role of profit. At its simplest, profit is the difference between the revenues received from selling something and the costs of producing it. In principle, this difference exists both inside and outside capitalism. It doesn’t particularly matter whether you are privately owned or state owned, the difference between revenues and costs is a useful way of understanding your finances.

      But in the hands of capitalism, profit takes on an absolutely vital role as the primary motivation for people to invest. This is an explicit behavioural assumption in capitalism. People are only motivated to engage in production at all, in this view, by the expectation of financial reward. Capitalists expect profits. In turning over the provision of goods and services mostly to private interests, capitalism simultaneously defines profit as the primary motivation for production. The pursuit of profit becomes a powerful driving force not just for individuals but for society as a whole.

      By the same token, it introduces a sharp division into society: between those who earn their living from wages, and those who earn income from profit. To make your living from profit you must own something – land or money or shares in the means of production, for instance – from which you can derive financial returns or rents. Those without such assets must earn their incomes from wages. In practice, it’s possible to earn from both, of course. And the composition of the two might change at different points in our lives. But the distinction between those who earn a living from wages and those who earn income from profit or rent is clearly recognizable – particularly as it describes a fundamental difference between the richest and the poorest in society.

      This division in turn creates conflict. For workers, wages are their principal source of income; for the poorest, their only way of making a living. For capitalists, wages are a cost to production, a drag on the profit that can be made from an enterprise. As the economist Richard Goodwin argued, wages and profits inevitably engage in a predator–prey relationship. The owners of capital are in constant competition with the ‘owners’ of wage labour. It’s blindingly obvious that, under the wrong circumstances, this has the potential to lead to conflict.²⁹

A little more macroeconomics

Surprisingly, perhaps, there’s a key element within capitalism which can help to tame this conflict. It flows from the concept of labour productivity: the efficiency with which an hour worked produces a dollar of output. Since labour is a cost to production and capitalists are motivated by profit, they will tend to do whatever they can to increase labour productivity: that is, to reduce the cost of labour. The profit motive provides an in-built incentive towards labour productivity growth.

      To the extent that this drive is successful, the resulting cost savings can be distributed in various directions. Some of the benefits might go to workers, through increased pay or through shorter working hours. Some could go to shareholders in the form of higher dividends. Some might be passed on to consumers in the form of lower costs for the product. Some can be used to finance investments in new technologies which further increase labour productivity in the future.

      When labour productivity is increasing, all of these things are possible. Workers can be paid more. Consumers can have cheaper goods. Shareholders can enjoy more profit. And the company can afford to invest in the next generation of labour-saving technology, creating a kind of virtuous circle of continuous improvement – and continuous growth. This virtuous circle is the solution to Rosa Luxemburg’s dilemma. The increase in wages is what allows for the expansion of profit. Labour productivity growth affords capitalism its biggest claim to legitimacy in the pursuit of social progress. But this inevitably only happens through growth.

      When labour productivity growth stagnates, the profit motive begins to operate in a less benevolent way. The relative wage bill rises. Profit margins are squeezed. Wages, dividends, consumer prices and investment

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