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6 Reasons Capitalism is Inefficient

Copyright 2000 by Brian Oliver Sheppard

"Efficiency" is a term that acquires meaning only through context. Divorced from anything it is vacuous and cannot be said to be good or bad. A company may find a way to more efficiently rip people off, mislead them, defraud them, etc., and in such a case "efficiency" is not a good thing. Slavery was seen as an efficient economic system by many, and corporations like Bayer, Krupp, Daimler Benz, and IG Farben found it efficient to use Nazi slave labor to make their products (the labor was cheap if not free, and the workers had no rights). We say that an economic system is more efficient the more it meets all human need in exchange for using less manpower and resources to do so. Our economy now fulfills the desires of business owners most efficiently and if it meets human need beyond this it is only incidentally that it is so. We have a profit-driven, and not a need-driven, economy. If "efficiency" is to be judged in terms of profit generation, our current economy is extremely efficient. But when judged in terms of meeting basic human need and realizing human potential, it is very inefficient.

Here's why:

1. Product Duplication. Different companies who make myriad versions of what are basically the same product waste labor, time, resources, and money. An economy that provides 367 different types of breakfast cereal is obviously wasting a lot of resources and time somewhere. The fetish for variety-at-all costs leads people to be able to choose between dozens of expensive clothes or other high priced items they can ill-afford, all so that people end up basically dressing the same, looking the same, and eating the same types of foods anyway. Each company producing one of, say, 45 different types of dental floss hopes to drive its competitors out of business, so we consumers are left with only one product to choose from in the end regardless, as per the company's plans.

2. Reserve army of the unemployed. A stable pool of unemployed workers ensures the wage increases of those employed will be held in check. People will be willing to accept less pay, just to keep a job, if they know there are others outside hungry for employment. As David R. Simon writes in Elite Deviance, "Sustained full employment is a threat to corporations. For when there is full employment, the labor market tightens up, unions become more combative, and wages tend to rise at the expense of profits." When unemployment gets too low, it's said to be "inflationary," which is a bad thing to economists and the people at the Federal Reserve. So, perversely, having some unemployment is "efficient" by current standards. But is it really efficient to those unemployed?

3. Production based on fads. Karl Marx wrote "Supply knows nothing of the demand, and demand knows nothing of the supply. You produce on the strength of a taste or fashion which appears in the consuming public, but when you are ready to supply the goods, taste has already changed and has become attached to some other kind of product." This leads to many goods being produced that no longer have many buyers by the time shelves are actually stocked. Thus the producing company loses money, and in retrospect it is realized that labor, time, etc., have been wasted in a futile pursuit.

4. Unsold goods are thrown away. If a company has goods left over, they are destroyed. This includes perishable items such as food. It is not profitable to give things away. Some restaurants, when disposing of food in dumpsters, pour bleach on the food or lock down the trash canisters to keep people from getting it. This is based on the idea that if restaurants were to freely give away their left over food at the end of each day, people would cease to patronize the business and instead show up at the end of the day for the hand out. It is more profitable to leave food to rot in a warehouse than it is to give it away to the malnourished or homeless.

5. Law of Supply and Demand? Author William Blum writes, "Following the 1994 earthquake in Los Angeles came the cry from many quarters: Stores should not be raising prices so much for basic necessities like water, batteries, and diapers. Stores should not be raising their prices at all at such a time, it was insisted. It's not the California way and it's not the American way, said Senator Dianne Feinstein. More grievances arose because landlords were raising rents on vacant apartments after many dwellings in the city had been rendered uninhabitable. 'How dare they do that?' people wailed. The California Assembly then proceeded to make it a crime for merchants to increase prices for vital goods and services by more than ten percent after a natural disaster. In the face of all this, one must wonder: Hadn't any of these people taken even a high-school course in economics? Hadn't they learned at all about the Law of Supply and Demand? Did they think the law had been repealed? Did they think it should be?"

6. Creating false desires. Entire PR industries exist to convince you to buy things you don't need. The whole Madison Avenue system of ad agencies employs legions of people who hope to seduce you with images of sex, fitting in, personal fulfillment, so that you will be induced to buy all sorts of products. Hype is built around products to make them trendy. Ad campaigns try to get you to purchase on command. People specialize in what it takes to get others to purchase according to the dictates of corporations, and develop commercials employing these sorts of mind control techniques. Soon, cable TV becomes a "necessity," as does anything else anyone of respectable social standing is "supposed" to have. Culture becomes sterilized,, slick, and mass produced. Hi tech gadgets that are supposed to save you time and streamline your life become "must haves" while you end up with less time than ever to do things you really want to do. The labor, time, and resources invested in this cultural garbage create a society that is unpleasant to live in.

"In the search for profit, private corporations have withheld supplies to contrive shortages, colluded with competitors to keep prices abnormally high, encouraged extraordinary and wasteful military expenditures, polluted the environment, and encouraged wasteful consumptive patterns.
"Instead of a commitment to a more equitable distribution of resources, capitalism promotes competition, with the victors widening the gap between themselves and the losers. Tax reforms are instituted to encourage profits rather than solve problems of unemployment and low wages. Inflation, rather than unemployment, is viewed as the culprit."

-from David R. Simon's Elite Deviance