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Capitalism and the State

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Long-distance rail travel is the last way to observe the landscape of the Eastern Seaboard without enduring long stretches of overcrowded four-lane highways. So I recently planned a train ride from New York to Baltimore. I expected it to be inspiring. America’s railways had once been the finest in the world, and its first taste of “world class” in the mid-nineteenth century had been along the corridor between the colonial centers of the Coast.

How wrong those expectations were. Seymour Melman writes, in After Capitalism (Knopf), that American deindustrialization has “occurred unseen, masked by glowing reports from Wall Street.” After my trip I cannot help but conclude that this octogenarian professor of industrial engineering at Columbia University does not often travel by rail.

The landscape that is quite visible along the corridor— and throughout the Northeastern United States—is dotted not by the belching smokestacks and bustling equipment that were once the great awe- and fear-inspiring image of modern capitalism, but by obsolescence. Huge factories are silent and abandoned. The expansive gravel lots are littered with empty and rusting rail cars.

Elsewhere in the former industrial Northeast, towns from Connecticut to Pennsylvania are blighted with the evidence of dormant productive capacity that, Melman argues, represent the fundamental problem that developed in America toward the end of the twentieth century: the disempowerment of workers, and consumers, through a deliberate deindustrialization project, undertaken by the United States government and its corporate managers in pursuit of military goals during the Cold War.

Yes, Melman’s is a conspiracy theory. But it is an interesting and illuminating one that poses the important question: What is at fault for the decline of the U.S. factories that used to employ millions of well-paid workers?


The story of American deindustrialization begins, according to Melman, in the English countryside. In his chapter on “The Founding Alienation of Capitalism,” Melman returns to seventeenth-century England as the origin of what we know today as the institutions of capitalism and of what he contends was the accompanying process of alienation.

Here Melman repeats much of what Karl Polanyi described in his landmark 1946 book The Great Transformation: the aristocracy enclosed peasant land, turning it into pasture for the sheep whose wool fed the earliest stages of the textile industry. The descendants of the dispossessed peasants were doomed to become laborers in the factories that would spring up during the Industrial Revolution. Melman argues that from “this process of alienation emerged the familiar combinations, specific to modern capitalism, of industrial worker, employer and market.” For Polanyi, it was this invention of the “fiction of the labor market” — in the sense that the laborers, pushed off their land, had few alternatives but to work in the factories — that made capitalism possible.

Polanyi criticizes two of what he takes to be the initial rationales for capitalism: first, that it occurred naturally; and second, that political reactions to its mechanisms were external to it. The creation of a market society was in fact made possible, he argues, only by a series of parliamentary decisions based on a very specific protofree- market conception of political economy.

In similar fashion, Melman argues that the mechanisms of the market — prices adjusting, exchange naturally occurring — that we associate with capitalism are actually the deliberate product of a mode of group-think that drives the managers of enterprises to, in Marx’s words, “accumulate, accumulate!” Capitalism exists not because of the mathematically precise laws that we associate with neoclassical economics, but because of the social realities of the power of business owners and managers, the capitalist class. In the last century, Melman claims, the market mechanism came to dominate our society completely, establishing its grip at the end of the brief spurt of successful worker “disalienation” that marked the Progressive Era. Since the Second World War, under the guise of the necessities of the Cold War, the military-industrial complex became all-encompassing in American society, producing a national economy that more resembled the Soviet Union than a free-market utopia. Workers were propagandized into complacency by convenient cover stories about the Russian threat, then the information age, and then the global marketplace.

The “deindustrialization” of U.S. civilian productive capacity was enabled by this worker complacency. It was generated by both the switch to military production and the desire of the capitalists and their state managers (who promised them big payoffs in exchange for their complicity) to reduce labor costs so the Cold War could be maintained at minimal expenditure.


Polanyi is one of those great figures whose greatness resides in having knocked down a well-deserving straw man. The notion that markets are natural and extra-legal is still widespread and deserves to be debunked. But the conclusions to be drawn from the debunking are far less important than Melman might think, since nothing of importance stands or falls on either the naturalness or the extra-legal nature of markets.

Melman emphasizes that markets are not natural, but came into existence only through legal developments. What of it? Sometimes the defenders of capitalism like to glorify it by saying it is eternal and God-given, but the discovery that it is temporal and man-made, while perhaps diminishing its glory, does nothing to diminish its usefulness in moving people out of poverty.

It was manifestly unjust for the English aristocracy to change the laws governing real estate so as to convert peasant lands into pasture for sheep whose wool made the lords a pretty profit. Nonetheless, there is ironic redemption in what happened next: peasants who had often lived at the margin of subsistence, now deprived of their land, turned to work in factories spinning the very wool their dispossession from the land made possible. And in this way — by working in the “vast Satanic mills” of the first Industrial Revolution — they vaulted themselves and their descendants far beyond the agrarian poverty in which they might otherwise have persisted forever.

They accomplished that by participating in the gener- al rise of wages that takes place when capital is invested so as to magnify the productive power of human bodies and minds. The “laws of the market” that Melman rails against in reality play to the advantage of workers (even though, unlike with natural laws, the conditions needed for capitalism to help workers are artificial, historically specific, and anything but universal). If a factory owner decides to cut wages or diminish working conditions, his workers can flee to other factories where the wages or conditions are better — a possibility brought on by the chance of using the workers' labor to produce a product from which the second factory owner, despite his higher labor costs, might still squeeze a profit. Through competition among capitalists for laborers to operate their machines, capitalism produced a steadily rising standard of living for the British and then the American and Continental and now, finally, the Third World poor. The natural tendency of wages under capitalism is to rise, since producers outbid each other to employ suitable labor that will make the owners a profit.


The final third of Melman’s book presents a vision of what he terms “workplace democracy,” essentially a kibbutz- style decision-making process that unites workers in order to empower them to make production decisions collectively. Unlike Marxism, this isn’t a system in which property is held publicly; Melman’s vision is essentially capitalist, with stockholders replaced by workers in the selection of business management — but ensuring that workers, not capitalists, are the ones to whom the profits are directed and whose needs are looked after.

How would such a state of affairs come to be? For Melman, it will naturally materialize as workers become increasingly aware of the injustices of hierarchically managed capitalism, and of the possibilities of self-management, by challenging the “social behavior” taught by capitalist example and replacing it with the goals and ideals of worker empowerment. As production decisions are returned to workers, the industrial part of the militaryindustrial complex would revive, but in the service of civilian production. Half of the U.S. government budget would evaporate, and the remaining institutions of political power would be used to initiate reforms, such as living- wage laws (and new consumerist regulations).

Despite the communist flavor of worker self-management, Melman contends that it would actually be more efficient than traditional forms of management, and would therefore be profitable enough to win out in competition with capitalist-managed enterprises — in a truly free market. The reason this has not already happened, Melman contends, is that we don’t have a truly free market. Instead we have a market that is significantly distorted by military spending (Melman fails to note other distortions — such as those brought about by government protection of politically powerful workers at the expense of their would-be competitors). In the absence of this distortion, worker self-management would prevail by means of normal market processes.

Certainly it is possible that worker management would triumph in a free market. But proving that claim entails a huge evidentiary burden that simply isn’t met in Melman’s book.

There are notable inconsistencies in Melman’s case against firm managers that reveal the weakness of his overarching critique of capitalism. When writing about the advent of technological means to replace workers, he argues that research actually shows how better-educated and better-paid workers make technology even more productive, but that firm managers, in their quest for power, simply don’t want to empower their workers in any way, and thus shun labor in favor of technology. But if the logic of capitalism dictates “accumulate, accumulate,” as Melman allows, then it should follow that managers act to maximize profit and to please ownership.

If it’s capitalism that is the enemy (Melman consistently returns to the story of “alienation and accumulation … oft retold during capitalism’s tenure”), then why haven’t at least some capitalists recognized the profit to be made by empowering workers?

One possible explanation for this logical disconnect is that Melman has conflated the two bogeymen in his story — capitalism and the state — in order to make his point about worker empowerment. If military contracts are what private firm managers aim for, then capitalism has been diverted from worker management not by the logic of accumulation but by selection for managers who have political connections rather than skill at making money in a truly free market. These managers could then have abused the authority they had gotten by virtue of their profitable political connections, imposing bureaucratic management on their workers just for the sake of tyrannizing over them. But Melman doesn’t even begin to prove that is what actually happened.

In the absence of many profitable self-managed firms in the real world, Melman faces a dilemma: either (1) the studies he has read are wrong, and worker-self management isn’t actually profitable; or (2) something must be artificially rendering conventional, bureaucratic management more profitable than worker self-management. The militarization of the economy might, indeed, be that “something.” But Melman never considers the first scenario. It is simply self-evident to him that the pro-selfmanagement studies he cites must be right. In failing to consider the possibility that they are wrong, it is probably important that Melman insists that rather than competing with each other (which would also drive up wages without union “help”), capitalists act in unison — as a “class” — and can therefore adopt unprofitable management techniques as a group. If they acted singly, however, then surely one of them, somewhere, sometime, might have had the luck to combine political skill at gaming military contracts and the managerial insight, or sheer good fortune, to cede control to the workers — making even more money than less fortunate military-industrial capitalists.

And then other capitalists could have made money by imitating this pioneer. Since that didn’t happen, it is possible that we don’t need to wheel in the deus ex machina of the military-industrial complex to explain the failure of worker self-management to prevail. The actual reason may simply be that, contrary to Melman’s assumption, it just doesn’t work as well as bureaucratic management. This narrowness of Melman’s vision tends to obscure the truly interesting questions that shadow Melman's book: How did U.S. unions respond to the competitive pressure of low-wage labor from the global economy?

Either they successfully insulated themselves from this pressure through tariffs that hurt Third-World producers willing to work for much less; or they ignored outside competition and insisted on high wages without sufficient tariffs, bankrupting the steel mills that used to dot the Northeast Corridor. In short, even as Melman is blaming some Cold War conspiracy for having demolished the old industrial order in the United States, it appears that what may actually have happened is that the steelworkers and other old-industry unions ratcheted their wage scales too high to be payable in competition with “foreign” workers.

The second explanation of Melman’s larger, illogical de-industrialization tale cuts deeper and ultimately implicates both his and Polanyi’s vision of democratic politics as superior to free markets: It’s simply that both authors assume, without any warrant, that people always know the best way to achieve their ends. Even if Melman is right in assuming the relative productivity of worker management, capitalists may simply have not read or understood the studies that have persuaded Melman about that.

But better-informed managers, or those who happened to like the empowerment of the workers, would make much more money for their firms if, as Melman is convinced, worker management is inherently more profitable. What comparable selection mechanism would induce democratic politics to produce wise policies — whether at the society-wide or the company-wide level?


Democratic politics can also impose significant costs on those who are not represented in the majority; in Melman’s case it is the poorly educated service worker who, while identified as the child of deindustrialization, oddly has little or no role in his vision of workplace democracy. Unions and other government-sanctioned attempts to hasten the increase in wage rates often come at the expense of workers whom the coercive devices of unions — the closed shop, violence directed against strike breakers — can intimidate from offering their wages at levels that are lower than those demanded by the unions.

There is no free lunch here; a union job won at the expense of a job that pays less well insulates an already highly paid worker from possible competition from workers who might otherwise have gained the experience necessary one day to compete with the labor aristocracy.

Since the only way a union can raise its members’ wages is by forbidding (by force of law or threat of violence) competing workers from bidding wages down towards their market level, Melman’s union-as-workersavior model necessarily overlooks the victims of unions: those whose lack of education or skills — or in the American case their race — excluded them from a union. In the United States the descendants of slaves, whose inner-city public schooling, not to mention Jim Crow laws and other barriers to acquiring job skills (such as occupational licensing and minimum-wage laws) disadvantaged them compared to union members, were deliberately excluded from union membership, as David Bernstein recently showed in Only One Place of Redress: African Americans, Labor Regulations, and the Courts from Reconstruction to the New Deal. The same logic applies to the Third World worker — American workers are just as prone to seek to benefit themselves at the expense of their less fortunate brethren around the world. One need not look any further than labor unions’ ardent opposition to NAFTA to identify such a possibility.

Melman adopts a cramped perspective according to which the labor aristocracy is conflated with “labor” as a whole. In this view, the interests of high-paid union workers become a proxy for those of all American workers, such that it comes to seem obvious (to Melman) that the service workers who today are trapped in low-wage jobs would magically become highly paid, at no cost to any other workers, if only there were more union-governed factory jobs. Melman’s view is also cramped by its conflation of “labor” with U.S. laborers, ignoring the laborers in the Third World who benefit from the de-industrialization of the First World by working in the low-wage factories that constitute their own industrial revolution, and that improve their standard of living in the same way that the first Industrial Revolution led to our own prosperity: that is, precisely by virtue of union-free Third Worlders being able to compete against the labor aristocracy of the West by offering their low-wage factory labor.

Melman quotes Noam Chomsky to the effect that people always yearn to be free, echoing Polanyi’s broader sentiments about the fundamental alienation represented by life in a capitalist system. This, Melman assures us, is why workplace democracy won’t simply degenerate into the tyranny of the majority of workers’ opinions about how to run the firm stifling the more profitable dissident ideas. But like capitalists, workers don’t necessarily know best. Some worker majorities might re-elect their current managers. Some worker majorities might end up fighting among themselves, and some might grant themselves higher wages than market competition can bear.

That is, arguably, exactly what happened to the steelindustry workers, who elected union leadership that negotiated wage contracts so lucrative to the workers that their companies were bankrupted by lower-wage foreign competition. If workers, any more than capitalists, automatically knew how best to achieve their ends, that wouldn’t have happened.

But if workers, like capitalists, can make mistakes, it may be what accounts for the dreary post-industrial landscape of the Northeast Corridor. Melman, however — like the very workers whose management skills he endorses — fails to take account of the possibility that different workers have different interests, yet may fail to recognize them. Thus, they may self-defeatingly ignore the threat of low-wage competition and, if given the type of power Melman envisions, price themselves right out of a job.

To make his case for the superiority of worker selfmanagement, Melman would have had to prove that workers know how and when to produce things in ways that capitalists (free from government) wouldn’t know about. Comparing workplace democracy and traditionally managed capitalism isn’t just as simple as comparing two sets of utopian ideals, but that is how Melman approaches it. So while it is certainly possible that in a truly free market individuals would gravitate towards this model of collective decision-making, a possibility is not a probability.

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Telis Demos is a junior
at Columbia University.






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