Socio-Economic IMpact of Capitalism

In a completely laissez-faire capitalist society as espoused by Objectivism, what would be the fate of those born in poverty, without access to affordable health-care or education? In essence,would Objectivism would simply allow the death of such a person (here in India, we have a staggeringly large population in exactly the same circumstances)? Also, without any provision for minimum wage, the worker would be completely at the mercy of employers and even lower wages, a virtual slavery of the sort going on with immigrant workers in Dubai. How would Objectivism safeguard against such a situation?

I am an Objectivist or on my way to becoming one:), but i couldn't satisfactorily answer these questions...

Post 1

Friday, October 1, 2010 - 5:38pm

In a completely laissez-faire capitalist society as espoused by Objectivism there would be many substantial benefits for those born in poverty:
1) There would be far fewer people born in poverty to start with. The percentage of the population who are poor is far less and the middle class much bigger.
2.) No system on earth is as good at generating wealth, and as a result even the poor in America have flat screen TVs, stereos, computers, cell phones, enough to eat, and cars. So, not only are there fewer poor people in America, thanks to the freedom we do have, but those who do start off poor in America are literally thousands of times better off than the poor of countries that are not free.
3.) And those born into poverty would find that moving out of poverty would be far easier to achieve than in any other society. In a Capitalist society ability and effort are recognized and rewarded and this is very important because it means that over time old prejudices and irrational biases break down. It means the eventual death of class systems that are barriers to a meritocracy. Capitalism, by its nature, is the absence of barriers to gaining wealth.
4.) The last thing I'd mention is that in a rich country one finds more private charity which is better targeted towards those that are deserving. It is normal for students of poor parents in this country to be able to find scholarships and grants to aid them in getting an education.
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Look at the lists that different organizations compile of the countries with the most economic freedom and compare them to a list of the countries by average income. Freedom from political coercion results in freedom from material suffering - there is no accident about that.

Why would we ever believe that trying to enslave those who are the most productive and the most creative, and taking away what they have earned would make them more productive?
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But there is another issue. Why would anyone make the choice to build the political and economic structure for the sake of the poor? Why enshrine the bottom socioeconomic class as a justification for an entire system? To me, that is every bit as immoral as allowing the wealthy to enslave the poor. Individual rights don't belong to one class or another - no one has the right to take from others.

Post 2

Friday, October 1, 2010 - 5:52pm

Minimum wages are arbitrarily set by a government and not a product of the free market decisions made by private individuals. The minimum wage might be higher than the market would set wages or lower or about the same.

If it is about the same it has no effect but to cloud the ability to see what the free market is doing and to deprive individuals of their right to make their own decisions.

If it is lower than free market would set the prices, it has no economic effect and is a pretense at helping while violating peoples rights to make their own decisions.

But it is almost always set slightly higher than the market would set wages in an area. The result is that some businesses go out of business because it puts the cost of doing business above what they can earn in revenues. Some products and services just can't be provided if the labor cost goes to high. In most instances what happens is that fewer people are hired. There is no greater cause of unemployment among young workers, poorly educated and unskilled labor than minimum wages.

Workers are no more at the mercy of employers than employers are at the mercy of workers. Both expressions are failures to recognize the simple truth that a competitive market will force both to be reasonable in their dealings with the other. The market sets the prices of labor and attempt to pay too low will result in fewer takers and/or lower quality help.
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Here is a link to an online copy of "Economics in One Lesson" by Henry Hazlitt. I can't recommend it too highly for anyone that wants to be able to think clearly on economic issues. And there is a chapter on Minimum Wages.

Post 3

Friday, October 1, 2010 - 5:58pm

Devang Mehta,

On the concern that minimum wage may be needed, that companies may try to offer so little wage that the employee is a slave:

Companies compete against each other for employees. They try to offer their employees the most productive jobs the employees can perform. They try to offer them a higher wage than their competitors so that the employee will work for them instead of their competitor.

If a company pays its employees less value per hour than the employees can create, then the employees will find a different employer. If a company pays an employees more value per hour than the employees create, then the employer will be net loosing value and the employer will be unsuccessful (downsize, move towards bankruptcy).

If a worker doesn't produce as much value as they are paid, than it would not make sense for an employer to have such an employee. Such an employee would be a net loss, and hence the company would try to fire and never hire such employees.

If there is a minimum wage, no company would want to hire or keep a person that creates less value per hour than the minimum wage. Because if they hire someone who creates less value than the minimum wage, then they will net loose value on that employee.

Hence, minimum wage doesn't increase anyone's wage. Minimum wage just limits what kind of work can be done. Minimum wage prevents people who are unable to produce minimum wage's worth of value per hour from working.

Hence, in the US you don't find many manufacturing jobs vs many Asian countries.

Post 4

Saturday, October 2, 2010 - 12:21pm

Small addition to the previous two:

What you describe in Dubai (foreign workers held as de facto slaves) occasionally happens in the United States. The first point to make is that these people are the victims of crime. The legal system ought to protect them, and it ought to punish their victimizers. This raises no problems for Objectivism.

The second point to make is that when this has happened in the US, the workers were also the victims of immigration restrictions which made them (or would have made them if they'd quit their jobs) illegal aliens, subject to forced deportation if the authorities found out. This was part of their employers' hold over them. A laissez-faire system would not have such laws. I don't know what the situation is in Dubai or Saudi Arabia, but I suspect it's similar.

Post 5

Sunday, October 3, 2010 - 8:59am