Capitalism’s diminishing returns (2013)

Book Review from the March 2013 issue of the Socialist Standard

Bleakonomics by Rob Larson. Pluto Press. 2012.

Larson has written an engaging polemic against free-market capitalism and its proponents, focusing on the role of ‘externalities’ such as environmental destruction and the inadequate consideration of these by conventional economics.

Indeed, the chapters on capitalism and the environment are amongst the strongest, making very clear –with some well-chosen examples –how the market is unable to allocate resources in an environmentally-friendly and sustainable way. The Deepwater Horizon oil well explosion and spill, and the Great Pacific Garbage Patch (‘a Texas-sized ocean eddy saturated with minute plastic particles’) are just a couple of the externalities of capitalism that Larson highlights to useful effect.

Larson discusses class division intelligently for the most part, along with the excesses of a system that rewards the top one percent merely for their ownership of wealth, though there is a sense that he thinks a regulated capitalism wouldn’t create nearly as many problems as the private enterprise version that exists in America and has spread across much of the world.

He is more consistently effective when he discusses some of the fundamental flaws of conventional bourgeois economics, such as the theories of marginal utility and marginal productivity. An excellent chapter on ‘Economics as a Failed Science’ recounts practical research into how businesses make their decisions and illustrates that diminishing returns on the growth in productive capacity doesn’t typically happen in practice. This is important, because one of the contentions of conventional economics is that these diminishing returns limit the production of individual firms and keep these enterprises small relative to the total market. This is a key factor underpinning the notion that capitalism is based on competitive markets that respond to subtle price signals influencing the ebb and flow of new entrants to an industry.

But the research shows this doesn’t happen in practice –economies of scale are a far more important factor for companies, leading them to expand their production to secure cheaper costs per unit produced. This in turn helps create two of the most significant features of capitalism: first, the drive by companies to expand production as if there is no limit to the market for their products, which leads to overproduction and economic crisis. Then the same phenomenon also leads to the concentration of capital into fewer hands, with a resulting tendency towards oligopoly. This was illustrated in the 2007 US Economic Census, which showed that 97 per cent of cigarettes in America are produced by the four largest manufacturers, the four biggest brewers produced 90 per cent of the beer and the top four oil refining firms produced almost half the petrol and diesel.

So, on this front Marx was right again, even though Larson doesn’t mention his analysis directly. Larson does quote, tellingly, from Einstein and his analysis of the anarchy of capitalist production and focuses on the calls for ‘economic democracy’ made by the Occupy movement among others as the remedy to the problem. But what he doesn’t say is that this remedy can only take effect when the anarchy of the market and the tyranny of money and prices have been destroyed, to be replaced by common ownership and production directly for use, rather than under a ‘regulated’ capitalism.

DAP