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How Capitalism Concentrates Power

For decades, we've been sold the myth that capitalism gives working people more power over their lives – but in reality, it's concentrated power into fewer and fewer hands.

The era of capitalist triumphalism which followed the fall of the Berlin Wall in the 1990s was buttressed by powerful ideological narratives. Those of us who grew up in this period came to associate capitalism with terms like freedom, creativity, and dynamism. The system was presented as a way for power to be diffused throughout society — whereas those on the left, whether social democrats or communists, were cast as the great concentrators.

Today, very little of this is recognisable. Capitalism has ushered in a period of profound concentration of power and wealth — and it is more likely to be associated with terms like inequality, corruption, or crisis. The Covid-19 pandemic has accelerated these trends, delivering super-corporations like Amazon monopoly shares over the retail sec-tor and extraordinary profits, with Jeff Bezos’ wealth growing by $75 billion in 2020 alone.

When discussing capitalism, then, it is important first to define our terms. For many on the right, capitalism is synonymous with a free market economy — a decentralised system of equal exchange mediated by the price mechanism. Prices contain all necessary information about commodities, allowing Adam Smith’s invisible hand to bring supply and demand for these commodities to a point of equilibrium.

In this model, we hear very little about production. In the simplest version of events, the economy is composed of a myriad of small producers converting inputs into outputs in response to price signals, each with no market power. In fact, the very existence of firms of the kind that populate the modern economy was for a long time something of a mystery within neoclassical economics.

Today, mainstream economists posit that firms exist as a ‘nexus of contracts’, which facilitate efficiency, entrepreneurialism, and — crucially — control over labour. It would, they argue, be far too costly and time consuming to negotiate separate contracts for every process currently undertaken within the firm. In fact, some functions — such as entrepreneurialism — cannot be contracted out at all. Better to allow entrepreneurs to build up firms, which can control and direct pools of resources, including labour.

Most economists assumed that each of these firms could never achieve any lasting market power in normal conditions, which meant they could only ever make ‘normal’ profits — i.e. zero profit when accounting for opportunity cost. Schumpeter introduced a little more complexity into the argument by stating that firms can and should experience temporarily higher profits as a reward for innovation. Innovative firms would achieve a temporary monopoly position, which would quickly ebb if the firm did not continue to innovate.

The role of the state, in this view, is to maintain these conditions: i.e. to ensure that markets remain free and generate economically and socially efficient outcomes. For some modern economists even this limited view of state power goes too far. Many argue that, even where inefficiencies do exist, it is better for the state to ‘stay out’ of the market because government failures are generally worse than market failures.

Powers of Concentration

These assumptions and arguments are the foundations of our popular debates about capitalism. Free markets are supposed to generate efficiency, equity, and innovation. There’s just one problem with this version of events: capitalism is not a free market system.

Firstly, firms are not simply production functions converting inputs into outputs automatically. Firms are political entities aiming to maximise profits in the context of uncertainty, which involves planning. Corporations have some autonomy when deciding not only what prices to set, but also how much to pay workers, where to invest, how to innovate, how to advertise, and how to lobby.

Secondly, market power exists, and it is not, as Schumpeter argued, temporary. Larger firms have more market power, and therefore more power to plan. The decisions made by large multinational corporations have implications for the whole of society: these firms shape the direction of innovation, how our political systems work, and our relationship with the natural world. They are not all-powerful — the market does impose some constraints — but neither are they powerless.

Thirdly, the state is not a neutral entity whose sole purpose is to construct and maintain the conditions necessary for free market competition. Instead, the state is likely to be influenced by the power relations in wider society — and in an economically centralised society, they will be influenced by firms with market power.

Marxists begin their analysis of capitalism from entirely different assumptions than those made within neoclassical economics. First, Marxists study the production of commodities, rather than simply exchange. The firm is not a ‘black box’ converting inputs into outputs; it is the foundation of the capitalist system and it exists to facili-tate the control of labour power by capital.

Portraying the firm as a black box allows economists to avoid confronting the political relationships of exploitation that exist within it. In fact, those economists who have developed ‘theories of the firm’ have accidentally ended up coming to conclusions that sound almost Marxist. Take Ronald Coase, for example, who writes that the two main features of the employer-employee relationship which characterises the capitalist firm are:

i. The servant [worker] must be under the duty of rendering personal services to the master [boss] or to others on behalf of the master, otherwise the contract is a contract for sale of goods or the like.

ii. The master must have the right to control the servant’s work, either personally or by another servant or agent.

Marxists study the development of capitalism over time and space, rather than attempting ‘static’ modelling of the kind undertaken by modern economists. Failing to analyse capitalism as a historical system allows the mainstream economist to obscure the oppression and exploitation that allowed capitalism to emerge in the first place — like the concept of ‘primitive accumulation’, which refers to the process by which peasants were dispossessed of their land to create a landless working class reliant upon their sale of their labour-power to survive.

Marxists also view capitalism as tending towards crisis rather than equilibrium — a thesis that seems hard to argue against in contemporary circumstances. By contrast, the assumption that the system tends towards equilibrium allows right-wingers to cast any crises that do emerge as ‘exogenous shocks’ generated by random events or political failings. In other words, all the assumptions made within mainstream economics are ideological: they conceal the ways in which power is exercised within capitalist societies.

Planning for Capital

According to the free market model, firms are all just small producers responding automatically to market signals. In this view of the world, no one has any power — in-stead the market is all-powerful, and our equal participation in it creates a kind of democracy.

But ‘the market’ is not some sort of natural, ethereal phenomenon — it is constructed. States, corporations, and financial institutions set the rules of the game, as well as being powerful players within that game. Because mainstream economists don’t focus on production, their models conceal the ways in which power is exercised within the system. Adopting a Marxist approach allows us to see that capitalism is not synonymous with ‘free markets’; capitalism is a system built upon the domination of labour by capital.

Our economy is not governed by the principles of perfect competition you might see in a textbook, but neither is it centrally planned. Instead, we live under a form of oligarchic capitalism in which a number of very powerful agents are able to shape the system to promote their own power and wealth.

Powerful agents use planning — individually and collectively — to promote their interests, but because even planned capitalism is still capitalism, it is still marked by huge overwhelming contradictions that no one agent, or group of agents, can override.

The nature of this planning depends on the class structure of society: Keynesian planning was based on a bargain between organised labour, the state, and the firm in the Global North. Neoliberalism didn’t mean a shift towards less planning, it simply meant a change in the nature of that planning: organised labour was pushed out, and state planning was reoriented towards supporting the needs of capital in general, and of finance capital in particular.

As capitalism has become more concentrated and centralised, the decisions taken by key actors within firms have become far more important in shaping the development of the system. Monopolistic and oligopolistic corporations have a huge command over our collective resources, and what they deci-de to do with those resources impacts every-one. Firms have political power, but no accountability — and in that sense we can speak of oligopolistic planning, counterposed to democratic and socialised planning.

States not only determine the rules of the game that shape market outcomes, they also actively and frequently act within those markets to shape those outcomes themselves. And clearly ‘the economy’ shapes politics and the state: private actors substantially shape political outcomes; a state’s command over resources determines its capacity to act domestically and globally; and management of ‘the economy’ is one of the most important terrains of political contestation.

Rather than separating out politics from economics — or state from market — Marxists argue that capitalist social relations have to be viewed in their totality. Capitalist states are as central to the functioning of capitalism as powerful corporations or financial institutions. The state is a critically important planner and is therefore a field of contestation between different groups.

Since the start of the neoliberal era, this understanding of capitalism has been lost. As a result, the Left has tended to swallow the free market view of the world, and simply argue for greater levels of state intervention in the market. But the nature of the state is influenced by the kind of social formation within which it exists. We’re not just dealing with states, we’re dealing with capitalist states, and capitalist states tend to plan in the interests of capital.

Towards Centralisation

By failing to understand capitalism as a whole system, in which states and firms work together to construct the rules of the game, the Left has ended up reifying the categories used by the Right. ‘States’ and ‘markets’ are constructed as separate entities: one is the realm of ‘politics’, the other of ‘economics’. But in reality, states construct markets, and market outcomes influence the nature of the state.

In the end, actually existing capitalism gives us both worlds: we don’t have an efficient, free market system, but neither do we have a completely centralised, coordinated one.

The centralisation of capital — the concentration of power within the capitalist world system into an ever smaller number of hands — generates contradictory tendencies. On the one hand, and as many Marxists have noted, a more centralised economy is one that, superficially at least, looks more socialised. Gone are the individuated, competitive butchers and bakers of Adam Smith’s day, and in their place have emerged giant behemoths reliant upon continuous cooperation.

On the other hand, and as Marx notes in volume one of Capital, the centralisation of capital augments the ‘mass of misery, oppression, slavery, degradation, exploitation’. In a system in which power is so concentrated those at the top of the hierarchy are able to extract more than ever from those below them: wages stagnate, rents increase, and corruption becomes endemic.

As inequality rises, it becomes harder for profits generated in the production process to be realised through circulation. Productive investment dries up and is redirected into speculation and other unproductive activities. Governments have to step in to keep accumulation going. Corporations start to look a lot more like banks, and states start to look a lot more like corporations.

In this sense, highly centralised economies are just as prone to crisis as less centralised ones — perhaps more. Not even the most powerful planners can escape the fundamental contradictions of the capitalist system. But the centralisation of capitalism also shows us the beginnings of what can be achieved by socialising and democratising the production process and reorienting it away from profit and towards the meeting of human needs. Such is the contradictory nature of capitalist development.

In centralised capitalism, the exercise of power is naked. It is a system that is wasteful, highly inefficient, corrupt, unsustainable, and which increasingly fails to provide a decent standard of living for the majority of the world’s population. In such a context, the power of ideology remains significant — but it is less and less effective without the constant threat of force. No wonder that today, all over the world, authoritarianism is on the rise.

The reason that these overt displays of force are necessary is that capitalism is facing a crisis of legitimacy. In a world of shrinking opportunities, falling wages, and impending climate breakdown, the average person can’t be relied upon to keep their heads down and accept their lot. Most people on the planet know that something is wrong with the way we are living.

The potential of that pervasive discontent remains latent. At this point in history, it is more likely to be expressed as a desire for a nationalist strongman protector than a movement beyond capitalism. The struggle for the Left today is to provide people with an emancipatory vocabulary through which they can express their discontent, and to channel that expression into a movement capable of resisting the power of monopoly capital.

The concentrated power that exists today within imperial states and multinational corporations seems all but impossible to resist. But, as Ursula Le Guin reminds us, so once did the divine right of kings. A movement filled with people who realise the true extent of their collective power might quickly realise that, in this age of profound crisis, monopoly capital is far weaker than it appears.