Whether it is possible to achieve both economic efficiency and social justice

This essay seeks to discuss whether it is possible to achieve both economic efficiency and social justice. It will attempt to do this by examining the terms economic efficiency and social justice and their context within a capitalist society and some of the arguments for and against the statement.

The modern world functions within a capitalist system. This may be best defined as: An economic system in which goods and services are produced for sale, with the intention of making a profit, in a large number of separate firms using privately owned capital goods and wage labour (Jessop 1987:37 in Taylor et al 1996:28) In order for a capitalist system to exist, certain conditions need to be established. The system revolves around a market framework which requires ready buyers who are prepared to pay the asking price for the goods and services, and a constant steady supply of workers prepared to work for a set wage.

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The workers’ opportunity to increase their wages depends on the system operating steadily with few troughs; in this way they are free to take their labour to the highest bidder. This then creates problems because, when labour is treated and traded as a commodity, there will obviously be buyers and sellers, winners and losers, and a resultant social injustice and unfairness. Where free markets rule, society has been seen to fragment (Will Hutton video A False Economy). Before capitalism could develop on an extensive scale, wealth had first to be produced in such quantities as to provide a surplus over nd above what could be immediately consumed by its owners and converted into a form in which it could be saved, and later used, by those having the desire and capacity to apply it to profit-making (Evans RT 1923:127) This does not appear to be fair to a large section of society and would seem to suggest that economic efficiency is only to be realised at the expense of social justice – the just distribution of goods and services within society, and it could be suggested that there should be a better balance between a system which operates with economic efficiency and social justice, or equity/fairness.

Evans goes on to explain that the capitalist system arose directly as a result of the demise of the feudal system and the Enclosure Acts. Individuals and families were no longer self-supporting units and when the ensuing Industrial Revolution offered factory work in exchange for cash with which to purchase the commodities produced by the factories ‘all the conditions essential for the wide and general development of capitalism’ existed (Evans 1923:128) and the buyers and sellers, winners and losers began to emerge. George puts it thus: And, unpleasant as it may be to admit it, it is at last becoming evident hat the enormous increase in productive power which has marked the present century and is still going on with accelerating ratio, has no tendency to extirpate poverty or to lighten the burdens of those compelled to toil. It simply widens the gulf…… and makes the struggle for existence more intense (George 1911:11) It soon became obvious that, under this system, the rich would probably become richer and the poor remain poor or, at best, never as rich as the rich. The introduction of a money economy was necessary for the most successful exploitation of the feudal system.

This, argues Evans, was the catalyst for the system of taxes, tolls and rents levied by the rich against the poor. The vast revenue was ‘either consumed in luxury or accumulated as treasure and was therefore not available to be used in organising business for the making of profit’ (Evans 1923:131) and thus the seeds of economic efficiency at the expense of social justice were sown. Marx saw contradictions in this system between the collective nature of production and the individual nature of ownership; it takes many workers to produce goods which make profits for a small number of people, or perhaps just one individual.

He felt that this was one of the reasons that the system was ‘inherently unstable’ (Taylor et al 1996:16). It cannot be fair or socially just and acceptable to balance many workers, possibly exploited, against a small minority of individuals who benefit from, but do not directly contribute to, their efforts. He says: There is a basic conflict of interest between capital and labour….. workers produce wealth in the form of goods yet a large part of that wealth is taken in the form of profits by the capitalist class. Thus one group benefits at the expense of the other.

These contradictions, felt Marx, could only result in the demise of the capitalist system by means of a workers’ revolution – a communist society (although this ultimately failed in the USSR). Flexibility is needed in the labour market to cope with changes, but this has a detrimental effect on workers as it causes insecurities. A free market experiences highs and lows and, when emerging from a recession (as Britain has several times), owners do not wish to commit to a permanent workforce because of the fear of instability. Temporary work and part-time work tend to be offered more and, again, this is unfair to the workforce.

Part-time and temporary work, although efficient and cost-effective, does not usually include packages such as pension rights, sick pay and other benefits. Also, if employees can be persuaded to work less than a certain number of hours they may lose many employment rights. It is therefore more economically efficient to employ several part-time workers; again, economic efficiency is achieved at the expense of social justice. The end result is that labour becomes ‘casualised’ with short-term contracts and a concomitant reduction in skills.

Thus, to de-regulate the market in accordance with monetarist ideals would have an adverse effect on workers; unemployment may reduce but the nature of the work on offer becomes more uncertain resulting in more injustice/inequity, although the system itself becomes very efficient economically. Once the consumer is in a position of bargaining power, the certainty of employment is removed. Keynes would argue that, ultimately, the consumer is also a worker and, without job security, spending is reduced thus creating more job insecurity. Should this inequality be the unavoidable price we have to pay for a successful market economy?

Reduced wages, apart from being unfair, in turn produce low skill levels which then result in low investment in organisations and a cycle is created which will promote social injustice as well as damage economic efficiency – even though the owners may be pocketing more in the way of profits initially. This then creates another cycle wherein unemployment as a result of these policies also becomes expensive for those still enjoying full employment because income tax contributions will be decreased, along with National Insurance contributions.

Combined with an increase in the level of benefits payments being made to the unemployed and the lessened spending power of this section of society, it is not difficult to see the impact upon the rest of society. Thus social injustice to one section of society impacts upon the rest of society. Unemployment leads to social division, exclusion and civil unrest and was the catalyst to Hitler’s rise to power in the 1930s. Marxists felt that social justice and economic efficiency could best be achieved by drastic re-distribution. Few things have been more productive of controversy over the ages han the suggestion that the rich should, by one device or another, share their wealth with those who are not (Galbraith J K 1958 The Affluent Society:61) The argument behind this, suggests Galbraith is that ‘what a man has received, save by overt larceny, is rightfully his’ and to interfere with this would be ‘only at the eventual price of disrupting the system and making the lot of everyone (including the poor) much worse’. It was argued that, if income were to be re-distributed, it would be spent but, if concentrated and directed towards the rich, much would be saved and invested, thus impacting ultimately upon the poor.

Galbraith goes on to point out that other arguments suggest that ‘excessive equality makes for cultural uniformity and monotony’. The rich, he claims, are essential in order to subsidise education and the arts although access to the arts and effective education is effectively denied to the poor. It was said that – ‘equality smacks of communism and hence of atheism and therefore is spiritually suspect’ – even the Russians had conceded this, although this was only after the enforced labour of over 28 million people in the Gulags; economic efficiency at tremendous cost to social justice.

Capitalism, then, generates wealth but is an irrational system which causes depressions and therefore comprises of peaks and troughs in the market. When a lot of money is spent, full employment ensues but the system is dictated by the consumer. If spending decreases a recession follows and consumers lose confidence, spend less, and create a vicious circle, not seeming to realize that, as consumers, they are also workers and so masters of their own fate.

The answer to this is not holding down wages by introducing minimum wage restraints; increased wages are more likely to motivate a workforce into increased productivity and in this way economic efficiency may be obtained as a result of equity, not at the expense of it. A minimum wage policy, therefore, would seem to be wrong economically, politically and socially; workers need a stake in their futures before they will become committed to the success of their employers and as long as they feel that employers and businesses have their own agenda and are not interested in their welfare, there will be discord.

Can we then ever achieve economic efficiency with true social justice? It seems unlikely as society comprises of too many individuals, groups, cultures and sub-societies. (Le Grand 1991:23). Successive governments have implemented budgets which appear to benefit most people but even these usually tend to ignore the single working person, paying income tax and National Insurance contributions but unlikely to be ‘drawing down’ from the state. These individuals are often no better, and sometimes worse, off.

Organisations such as he Body Shop and Fair Trade attempt to alleviate the problem globally by sourcing labour and products from disadvantaged countries to produce, at the lowest cost, goods that the consumer wishes to buy, but equity is relative; the workers may be treated fairly by their own standards but perhaps not by western standards, so it is arguable if this is true social justice or a diluted token version made by some manufacturers to appease the guilt-ridden western consumer.

Also, products such as Fair Trade items are often slightly more expensive than less socially aware products and ultimately, again, the consumer dictates the market and the success or failure of such schemes. Some organisations are unable to spend profits on advertising, having instead to plough money back into the organisation and so are faced with the dilemma of either charging more in order to pay a reasonable wage as well as improving the workers’ environment at the risk of the consumer switching to cheaper products, or keeping wages low in order to sell the product; the consumer will always control the social equity.

The market makes no moral judgements – it is simply a means to an end, although this, in a way, is also formal social justice – allowing individuals (the consumer) equal rights and free choice to pursue their own ends. If a market system is based on competition, principles suffer, but Adam Smith (The Wealth of Nations 1776 4:2) considered that the market was the best way of increasing public goods and therefore aiding equity. Le Grand (1991:23) asks if it is possible or feasible to allocate resources within the economy in a way that is both ‘fully’ equitable and ‘fully efficient’.

The American view is that the efficiency of organisations is proportionate to the knowledge and capacity of their industrial leaders (Ord 1948:19) and this may create social justice but can perhaps lead to coercion and authoritarianism. More locally, the emergence of the Credit Union system seeks to address the social justice dilemma by offering a community-bases scheme giving very low interest loans to those who, while often in full employment, for whatever reason find themselves unable to avail themselves of similar loan offers in the High Street.

Interest is ploughed back into the scheme after a small rate is paid to investors. Holyrood in Scotland actually has a dedicated Minister for Social Justice with responsibility for mainstreaming policies into the big spending departments. Social Justice has its own budget and is at the heart of the Scottish Executive’s programme. Minister Margaret Curran says that ministers must take into account, when developing future spending plans that: In five years time we have to show that health inequalities have educed and that more young people are going into further education, or we will have failed…….. Poverty damages people and their families but it also harms……. competitiveness and economic performance Regeneration and Renewal October 2002 18:17 The social justice programme is directing money and resources into new areas and has transferred 80,000 homes to new community-based landlords giving, in a similar manner as the Credit Unions, more control, self-esteem and equity to those more disadvantaged.

Thus, if government intervention is prompt and appropriate social injustice can be alleviated. New Labour would appear to be attempting to learn from Keynes and the monetarists in an effort to close the gaps between rich and poor and combine an efficient economy with a greater level of social justice. They claim that it is patronising the working class to assume that they do not have the same aspirations as the more socially advantaged.

It could be said that they concern themselves more with greater inequality leveling strategies by using the welfare state to create a more equal society (Giddens 1998:10) In turn however, the welfare state is criticised by the Neoliberals; it is seen to encourage the feckless and discourage enterprise in the individual, thus causing resentment. Giddens suggests a market-led economic growth as an alternative saying that ‘welfare should be understood not as state benefits, but as maximizing economic progress and therefore overall wealth’.

He claims that his would promote economic progress and therefore overall wealth and, ultimately, equity and fairness. Old style socialism, then, would appear to be obsolete; such approaches are likely to result in people becoming more disadvantaged. Hayek claimed that socialism destroyed the basis of all morals (Gamble 1996:26) but it could be argued that socialism at least questioned the organization of the economic structure of society: The tradition of ethical socialism has always sought to occupy the high moral ground, condemning capitalism for its disregard of orality and its encouragement of individual selfishness and greed (Gamble 1996:26) He felt that socialism did not show an understanding of the ‘basis of modern civilisation’ The Third Way, although often seen as a combination of other theories, is attempting to deal with individual freedom and social justice by, for instance, making the benefits system a two-way process – recipients should adhere to certain conditions and contribute to the society which seeks to pay it an ‘income’. This is a definite attempt to deal with the problem and would appear to be a good compromise of Keynesianism and monetarist principles.

By way of contrast, a stakeholder economy may contribute to a more equal efficiency/equity balance; when workers are actively involved in their own futures they tend to participate more fully; Richard Branson, for instance, has purchased an island where he allows employees to holiday free of charge. Thus workers, instead of expecting the state and business to fulfill certain obligations instead have their own obligations. A civilized society, then, should be able to derive the benefits of capitalism without the disadvantages; a social system that demands true altruism will fail because it sets great demands on people.