C.9 Would laissez-faire capitalism reduce unemployment, as supporters of "free market" capitalism claim?

Firstly, we have to state that "actually existing capitalism" in the West actually manages unemployment to ensure high profit rates for the capitalist class (see section C.8.3) - market discipline for the working class, state protection for the ruling class, in other words. As Edward Herman points out:

"Conservative economists have even developed a concept of a 'natural rate of unemployment' [which Herman defines as "the rate of unemployment preferred by the propertied classes"] . . . [which] is defined as the minimum level consistent with price level stability, but, as it is based on a highly abstract model that is not directly testable, the natural rate can only be inferred from the price level itself. That is, if prices are going up, unemployment is below the 'natural rate' and too low. . . Apart from the grossness of this kind of metaphysical legerdemain, the very concept of a natural rate of unemployment has a huge built-in bias. It takes as granted all the other institutional factors that influence the price level-unemployment trade-off (market structures and independent pricing power, business investment policies at home and abroad, the distribution of income, the fiscal and monetary mix, etc.) and focuses solely on the tightness of the labour market as the controllable variable. Inflation is the main threat, the labour market (i.e. wage rates and unemployment levels) is the locus of the solution to the problem." [Beyond Hypocrisy, p. 94]

In a sense, it is understandable that the ruling class within capitalism desires to manipulate unemployment in this way and deflect questions about their profit, property and power onto the labour market. Managing depression (as indicated by high unemployment levels) allows greater profits to be extracted from workers as management hierarchy is more secure. When times are hard, workers with jobs think twice before standing up to their bosses and so work harder, for longer and in worse conditions. This ensures that surplus value is increased relative to real wages (indeed, in the USA, real wages have stagnated since 1973 while profits have grown massively). In addition, such a policy ensures that political discussion about investment, profits, power and so on ("the other institutional factors") are reduced and diverted because working class people are too busy trying to make ends meet.

Of course, it can be argued that as this "natural" rate is both invisible and can move, historical evidence is meaningless -- you can prove anything with an invisible, mobile value. But if this is the case then any attempts to maintain a "natural" rate is also meaningless as the only way to discover it is to watch inflation levels (and with an invisible, mobile value, the theory is always true after the fact -- if inflation rises as unemployment rises, then the natural rate has increased; if inflation falls as unemployment rises, it has fallen!). Which means that people are being made unemployed on the off-chance that the unemployment level will drop below the (invisible and mobile) "natural" rate and harm the interests of the ruling class (high inflation rates harms interest incomes and full employment squeezes profits by increasing workers' power). Given that most mainstream economists subscribe to this fallacy, it just shows how the "science" accommodates itself to the needs of the powerful.

So, supporters of "free market" capitalism do have a point, "actually existing capitalism" has created high levels of unemployment. The question now arises, will a "purer" capitalism create full employment?

First, we should point out that some supporters of "free market" capitalism claim that the market has no tendency to equilibrium at all, which means full employment is impossible, but few explicitly state this obvious conclusion of their own theories. However, most claim that full employment can occur. Anarchists agree, full employment can occur in "free market" capitalism, but not for ever (nor for long periods). As the Polish economist Michal Kalecki pointed out in regards to pre-Keynesian capitalism, the "reserve of capital equipment and the reserve army of unemployed are typical features of capitalist economy at least throughout a considerable part of the [business] cycle." [quoted by George R. Feiwel, The Intellectual Capital of Michal Kalecki, p. 130]

Cycles of short periods of full employment and longer periods of rising and falling unemployment are actually a more likely outcome of "free market" capitalism than continued full employment. As we argued in sections B.4.4 and C.7.1 capitalism needs unemployment to function successfully and so "free market" capitalism will experience periods of boom and slump, with unemployment increasing and decreasing over time (as can be seen from 19th century capitalism). So, full employment under capitalism is unlikely to last long (nor would full employment booms fill a major part of the full business cycle). Moreover, the notion that capitalism naturally stays at equilibrium or that unemployment is temporary adjustments is false, even given the logic of neo-classical economics. As Proudhon argued:

"The economists admit it [that machinery causes unemployment]: but here they repeat their eternal refrain that, after a lapse of time, the demand for the product having increased in proportion to the reduction in price [caused by the investment], labour in turn will come finally to be in greater demand than ever. Undoubtedly, with time, the equilibrium will be restored; but I must add again, the equilibrium will be no sooner restored at this point than it will be disturbed at another, because the spirit of invention never stops. . ." [System of Economical Contradictions, pp. 200-1]

That capitalism creates permanent unemployment and, indeed, needs it to function is a conclusion that few, if any, pro-"free market" capitalists subscribe to. Faced with the empirical evidence that full employment is rare in capitalism, they argue that reality is not close enough to their theories and must be changed (usually by weakening the power of labour by welfare "reform" and reducing "union power"). Thus reality is at fault, not the theory (to re-quote Proudhon, "Political economy -- that is, proprietary despotism -- can never be in the wrong: it must be the proletariat." [Op. Cit. p. 187]) So if unemployment exists, then its because real wages are too high, not because capitalists need unemployment to discipline labour (see section C.9.2 for evidence that the neo-classical theory is false). Or if real wages are falling as unemployment is rising, it can only mean that the real wage is not falling fast enough -- empirical evidence is never enough to falsify logical deductions from assumptions!

(As an aside, it is one of amazing aspects of the "science" of economics that empirical evidence is never enough to refute its claims. As the left-wing economist Nicholas Kaldor once pointed out, "[b]ut unlike any scientific theory, where the basic assumptions are chosen on the basis of direct observation of the phenomena the behaviour of which forms the subject-matter of the theory, the basic assumptions of economic theory are either of a kind that are unverifiable. . . or of a kind which are directly contradicted by observation." [Further Essays on Applied Economics, pp. 177-8] Or, if we take the standard economics expression "in the long run," we may point out that unless a time is actually given it will always remain unclear as to how much evidence must be gathered before one can accept or reject the theory.)

Of course, reality often has the last laugh on any ideology. For example, since the late 1970s and early 1980s right-wing capitalist parties have taken power in many countries across the world. These regimes made many pro-free market reforms, arguing that a dose of market forces would lower unemployment, increase growth and so on. The reality proved somewhat different. For example, in the UK, by the time the Labour Party under Tony Blair come back to office in 1997, unemployment (while falling) was still higher than it had been when the last Labour government left office in May, 1979. 18 years of labour market reform had not reduced unemployment. It is no understatement to argue, in the words of two critics of neo-liberalism, that the "performance of the world economy since capital was liberalised has been worse than when it was tightly controlled" and that "[t]hus far, [the] actual performance [of liberalised] capitalism] has not lived up to the propaganda." [Larry Elliot and Dan Atkinson, The Age of Insecurity, p. 274, p. 223]

Lastly, it is apparent merely from a glance at the history of capitalism during its laissez-faire heyday in the 19th century that "free" competition among workers for jobs does not lead to full employment. Between 1870 and 1913, unemployment was at an average of 5.7% in the 16 more advanced capitalist countries. This compares to an average of 7.3% in 1913-50 and 3.1% in 1950-70. If laissez-faire did lead to full employment, these figures would be reversed. As discussed above (in section C.7.1), ] full employment cannot be a fixed feature of capitalism due to its authoritarian nature and the requirements of production for profit. To summarise, unemployment has more to do with private property than the wages of our fellow workers.

However, it is worthwhile to discuss why the "free market" capitalist is wrong to claim that unemployment within their system will not exist for long periods of time. In addition, to do so will also indicate the poverty of their theory of, and "solution" to, unemployment and the human misery they would cause. We do this in the next section.

C.9.1 Would cutting wages reduce unemployment?

The "free market" capitalist (or neo-classical or neo-liberal or "Austrian") argument is that unemployment is caused by workers real wage being higher than the market clearing level. Workers, it is claimed, are more interested in money wages than real wages (which is the amount of goods they can by with their money wages). This leads them to resist wage cuts even when prices are falling, leading to a rise in their real wages. In other words, they are pricing themselves out of work without realising it (the validity of the claim that unemployment is caused by high wages is discussed in the next section).

From this analysis comes the argument that if workers were allowed to compete 'freely' among themselves for jobs, real wages would decrease. This would reduce production costs and this drop would produce an expansion in production which provides jobs for the unemployed. Hence unemployment would fall. State intervention (e.g. unemployment benefit, social welfare programmes, legal rights to organise, minimum wage laws, etc.) and labour union activity according to this theory is the cause of unemployment, as such intervention and activity forces wages above their market level, thus increasing production costs and "forcing" employers to "let people go."

Therefore, according to neo-classical economic theory, firms adjust production to bring the marginal cost of their products (the cost of producing one more item) into equality with the product's market-determined price. So a drop in costs theoretically leads to an expansion in production, producing jobs for the "temporarily" unemployed and moving the economy toward a full-employment equilibrium.

So, in neo-classical theory, unemployment can be reduced by reducing the real wages of workers currently employed. However, this argument is flawed. While cutting wages may make sense for one firm, it would not have this effect throughout the economy as a whole (as is required to reduce unemployment in a country as a whole). This is because, in all versions of neo-classical theory, it is assumed that prices depend (at least in part) on wages. If all workers accepted a cut in wages, all prices would fall and there would be little reduction in the buying power of wages. In other words, the fall in money wages would reduce prices and leave real wages nearly unchanged and unemployment would continue.

Moreover, if prices remained unchanged or only fell by a small amount (i.e. if wealth was redistributed from workers to their employers), then the effect of this cut in real wages would not increase employment, it would reduce it. For people's consumption depends on their income, and if their incomes have fallen, in real terms, so will their consumption. As Proudhon pointed out in 1846, "if the producer earns less, he will buy less. . . [which will] engender. . . over-production and destitution" because "though the workmen cost you [the capitalist] something, they are your customers: what will you do with your products, when driven away by you, they shall consume no longer? Thus, machinery, after crushing, is not show in dealing employers a counter-blow; for if production excludes consumption, it is soon obliged to stop itself." [System of Economical Contradictions, p. 204, p. 190]

However, it can be argued, not everyone's real income would fall: incomes from profits would increase. But redistributing income from workers to capitalists, a group who tend to spend a smaller portion of their income on consumption than do workers, could reduce effective demand and increase unemployment. As David Schweickart points out, when wages decline, so does workers' purchasing power; and if this is not offset by an increase in spending elsewhere, total demand will decline [Against Capitalism, pp. 106-107]. In other words, contrary to neo-classical economics, market equilibrium might be established at any level of unemployment.

But in "free market" capitalist theory, such a possibility of market equilibrium with unemployment is impossible. Neo-liberals reject the claim that cutting real wages would merely decrease the demand for consumer goods without automatically increasing investment sufficiently to compensate for this. Neo-classicists argue that investment will increase to make up for the decline in working class consumption.

However, in order make this claim, the theory depends on three critical assumptions, namely that firms can expand production, that they will expand production, and that, if they do, they can sell their expanded production. However, this theory and its assumptions can be questioned.

The first assumption states that it is always possible for a company to take on new workers. But increasing production requires more than just labour. If production goods and facilities are not available, employment will not be increased. Therefore the assumption that labour can always be added to the existing stock to increase output is plainly unrealistic.

Next, will firms expand production when labour costs decline? Hardly. Increasing production will increase supply and eat into the excess profits resulting from the fall in wages. If unemployment did result in a lowering of the general market wage, companies might use the opportunity to replace their current workers or force them to take a pay cut. If this happened, neither production nor employment would increase. However, it could be argued that the excess profits would increase capital investment in the economy (a key assumption of neo-liberalism). The reply is obvious: perhaps, perhaps not. A slumping economy might well induce financial caution and so capitalists could stall investment until they are convinced of the sustained higher profitability while last.

This feeds directly into the last assumption, namely that the produced goods will be sold. But when wages decline, so does worker purchasing power, and if this is not offset by an increase in spending elsewhere, then total demand will decline. Hence the fall in wages may result in the same or even more unemployment as aggregate demand drops and companies cannot find a market for their goods. However, business does not (cannot) instantaneously make use of the enlarged funds resulting from the shift of wages to profit for investment (either because of financial caution or lack of existing facilities). This will lead to a reduction in aggregate demand as profits are accumulated but unused, so leading to stocks of unsold goods and renewed price reductions. This means that the cut in real wages will be cancelled out by price cuts to sell unsold stock and unemployment remains.

So, the traditional neo-classical reply that investment spending will increase because lower costs will mean greater profits, leading to greater savings, and ultimately, to greater investment is weak. Lower costs will mean greater profits only if the products are sold, which they might not be if demand is adversely affected. In other words, a higher profit margins do not result in higher profits due to fall in consumption caused by the reduction of workers purchasing power. And, as Michal Kalecki argued, wage cuts in combating a slump may be ineffective because gains in profits are not applied immediately to increase investment and the reduced purchasing power caused by the wage cuts causes a fall in sales, meaning that higher profit margins do not result in higher profits. Moreover, as Keynes pointed out long ago, the forces and motivations governing saving are quite distinct from those governing investment. Hence there is no necessity for the two quantities always to coincide. So firms that have reduced wages may not be able to sell as much as before, let alone more. In that case they will cut production, adding to unemployment and further lowering demand. This can set off a vicious downward spiral of falling demand and plummeting production leading to depression (the political results of such a process would be dangerous to the continued survival of capitalism). This downward spiral is described by Kropotkin (nearly 40 years before Keynes made the same point in his General Theory of Employment, Interest and Money):

"Profits being the basis of capitalist industry, low profits explain all ulterior consequences.

"Low profits induce the employers to reduce the wages, or the number of workers, or the number of days of employment during the week. . . [L]ow profits ultimately mean a reduction of wages, and low wages mean a reduced consumption by the worker. Low profits mean also a somewhat reduced consumption by the employer; and both together mean lower profits and reduced consumption with that immense class of middlemen which has grown up in manufacturing countries, and that, again, means a further reduction of profits for the employers." [Fields, Factories and Workshops Tomorrow, p. 33]

Thus, a cut in wages will deepen any slump, making it deeper and longer than it otherwise would be. Rather than being the solution to unemployment, cutting wages will make it worse (we will address the question of whether wages being too high actually causes unemployment in the first place, as maintained by neo-classical economics, below). Given that, as we argued in section C.7.1, inflation is caused by insufficient profits for capitalists (they try to maintain their profit margins by price increases) this spiralling effect of cutting wages helps to explain what economists term "stagflation" -- rising unemployment combined with rising inflation (as seen in the 1970s). As workers are made unemployed, aggregate demand falls, cutting profit margins even more and in response capitalists raise prices in an attempt to recoup their losses. Only a very deep recession can break this cycle (along with labour militancy and more than a few workers and their families). Working people paying for capitalism's contradictions, in other words.

All this means that working class people have two options in a slump -- accept a deeper depression in order to start the boom-bust cycle again or get rid of capitalism and with it the contradictory nature of capitalist production which produces the business cycle in the first place (not to mention other blights such as hierarchy and inequality).

The "Pigou" (or "real balance") effect is another neo-classical argument that aims to prove that (in the end) capitalism will pass from slump to boom. This theory argues that when unemployment is sufficiently high, it will lead to the price level falling which would lead to a rise in the real value of the money supply and so increase the real value of savings. People with such assets will have become richer and this increase in wealth will enable people to buy more goods and so investment will begin again. In this way, slump passes to boom naturally.

However, this argument is flawed in many ways. In reply, Michal Kalecki argued that, firstly, Pigou had "assumed that the banking system would maintain the stock of money constant in the face of declining incomes, although there was no particular reason why they should." If the money stock changes, the value of money will also change. Secondly, that "the gain in money holders when prices fall is exactly offset by the loss to money providers. Thus, whilst the real value of a deposit in bank account rises for the depositor when prices fell, the liability represented by that deposit for the bank also rises in size." And, thirdly, "that falling prices and wages would mean that the real value of outstanding debts would be increased, which borrowers would find it increasingly difficult to repay as their real income fails to keep pace with the rising real value of debt. Indeed, when the falling prices and wages are generated by low levels of demand, the aggregate real income will be low. Bankruptcies follow, debts cannot be repaid, and a confidence crisis was likely to follow." In other words, debtors may cut back on spending more than creditors would increase it and so the depression would continue as demand did not rise. [Malcolm C. Sawyer, The Economics of Michal Kalecki, p. 90]

So, as Schweickart, Kalecki and others correctly observe, such considerations undercut the neo-classical contention that labour unions and state intervention are responsible for unemployment (or that depressions will easily or naturally end by the workings of the market). To the contrary, insofar as labour unions and various welfare provisions prevent demand from falling as low as it might otherwise go during a slump, they apply a brake to the downward spiral. Far from being responsible for unemployment, they actually mitigate it. This should be obvious, as wages (and benefits) may be costs for some firms but they are revenue for even more.

C.9.2 Is unemployment caused by wages being too high?

As we noted in the last section, most capitalist economic theories argue that unemployment is caused by wages being too high. Any economics student will tell you that high wages will reduce the quantity of labour demanded, in other words unemployment is caused by wages being too high -- a simple case of "supply and demand." From this theory we would expect that areas with high wages will also be areas with high levels of unemployment. Unfortunately for the theory, this does not seem to be the case.

Empirical evidence does not support the argument the neo-classical argument that unemployment is caused by real wages being too high. The phenomenon that real wages increase during the upward swing of the business cycle (as unemployment falls) and fall during recessions (when unemployment increases) renders the neo-classical interpretation that real wages govern employment difficult to maintain (real wages are "pro-cyclical," to use economic terminology). But this is not the only evidence against the neo-classical theory of unemployment. Will Hutton, the UK based neo-Keynesian economist, summaries research that suggests high wages do not cause unemployment (as claimed by neo-classical economists):

"the British economists David Blanchflower and Andrew Oswald [examined] . . . the data in twelve countries about the actual relation between wages and unemployment - and what they have discovered is another major challenge to the free market account of the labour market. . . [They found] precisely the opposite relationship [than that predicted in neo-classical theory]. The higher the wages, the lower the local unemployment - and the lower the wages, the higher the local unemployment. As they say, this is not a conclusion that can be squared with free market text-book theories of how a competitive labour market should work." [The State We're In, p. 102]

Blanchflower and Oswald state their conclusions from their research that employees "who work in areas of high unemployment earn less, other things constant, than those who are surrounded by low unemployment." [The Wage Curve, p. 360] This relationship, the exact opposite of that predicted by neo-classical economics, was found in many different countries and time periods, with the curve being similar for different countries. Thus, the evidence suggests that high unemployment is associated with low earnings, not high, and vice versa.

Looking at less extensive evidence we find that, taking the example of the USA, if minimum wages and unions cause unemployment, why did the South-eastern states (with a lower minimum wage and weaker unions) have a higher unemployment rate than North-western states during the 1960's and 1970's? Or why, when the (relative) minimum wage declined under Reagan and Bush, did chronic unemployment accompany it? [Allan Engler, The Apostles of Greed, p. 107]

Or the Low Pay Network report "Priced Into Poverty" which discovered that in the 18 months before they were abolished, the British Wages Councils (which set minimum wages for various industries) saw a rise of 18,200 in full-time equivalent jobs compared to a net loss of 39,300 full-time equivalent jobs in the 18 months afterwards. Given that nearly half the vacancies in former Wages Council sectors paid less than the rate which it is estimated Wages Councils would now pay, and nearly 15% paid less than the rate at abolition, there should (by the neo-classical argument) have been rises in employment in these sectors as pay falls. The opposite happened. This research shows clearly that the falls in pay associated with Wages Council abolition have not created more employment. Indeed, employment growth was more buoyant prior to abolition than subsequently. So whilst Wages Council abolition has not resulted in more employment, the erosion of pay rates caused by abolition has resulted in more families having to endure poverty pay.

(This does not mean that anarchists support the imposition of a legal minimum wage. Most anarchists do not because it takes the responsibility for wages from unions and other working class organisations, where it belongs, and places it in the hands of the state. We mention these examples in order to highlight that the neo-classical argument has flaws with it.)

While this evidence may come as a shock to neo-classical economics, it fits well with anarchist and other socialist analysis. For anarchists, unemployment is a means of disciplining labour and maintaining a suitable rate of profit (i.e. unemployment is a key means of ensuring that workers are exploited). As full employment is approached, labour's power increases, so reducing the rate of exploitation and so increasing labour's share of the value it produces (and so higher wages). Thus, from an anarchist point of view, the fact that wages are higher in areas of low unemployment is not a surprise, nor is the phenomenon of pro-cyclical real wages. After all, as we noted in section C.3, the ratio between wages and profits are, to a large degree, a product of bargaining power and so we would expect real wages to grow in the upswing of the business cycle, fall in the slump and be high in areas of low unemployment. And, far more importantly, this evidence suggests that the neo-classical claim that unemployment is caused by unions, "too high" wage rates, and so on, is false. Indeed, by stopping capitalists appropriating more of the income created by workers, high wages maintain aggregate demand and contribute to higher employment (although, of course, high employment cannot be maintained indefinitely under wage slavery due to the rise in workers' power this implies). Rather, unemployment is a key aspect of the capitalist system and cannot be got rid off within it and the neo-classical "blame the workers" approach fails to understand the nature and dynamic of the system.

So, perhaps, high real wages for workers increases aggregate demand and reduces unemployment from the level it would be if the wage rate was cut. Indeed, this seems to supported by research into the "wage curve" of numerous countries. This means that a "free market" capitalism, marked by a fully competitive labour market, no welfare programmes, unemployment benefits, higher inequality and extensive business power to break unions and strikes would see aggregate demand constantly rise and fall, in line with the business cycle, and unemployment would follow suit. Moreover, unemployment would be higher over most of the business cycle (and particularly at the bottom of the slump) than under a capitalism with social programmes, militant unions and legal rights to organise because the real wage would not be able to stay at levels that could support aggregate demand nor could the unemployed use their benefits to stimulate the production of consumer goods.

In other words, a fully competitive labour market would increase the instability of the market, as welfare programmes and union activity maintain aggregate income for working people, who spend most of their income, so stabilising aggregate demand -- an analysis which was confirmed in during the 1980s ("the relationship between measured inequality and economic stability. . . was weak but if anything it suggests that the more egalitarian countries showed a more stable pattern of growth after 1979" [Dan Corry and Andrew Glyn, "The Macroeconomics of equality, stability and growth", in Paying for Inequality, Andrew Glyn and David Miliband (Eds.) pp. 212-213]).

C.9.3 Are "flexible" labour markets the answer to unemployment?

Moreover, if we look at the rationale behind "flexibility" we find a strange fact. While the labour market is to be made more "flexible" and in line with ideal of "perfect competition", on the capitalist side no attempt is being made to bring it into line with that model. Let us not forget that perfect competition (the theoretical condition in which all resources, including labour, will be efficiently utilised) states that there must be a large number of buyers and sellers. This is the case on the sellers side of the "flexible" labour market, but this is not the case on the buyers (where, as indicated in section C.4, oligopoly reigns). Most who favour labour market "flexibility" are also those most against breaking up of big business and oligopolistic markets or the stopping of mergers between dominant companies in and across markets. The model requires both sides to be "flexible," so why expect making one side more "flexible" will have a positive effect on the whole? There is no logical reason for this to be the case. Indeed, with the resulting shift in power on the labour market things may get worse as income is distributed from labour to capital. It is a bit like expecting peace to occur between two warring factions by disarming one side and arguing that because the number of guns have been halved peacefulness has doubled! Of course, the only "peace" that would result would be the peace of the graveyard or a conquered people -- subservience can pass for peace, if you do not look too close. In the end, calls for the "flexibility" of labour indicate the truism that, under capitalism, labour exists to meet the requirements of capital (or living labour exists to meet the needs of dead labour, a truly insane way to organise a society).

All this is unsurprising for anarchists as we recognise that "flexibility" just means weakening the bargaining power of labour in order to increase the power and profits of the rich (hence the expression "flexploitation"!). Increased "flexibility" has been associated with higher, not lower unemployment. This, again, is unsurprising, as a "flexible" labour market basically means one in which workers are glad to have any job and face increased insecurity at work (actually, "insecurity" would be a more honest word to use to describe the ideal of a competitive labour market rather than "flexibility" but such honesty would let the cat out of the bag). In such an environment, workers' power is reduced, meaning that capital gets a larger share of the national income than labour and workers are less inclined to stand up for their rights. This contributes to a fall in aggregate demand, so increasing unemployment. In addition, we should note that "flexibility" will have little effect on unemployment (although not on profits) as a reduction of labour's bargaining power many result in more rather than less unemployment. This is because firms can fire "excess" workers at will, increase the hours of those who remain (the paradox of overwork and unemployment is just an expression of how capitalism works) and stagnating or falling wages reduces aggregate demand. Thus the paradox of increased "flexibility" resulting in higher unemployment is only a paradox in the neo-classical framework. From an anarchist perspective, it is just the way the system works.

And we must add that whenever governments have attempted to make the labour market "fully competitive" it has either been the product of dictatorship (e.g. Chile under Pinochet) or occurred at the same time increased centralisation of state power and increased powers for the police and employers (e.g. Britain under Thatcher, Reagan in the USA). Latin American Presidents trying to introduce neo-liberalism into their countries have had to follow suit and "ride roughshod over democratic institutions, using the tradition Latin American technique of governing by decree in order to bypass congressional opposition. . . Civil rights have also taken a battering. In Bolivia, the government attempted to defuse union opposition . . . by declaring a state of siege and imprisoning 143 strike leaders. . . In Colombia, the government used anti-terrorist legislation in 1993 to try 15 trade union leaders opposing the privatisation of the state telecommunications company. In the most extreme example, Peru's Alberto Fujimori dealt with a troublesome Congress by simply dissolving it . . . and seizing emergency powers." [Duncan Green, The Silent Revolution, p. 157]

This is unsurprising. People, when left alone, will create communities, organise together to collectively pursue their own happiness, protect their communities and environment. In other words, they will form associations and unions to influence the decisions that affect them. In order to create a "fully competitive" labour market, individuals must be atomised and unions, communities and associations weakened, if not destroyed, in order to fully privatise life. State power must be used to disempower the mass of the population, restrict their liberty, control popular organisations and social protest and so ensure that the free market can function without opposition to the human suffering, misery and pain it would cause. People, to use Rousseau's evil term, "must be forced to be free." And, unfortunately for neo-liberalism, the countries that tried to reform their labour market still suffered from high unemployment, plus increased social inequality and poverty and where still subject to the booms and slumps of the business cycle.

Ultimately, the only real solution to unemployment is to end wage labour and liberate humanity from the needs of capital.

C.9.4 Is unemployment voluntary?

However, people are not commodities but living, thinking, feeling individuals. The "labour market" is more a social institution than an economic one and people and work more than mere commodities. If we reject the neo-liberals' assumptions for the nonsense they are, their case fails. Capitalism, ultimately, cannot provide full employment simply because labour is not a commodity (and as we discussed in section C.7, this revolt against commodification is a key part of understanding the business cycle and so unemployment).