The "Risk" in Capitalism is nothing more than a scare tactic

The most common argument I hear when arguing for the exploitation theory with Anarcho-Capitalists is the concept of Risk which supports the idea that the Capitalist deserves a share of the profits, even though he is not putting any labour in, himself. The argument usually goes somehow like this.

• Me: ‘The Worker is being exploited because he’s not receiving the full results of his labour’
• AnCap: ‘The Capitalist deserves part of the profit because he took the risk with his capital to start the company. If the company fails, the Capitalist has lost his money.If the company does well, he deserves to be rewarded for taking such a risk’

As I have to deal with this a lot, I think it might be worth writing my objections to the concept and how it does not counter the exploitation theory.

Risk does not exist once the Return of Investment has been made

We start on the situation where the Capitalist has wealth but not yet bought any means of production. He decides on a venture that he assumes will be able to make a profit and builds a factory to produce the product. At this point, we assume that his risk is that he might have judged wrongly and there might actually not be any margin for profit so he will end up not making up his investment on the factory.

Lets assume however that he was right and the new company does make a profit. This profit of course comes from taking part of the surplus value created by the workers and our Capitalist would claim that this is warranted since he deserves to make back his investment.

But the Capitalist will not stop there. When ROI has been made, and all his investment has been returned to him in the form of profit over time, the capitalist will continue to exploit the workers in order to continue making more money, over his initial investment. At this point, this exploitation cannot be claimed to be justified because of the risk, as there is no more “risk” to speak of. Even if the company were to go under, the Capitalist will leave with as much wealth as he came in.

You may claim that the Capitalist is worse off because he has not grown any richer from this venture and because present wealth is of more value than future wealth, then he has come out at a loss. Fine, I say, how much money does the capitalist deserves before the factory passes over to the workers? Two times his investment? Five? Ten? Of course for the Capitalist, the answer is that it is never enough. Any wealth the company makes is deserved because of the initial “risk”.

But any worker can see how absurd this is. The profit the capitalist has taken over the years from all the workers of the factory has paid the initial investment many times over, but the worker still does not own anything. Even though the workers have done all the work to make this company productive, they do not deserve to own it at any point simply because the capitalist was the one who had the money at the start.

The worker is taking a risk as well

Apologists of risk like to point out that the worker is not taking any risk at all, and this is why his wage is reduced. If the company fails, only the capitalist has lost any money (which as I pointed out above, will not be true after a while) while the worker can simply go out and find another job, keeping all the money he made from wages.

But how true is that? Does the worker really not take any risk? Of course he does. First of all, the worker is usually paid at the end of the month for the work he put during. If a company is facing financial troubles then it’s quite probable that wages might be pushed back one or more months during which the workers must use their savings to survive. They will be pressured to do this “for the good of the company”.If the company ends up failing after all, the workers have now lost their wage(s). That is a risk. The AnCap will claim that this is illegal and so on but the worker will not get paid either if the capitalist goes to jail. This very real and practical risk of the worker is never rewarded like the risk the Capitalist takes.

But that’s not the only loss the worker has. He might have moved areas simply because he wanted to get this job. He might have left a more secure job in favour of the new one which failed, and any number of other risk factors. None of these are worth reward by AnCap thiking however, as the only thing that counts is the chance of the capitalist losing his investment.

The reward is big, the risk is low.

The AnCap will claim that the Capitalist deserves huge rewards simply because he’s the one taking the huge risks. But if these risks are so large why doesn’t the capitalist share them in order to avoid stressing himself? Why does he not allow the workers to share the risk (which they already do anyway). The answer of course is because the rewards are much much higher than the risk which is generally low. We’re not talking about gambling here where you have, say, 1 in 36 chances to make 36 times your money. We’re talking about a situation where “market research” allows you to foresee where the ball will go to (and you have something like 1 in 10 chance to judge that incorrectly) and where the reward has no upper limit.

It is no wonder then that the Capitalist takes “risks” and doesn’t want to share those “risks” with anyone. If I am in a casino and I have 1 in 10 chance to not make 10 times my bet, then we’re not talking about risk anymore, especially not when I can simply put 10 different bets and assure that whatever happens, I’ll get out much 90 times wealthier.

Of course, the real risk in this situation does not fall on the capitalist, it falls on the system as a whole. Because when such a chance opens, every capitalist jumps onto the table and bets. And since only 1 in 10 can ever lose money, the casino soon runs out of money and goes bust. Replace “casino” with economy and you basically have the reality of a capitalist crisis.

“If the risk was low, then the workers would take it themselves.”

The AnCap of course will counter my above point as such: ‘Well, if the risk is so low, why don’t you take it yourself then? The fact that the workers don’t band together to pool the resources and take the risk is proof that they do not want it and that it’s not as low as you claim.’

The reason why workers do not take the risk themselves is that the capital that is required to have such a low risk is far beyond their capabilities to save. The known low risk investments have already been claimed and the Capitalist who owns them will request far more than the workers can ever accumulate through labour. The not so well known investments require money to simply discover them. Without this market research, your chances in the capitalist roulette are not 10 in 1 anymore but 1 in 10, and unlike the capitalist, you only ever have one chance to bet.

The only chance the worker or a cooperative then is left with, is to stumble upon an opportunity which has not been tapped already and thus the cost to enter it is low enough. This is how almost all recent self-made capitalists achieved it, from Bill Gates, to Steve Jobs to Larry Page. But this is about as practical for the majority of workers as is playing the lottery.

To get back to our casino example. Imagine a casino where the minimum chip costs as much as a well-off worker can make in a lifetime. Not only that, but if you have enough money, you may be able to bribe the croupier to tell you where the ball will land. When you win, you get paid with the money of people who are not playing. A well-off worker would be hard pressed to simply afford the minimum bet and even then he will still not have enough to bribe the croupier.

Epilogue

I hope I have provided you some arguments on why the candy of “risk” that the Capitalist will use at every opportunity is flawed. For me, this does not even begin to defeat the theory of exploitation as the the risks of capitalism are negatively proportional to the Capital one has.

I will leave you finally, with one quote from the Barefoot Bum who helped me round out this piece

If risk is all-important, why can’t the people get together and spread out the risk, instead of concentrating the risk in some capitalists, and allowing them to have tremendous power as a reward for taking risks?

That’s basically what socialism does: Take all of these differentials — risk, surplus value, political power, etc. — and spread them out to all the people, instead of concentrating them.

If it was a good thing to take political power concentrated in the king or the oligarchy and spread it out among the people in a democracy, why shouldn’t it be a good thing to take economic power concentrated in the capitalist oligarchy and spread it out to the people?