Capitalism has failed so it’s time to try something else
There’s a problem with capitalism: it doesn’t quite work. No economic system does, of course. The other great hope, communism, doesn’t have much to show for itself either.
Capitalism, however, has promised us so much. Enormous wealth. Security. Abundance for all.
Economists and libertarians have long placed their faith in free markets but seldom have they had the opportunity to see whether or not the theory works in practice. The US might be capitalism’s shining light, but since the Great Depression it hasn’t really been all that capitalistic. Social Security, Medicare, Medicaid, welfare, subsidised farming, and a political system that is the sphere of only the most privileged – sometimes it seems like the country is downright socialist.
In the last decade, however, that socialism has been steadily eroded. A deregulated banking industry, tax breaks for the rich, outsourcing of labour jobs, a tightening of immigration laws for skilled workers, and an increasingly corporatised political system have undercut the socialist safety net that has helped keep living standards high in what was once the greatest economic power on Earth.
Instead, America has turned its back on the collective good and emphasised more than ever individual responsibility, the every-man-for-himself mentality endorsed by the Brothers Koch, and the trickle-down religiosity that supposedly justifies the rich getting richer while the poor get poorer. The top 400 Americans today have more wealth than half of all Americans combined. From 1983 to 2009, 80 percent of US wealth gains went to the richest 5 percent of people. Forty percent of the total wealth gain went to the richest 1 percent of Americans.
The problem with with unfettered capitalism is that it encourages the worst of the human’s base instincts. We are social animals, but, if we think no-one is looking, we are more than happy to act selfishly. In a society for which the main economic principle is based on competition, we are encouraged to act in the self interest – ostensibly for the greater good. “Capitalism,” as Alain de Botton has said, “is committed to fracturing and dissolving our communal ties.”
And that’s where it fails us.
Humans are a cooperative species. Millions of years of evolution have made us so. Since the homo sapien emerged 200,000 years ago, he has had to figure out a way to stave off hungry lions, defeat the elements, get shelter, and stay well fed. That’s simply not possible alone. We humans are weak. We’re slow. We are prone to sickness. Without air-conditioning, we can’t even get a good night’s sleep.
Somehow, however, we have come to dominate the planet. And it wasn’t through trickle-down economics. Capitalism has predominated as our main economic principle for only 10,000 years, since farming was introduced. Sounds like a long time, but it’s not. It’s pathetic. We’ve been around for 200,000 years. Even if we managed to survive as a species for another 10,000 years – and, with climate change, resource scarcity, and over-population, that seems unlikely – our record as capitalist farmers would pale compared to our success as hunter-gatherer collectivists.
If somehow we do manage to eke out another 1,000 decades on this planet, that gives capitalism 10 percent the lifespan of hunter-gatherers, who lived (and in some areas still live) sustainably from the land and shared responsibility for everything: food, child-rearing, shelter, and protection.
The common riposte to this point is that life for hunter-gatherers was “nasty, brutish, and short,” as Thomas Hobbes would have us believe. In his book Guns, Germs, and Steel, Jared Diamond makes short shrift of that argument:
In reality, only for today’s affluent First World citizens, who don’t actually do the work of raising food themselves, does food production (by remote agribusiness) mean less physical work, more comfort, freedom from starvation, and a longer expected lifetime. Most peasant farmers and herders, who constitute the great majority of the world’s actual food producers, aren’t necessarily better off than hunter-gatherers. Time budget studies show that they may spend more rather than fewer hours per day at work than hunter-gatherers do. Archaeologists have demonstrated that the first farmers in many areas were smaller and less well nourished, suffered from more serious diseases, and died on the average at a younger age than the hunter-gatherers they replaced. If those first farmers could have foreseen the consequences of adopting food production, they might not have opted to do so.
Then people will talk about the wonders of modern medicine and technology, fruits of capitalism that make our lives better. That is true, to an extent. But the 1 billion people living in hunger might take some convincing.
In The Belief Instinct, psychologist Jesse Bering argues that morality can be defined by acting in the group interest rather than in self interest. This version of morality would have been essential for survival among hunter-gatherer groups, and it explains why selfish behaviour is so instinctively frowned upon by so many. We have an in-built impulse for fairness. That’s why economic and status equality are two of the most important predictors in any society’s levels of happiness (a point also made by Dan Buettner in his book about the happiest places on Earth).
In the small groups in which our pre-farming ancestors lived (Dunbar’s number suggests a median of about 150; similar to that of tribes, neolithic farming villages, and basic units in armies), regulating this sense of fairness would have been straightforward. Everyone would know everyone, and, with everyone ‘looking’, selfishness would have to take a back seat.
We don’t enjoy that luxury in modern times. Our societies exist as heaving anonymous clumps with widely dispersed populations and a diluted sense of collective responsibility. Hence selfish behaviour. Hence the tragedy of the commons. Hence the failure of communism.
So the big question is, if capitalism isn’t working and communism has already failed, how should we organise our societies?
The answer is to fuse the best of capitalism – which has been very effective at generating wealth, but hopeless at distributing it – with the best of socialism, which capitalises on the best human instinct: cooperation.
The world’s population is too big and too dispersed to recreate the small-group dynamics under which the hunter-gatherers lived so successfully. So all we can do is create economic conditions that mimic hunter-gatherer principles – principles of shared responsibility – as best we can.
That means retaining the incentive-based structure of capitalism but building into it measures that protect the wider population. That means high taxes to ensure first-rate services, especially in education, health care, welfare, transport, and public facilities. It means fostering a sense of community at every level of society, instead of sectioning off the rich from the poor. It means shifting resources from ‘defence’ and punishment to prevention and rehabilitation.
There are, believe it or not, societies on this planet who exist in such ways. Some of them are in Scandinavia. These countries happen to be among the happiest, most peaceful, and most prosperous in the world. (Norway, Denmark, and Finland are consistently among the top five countries reporting the highest happiness levels; and Scandinavia is home to four of the 10 most peaceful countries in the world.)
It’s not a perfect solution, but it’s preferable to the current dominant system, which has landed us in our current bind (protests on Wall Street; recession; a tanking stock market; a jobs crisis; the world being uncomfortably close to economic collapse). And while there’s no turning back the clock to hunter-gatherer times, perhaps with socialised capitalism we’d at least stand a chance of delaying the embarrassment of our imminent self-destruction by a few thousand years. It’s either that, or we all learn to live off food stamps.
But wait – isn’t that communism?
Glass half-full edition: The world ain’t so bad. Since you and yours truly were born, the number of people living “in hunger” as you speak has been cut more than in half. China and India are polluted, corruption-infested nightmares, but they’ve fed a lot of people. We’re doing quite well and leveling the playing field across the world. Too bad it sucks for people who want manufacturing jobs in Southern Ontario.
Glass half-empty edition: Good luck improving your Scandinavian social welfare programs in the U.S. Things are likely to get much worse for those on welfare, medicaid, Obama’s severely limited health care. The U.S. could have 90% tax rates in the 1950′s and 1960′s because they had Cold War social cohesion and there was a fat chance their professionals and wealthiest would leave the country despite the high taxes. If the U.S. raised taxes that high now, professionals and “the Brothers Koch” would go work in China/S. Korea/Germany/Brazil and invest there.
Conclusion (a): I love Hamish MacKenzie more than I love capitalism.
Conclusion (b): Who emerges as the greatest journalist of our generation if it ain’t gon’ be me?
Thanks Tim. To the glass-half-full statement: yes, in the last few hundred years, life has improved a lot – within the post-agricultural context within we had already been operating for 10,000 years. But that doesn’t mean that capitalism is sustainable or the best way of organising society. Doesn’t mean it isn’t, either.
To glass-half-full: I’m not saying that socialised capitalism in the US is a very realistic prospect, but if they continue down this ‘Brothers Koch’ road, then society is going to suffer a lot more than just having some rich people leave the country. Unless those rich people are total idiots, they’re already investing in Brazil, China, Russia and India – and not the US.
And to conclusion (b): Probably Steve Hubrecht.
Capitalism works because it forces people to meet the needs of others. Milton Friedman, the 1979 winner of the Nobel Prize for Economics, wrote in this book, Capitalism and Freedom (1962), “No exchange will take place unless both parties do benefits from it.” Win-win exchange is fatally absent from all other styles of government. Government intervention, or as you put it “socialized capitalism”, will never be as effective as true capitalism because it distorts market forces.
My glass was half full, till someone took a sip from it…
Don’t think anyone believes global trade markets and local labour markets are a healthy or fair mix – if you want to give capitalism a fair hearing then give people as well as money free access across borders.
Until that happens (probably never), then government will always be an experiment in socialized capitalism. As proxies for selfishness and sharing, capitalism and communism seem to reflect different sides of human nature rather stand up as coherent political beliefs anyway.
The Scandanavian way is very attractive, especially whenever there’s an economic crisis (quite often nowadays), but not sure Scandinavian countries are that different from everywhere else, given the difficulties they seem to have sharing their happiness and prosperity with people from poorer countries. It’s a lot easier to pursue common goals when you’re from the same culture, or only have 149 other people to think about. But if that’s the price of collectivism, give me selfishness every day.
Hmmm, didn’t expect that conclusion…
I’ll rebuttal with three thoughts…
1. You speak of government as having such pure motives where in reality they are not apart from the “worst of the human’s base instincts.”
2. ”The assertion that capitalism promotes greed belongs in the kindergarten of sociological opinions.” -Max Weber
3. As far as aiding the poor I will defer to Milton Friedman.
I appreciate the defences of capitalism. And like I say, I think the incentive-based structure of capitalism should be retained. But unfettered capitalism – just like communism – doesn’t work. After the Great Depression, it was Franklin Roosevelt’s socialist interventions that saved the American economy.
Now we’re faced with a similarly catastrophic market situation, with major economies on the verge of collapse, massive unemployment levels, and another recession – perhaps even a depression – on the way. It was unfettered capitalism, for all its good intentions, that got us into this mess. And it’s not going to be unfettered capitalism that gets us out of it.
You’ve been misinformed about Roosevelt and the Great Depression. Read Thomas Woods Jr.’s “Meltdown.” It will change your opinion.
As for the current market situation.. its roots can be traced to Alan Greenspan’s artificially lowering interest rates. Combine that with Government Subsidized Enterprises, like Fannie and Freddie, buying Collateralized Debt Obligations from “unfettered capitalist” then you have a problem. It was government intervention in the free market that failed, not the free market. The fact remains that capitalism is the most effective way the world knows to allocate resources.
We can get into a very long argument about what contributed to recovery from the Great Depression. As with any complex socio-economic and political phenomenon, the answer is complicated and multi-faceted. For now, I will just quote Wikipedia:
“In 1934–36, during what the U.S. Department of State calls the ‘Second New Deal,’ Roosevelt and his party added social security; the Works Progress Administration (WPA), a national relief agency; and, through the National Labor Relations Board, a strong stimulus to the growth of labor unions. Unemployment fell by ⅔ in Roosevelt’s first term (from 25% to 9%, 1933–1937), but fell continually until the war”.
I know that won’t satisfy you, but there it is.
The current market situation is also a result of a complex soup of factors, but the main problem was deregulation of the finance industry. Joseph Stiglitz says it better: “The financial sector’s inexcusable recklessness, given free rein by mindless deregulation, was the obvious precipitating factor of the crisis.”
In that sense, yes, government was part of the problem – because, such was its faith in the markets, the Bush Administration washed its hands of the job of responsible oversight. And it wasn’t only Fannie and Freddie who were buying the CDOs. Goldman Sachs, those paragons of capitalism, just realised earlier than most that those things were toxic – so they turned their early mistakes to their advantage (a pity about the rest of the world).
I respect your defence of capitalism, aftertheperiod, but when an economic system helps deliver a situation in which 400 Americans have more wealth than 150 million Americans combined, then it is officially out of order.
So, I’ll see your Friedman and raise you a Stiglitz. Because he’s a Nobel laureate in economics, I’d wager his expertise on this subject is somewhat more developed than yours or mine.
“The prescription for what ails the global economy,” Stiglitz writes, “follows directly from the diagnosis: strong government expenditures, aimed at facilitating restructuring, promoting energy conservation, and reducing inequality, and a reform of the global financial system that creates an alternative to the buildup of reserves.”