Capitalism: A straw man for the world’s problems

Capitalism is such a despised and derided term that I often dissociate myself from it. Cowardly? Perhaps. But I don’t think there is anything necessarily wrong with my view. Humans adjust to the world around them and identify themselves with terminology that creates a positive association. As my friend Russ Lamberti says, (paraphrasing) “people are never convinced by an idea if they think it makes them less morally appealing”. I’d rather associate with freedom of choice, open and honest ideas, the efficiency of markets and the beauty of networks than “cold-hearted capitalism”. 

That being said, I’ve observed the term “capitalism” being blamed for noteworthy societal ills. Given that I dissociate myself from the term, my initial impulse is to take a step back and try to understand the foundations of the blame. I’ve discovered a chasm between the definition of the term and the broad allegations heaped on it. Yuval Noah Harari in his otherwise wonderful book “Sapiens” falls into the same trap. Harari argues that economic growth is THE key tenant of capitalism and that according to this doctrine justice, freedom and happiness all depend on growth. I actually agree with the detractors here – many economists are myopically focussed on economic growth without any appreciation for quality of growth, impact on lifestyle and long-term consequences. But should this criticism fall entirely at the hands of capitalism? Why not tackle this issue head-on rather than lay the blame on an ideological term, which appears to have been redefined by its numerous critics?

According to Google, Capitalism is “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state”. My two major comprehensions:

     Capitalism is an economic and political system
     Private owners of capital run the system rather than the state

The first insight (political system) isn’t particularly noteworthy and the second is abundantly clear; non-government people run the political and economic system rather than the government. Let’s dwell on this simple definition for a second. Capitalist critics argue that an economic and political system run by a group of individuals in the government is inherently moral in comparison to a system run by anyone else - a remarkably strong value judgement.

What about the form of the government? Democracy, dictatorship or monarchy are all possibilities. While there have been some wonderful national governments, governments have also exerted untold despair on human livelihood on thousands of occasions through history. In South Africa, we have a great example; the Apartheid state wreaked untold misery due to a desire to implement its interpretation of a moral code on the rest of the society. Individuals were forced through violence to obey the racially defined laws of the state, taxes were used to fund an exclusionary social welfare state, power was used to distribute favours and keep the state alive for much longer than individuals would have allowed. 

Demonising a non-state system of governance is a curiously strong starting point given human history. It is shocking the degree of self-shame non-government individuals will shoulder in order to disassociate themselves from capitalism. While I might disassociate myself, I refuse to go this far. 

Closer to socialism than capitalism
Returning to the definition, it immediately suggests that current economic and political systems are a far cry from capitalist. Governments are easily the biggest players in most economies. Top tax rates are north of 50% in many Developed Markets, government expenditure is usually the biggest economic sector and this doesn’t account for the regulatory control that legislators exercise, i.e., governments exert much greater singular control on the political and economic system than non-government entities.

Critics could argue that in essence private capital remains in control, indirectly, through lobbying or bribery. This could very well be the case but clearly the current economic and political system is not under direct control of private enterprise. Another institution has been inserted as a middleman with immense power, government. This insertion severely restrains the freedoms of individuals and small enterprise, which is in stark contrast to the principles of capitalism.

The regulatory and legislative burden placed on the economy by state institutions favours large private businesses that are able to pay exorbitant fees to lawyers to decipher the legislations, consultants to analyse the response, accountants to investigate the strategic business loopholes and lobbyists to alter the legislation in favour of said business. Small businesses and private individuals have limited resources and are marginalised through this government imposed process. It is little wonder then that the modern state has led to such concentration of resources into the hands of a few. This is not a capitalist outcome but one created by the insertion of the state bodies and regulatory barriers that they create. 

Accountability for consumerism too?
Another frequent criticism imposed on capitalism’s shoulders is consumerism. Allegedly a non-state economic and political system is to blame for an individual’s demand to drive a fancy car, buy French champagne and live in a penthouse – all of which aren’t necessarily positive for the individual or humanity. Critics argue that individuals are brainwashed from birth by private companies into believing that the consumerist lifestyle achieves happiness, which secures long-term profitability. There is some truth in this idea. Marketing, public relations and brand awareness are all forms of “brainwashing.”

Is this a bad thing? It is possible that a fancy car, French champagne and a penthouse aren’t necessarily what the private individual requires for happiness. However, no one has conclusively deciphered the formula for human happiness. It is difficult to make a value judgement about the thoughts or actions that makes one individual happy and another unhappy and probably very unwise to wade into this never-ending roundabout. We can be incredibly grateful that in relatively free societies humans are able to decide what makes them happy or not and alter their actions accordingly. What’s the alternative? A government enterprise, run by a group of select individuals, dictating to others what makes them happy or not? That sounds a little Orwellian. 

Entrepreneurs respond quickly to consumer preferences
It is no surprise that private companies market themselves in order to achieve long-term success. Entrepreneurs do also respond to messages received from individuals about changes in preferences. If humans objectively and conclusively value energy that is free of carbon emissions because this is overwhelmingly the most moral argument, entrepreneurs quickly evolve and respond to these changes in preferences. In fact, they already are responding! Many companies provide low carbon products, sell these to the public and market themselves as conscious companies in order to encourage positive relationships with clients and employees.

Even if we could accurately argue the companies aren’t marketing products with the best interests of humans in mind, is this any different to psychological mechanisms used by human organisations throughout history to create organisational alignment? For thousands of years nations have convinced their subjects to conduct wars on the other side of the earth for the sake of conquest, leading to massive human suffering. Of course, this is an extreme example but it makes a clear point. Sure, private marketing isn’t necessarily always in the interests of individuals but is it some evil conspiracy to send humans to their death. Of course not – this is ridiculous. It is similarly ridiculous to place all the burden for society’s ills at the doorstep of the private company when an individual is presented with a daily choice to purchase or not and numerous alternatives to choose between. 

Fallibility is a human condition
Given the size of modern day nation states it is difficult to argue that we actually live in capitalist economic systems. It appears that critics of capitalism are more angered by the ability of capital to seek out and independently target their goals and the negative outcomes that can arise. In support of this criticism, there are frequent negative incidents in society that could be levelled at private companies. VW cheating on carbon emission rules, for example. Clearly people and companies overstep the boundaries and take advantage of other people and companies from time to time. Fallibility is, however, a human condition – not an outcome of a political and economic system. At least under a non-state run system mistakes are disciplined and accounted for. When a company fails its customers the share price drops, when an executive cheats he/she is fired and if all else fails customers can merely choose another product to purchase.

In contrast to VW’s misdemeanours there are entrepreneurs solving human necessities on a daily basis, providing food, water and healthcare and researching new ways to improve these offerings in a quicker and more cost effective way. To contend that non-government actors in society are inherently evil is entirely unrealistic. To reach this conclusion one has to argue that the state is the axis of morality – a conclusion that is very easy to dispute with a couple of history books.

The fragility of the attack against capitalism contrasts starkly against the support that this narrative receives. Perhaps ideologues, statists and governments are merely looking for a scapegoat for persistent failure to respond to the needs of humans in the way that non-government institutions do. Personally, I remain wary of the capitalist label due to the strength of the negative narrative that exists. However, I challenge people to check definitions, articulate grievances in a non-ideological fashion and explain what they really mean when they attack an ideology. After all, it is merely a word. It cannot mean all things to all people. Using capitalism as a straw man for the world’s problems won’t push debate towards the nub of an issue or solve any of those problems. 

Author Rob Price is an investment strategist; you can find him on twitter @robprice58. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

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