How to defend capitalism

Dear right-wingers.

Capitalism as it currently exists has come into question; huge numbers of voters support nationalization of utilities and widespread price and rent controls. This poses the question: how can you defend actually-existing capitalism?

It’s often difficult to build a strong argument if you only talk among yourselves – as we leftists spent years discovering. Here, then, is some advice from an opponent.

First, recognise that anti-capitalism has an economic base. Capitalism hasn’t come into doubt because people woke up stupid one morning. It’s in question because it has stopped delivering the goods. Productivity has flatlined for ten years – something that hasn’t happened since the early days of the industrial revolution. That’s why real wages have fallen, which is why people have got the hump.

In this context, it’s not good enough to say that capitalism has raised living standards immensely. True, it has. But that stopped a decade ago. When you celebrate capitalism you look like a Nottingham Forest fan celebrating his team’s success oblivious to the fact that it was all years ago.

It’s also not good enough to claim that free market capitalism would be OK if it weren’t for cronyism. There are strong economic forces which cause markets to descend into cronyism. You should ask: what are the economic pre-conditions of a healthy market economy? They might not be ones you favour.

Second, forget morality. Yes, there is a moral case for free markets. Most people’s view of economic systems, however, is Deng Xiaoping’s: “It doesn't matter whether a cat is white or black, as long as it catches mice." This requires changing Universal Credit. It’s based upon a belief in the morality of work – which ignores the fact that in-work poverty is now a big problem. It also requires you to forget the idea that capitalism is a meritocracy. As Hayek said, even well-functioning markets are not meritocratic. And we don’t have well-functioning markets but rather systems of adverse selection and an old-boy network.

Third, and perhaps most importantly, raise productivity. Sam Bowman has some reasonable ideas. Note here, though, that there are a lot of free hits. Things like tax reform, better education, infrastructure spending and encouraging freer markets are worth doing even if they don’t greatly increase productivity.

Innovation is an especial problem here. It’s plausible that free markets don’t provide sufficient incentives to innovate: I suspect one reason for secular stagnation is that firms have wised up to Nordhaus’s finding that firms capture only a “minuscule fraction” of the benefits of innovation. Worse still, in actually-existing markets, what little innovation we see is socially useless or worse: this is the history of financial innovation.

Fourth, end austerity. We’re not sure exactly why productivity has stagnated. I suspect it’s largely because of inherent features of capitalism such as neoliberal managerialism, the reluctance (pdf) to invest, or a legacy of the financial crisis. But it might be because fiscal austerity has depressed demand and created what Simon calls an innovations gap. Why not at least try and prove me wrong? Fiscal austerity has helped discredit capitalism generally. Bin it.

Fifth, decide which hills you want to defend. Is it freeish markets, private ownership, high CEO pay, financialization, low corporate taxes or low personal taxes? Each is to at least some extent independent of the other. Some (such as low corporate taxes) are more defensible than others (such as CEO pay).

Sixth, decide whether to use positive or negative defences. Personally, I suspect positive defences are silly: the idea that real-world markets optimize resource use is daft. Better defences would stress that there is a great deal of ruin in a nation – that all systems are flawed and inefficient – and focus upon the dangers of government failure. 

These strategies would, I reckon, make things harder for leftists like me. But they pose a question: is the Tory party today actually capable of doing any of this?

Comments

[Stuart]

Capitalism may have delivered no growth in the UK but Global wealth continues to grow.

As with a lot of us, if you tried less hard, you’d get better results.

[e]

“Universal Credit. It’s based upon a belief in the morality of work”.... No it isn't. Its creators use a widely held faith in work to sell what its actually based on which is Conditionality. Its servitude: a necessity for British free market capitalism? If not, there's one hell of a government failure to focus upon.

[Mark]

I believe you are making the same mistake as much of the right: conflating capitalism and free markets. Genuinely free markets are transparent and contestible; they compete away economic rents and afford no benefit to incumbents. Capitalism hates this; it seeks rents and pursues this goal by doing all it can to rig markets.

It's my view that the right should give up its defence of capitalism and instead circle the wagons around the freedom of markets. Doing so will incur the enmity of Big Capital, but it will win electoral support.

[Matthew Young]

"Dear right-wingers"

Right wingers defend capitalism? Sounds more like the poster has a very naive political theory.

[Ralph Musgrave]

Capitalism brings about far and away the biggest increase in living standards in human history, and
allegedly the fact that capitalism has not resulted in a productivity increase in a limited number of countries over a ten year period is a significant criticism of capitalism. Not sure about that. (Not that I'm suggesting capitalism is anywhere near problem free.)

[DavidM]

First I mistakenly read "How to define capitalism". Which would be an even more interesting subject, since lots of disagreements are due to people arguing about something they don't define in the same way. Like "capitalism" being defined as free markets or capital accumulation, for example.

[Nicholas Shaxson]

Good, but this "Some (such as low corporate taxes) are more defensible than others" - suggests you support low corp taxes. There are umpteen reasons why low corporate taxes are a problem. See, e.g., here https://www.taxjustice.net/2015/03/18/new-report-ten-reasons-to-defend-the-corporate-income-tax/