Western elites are undermining the success of capitalism

Lesen Sie die deutsche Version hier.

What does capitalism stand for? For years, this question seemed to have an obvious answer. During the Cold War, the race for hegemony between the United States and the Soviet Union was interpreted as the outcome of a more fundamental choice: on the one hand, we had an economy based on private property, on the other, one which nationalised the means of production.

Things are hardly as clear today. Some speak of “political capitalism”, often using such an expression in the plural (capitalisms), somehow assuming that states in which the governmental control over production is substantial can still be classified as a form of capitalism themselves. In so-called Western liberal democracies, on the other hand, a free economy – understood as an economic setting in which people can decide by themselves what to produce and trade – survives only as a remnant. Western capitalism is painstakingly regulated and governments tend to play an ever bigger role in allocating the factors of production. The different crises we were challenged by since 2001 have been used to expand the role of the state, not only in its surveillance and security functions, but also, ostensibly, as an entrepreneur. This is the true impact of the recent pandemic, in which we experienced governments micro-managing the economy in an unprecedented way, to the point of deciding what sort of goods could be sold in grocery stores and which couldn’t, but also of the Ukrainian war, which goes on with the drums of protectionism and “industrial policy” beating stronger and stronger.

The magic of long chains of cooperation

Capitalism is a strange ism. Unlike socialism, or nationalism, capitalism hardly prescribes how a society should look like. It lacks anything like a Manifesto. The greatest book in the history of the market economy, the Wealth of Nations by Adam Smith, is aptly entitled an Inquiry (An Inquiry into the Nature and Causes of the Wealth of Nations): Smith explores reality for how he sees it, deduces general observations about human nature, suggests that more economic freedom will produce a broader division of labour which will increase productivity and thus grow the welfare of all. But he doesn’t sketch a model for societies to imitate, nor does he suggest some particular group which should be put in charge of it. In many ways, Smith was an egalitarian: he sees little differences between a philosopher and a common street porter (a position quite uncommon among philosophers) and whatever difference is there, it is more the result of the division of labour than its cause. Free economic cooperation induces specialisation and so brings some to sharpen their talents. Yet no one is necessarily better equipped to divine the future.

Smith was notoriously unkind to businessmen. He cared about what we may call the general welfare: meaning the well-being of the most, if not of all, members of society. To this end, market competition is pretty good: it brings more and more goods and services, and prices, as measured in comparison to incomes, tend to be on a declining slope. Expecting our dinner not from the butcher’s, the brewer’s and the baker’s benevolence, but from their regard for their own interest, is good for general welfare too. In a more advanced division of labour, we cannot cooperate with others as we’d do in a small group: that is, this cooperation can’t be conscious and openly agreed upon by people sitting at the same table. It needs to be a bit unconscious, the web of cooperation needs to weave together people who do not necessarily know each other, let alone like each other. The magic of capitalism is that this is enough to let long chains of cooperation emerge, which often span across countries.

Smith saw that businessmen can be inimical to this very process. Competition erodes private profits, as new players come to town. Once one is successful, she likes to keep being successful, and having no one finding new ways to produce or market a product similar to hers helps. Many economists have explained hostility towards the market economy in the same way Smith explains its success: appealing the one’s regard for her own interest. There is no country where self-interested businessmen do not prove themselves apt to conjure up glowing words, to justify some special privilege to be bestowed by the government. From food safety to geopolitical alliances, the Western world is a minefield for market competition.

The Great Enrichment

But if self-interest was the only driver of the opposition to capitalism, it could be defied in a reasoned debate – as capitalism has produced more prosperity than ever in the history of mankind. As economic historian Deirdre McCloskey never ceases to remind us, what she calls “the Great Enrichment” (and others call modern economy, or the post-Industrial Revolution world) from 1800 to the present raised real income in a rapidly expanding number of countries by a factor of 10 or 30 or 100. In present-day prices, people in Western countries around 1800 earned an appalling $2 or $3 a day per person. Yet by now in places that once were poor, people make and consume an amount of roughly of $100 a day, and more. This phenomenon triggered improvements in diet and medical care to the effect that those “people” are way more than they ever were.

The state did not vanish, in these years. Hardly so. But if privileges and monopolies have a longer story, what is more recent is an economy in which people are left to their own devices, when it comes to decide what to buy and what to sell. This is “capitalism”, as commonly intended, and though it is not a “system”, nor a “plan” for society by any means, this element of freedom is what distinguishes it.

Such freedom is opposed by those whose interest incline in the direction of circumscribing competition, but also by many who benefit out of it and do not know it. The true indictment of capitalism is that it does not resonate with people. “Trusting” free markets means assuming that, with proper incentives, someone somewhere may at a certain point be able to cope with a particular problem. This happens literally every day: every day, self-interested entrepreneurs come up with products and services which tackle what a particular subset of human beings perceives as a problem. If you have a cat and care for it, your Amazon app is likely to continuously alert you of newer and newer devices to keep it happy. If you care about storing your wines, or brushing your teeth, or keeping track of your exercise, you are equally offered a range of suitable products. We are showered by ever new ideas, which are tested every day by the world’s consumers.

False friends of the open society

Yet many consumers do not trust capitalism. They want someone to be in charge, and in capitalism no one is. The search for somebody “in charge” is so deep down rooted in human nature, that those who dislike capitalism tend to identify it with somebody who is hypothetically in charge of it.

These somebodies tend to be the Western elites, most famously, but not exclusively, those who reconvene in Davos once a year. It turns out that perhaps no other group in the world is so dismissive of capitalism like they are. Perhaps because they ended up believing their enemies’ smear which sees them as the puppeteers of the world. Western political, business and cultural elites are getting bossier and bossier. The idea that human beings should be entitled to choose as they wish what they consume is alien to them, as is the concept that freedom can unleash the creativity of individuals to the effect of solving problems. Instead, they seek to “improve the state of the world” through “public-private cooperation”, as the World Economic Forum describes its mission. But such improvements are predicated on coercive choices, that the rest of the world, made of “ignorant” consumers, should swallow. From climate change to poverty or pandemics, global problems are addressed by having political leaders, CEOs of big companies and other powerful people agree on solutions.

These elites want to dictate the behaviour of the lesser people to the point of imposing their diet, thus re-enacting the script of the Covid-19 pandemic, if possible on a larger scale. They oppose the logic of conveniences (the regard to someone’s interest), which is the gist of capitalism, that they want to submit to higher and more important values: of the ecological or the military kind, depending on the whims of the moment. In spite of claiming to be the true defenders of human rights, they are hardly egalitarian à la Smith: they are convinced that their ideas and visions matter far more than the ones of the common porter. Sure enough, some of them are thinking of their own private interest and would like to restrict newcomers’ access to the market. Like the businessmen criticized by Adam Smith, they seek to limit competition to their own benefit. However, self-interest is not necessarily at the heart of this worldview, but an ideology that justifies self-importance.

Their group think is quite similar to common porters’ in this regard: they do not accept that, left free, somebody somewhere may find a solution to different problems, they want somebody to be in charge. Ideally themselves.

The capitalist era has been the greatest success in the history of the world. Yet that wasn’t enough to convince us of the benefit of leaving other people alone. Liberty is often waged as an ideological flag but seldom understood as respect for the apparently trivial choice of deciding what to make with your day. The strength of capitalism is in the facts, its weaknesses largely in our minds. If capitalism will collapse, it will do so not under the weight of its own internal contradictions but under the weight of our biases and our desire to undermine it.