John Kay - Capitalism need not be about greed and gambling

Capitalism need not be about greed and gambling

Capitalism “should be replaced by something nicer”, one group of demonstrators demanded. The slogan encapsulates the incoherence of the protests at Wall Street and the City of London.

More than a century ago the sociologist Werner Sombart explained the lack of appeal of socialism in the US with the observation that “all socialist utopias have foundered on roast beef and apple pie”. The socialist utopias of Russia and China would later founder on precisely those issues. For roast beef and apple pie, today read iPads and Twitter. Protesters know capitalism delivers their mobile phones. Only a minority would renounce this material world altogether: which is how the Daily Telegraph could report that most went off at night to enjoy the sprung mattresses and showers that have replaced hay bales and water from the pump during two centuries of capitalist industrialisation.

The problem is not simply that we do not know what the protesters are for. It is that we do not really know what they are against, except those things that almost everyone is against – war, poverty, man-made climate change, and overpaid bankers and executives. The Dean and Canon Chancellor of St Paul’s, forced to resign as the cathedral finds itself unable to take action, are victims of a situation in which many people disagree with the protest but few with what the protesters say.

The incoherence results from a political void. Europe’s political left lacks any convincing narrative in the post-socialist world. The right tells a story in which greed is the dominant human motivation, government an incubus on the spirit of free enterprise. News “from the markets” is not of new products and services, but of the fluctuations of the FTSE. This rhetoric views doctors and teachers as parasites, not producers, and has provided cover for an unhealthy expansion of the influence of established large corporations.

This account of modern economies is so unappealing that many people reject it out of hand. Instinctive dislike of markets extends far beyond long-haired dropouts in St Paul’s Churchyard or Zuccotti Park. An intellectual class tends to feel that, if acquiescence in the unpleasantness of market economics is the price to be paid for the comforts of modern life, one must hold one’s nose. The apparent practical success of capitalism is matched only by the failure of its public relations. In their paean to the economics of Reagan and Thatcher, The Commanding Heights, Daniel Yergin and Joseph Stanislaw were nevertheless forced to acknowledge the limited appeal of the associated ideology. “Few people will die with the words ‘free markets’ on their lips.”

But such an account of the market economy is not only repulsive, but also false. Greed is a human motivation, but not a dominant one – and the institutions that most exemplified the philosophy of greed were those that imploded in 2007-08. The goods made by workers whose motivation was purely instrumental were driven out of the marketplace by those of people who took pride in their work and of organisations which understood that complex assembly depends on teamwork. A semantic confusion leads us to use the word market to describe both the process which puts food on our table and the activity of gambling in credit default swaps. That confusion has enabled people to claim the virtues of the former for the latter.

Many of those who preach the doctrine of free enterprise loudest have succeeded by skills more akin to those of backroom politicians than of entrepreneurs. Mobile phone networks grew rapidly because a fortunate interlude of deregulatory fervour wrested a monopoly from incumbent fixed line operators. The inventors of social networking sites resemble the occupiers of St Paul’s Churchyard tents more than the occupants of boardrooms. The besuited Winkelvoss twins, lobbying and litigating for a share of Mark Zuckerberg’s business, embody the deformed view of market economics which confuses business interests with free enterprise.

Perhaps the “something nicer” which should replace capitalism is a more nuanced – and more accurate – account of capitalism itself.

 

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