| Capitalism as the enemy
of development: the critics' arguments
March 29 2002
The enemies of capitalism - the left, the greens, the "development"
NGOs, the christian aid charities - seem to be snobbishly predisposed
to dislike commerce, to be ethically worried about human nature
(and greed in particular), and to be overly impressed by the role
of the poor and their champions in creating and sharing wealth and
well-being. Here is a Q and A on their case.
1 Surely capitalism is brutal and needs reform?
Certainly the whole tradition of idealism in the West has been
to reform capitalism. It is true that "civil society"
(churches, unions, NGOs) importantly tame capitalism and capitalists.
But this take on thing neglects a greater truth: Capitalism is a
crucial precursor of civil society. Capitalists have often crucially
led civil society. Even where they don't, only a society of moderate
sophistication can generate capitalism, and capitalism in effect
funds the sophistication by which it is tamed. Capitalism is less
brutal than the poverty on which it at first feeds, and generates
the sophistication in society that reformers seek.
2. Haven't we seen capitalism create "Mafia" economies?
When capitalism took over from communism in the old Soviet Union
it manifested itself as "Mafia-capitalism". But, with
Hoffman ("The Oligarchs", 2002) I am inclined to believe
that this is inevitable and temporary. Ideally, capitalism grows
out of liberal democracy: but capitalism enables democracy to grow
and it is not likely that the people in the old Soviets would have
been wise to devote themselves to developing democracy's hold on
society before then proceeding to let a more ordered capitalism
grow. Capitalism is crude and vigorous first, and civilised and
orderly second. But the second phase does follow the first.
3 Isn't capitalism inherently a system of exploitation and plunder?
Actually, countries quite quickly develop beyond a mostly or purely
plundering mode. That is the history of all the existing rich countries,and
now - patchily - much of Latin America, Asia. The process happens
because wealth created by the exploitation of resources seeks investment
opportunities. The problem for many developing countries is often
that their wealth-elites see litle future for investment at home,
and instead invest in older, richer economies. (Sometimes, having
picked the cherries of their own countries, they exploit resources
elswhere.) In the worst cases (in Africa, for instance) wealth-creators
(often white settlers) are not allowed to invest abroad, whilst
wealth-plunderers (governing elites) are, or do anyway. The lack
of investment at home arises because they have had too little inclination
or time to evolve the kind of civil society which would make their
countries a better home for developed capitalism. The best hope
for their resource-based economies is that foreign and domestic
wealth-seekers see an opportunity in the urban poor of the resource-based
economies to be put to work as manufacturing workers. But they need
to see a fairly civilised society before outsiders will risk even
that.
3. Surely the developing world needs social reformers?
Western NGO pressure and local union pressure will overtly aim to
raise wages whilst market forces indeed are aiming to lower wage
rates. But the "left" may lower wages if they stifle the
development of markets (as they did in the West). Paradoxically,
the free market will probably in the end raise wage rates (by increasing
competition for labour). But clearly there is a role for union and
other "left" activity and it is hard for a liberally-
(that is, market-) minded commentator (me) to argue that their freedom
to exert pressure - for good or ill - should be constrained. It
is the self-defeating constraints on capitalism which we need to
avoid.
4 There is a huge pool of labour in the Third World: won't supply
and demand will keep wages permanently low?
This gloomy view presumes that the new world of 10bn people will
make even worse the "problem" of the current 6bn and that
the current affluent northern hemisphere of about 3bn is an historic,
or regional, anomaly with the "poor" southern world of
3bn being the default reality. Actually, we see capitalism doing
its good work anywhere in the world where it is given a chance.
The logic of that is to increase its chances, and then to face the
problems it may turn out unable to solve, or which it creates.
5 Subsistence agriculture surely is the safest for an over populated
world.
This argues that the painful depopulation of the working countryside
which characterised Western history would be fatal in the modern
Third World
in which industry is not labour-intensive (so cannot mop up the
new urban masses). Again, we won't know the absorptive capacity
- the wealth creating power - of Third World capitalism until it
happens. At the moment, we have people flocking to cities in the
hopes of work and using their toehold in the countryside as an emergency
safety net. They perceive their investment of time in the city to
be more hopeful than their investment in the countryside (which
their wife in any case often maintains in tick-over mode). They
are leaving the countryside because they can afford to, and can't
afford not to. What happens next for them is a question of whether
agriculture and/or industry can develop - that is, become more capitalistic.
7 Capitalism is a system of market control by elites, isn't it?
Actually, power elites cannot for long control markets to their
advantage. Recesssions in Mexico (1995), Asia (late 1990s), Japan
(ongoing) testify to this. In Mexico the problem was rule by the
"Dinosaur" class of the wealthy, in parts of Asia and
Japan it was too cosy a relationship between risk capital and entrepreneurs.
Whether the masses (under socialism, or "Control Capitalism")
or the elite (under "Crony Capitalism") try to hijack
the market, they seem doomed to fail. We don't know what a free-trading,
lightly-regulated, open market modern economy will be like in the
long run, because we haven't seen one. But we have seen plenty of
evidence of the dangers of an overly-controlled one, and the best
response has seemed to be to widen and weaken the means by which
capitalism is controlled.
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