The case for real capitalism
January 17th, 2012 at 10:00 am by David FarrarJesse Norman, a UK, makes a good case for real capitalism, not crony capitalism. It’s an 18 page pdf, so not a long read. His summary:
- Capitalism is the greatest tool of wealth creation, social advance and economic development ever known.
- We are living through a period of crony capitalism, of which the Goldman Sachs flotation and Lloyds-HBOS merger are just two examples.
- Conservatives must make the moral case for real capitalism, and take action against crony capitalism — and the culture that created it.
He notes the track record of capitalism vs the alternative:
In fact capitalism is the greatest tool of economic development, wealth creation and social advance ever known. In capitalism, owners of intellectual, financial or human capital have property rights that enable them to earn a profit as a reward for putting that capital at risk in some form of free market economic activity.
Korea used to be one country. Thirty years after the Korean war, GDP per capita in capitalist South Korea was five times that of communist North Korea; in 2009 it was sixteen times greater.
But says capitalism has to also be defended on moral grounds, not just economic:
But the case for capitalism is not just economic and social; it is also moral. For many decades, capitalism has come under attack on moral grounds. It is said to be intrinsically immoral, and driven by greed; to be founded on theft, with the greatest capitalists mere “robber barons”; to create and perpetuate exploitation and inequality; even to be morally vacant.
Something we hear in NZ a lot.
Of course abuses of capitalism often occur. But the bigger truth is that capitalism is at root a moral force for good. It relies on, and so demands:
a. Personal freedom and individual autonomy, the foundation stones of personal morality;
b. The virtues of hard work, creativity and thrift;
c. Social exchange: traditions and practices by which intellectual, financial and human capital can be shared to best effect;
d. Institutions such as the rule of law and the family that preserve property over time;
e. Effective government to create and enforce the law, to share social costs and, I would argue, to help the disadvantaged;
f. A wider culture and a stable but fluid social order in which its virtues are respected and opportunity exists for all of energy and talent, that is for all.
He then turns to crony capitalism:
What is crony capitalism? One can identify different varieties, such as monopoly, franchise, khaki and narco-capitalism:
• Monopoly capitalism flourished in the USA at the end of the 19th century. At that time individuals such as Cooke, Vanderbilt and Rockefeller were able to amass enormous wealth by agglomerating new industries into “trusts”, which exercised monopoly or oligopoly market power within markets.
• Franchise capitalism developed in Russia during the 1990s. A generation of “oligarchs” emerged, alongside the official apparatus of the state, whose wealth derived from winning lucrative natural resources franchises in oil and gas.
• Khaki capitalism has taken root in countries such as Egypt and Pakistan, where the armed forces have become large economic actors in their own right. In Egypt, for example, the army runs roughly 10 per cent of the economy.
• Narco-capitalism has been seen in recent decades in Mexico and Colombia, among other countries. The drugs trade created enormous illicit profits for its chiefs. As the trade became a substantial part of a regional or national economy, it was further entrenched through corruption.These varieties can and do often co-exist in a given country or society. They all exploit the absence of law or law enforcement, market mechanisms or culture which act elsewhere as constraints on individual self-enrichment.
More generally, one might say crony capitalism has two key features:
a. Business activity loses any relation to the wider public interest
b. Business merit is separated from business reward.By contrast, real capitalism is a system where real people take real risk, invest real time in real work and reap real rewards for their efforts. A day’s work for a day’s pay. Markets are used, but not venerated. Competition is welcomed, but made subject to proper regulation and supervision. People are rewarded and respected for their aspiration, energy and innovation, not for who they are.
I don’t agree with everything he advocates, but he makes some good points. He finishes with nine lessons:
- Conservatives need to turn up the volume on crony capitalism.
- Culture matters.
- Excessive pay is a serious issue.
- Corporate governance isn’t sexy. But it is vital.
- The banks should temporarily restrain, and perhaps cease, dividend and large bonus distributions.
- We need a fundamental rethink about competition.
- Key public institutions require better governance.
- The new Financial Policy Committee must have a range of tools to control asset bubbles.
- We need to love our savers.
Good food for thought.
January 17th, 2012 at 10:21 am
He could add progressive capitalism. A stance where it is the social responsibility of a country to ensure that capitalist risk is abated socialising losses in the form of bail-outs to unprofitable financial institutions.
Vote:January 17th, 2012 at 10:28 am
Be careful, DPF. Your Labour lite mates will not like you extolling the virtues of capitalism.
Vote:January 17th, 2012 at 10:43 am
Not bad points. But a couple of things I’d add.
1. For capitalism to work on moral grounds you have to get a level playing field at the start. That is effectively education and opportunity for those starting out. Otherwise human nature means you end up with an elite based on bloodline (those who could afford to give their young the ‘right’ start) and an underclass with little chance of breaking free.
2. Lines have to be drawn around what constitutes capital property and what is not. For example what constitutes intellectual property and what does not is an interesting and complex issue that needs addressing.
3. For ‘real’ capitalism to work in the modern era it needs to be thought of internationally – this is one of the biggest hurdles as what constitutes a ‘free market’ is key.
There are other things too but its something that should be debated strongly. The world hasn’t found the perfect model yet, anyone who thinks the US or UK version of capitalism ‘won’ the idealogical wars of the last century should spend some time in China… Having said that I’m not saying China has it right, just that the search for the best model hasn’t ended.
Vote:January 17th, 2012 at 11:18 am
Jesse Norman said:
Korea used to be one country. Thirty years after the Korean war, GDP per capita in capitalist South Korea was five times that of communist North Korea; in 2009 it was sixteen times greater.
——————————–
That’s a really poor example to choose for this argument.
Until relatively recently, South Korea has been the poster-child for crony capitalism (through their Chaebol system).
Vote:January 17th, 2012 at 11:26 am
@ gump
Depends on what you are comparing though.
If it is Crony Capitalism to a more pure form mentioned in the piece by Jesse Norman then you are correct.
However if it is Capitalism of any sort versus the sort of centralised planning without the market mechanism favoured by many on the left of the political spectrum then I would argue it is a valid comparision to make.
You could also look at West versus East Germany. The great thing about the cold war is that it threw up a number of almost perfect situations from which to study the impact of the different economic approaches.
Vote:January 17th, 2012 at 11:30 am
I dispute this assertion. The presence of inequality does not make capitalism immoral. Just as differences in the volume of voice doesnt make the free speech principle immoral.
Vote:January 17th, 2012 at 11:35 am
Oh, and I am waiting in excited anticipation for the first lefty comment that bemoans the advancement of humanity that was foregone due to our unfounded obsession with the cult of capitalism.
Vote:January 17th, 2012 at 11:40 am
You can never have a level playing field, and certainly couldn’t maintain one, the world doesn’t work like that, it never has and never will.
That’s why you need some morals in capitalism, a system will only work well if those involved believe in fair play.
Vote:January 17th, 2012 at 11:54 am
I disagree Pete. At least over the long term rather than short to medium term.
It is virtually impossible to maintain an unfair advantage in a true Capitalist system over a long period of time unless you use coersive force. So long as you have an independent justice system, (a problem in many place admittedly), then the market should self regulate to a degree over the long term.
The problem society has is that market corrections to rectify issues can be quite socially disruptive. Our modern society dislikes these sorts of changes immensely. Hence why the State tends to try and regulate the ‘excesses’ of Capitalism.
Vote:January 17th, 2012 at 12:19 pm
1. For capitalism to work on moral grounds you have to get a level playing field at the start. That is effectively education and opportunity for those starting out. Otherwise human nature means you end up with an elite based on bloodline (those who could afford to give their young the ‘right’ start) and an underclass with little chance of breaking free.
Elites of Europe such as Italy and France have massive advantages of wealth. China and India are poor, an effective underclass. Yet the underclass advance and the elite fall.
3. For ‘real’ capitalism to work in the modern era it needs to be thought of internationally – this is one of the biggest hurdles as what constitutes a ‘free market’ is key.
It needs to be thought of internationally – yes.
But the hurdle doesn’t exist, the results are plain to see.
Vote:January 17th, 2012 at 12:32 pm
That’s a really poor example to choose for this argument.
Until relatively recently, South Korea has been the poster-child for crony capitalism (through their Chaebol system).
As a poster child for cronyism in Korea you choose the South?
Vote:January 17th, 2012 at 12:37 pm
This writer is echoing the words and writing of Richard Branson.
I happened to pick up this book and read it during the rain soaked holiday. Recommend you all read it.
Confirmed what many of us have always thought.
Business Stripped Bare
Sir Richard Branson.
Combining invaluable advice with the remarkable and candid inside stories of Virgin’s greatest achievements, as well as some of its setbacks, Business Stripped Bare is a dynamic, inspirational and truly original guide to success in business and in life. This book is aimed far and wide and whether you are an executive, an entrepreneur or are just starting out, Richard strips business down to show how you can succeed and make a difference This entertaining read will be an invaluable business guide for years to come.
http://www.virgin.com/richard-branson/books/business-stripped-bare
Vote:January 17th, 2012 at 12:42 pm
Its not a moral issue at all. Its an issue of ethics. Be ethical in your business dealings and only deal with ethical organisations and people.
That’s the issue with Parliament. Its hell bent on dealing with morality (a bit like our police), and not operating in an ethical manner itself.
If it did then whipping would be removed.
Better legislation would ensue and sectors of the community would not be discriminated against.
Read Branson’s book and you will understand.
Vote:Until you have you won’t.
January 17th, 2012 at 12:48 pm
Jesse Norman says:- “Capitalism is the greatest tool of wealth creation….”
Yup. But every tool becomes redundant in time.
I give it 20 years.
Then the economy will be regulated by A.I.
Then another 20 years to reach post-scarcity status. Hope I’ll still be around to perform a neural download into a virtual environment.
Might already have happened…. there is no real way of knowing for sure.
Vote:January 17th, 2012 at 1:04 pm
A quote from Churchill might be appropriate here.
“The greatest vice of capitalism is the unequal distribution of bounty and the great virtue of socialism is the equal distribution of misery”
Vote:January 17th, 2012 at 1:35 pm
Broken into four 5-Year Plans, perhaps?
Yep, the wants and desires of all the humans on the planet are just an equation that needs solving. All we need is
the right expertsa big enough computer in place to tell us what we want.And counting on a “post-scarcity world” is as helpful as saying that God will sort it all out.
Vote:January 17th, 2012 at 2:14 pm
unaha-closp said:
As a poster child for cronyism in Korea you choose the South?
——————–
Yes. Not much is known for certain about the economy of North Korea, so any attempt at description would be conjecture.
However the history of the Chaebol is well documented. The wiki entry is a good starting point.
http://en.wikipedia.org/wiki/Chaebol
Vote:January 17th, 2012 at 3:32 pm
We hit post-scarcity some time ago, in terms of straight technological potential.
Vote:January 17th, 2012 at 4:31 pm
Nice piece but Rand said it first…and better 50 + years ago. Capitalism is the most practical system for man because its the ONLY moral system for Man is that it rejects the initiation of physical force in human relationships. Evey centrally controlled system requires violence to work….and then only till it implodes from its contradictions.
Vote:January 17th, 2012 at 5:21 pm
Kimble says:- “Broken into four 5-Year Plans, perhaps?”
Ahh Kimble, your sentimental attachment to free market capitalism is kinda sweet, but the fact is, whether it takes twenty years or a hundred, capitalism will spawn its successor and die giving birth.
__________________________________________________________________________________________
Ryan Sproull says:- “We hit post-scarcity some time ago, in terms of straight technological potential.”
Maybe, but it is not in a self organizing competitive system’s interests to fully meet demand as it thrives on the growth scarcity generates. And humans are too dumb and self interested to micro manage the means of production, as failed socialist experiments have shown us.
But ironically, free market capitalism is taking us ever closer to a point where most humans will no longer be able to add value to the economy as machines become ever more efficient and more intelligent. Then the day will come when capitalism will simply collapse due to lack of demand pressure.
And then, most likely, the means of production will be globalized.
Vote:January 17th, 2012 at 5:41 pm
I had drinks with a collection of young libertarians once, and the conversation turned around to the economics of Star Trek. I pointed out that capitalism couldn’t survive the invention of replicator technology and a sort of wave of silent horror passed through the group. They stayed quietly appalled for about 20 seconds, then one of them said, “Oh, there’ll always be something that everyone wants and there’s not enough of.” And they all gave a collective sigh of relief and perked back up.
Told that story to someone else a few weeks later and he went quiet for a bit too, mulling it over. Then he suddenly said, “Patents on replicator patterns!”
Vote:January 17th, 2012 at 9:31 pm
The real question should be…put up a social/economic system that’s BETTER at protecting real human rights and enriching the most people than true Free market capitalism. Until you find one then we will continue to have a mildly flawed but clearly superior winner.
Vote:January 18th, 2012 at 9:38 am
Capitalism is the most practical system for man because its the ONLY moral system for Man is that it rejects the initiation of physical force in human relationships. Evey centrally controlled system requires violence to work….and then only till it implodes from its contradictions.
That is libertarian craptrap. Capitalism is superior, because its moral ambivalence allows the allocation of physical force.
The contradiction inherent in other systems is that they claim morality and rely on freely applied coercion to operate. Unfortunately for them coercion is not free.
Capitalism requires payment for the initiation of force, thus getting around the contradiction and allowing coercion to be allocated in an economically viable manner.
Vote:January 18th, 2012 at 9:59 am
Sadly, there are worse examples than these and the TARP bailouts – not to mention the good old Fed pumping $7.7 trillion into the banks at the same time. The following story comes from National Review three months ago but is not free, so I’ll re-type parts here. The author is Rob Long:
Long goes on to describe a meeting set up by the billionaire’s investment bankers. Long does not say who, but describes them as that bank, so it’s probably Goldman Sachs. They’ve arranged a meeting in Europe with some big-time bureaucrat and the outcome will likely be another billion dollars. However, the billionaire has recently shifted to the East Coast from California and has not yet shifted many of his possessions, including his passport. He calls his sister, who gets it from his house and sends it to him via express mail….
Is that not absolutely incredible? That is what crony capitalism has reduced our society to. As Long concludes:
Oh I don’t know. Whether Mittens or Obumble are elected I’m struggling to see how this shit changes short of a breakdown.
Vote:January 18th, 2012 at 10:01 am
I had drinks with a collection of young libertarians once, and the conversation turned around to the economics of Star Trek. I pointed out that capitalism couldn’t survive the invention of replicator technology and a sort of wave of silent horror passed through the group.
Must have been a while ago, DS9 came out in 1993.
Vote: