What is the elephant in all our rooms? It is the global triumph of capitalism.Maybe in his room - most of us don't really care or don't even notice. And that's how markets have developed and thrived; not explicitly or intentionally, but because governments loosened their collective grips after experiencing stagnation and failure. This isn't a condition that governments have sought, but have simply happened. For those of us who do care, to accept his view is dangerous.
One can almost sense Ash's level of futility and desperation in making such an admission, except for the fact he's wrong. Ash begins by attempting to define capitalism:
Is what Russian or Chinese state-owned firms do really capitalism? Isn't private ownership the essence of capitalism? One of America's leading academic experts on capitalism, Edmund Phelps of Columbia University, has an even more restrictive definition. For him, much of what continental Europe has, with its multiple stakeholders, is actually corporatism. Capitalism, he says, is “an economic system in which private capital is relatively free to innovate and invest without permissions from the state and green lights from communities and regions, from workers, and other so-called social partners.” In which case, most of the world is not capitalist. I find this much too restrictive.
Hmmm, let's clarify. Let's go to an expert in "capitalism", ask them to define it and then when we don't like the definition, make one up? And make it up in order to suit his argument, he does:
It's not difficult to find those like Ash who long for an alternative (or maybe it's just a charm of being in Canada). The average German apparently even believes that it's better to inherit the wealth you have rather than earn it! They find capitalism far too disruptive, they associate it with greed, manipulation, and consumption and even find it impolite. They're willing to use Cuba as an example that socialism can work pointing to its healthcare system despite American oppression/hegemony keeping it impoverished, (nevermind that Taiwan, an island embargoed by a far more hostile neighbour, has thrived).
Surely what Europe has is multiple varieties of capitalism, from more liberal market economies such as Britain and Ireland to more co-ordinated stakeholder economies such as Germany and Austria. In Russia and China, there's a spectrum from state to private ownership. Other considerations than maximizing profit play a larger part in the decision-making of state-controlled companies, but they, too, operate as players in national and international markets, and increasingly they also speak the language of global capitalism. Granted, China's “Leninist capitalism” is a very big borderline case, but the crab-like movement of its companies toward what we would recognize as more rather than less capitalist behaviour is far clearer than any movement of its state toward democracy.
But basically what it comes down to for those like Ash, is that it's possible for socialism and communism to have an "ideal" but capitalism must be flawed at its core. With the growth and prominence of the environmental movement, they can now point to another reason to reign in the "excesses" of capitalism. Where apparently Marx had it wrong on why capitalism would fail, Ash apparently knows better:
They are not precisely the famous “contradictions” Marx identified, but they may be even bigger. For a start, the history of capitalism over the past 100 years hardly supports the view that it is an automatically self-correcting system. As George Soros (who should know) points out, global markets are now more than ever constantly out of equilibrium — and teetering on the edge of a larger disequilibrium. Again and again, it has needed the visible hands of political, fiscal and legal correction to complement the invisible hand of the market. The bigger it gets, the harder it can fall.This is a favorite strawman of the anti-capitalists: to them, anarchy is apparently the ideal state for free markets, nevermind that free markets require rule of law and property rights as noted by everyone from Milton Friedman to Adam Smith. Governments are needed to protect us from each other - the problem is when governments attempt to protect us from ourselves or blur the line between the two. What is perhaps a bit galling is that Ash prefers we forget many of these "disequilibriums" are caused by brutish (though often unintentional consequences of) government interventions. Ash goes on:
Then there is inequality. One feature of globalized capitalism seems to be that it rewards its high performers disproportionately, not just in London but also in Shanghai, Moscow and Mumbai. What will be the political effects of having a small group of super-rich people in countries where the majority are still super-poor? In more developed economies, such as in Britain and North America, a reasonably well-off middle class, with a slowly improving personal standard of living, may be less bothered by a small group of the super-rich — whose antics also provide them with a regular diet of tabloid-style entertainment. But if a lot of middle-class people begin to feel they are personally losing out to the same process of globalization that is making those few fund managers stinking rich, while at the same time outsourcing middle-class jobs to India, then you may have a backlash.
This seems more to do with wishful thinking. To Ash, apparently the fact that wealth is accumulated and stolen by oligarchies and corrupt governments who don't care to enforce rule of law can all be blamed on free markets. Further, Ash implicitly makes the equivalence of the "super-rich" in developed countries with those in developing countries - as if self made billionaires like Rupert Murdoch and Bill Gates can be compared at the same level as oil sheikhs. To those like Ash it seems that wealth can only be distributed rather than made and earned. Wealth to them is a "fixed pie", not one that grows with innovation. I often wonder how they reconcile their reality with the continual growth in per capita GDP. Economics mumbo jumbo perhaps?
Finally, it's the argument most in vogue by redistributionists - using the environment - claiming that we don't have enough resources. They use words like "ecological footprint" and "inevitable" to scare us into compliance. But these Malthusian arguments aren't particularly new but as they have been for the pasts 300 years, they are still wrong. Ash however does acknowledge that technologies have been the solution to resource constraints but he treats these solutions as mere tricks by "ingeniuous modern capitalists". The genius of free markets is that scarcity is signalled to ingenious modern (and even stodgy) capitalists through higher prices and therefore greater incentives to develop more efficient ways to use resources and develop alternatives. The evidence is quite clear - commodity prices fall over time.
Above all, though, there is the inescapable dilemma that this planet cannot sustain six and a half billion people living like today's middle-class consumers in the rich north. In a few decades, we would use up fossil fuels that took 400 million years to accrete — and change the earth's climate as a result. Sustainability may be a boring word, but it is the biggest single challenge to global capitalism today. However ingenious modern capitalists are in finding alternative technologies — and they will be very ingenious — somewhere down the line, this will mean richer consumers settling for less rather than ever more.
There's an elegant truth to the markets. With prices having consistently fallen in the long run, it suggests resources are becoming more abundant rather than scarce. What makes this fall even more remarkable is increased population and increased wealth allowing more people to afford what were luxuries mere decades ago. There are however those who have been willing to bet that this wouldn't be the case, putting their money where their mouths have been.
But back to why accepting Ash's belief that capitalism has "won" is dangerous. Consider a doomsday scenario of what might happen when China ultimately falters. Who to blame? I'll bet that those like Ash won't be pointing fingers at government policy (and the extreme levels of bad bank debt). According to James Waterton:
I fear a worldwide economic slump prompted by the collapse of China and its supposedly free market will provoke a popular backlash against globalisation and the liberal market reforms carried out in the 80s in the most successful economies of the West. Capitalism and liberalism will be blamed if people create a nexus between China's collapse, its market reforms and its intertwining with the greater world economy. There is no shortage of people who will quickly jump to the fallacious conclusion that the free market sunk China - those who protested in Hong Kong and other places would grab plenty of (misguided) ammunition from such a catastrophic event. Ask any one of those economic curmudgeons about post communist Russia's economy, and I will bet you penny to a pound that their standard response would be "capitalism failed Russia". This is about as sensible as saying that modesty failed Paris Hilton, for anyone who knows anything about post-Soviet "free market reforms" will know that they were in fact nothing of the sort. This type of thinking could very well gain traction because it makes sense prima facie. Policy reversals may follow and suddenly we're staring down the barrel of a neo-Keynesian revolution. Consider what the average person knows about China's economy. We're all told about China's free market reforms and its burgeoning capitalist class in the mainstream media - we're not told about the Chinese government's meddling in the economy and its mandating of compulsory totalitarian-style imposts on big private companies like internal "political cells", its retention of control over huge swathes of industry, its equity market (there is currently a ban on IPOs on Mainland bourses) which is stuffed with companies who are controlled by local governments and even the military, rather than shareholder, the board and a CEO. Most importantly, we're not told about the largely intractable problems with China's banking sector. Most people truly think China operates under a free market economic system. If the dog's breakfast that is China Inc fails with all the accompanying pain and fallout, there's a real danger that free market liberalism will be made the scapegoat internationally.Let's not forget the words of a Frenchman:
"When goods do not cross borders, soldiers will." - Bastiat
Some argue quite convincingly that this led to World War I.