Capitalism recycled

THE ethical evaluation of capitalism largely depends on the point of comparison chosen. This is as valid today as in the days of Karl Marx. After the socialist experience of the 20th century, a comparison of capitalism with a planned economy in which all the means of production are in the hands of the government is likely to be in favour of some form of free market economy.

In the classic discussion between Frederick Hayek and Oskar Lange, the archetypal defenders of capitalism and socialism respectively, it is often thought that the former has won the debate. The most tinted economic reason for this is the efficiency of the market in passing on information. The rise in the price of a product is a signal to sellers that they must produce more and to potential buyers that they must be more sparing in their use of the product in question or else look for alternatives. A fall in price has just the opposite effect. In a planned economy, bits of information that are scattered among millions of economic players have to be centralised. This, besides being cumbersome, is almost impossible, since producers and consumers have every reason to hold back or falsify information.

In 1965, for example, Russian Prime Minister Alexey Kosygin decided to implement price reforms making a complete price list of everything produced. It took nearly three years, but by the time it was completed and published the data, running up to 38,000 pages, had become obsolete.

Also, there is an ethical motivation as to why one might favour market economy over a completely planned economy. The centralisation of economic power in the hands of a government bureaucracy and political class inevitably leads to totalitarianism. The democratic character of a society is very much tied to the existence of a subtle system of checks and balances. Yet there is hardly any example in the history of a planned economy where such a system even partially succeeded. The former Yugoslavia, for example, remained a dictatorship, despite a system of self-management by workers.

A free and equal society requires that political and economic powers are kept separate: those wielding power should not have control of the media; institutions such as the judiciary, universities and religious establishments should have functional autonomy.

Despite these and other so-called capitalist virtues, Hayek cannot be completely correct. His belief that any deviation from the purest form of capitalism leads directly to slavery and that a social democratic welfare state would be "the road to serfdom" is questionable. The Scandinavian countries, for example, are among the most advanced welfare states and yet they are by far also among the most robust democracies in the world. Some liberals would no doubt consider these countries to be over-regulated with various kinds of interventions and procedures, but from these it is difficult to conclude that they are totalitarian.

Moreover, there are economic and ethical arguments for choosing a regulated market economy over a purely capitalist one in which scarce social resources are allocated mostly through unregulated markets.

A pure market economy leads spontaneously to an under-supply of public goods, namely goods and services which are `consumed' collectively and the use of which by one person does not exclude others. In a decentralised economic system everyone hopes that somebody else will maintain the roads, parks and playgrounds, but prefer to choose the free-riding option for themselves. Everyone would benefit from a clean environment and pollution-free atmosphere, but they are hard to realise when left to the vagaries of private markets. A reasonable provision of public goods of high quality is important, particularly for the weakest in society. The rich can afford to travel in their private vehicles, educate their children in elite schools and universities and buy the best of health care in the private market. The poor and the middle class are, in contrast, dependent on the supply of adequate and qualitative public goods.

Nature too is largely a public good. However, the spontaneous logic of capitalism leads to the overexploitation of the world's natural wealth - overfishing of the seas, destruction of forests and wastage of energy sources. Unregulated capitalism is short-sighted. It privileges the short-term over the long-term goals with disastrous repercussions for the environment. This tendency is further reinforced by the system of rewards and incentives that the managers and executives of big companies create for themselves. If company managers are remunerated by being granted share options whose value depends on the rise in the share prices of the companies in question, then there is a built-in motivation to make the highest profit in the shortest possible time, and if necessary even at the cost of the environment and other stakeholders.

Capitalism ensures the lowest price for the consumer, but it puts the producers under extreme pressure. Only the most efficient businesses can survive in the long term. It is possible to lose sight of the fact that people are both producers and consumers and that beyond a certain minimum, people's happiness is less dependent on their consumption possibilities than on their ability to be creative. To the extent that global capitalism marginalises local forms of social esteem, it makes it more difficult for people to live a satisfying life.

With Hollywood and Bollywood films gaining popularity across the country, for instance, traditional forms of art, dance and folklore have become extinct or endangered species. Gone are the days when local artists and artisans were highly esteemed and could make a decent living out of their talents. Nowadays every singer or musician is compared with globally successful artists whose albums are distributed throughout the country or world market at bargain prices. Without considerable government subsidies or community support, hardly any of the traditional arts can revive or survive.

As German political economist and sociologist Max Weber argued, capitalism may have started on the basis of a Protestant ethic but now it fosters utilitarian individualism or opportunism. Unbridled individualism and consumerism undermine citizenship. If people strictly calculate only their own most immediate self-interest, then public services become no more than a trough from which people seek to get as much as possible while contributing to it nothing or very little.

In the standard version of the Invisible Hand principle, put forth by the famous 18th century economist and philosopher Adam Smith, it is maintained that a consistent pursuit of self-interest leads automatically to mutually beneficial results for everyone and contribute to the common good. This is, however, an illusion in many domains of social life. Adam Smith was generally opposed to any interventionist policy where the market could work well. And yet he advocated legal restrictions and interventions on the part of the state, since an unregulated pursuit of self-interest of certain individuals - Smith, in The Wealth of Nations, calls them "prodigals" and "projectors" - would distort the proper functioning of the market and lead ultimately to a waste of social resources.

The success of a market economy very much depends on people who are ethical to a certain degree. Otherwise the market economy is in danger of degenerating into a mafia economy where literally everything is permitted. Without a minimal level of morality, competition becomes war; trust and legal guarantees, which are indispensable for economic growth, would also disappear. Unfortunately, capitalism does not spontaneously create the social ethos that it needs to survive and flourish. Often, it works against it.

Hence not only are moral education and the cultivation of civic virtues essential, but they should also be accompanied by institutions that organise the social space in such a way that the best of moral sentiments are induced. Generally, people are neither perfect altruists nor downright egoists, neither moral saints nor devils. Given the right kind of economic and political institutions and a certain amount of assurance that fellow citizens will be fair-minded and comply with norms of behaviour, people tend to be reasonable and put their best selves forward.

Pure capitalism would give people only a monetary motivation to work and to do their best. This leads to a general instrumentalisation of things and people and to the disappearance of intrinsic motivation and authentic values. How can ethical values flourish in a world where everything is for sale? We can argue that capitalism through its materialism kills not only the ethos, but also the `spirituality' or intrinsic motivation that people need in order to produce high-quality goods and services. Those with an intrinsic motivation to work enjoy what they do and are ready to serve others.

Moreover, the goods exchanged or jointly cherished in the context of personal relations such as marriage, friendship and partnership are expressions of trust, loyalty, affection, intimacy and commitment. Indeed, the goods of personal life will be commodified when the norms of market mechanisms are applied to them.

It is true that the market economy often leads to economic growth, but the created wealth is usually unequally distributed. As we have already pointed out, owners and managers of big businesses profit by the monopoly they create for themselves. In contrast, those with comparatively smaller businesses and those with few marketable qualities and skills run the risk of living in poverty or becoming dependent on the philanthropy of the rich. However much people may disagree about the precise standards of distributive justice, most people do believe that citizens, through their government, have a redistributive task to the weakest in society.

Sociological research on popular opinions about social justice indicates that there is sizable public support for some sort of welfare state, even in highly individualistic societies. With regard to inequality of income and wealth, social philosophers like John Rawls, Amartya Sen and Ronald Dworkin advocate the idea that inequalities should be tolerated only insofar as they stimulate economic growth, promote individual responsibility and agency, and improve the situation of the worse-off in society in the best way possible.

Perhaps one might miss in this assessment the classic Marxist theory of exploitation. This is partly because the theory of surplus value is, technically speaking, weak and is connected with a disputable theory of labour value. The connection between theoretical labour value and empirically perceptible prices is not clear. Surplus value, according to Marx, should be the difference between the value of what is produced and the socially necessary subsistence wage. The latter, however, is so contingent on the concrete social context that the surplus value connected with it is also indeterminate. Moreover, the problem of distributive justice is most acute for people with little or no stake in the global capitalist economy.

Anti-globalists are right in pointing out that most of the miseries in sub-Saharan Africa and other developing countries arise from their exploitation by unscrupulous multinationals. Yet it is equally true that the inability of these countries to overcome poverty is because of the lack of interest by international investors as well as the political uncertainty, corruption and absence of adequate rule of law.

Is there, then, no more exploitation in the world? Indeed, there is; but only that exploitation now must be viewed differently. The new economic dividing line is less between the owners of the means of production and the proletariat than between the owners of movable and immovable means of production. Capital in the form of money is naturally very movable and so has an advantage.

Moreover, a large-scale process of differentiation among workers is becoming more and more visible: people with knowledge and skills that can be put to use in many places and workers who are willing to move are in a much better negotiating position than those who do not have either the skills or the willingness to move. National governments are gradually losing their hold on the transnational migration of people and capital, and in fact, succeed only in taxing the relatively immovable production factors.

Not surprisingly, then, the erstwhile Marxist critique of capitalism is nowadays recycled as a critique of globalisation: globalisation is, after all, full-blown, cosmopolitan capitalism. The leaders, non-governmental organisations (NGOs) and activists of anti-globalisation point out that the global spread of capitalism across countries and borders hurts the world's poor and poor countries and is the driving force for new forms of oppression, exploitation and injustice.

Global business firms are ultimately interested in one thing: profit. So, they are aggressively spreading their tentacles into those parts of the globe where labour is cheap and margins of profit are high. The workers in turn have no choice but to slog it out in sweatshops, with less pay than their counterparts in rich countries, excessive work hours and even unhealthy and dangerous working conditions. Rich nations' terms of trade and intellectual property rights, subsidies and protectionist policies in agriculture and textiles not only discriminate against poor nations and the developing world, but also lead to depletion of natural resources and harm the environment.

Yet some criticisms of globalisation turn out to be somewhat exaggerated. In principle, there is no reason to reject privatisation of goods and services. Rice and cereals are essential commodities and yet effective provision of these to every citizen does necessarily imply that all the grocery shops in the country should be nationalised. Sadly enough, public enterprises in some countries are just money-spinners for public servants and politicians, and governments often do not have the money to make vital investments, as for example in education, public transport and other infrastructure. A sensible and regulated privatisation policy can sometimes be a good way of cleaning up corrupt government agencies.

The cultural upheavals caused by capitalism are matters of serious concern. In The Communist Manifesto, Marx had already pointed out that capitalism is continuously revolutionising everything and thus uprooting people and communities. Many employees experience this on a daily basis. Their world of work is controlled by a general mobilisation, `eine allgemeine Mobilmachung', which was earlier imaginable only in times of war. More than ever before workers have to cope with perennial restructuring, stringent evaluations, rapid technological progress and demands for greater flexibility. Furthermore, not only natural resources and clean environment, but also languages, cultures and ways of life are disintegrating rapidly.

In all these, instead of sifting and weighing the underlying issues involved in the debates and doubts about global capitalism, it is possible to be pre-reflectively driven by a capitalist mania or capitalist phobia. A capitalist mania involving an overglorification of the market because it offers the consumer a large menu of choice in the marketplace can blind us to the fact that an unregulated market can cause massive levels of inequality and poverty. It can also overlook the fact that the root causes of income inequalities and poverty lie as much in unequal terms of trade as in lack of education and training to adapt to new technologies. A capitalist phobia entailing a total opposition to and control of market-oriented institutions, on the other hand, can fail to recognise that the question cannot any more be whether or not to make use of the market economy.

Rather, what is required today is a skilful use of the market towards fairer distribution. Market economy with its global character of technology, migration, international trade, and social and cultural exchange can be made an ally rather than an enemy of poor and developing countries. A critical appreciation of the market is in fact quite consistent with and often requires a number of market-complementing strategies, policies and interventions by non-market institutions.

Dr. John M. Alexander is Assistant Professor at Loyola Institute of Business Administration (LIBA), Loyola College, Chennai and a Research Fellow at the Centre for Economics and Ethics, University of Leuven, Belgium.

Prof. Toon Vandevelde is the president of the Higher Institute of Philosophy and teaches Economics and Philosophy at the University of Leuven, Belgium.