The Economist, our most stalwart apologist for laissez faire economics, has published a noble defense of capitalism in its latest issue.
This article argues that “[o]ver the past century and a half capitalism has proved its worth for billions of people. The parts of the world where it has flourished have prospered; the parts where it has shrivelled have suffered.” The rhetorical ploy at the center of this argument is to keep the definition of “capitalism” fairly vague, often with the purpose of conflating trade liberalization with capitalism, and to ignore the fact that those parts of the world that have emerged from poverty in the past few decades have done so very precisely by ignoring neoliberal policy prescriptions and by adopting highly interventionist economic policies, exactly as the U.S. did when it industrialized in the nineteenth century.
There is also little recognition in this article that “true” capitalism has never really existed anywhere for very long and that the major fight within state capitalist economies has been between Keynesian policies and a version of the free-market cant which The Economist — for all its excellent reporting — has wholeheartedly supported, at least at the level of editorial policy. The TRADE LIBERALIZATION EQUALS CAPITALISM formula is visible in this article’s defense of “Washington consensus” economic prescriptions — dismantling of capital controls, lowering tariffs ((Except for rich countries, naturally!)), privatizing state-owned enterprises, etc. — which many argue partly helped contribute to the current economic crisis.
Is anyone who opposes the Washington consensus by definition anti-capitalist? Obviously not.
So one problem with this defense is that trade liberalization and capitalism are not equivalent concepts. The more serious problem, however, is that The Economist doesn’t believe its own argument. These purveyors of economic liberty admit that “[f]inance needs regulation. It has always been prone to panics, crashes and bubbles… Because the rest of the economy cannot work without it, governments have always been heavily involved.” The newspaper moreover agrees without reservation that “[i]n the short term defending capitalism means, paradoxically, state intervention.” The “global bail-out is pragmatic” because states “believe, rightly, that public capital is needed to keep credit flowing.” Our friends at The Economist also note, quite rightly, that “[c]apitalism has always engendered crises, and always will.”
So The Economist’s position is quite simple, really: “capitalism” will always periodically generate crises, especially in the area of finance, which will paradoxically (and periodically!) require state intervention, at taxpayer expense. At such inevitable periodic times of crisis, state intervention — often at a loss for the taxpayer — is necessary, for pragmatic reasons of course. Right. That’s The Economist’s version of capitalism for you in a nutshell — privatize profits, socialize risk. It is almost literally unbelievable that the editors of The Economist could so overtly contradict themselves — not in different pieces, mind you, written by different authors with opposed opinions, but within the same article.
If this is what “economic liberty” looks like, the editors should not be surprised if the general population remains unconvinced of their argument, especially when the public is having its money spent periodically — and predictably — to bail out the financial industry at a cost of hundreds of billions of dollars (or more). It is not an exaggeration to say that by their own definition, the editors of The Economist don’t actually believe in capitalism.
I think you are being very unfair to the authors of the article. Only if you hew to the Grover Norquist extremist position of capitalism can only have no state participation of all does your analysis make sense. But as a reader of the Economist since the late 90’s they have always realzied that the government must be on the field as referees. Just not as players.
The Eoonomist has a cogent argument, which I grant is not popular now, that economic freedom — what they call neoliberialism — leads to the best gains for everyone. But the are smart enough to realize that in crisis such as these the referees must be involved. The question is not one of either or but where do you put the balance on between the private and public sectors.
Comment by John — October 18, 2008 @ 2:11 pm
I agree that editors of The Economist are not as extreme as, say, Grover Norquist’s so-called “Leave Us Alone” coalition or the editorial page of the Wall Street Journal… but they do, I think, blur the boundaries between the agenda of trade liberalization and capitalism as such.
There can be genuine disagreement about the value of neoliberalism — but I think The Economist is wrong to say that it’s capitalism as such that’s currently under attack. If anything, much protest against the bailout plan originates more from a Norquistian anti-tax impulse than from the left, which is pretty weak in the U.S.
I also think that capitalism is the wrong term for a system that relies, as The Economist correctly points out, on predictable and periodic massive state intervention in the economy — but that’s another debate.
My point, made perhaps a bit sarcastically, was that no one in the U.S. is calling to, say, nationalize the local Applebee’s, least of all neo-Keynesians.
Comment by Lee — October 18, 2008 @ 7:09 pm
While nationalizing Applebee’s or Chili’s is not the issue, I wonder if the Economist editorial was more directed at Europe where such a thought would not be outlandish.
Also, I think there was a general warning not to overreact which is good for any crisis.
Comment by John — October 18, 2008 @ 7:33 pm
We’re faced with a situation where people who oppose important reforms, including smarter regulation, a smarter health care system, a smarter and more progressive tax structure, etc., use the frame of capitalist/socialist to make their arguments.
Right now, for example, John McCain is going around saying Obama’s tax plan is “socialist” because it would “spread the wealth around,” as Obama said.
The only definition of the word “capitalist” that allows these right-wing arguments to make sense is the Grover Norquist definition. So then we left-wingers are left with a choice. On the one hand, we can accept the extremist usage of the word “capitalist” and then explain why it’s stupid. (This is the mode Lee has chosen above, I think.) On the other hand, we can challenge the right-wing’s extreme usage of the word, saying the proper definition of the word “capitalism” includes government regulation and a social safety net to soften the impact of economic dislocation on the victims of capitalism. This seems to be the Economist’s strategy.
I have two questions: (I am not a regular reader of the Economist, just fyi) Are there aspects of the Democratic Party’s agenda that The Economist would criticize as anti-capitalist or insufficiently capitalist? Or does The Economist define capitalism in a way that would incorporate all the appropriate measures Democrats plan to take to safeguard our economy?
And 2nd: I see a danger in Lee’s strategy — of accepting the Grover Norquist definition of “capitalism” and then challenging it. The danger is that left-wingers like us will end up being seen as supporters of communism or totalitarianism or something. In American pop political culture, there’s still a broad strokes distinction to be made between capitalism/freedom/democracy in America and socialism/communism/oppression in the Soviet Union.
Stereotypes are powerful things, and I don’t want to be lumped in with people who supported state-run newspapers and gulags. There are things about “capitalism” that I like.
So what do you think?
Comment by Ian — October 19, 2008 @ 10:39 am
Actually, to the degree that my post reflects any strategy, beyond the strategy of just describing what the editors of The Economist think, and disagreeing with what they think, I largely agree with you, Ian.
I wanted to show how The Economist takes a narrow economic agenda — trade liberalization, aka the Washington consensus — and tries to act as if there is not a distinction between this agenda and capitalism as such. In that sense, The Economist is maybe not exactly trying to narrow the definition of capitalism — as market fundamentalists like Norquist do — but trying to smuggle in its own ideas as necessarily part of capitalism.
I.e., no trade liberalization -> no capitalism.
My claim is that this implied equation is simply false and that there are other understandings of capitalism, such as that of the Keynesians, broader and quite opposed to The Economist’s. And to call Barack Obama a socialist is beyond stupid, and reflects on an ignorance of the history of “actually existing” capitalism (bracketing the fantasy version of the history of capitalism that never existed).
This is the advice The Economist has given to John McCain on how to beat Barack Obama:
Grover Norquist? Not quite, but its editorial priorities are fairly clear.
Comment by Lee — October 19, 2008 @ 12:53 pm
To be clear about the comment above: The Economist has not called Obama a socialist.
Comment by Lee — October 19, 2008 @ 12:55 pm
Thanks Lee for posting that excerpt above.
The Economist’s explanation for characterizing Obama as not “business friendly” is pathetic. The idea that Obama can’t support American business because he doesn’t have much business experience of his own reflects a total misunderstanding of the relationship between government and business — almost like saying you can’t run a health insurance company if you’ve never been a medical doctor. The issues Obama would have to consider when deciding on a particular business-related policy are not necessarily well-understood by people who run businesses but don’t understand the broader dynamics of the national and global economy.
Furthermore, if McCain wants to attack Obama for being too close to unions, he should totally do so. I’d very much like to see a Republican presidential candidate really make opposing unions the focus of his campaign. Dems would win big in that case — which is why McCain hardly ever mentions unions.
As for Obama’s close relationship with lawyers, I can’t believe the Economist thinks McCain can get any real traction with that. It’s a silly issue, based on people’s tendency to blame lawyers for our legal system — which is like blaming all accountants for the nation’s tax policies.
Really, the only politically feasible argument the Economist puts forward is the argument about single-party control. Which is interesting.
Comment by Ian — October 19, 2008 @ 1:28 pm
I think the Economist rhetorically undercuts their point by citing the business experience of Obama (McCain’s isn’t much ether). And they have a point about McCain being business friendlier, at least in line with old stereotypes.
The divided government argument is a good one. McCain is already trying to deploy it and unlike a lot of reasons I’ve heard it’s a logical reason for a moderate to vote McCain.
Comment by John — October 19, 2008 @ 10:53 pm
PS: And Ian I’m not sure you would want to fight an election over unions. You might be surprised at the result.
Comment by John — October 19, 2008 @ 10:54 pm
Re: elections fought over the question of unionization.
A 2006 Rasmussen poll indicated that 58% of Americans have “a somewhat favorable” opinion of labor unions; 33% held an unfavorable view. Of these 23% have a “very favorable” view and 12% a “very unfavorable” view.
A 2008 article by Costas Panagopoulos and Peter L. Francia in Public Opinion Quarterly analyzed iPOLL databank data on public opinion. It reports:
Specifically, American public opinion has remained at pretty much the same level — and has been largely favorable, at number like those I cite above — since the early 70s. So support for organized labor is at least a plurality or a straight majority depending which polls you take as most accurate.
Comment by Lee — October 20, 2008 @ 2:06 am