On the 23rd of this month, in light of the storm which has been engulfing politics across the world, Shout Out UK are teaming up with CapX to host the event The Case for Capitalism: Is Capitalism Working? Join us for an evening of heated debate as modern capitalism is placed under the microscope and scrutinised — encompassing speakers on both the Left & Right.
Prior to the debate we launched an article exchange, view one here:
Despite the strain on some national economies and the recent recession, the larger picture suggests that Capitalism is working as global poverty falls below 10% for the first time in Human History.
When thinking about state of the world, 2015 was a year that many people would like to forget. After the protracted and wearying drama involving Greece’s future place in the euro area, scenes of civil war and embattled refugees were the focus of the global news agenda.
But working beneath the day-to-day strife has seen a wonderful transformation which has been in process for decades. In October last year, the World Bank declared that global poverty had fallen below 10 per cent for the first time in human history. Over 200 million people have been lifted out of poverty since 2012, despite rapid increases in the global population.
That figure is of course 10 per cent too many, but it is important to place this figure into an historical perspective. In 1820, at a time when most of the world was untouched by the forces of commerce unleashed by the Industrial Revolution, 84 per cent of the world’s population lived in absolute poverty. Breakthrough innovations in agricultural technologies — pasteurisation (1863), refrigeration (1850s), nitrogen fixation (1918), scientific plant breeding (1920s), combine harvesters (1930), and GM crops (1980s) — have saved, and continue to save, billions from starvation. By keeping yields high and food prices low, innovation has greatly enhanced human potential.
It was a nascent enterprising spirit in Britain which encouraged James Watt to produce the world’s first steam engine, and which then spurred on Richard Arkwright’s Water Frame (1769), Samuel Crompton’s Mule (1779), and Edmund Cartwright’s Power Loom (1785). A cottage industry in cotton soon became a global empire and Britain became the world’s first developed country.
For all the faults of the market, it has been a wonderful engine of material progress — not just the gaudy ostentation — but important things such as vaccinations, bountiful harvests, secure homes furnished with all the life-enhancing benefits of three industrial revolutions. Air travel, household appliances, mobile internet, and the sharing economy. John Maynard Keynes knew this very well when he correctly predicted that living standards would be over four times higher in 2030 than when he wrote his paper on the ‘Economics Possibilities for Our Grandchildren’ in 1930.
While it would be wrong to suggest that all of these benefits are the sole consequence of ‘the market’, it is a market system which permits capital to accumulate and allows governments to provide infrastructure and public services that have underpinned the developments of the last two centuries. The institutions of capitalism — rule of law, private property and decentralisation — have coincided with the decline of totalitarian regimes around the world.
It’s important to place capitalism into an historical perspective for two reasons. Firstly, because most people believe global poverty is rising. In one of a series of questions for a recent TED talk, statistician Hans Rosling asked his audience about the development of extreme poverty in the last 20 years. Two-thirds of US adults thought poverty had doubled, 29 per cent believed it had remained the same, while just 5 per cent knew better.
Secondly, those who disagree with the system of capitalism invoke Marxist critiques which were much more relevant to the nineteenth century than they are today. That is not to say Karl Marx is wholly irrelevant. In the third volume of his magnum opus on Capital, he wrote the following which will resonate with many observers today:
‘On the basis of capitalist production a new swindle develops in stock enterprises with respect to wages of management, in that boards of numerous managers or directors are placed above the actual director, for whom supervision and management serve only as a pretext to plunder the stockholders and amass wealth’.
While today there is far more social mobility in advanced economies and ownership of productive assets is more broadly dispersed, support for markets is being undermined by a systematic failure to deal with some of its worst features. The price of freedom is eternal vigilance, and those who support the free enterprise system cannot afford to be complacent.
Seven years after the financial crisis, corporate wrongdoings — from bank fraud to emissions-rigging — remain in the spotlight, and large groups are losing out. Meanwhile, electorates in some countries — particularly the United States — are worried about rising inequality, stagnating incomes, the growth of unaccountable mega corporations, and the disruption caused by a new wave of automation.
But while these issues are important, they are issues of political economy rather than to do with inherent failures in the capitalist system. Corporate governance reforms can give more control to shareholders over business decisions, tax systems can be changed, and good regulations can discourage bad behaviour and promote competition. In all of these problems, we are dealing with issues of social contract and how a democratic capitalism should best work while protecting individual freedom.
Karl Marx understood the nature of capitalism deeply. He saw the joint-stock company, which underpins the market system, as ‘capitalist production in its highest development’, and he supported it because by separating ownership from management, capitalism — he believed — was in the late stages of its dialectical transition to Communism. Private companies would pool capital but screw up so badly that they’d have to be taken over by the state.
The twentieth century proved him wrong on that point. And in the twenty-first century, we have come to accept that capitalism is not about the boss class versus the peasants any more. It’s about choice, freedom within the rule of law, and personal responsibility. It remains an essential feature of a successful modern state.
We should tackle the issues that capitalism has thrown up, but not lose sight of the fact that by improving the material standard, markets and capitalism have raised the dignity of man. It was capitalism which broke down the feudal arrangements that kept the great majority of people ignorant and servile — making life in the seventeenth-century eyes of Thomas Hobbes ‘solitary, poor, nasty, brutish and short’ for almost the entire length of human history.
By Zac Tate
Deputy Editor and Co-Founder, CapX