Can We Blame Capitalism?

The reading public now has available a large number of books on the ills of our society and economy. Most of them use, as a focal point, something called “capitalism.” The term began life as an epithet; it was hurled by Karl Marx at what Adam Smith had dubbed “the market system.”

For example, one of the books, Capitalism Alone: The Future of the System That Rules the World (2019), claims that “capitalism” is now the only surviving economic system left in the world. The author, Branko Milanovic, is able to make this case because he subdivides his subject to suit his theme. He calls what he finds in the United States “liberal capitalism” and what he finds in places like Russia and China “autocratic capitalism,” but it’s all capitalism to him. Elsewhere in this genre, we find entities like “primitive capitalism” and “hyper-commercialized capitalism.” Next, some scholars may find, somewhere to the south of here, “latifundio capitalism.” If one has to keep qualifying and qualifying, might we not be better off eschewing the term?

We suggest that focusing on the term “capitalism” to explain what is wrong with current society isn’t useful. What if we just began with “human nature?" Evolution crafted a human species that is designed to take advantage of available opportunities. We are designed by evolution to survive, reproduce, look out for relatives (nepotism), and surround ourselves with allies whose interests have to be considered (favoritism), all of which require a certain amount of self-interest. At the same time, another part of our evolutionary legacy is our desire for fairness and equality. The inequality that the market system has produced throughout the world is bothersome to many and has fostered an entire spectrum of reformers. Focusing on human nature shows us that people are inclined to both look out for themselves and be troubled by perceived unfairness and inequality.

If we begin our analysis of the ills of society with a focus on human nature, it might look like this: In the past, allowing individuals in a country to pursue their own economic interests without much guidance or control by the State created a huge wave of prosperity and personal freedom. However, this wave was accompanied by the Industrial Revolution, which created a class of jobs that workers hated and a class of workers who didn’t share in the prosperity unless they managed to organize themselves into unions. The combination of unions and relatively unfettered corporations produced a long period of widely shared prosperity and social tranquility. More and more people were able to take advantage of opportunities.

However, this same period of prosperity also created massive technological change, which disrupted the existing social equilibrium by devaluing labor relative to capital. The most obvious change is automation, which reduced the value of labor. In addition, the technology drastically shrank the planet, placing countries much closer together than they once were. The resulting competition between producers reduced the price of goods, putting downward pressure on the wages of those who produced the goods. The resulting flow, from one country to another, of individuals seeking to improve their economic situation, also reduced the value of individual workers and the power of unions. In the meantime, the technology drastically increased the prosperity of those who either knew how to use or create it or who were otherwise in a position to profit from it. And the growing divide between the haves and have-nots was distressing for many people who sought and supported reforms.

Neither our propensity to look out for ourselves nor our desire for fairness and equality will go away if capitalism is abolished. Lenin tried to abolish it, but self-interest, nepotism, favoritism, and the resulting corruption were more pronounced in the Union of Soviet Socialist Republics than in any “capitalist” country.

Why do people blame the system rather than the creature that creates the system? Perhaps it’s human nature again. We like to think highly of ourselves, individually, nationally, and as a species, and many people genuinely deplore the exploitation of workers and the gross inequality in many places in the world. Blaming “capitalism” makes these people feel better about themselves. But we think it would be more useful to think of ways to improve the design of whatever it is that we call our socio-economic system. Are there ways to steer the system so that it continues to offer opportunities for individuals but doesn’t leave so many people behind?