Wealth of Nations May 2005

Why Does Capitalism Get Such A Bum Rap?

The idea that capitalism is the enemy of social progress calls for an impressive resistance to some large and pretty obvious facts.
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There are many kinds of anti-capitalism. The most militant variety, involving street protests and kicked- in windows, has subsided a little lately. But this was never the most important kind. A broader, milder, even cordial, discontent with capitalism saturates Western culture. It has become so familiar that it barely registers at the conscious level. But the feeling is there, and it creates the climate in which public policy is framed.

Sipping a cup of Starbucks Fair Trade Blend—the kind that guarantees growers a "living wage," while encouraging "equitable and sustainable development" (as opposed to the more normal kind of coffee, which enslaves the poor and is leading the planet to destruction)—I note that May 14 is World Fair Trade Day. Many events are planned. To mention just one: a chocolate tasting and fashion show in Olympia, Wash., which sounds like fun, as long as things do not get out of hand. Sample the goods and pick up your material on economic injustice.

The conviction that ordinary economic transactions are morally tainted—or amoral, at any rate—is not just a preoccupation of grassroots handwringers. Leading politicians of both main parties in the United States appear to think the same way, especially when it comes to worrying about the effect of surging imports on American jobs. The market is blind. The market has no feelings. The market is incompetent, or so it is argued, to make these choices.

In Europe the same is true, only more so. Now and then, its politicians become hysterical on the subject. Franz Muntefering, chairman of Germany's ruling Social Democratic Party, has just condemned foreign investors (companies that have transferred capital to the German economy) as "swarms of locusts that fall on companies, stripping them bare before moving on." There's gratitude. But the comment played well. Predictably, demands have followed for boycotts of "socially irresponsible" companies, and for curbs on top executives' pay. Watch Germany's struggling economy spring back to life once those recommendations are acted on.

Church leaders are none too keen on capitalism, either. A few days ago, one of Britain's most eminent spiritual leaders, the archbishop of Canterbury, spoke at an event to celebrate Christian Aid, a big charity, and took the opportunity to assault "naive confidence in free trade." (Question: Where, in the realm of actual politics, does one ever see "naive confidence in free trade"?) Market economics, the archbishop went on, "forces choices on vulnerable countries, whose effects may be in the short to medium term very costly indeed to a whole generation of workers, to the environment, to political stability."

On this point, Hollywood, that temple of sybarites, aligns itself with the church, noting sadly the excess and easy virtue of the capitalist model. Has there ever been a movie featuring a large corporation that does not cheat, or poison, or otherwise harm its customers and workers? The other view is better represented, and not just by Michael Moore. The irredeemably wicked corporation is the premise of countless films: Erin Brockovich, The Insider, Super Size Me, the canonical Wall Street, who knows how many? And it is the background scenery in far more. Anti-capitalism is not so much a movie genre as a universal presumption of the entertainment industry—itself, of course, a capitalist enterprise.

Indeed, the oddest thing is how many top business leaders are joining this chorus of condemnation, sometimes perhaps out of genuine belief and sometimes because it is smart tactics. Recently I researched an article on corporate social responsibility. After a spell of reading companies' annual reports, I set myself the task of finding a major public company that did not say, somewhere in its document, that it honored its broader responsibilities to the community. Surely there must be one such company that says its purpose is to make money for its owners—and leaves it at that. I'm still looking. If even the bosses are apologizing, entering pleas in mitigation, and asking for forgiveness, then obviously, there must be something to apologize for.

But what, exactly? It is as though the 20th century never happened. Capitalism has delivered hitherto-unimaginable advances in living standards across the developed world. And this is not just measured in dollars and cents. Broader social progress has been made too, again at historically unprecedented rates. Life expectancy, infant mortality, access to health care and education—regardless of which of these measures you take, capitalism has achieved stunning results.

The 20th century even went to the trouble of testing the alternative—socialism—to memorable effect. So it is hardly as if some better economic paradigm is out there waiting to be tried. The one we have has succeeded, in every way, beyond all plausible expectations. Its only rival was a correspondingly egregious failure, ethically and in material terms as well. Given all that, what sustains this steady anti-capitalist sentiment?

Partly, of course, it is that hundreds of millions of people still endure lives, often brief lives, of grinding poverty. Even so, you might think that capitalism would still be recognized—more than it is, at least—as the poor's best hope, rather than as the system that holds them back. Poverty is retreating faster than ever before in many developing countries. You can't help but notice that the countries that are opening themselves up to trade and foreign investment—in effect, to global capitalism—are advancing the fastest. China is the most conspicuous example. Is capitalism holding China back, keeping its people in poverty? Obviously, just the opposite.

The region whose plight is most desperate is Africa. Here it might seem to make more sense to blame the "global economic system" for keeping the poor in poverty. And in a sense, it is true, because rich-world trade policies do continue to discriminate, scandalously, against exports from Africa. But the plain implication of this is that Africa needs more exposure to trade with the West, not less; more capitalism, not more of some other system, whatever that may be. Increasingly, Africa's own governments are making this point themselves. They want access to Western markets. Where is the chorus of Western demands, in the name of economic justice, for rich-country markets to be thrown open to imports from the world's poor countries? You cannot hear it. It is drowned out by denunciations of sweatshop labor and "naive confidence in free trade."

In the face of the world's recent economic experience, retaining the idea that capitalism is the enemy of social progress, except for those with the power to manipulate the system to their own advantage, calls for an impressive resistance to some large and pretty obvious facts. So the puzzle remains: What is the source of this anti-capitalist sentiment?

My guess is that it is the failure to grasp an idea that was famously advanced more than two centuries ago by Adam Smith, the intellectual patron of this column: the idea of the invisible hand.

This is by no means an instantly appealing concept. After all, that capitalism works as well as it does is, in principle, utterly implausible. How can a fathomlessly complicated system of voluntary exchange, without collective deliberation, with nobody in charge, steered by nobody's good intentions—a kind of anarchy—yield social advance, as if by accident? The notion seems ridiculous. That is why Smith's insight was so remarkable. Good intentions are not required for market forces to produce socially good results. Enlightened self-interest suffices. The result will look as though it had been designed—as though guided by an invisible hand—but the reality is otherwise.

To acknowledge the power of Smith's insight is not to favor laissez-faire, though this is a very common misunderstanding (on the right as well as on the left). Smith was no advocate of laissez-faire. And to recognize the inadvertent collective power of enlightened self-interest is not to believe that "greed is good," which popular culture appears to have enshrined as the organizing principle of capitalist enterprise.

Smith, a moral philosopher, would have found that completely perplexing. Greed is an irrational passion that blinds people and leads them to ruin. It is almost the opposite of enlightened self-interest—which, among other things, is a socializing and civilizing influence, since it seeks opportunities for cooperation with others, makes people careful of their reputation for honesty and fair dealing, and so on.

Even if Smith's big idea could be stripped of those false connotations, however, people would still be reluctant to accept that a modern economy could be built without some master blueprint—or that the results might be socially beneficial even though collective good intentions had played no role in getting there. They would still be suspicious of capitalism. It is a pity, especially for the parts of the world that capitalism is leaving behind.

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Clive Crook is a senior editor of The Atlantic and a columnist for Bloomberg View. He was the Washington columnist for the Financial Times, and before that worked at The Economist for more than 20 years, including 11 years as deputy editor. Crook writes about the intersection of politics and economics. More

Crook writes about the intersection of politics and economics.

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