Of Capitalism, Socialism and Democracy

Capitalism, Socialism and Democracy are three of the defining ideas of the modern era. They are so deeply entrenched in contemporary consciousness that it is sometimes difficult to comprehend that they have been with us a little more than 200 years.

Joseph Schumpeter in his eponymous tome does a masterly job of assessing these ideas during a time of unimaginable turbulence in world history. The Second World War, The Great Depression and the rise of Marxist Leninism had so shaken the intricate lattice that had delicately underscored Western Civilization that by the time of his authorship of the book in 1941, these three pillars all hung precariously, with no certainty as to which would prevail. 

As a Fabian Socialist, Schumpeter criticizes Marx sharply, derisively likening him to a prophet. This is somewhat disingenuous, particularly as in the final analysis he comes to concur with the Marxian idea of the “inevitability” of socialism, even if through different means.  Herein lies the necessary convergence of Marxian and Fabian Socialism. 

The two only diverge in the means of achieving what is otherwise a commonly shared view of the desirable end.  The former advances the cause of utopian society by expropriating property through raw coercion while the latter uses the subtler form of tax law, underpinned by the not so subtle threat of imprisonment. In 2014 the jury is still out as to the supposed inevitability of socialism.

In reading this book I found myself reflecting on my own views. Despite my serious misgivings with contemporary Capitalism, I find it difficult to agree with his conclusion. Socialism conflicts irreconcilably from what seems to be the natural order of the world. I simply cannot accept what is the unavoidable violation of the fundamental principle of the sacrosanctity of individual choice that the socialist utopian society necessarily implies.

Though I can scarcely be considered a Libertarian, to me the idea of choice and liberty are inviolably intertwined with being a human being. I also think history is on my side in that societies generally prosper much more when individuals are free to exercise their choice. Pragmatism aside, it is the inherent justice attached to freedom of choice that accounts for the cry for freedom, the echo of which can be heard reverberating across the corridors of human existence.

The individual’s freedom to choose is indissoluble from the process of individual maturation and by extension that of societies.  This is because exercising choice allows individuals to develop as they test their beliefs and ideas in a harsh world with no ideologically biases. Personal growth thus occurs even if through the proverbial school of hard knocks for those who choose to adapt themselves to reality. The reign of the freedom of individual choice lends itself to the development of self-governed and empowered citizens without which orderly and cohesive societies can only remain a chimera.

This differs markedly to socialism, where the government takes it upon itself to supervise individual economic decisions, thus robbing the individual of the invaluable wisdom offered by the process of learning from mistakes.  This usually culminates at best in the economically untenable "nanny state" or at worst totalitarianism in its various guises.

The irony of the welfare state is that it ultimately only serves to empower the state while disempowering the very "masses" it purports to help. It achieves this by fostering the pernicious mindset that places the primary responsibility for personal economic welfare on the hands of another, in this case the state.

The sanctity of individual choice is the same reason that I agree with the intrinsic logic behind democracy, which seeks to find a consensus of preferences of those whom individuals would prefer to be governed by. Modern democracy has flaws but its nobility consists in its attempt to champion individual choice. I say this even as I am aware of the frustrating inefficiencies of political gridlock that have hamstrung the effective functioning of the US Congress. 

The necessity of reform in the US political system, however, should not be misconstrued as conceding to the idea of governance by the people for the people as fundamentally flawed. Reform must be pursued to the extent of ensuring that the intricate system of necessary checks and balances does not undermine the primary purpose of government, which is to govern.

I do not think there is necessity for a new socio-economic ideology.  Only significant structural improvements to the status quo. Capitalism simply needs serious realigning with its putative ideal of the free market.  It must respond to the credible claim that it has come to be free only by name.

The rising spectre of inequality has emerged as a formidable threat to the sustainability of the free market.  There are plausible reasons to believe that injustice accounts for this phenomenon more than natural differentials in human talent. Many have thus come to associate the free market with a system that advances only the interests of the rich and powerful.

Perhaps a distinction is necessary between the free market and Capitalism. The latter referring to the freedom and ability of individuals to participate in enterprises of their choice while the latter implies the preponderance of those with Capital, in other words the dictatorship of economic insiders.

It is a reasonable proposition that individuals and communities should never be denied the expression of that primal impulse to proceed unhindered with the business of pursuing their dreams and exercising their multifarious talents and convictions as they see fit. With as little interference from the state as possible.  This is the idea that was foundational to the formation of the United States of America and central to its emergence as a global political and economic powerhouse. It is an idea worth preserving.

The necessity for collective governance, however, is in dealing with injustice, a ubiquitous feature of social interaction from time immemorial.  There is nothing more corrosive to the tender chords of any social contract than the unchallenged reign of injustice. It is for this reason that dealing with injustice is the raison d'etre of the state.  

Perhaps there is some irony in the fact that the free market is best safe-guarded by effective public governance that is committed to socio-economic justice. Governance that not only underwrites effective socio-economic infrastructure and public institutions but one that acts as a deterrent to the inevitable attempts by powerful economic players from undermining new economic entrants, thus turning the free market into a perilous zero-sum-game.  

This necessarily implies dealing with the issue of externalities, which is also a matter of justice. Private benefits do not always match public costs in contemporary Capitalist societies.  The recent financial crisis is a case in point, where the generous private gains of bankers from their speculative dabblings in high risk derivative instruments, were patently asymmetrical with the costs that were eventually borne by society for their reckless actions. Collective leadership has the crucial responsibility of ensuring that private benefits are effectively balanced with public costs.

The cause of socio-economic justice requires the government to also play a leading role in establishing and maintaining the highest standards of economic (broadband, roads etc.) and social infrastructure (healthcare, education etc.).  The monopolisation and the inaccessibility of which can only accentuate gross societal inequalities that can only undermine social stability and ultimately the sustainability of a harmonious social order.

Every new generation should have a fair chance of success regardless of the socio-economic status of its forbears. In the context of a pervasively fractured and fracturing filial social safety net and the enduring impact of historical injustice, I can think of few better ways of ensuring this than the availability and accessibility to high quality public education that prepares citizens for the demands and opportunities of the modern economy. The high cost is justifiable in view of the significantly higher socio-economic costs of the economic exclusion of vast numbers of youths whose energy must otherwise find an outlet at a potentially unbearable price for the rest of society.

Capitalism’s battle with Fabian socialism continues to rage, with the end as yet nowhere in sight.  The fall of the Berlin wall came with the global dispersion of the ideas of freedom of choice, speech, trade and movement. Europe continued in its typical characterisation by the difficult truce between the two ideologies, with the two hundred year old roots of Fabian socialism deeply entrenched. The US is perhaps where the battle is at its fiercest and it continues unabated, its brutality matched only by its capacity to polarise.

The global consensus post the fall of Berlin, which has been skewed notably towards the free market, came with the fruits of unprecedented and welcome economic growth. Nevertheless, all across the world fissures are beginning to manifest in a way that can no longer be ignored, mostly in the form of grossly destabilising and yawning socio-economic disparities.

I want to be clear about my conviction that there is nothing inevitable about the global triumph of Socialism as long as freedom remains the abiding cry of the human heart.  I submit that this is nowhere better safe-guarded than in a free market economic system.  If Socialism emerges triumphant over Capitalism, it will not be due to its logical or moral superiority. It is neither of these things. It would certainly not be a confirmation of the Hegelian notion of historical determinism.  What I fear can ultimately account for its capitulation is the tragic short-sightedness of the economic insiders of today, who fail to realize that enabling wider economic participation is in fact their most rational choice in ensuring the triumph of their own long-term interests and values.