Elsewhere on ThoughtLeader, Bert Olivier, an academic of the philosophical persuasion, rails against those who defend “the unforgiveable practices of capitalism”. He leans heavily on a polemic known as The Corporation, a documentary (and book) by Joel Bakan on which I’ve written before.
There’s so much to dispute in his post and the comments, I hardly know where to start. As one of the people who frequently offers a defence for the practices of capitalism (most recently here), I’ll make a few general points in rebuttal, though. I’ll refrain from cheap shots about the left-wing utopia from which most of us graduate (or drop out), thus to grow up and discover the real world. There is neat irony, however, in how our academic friend’s comrade in anti-capitalism, above, portrays himself. But enough ad humorem attacks.
Let’s begin by drawing some clear distinctions. Communism and capitalism aren’t just two systems among many. They are logical opposites, and are the only ways we know of organising production and consumption. One can either presume production and consumption are determined individually, or collectively. Collectivism presumes society (as expressed by the state) owns and organises both the production and consumption of its members. Capitalism supposes instead that individuals have the right to use and dispose of the fruits of their own labour as they see fit, without being constrained by any law other than those against infringing the same rights of others.
There are bastardisations of the concept, which is why “free-market capitalism” often needs to be spelt out. State-capitalism, for example, is merely a form of collective organisation. Socialism and communism are both collectivist in nature. The difference between them is a matter of degree, not nature. Any degree of socialism detracts from the general prosperity and must be enforced against the will of citizens. Any control of some parts of the economy, in order to be effective, eventually requires the control of more parts. In extremis, this means the logical conclusion of socialism is communist totalitarianism. Stalin wasn’t a perversion of communism. He was its logical culmination.
Limited socialist principles can appear to work, for a while, in rich countries, just like a rich individual can use his savings for a while without appearing to work for his lifestyle. It is no surprise that the well-intentioned New Deal culminated in the confiscatory taxes and economic malaise of the 1970s, and that a return to free market principles cured this malaise. Western Europe, too, became wealthy thanks to free enterprise and free trade. Poverty declined dramatically, and a large middle class was established. Once wealthy, it appeared to be able to afford a measure of socialism, but a few decades later, it is discovering that its savings are depleted, that not enough new wealth is being created. There is a price to pay for this well-intentioned idealism, and even rich countries find they cannot afford it forever. Unlike European economies, truly free markets need not fear immigration. Socialist markets, however, cannot afford to support even their own people, let alone people whose past production has not been decocted into the common pot. In poor countries, socialism has not offered a remedy for poverty either. It merely keeps the people mired in poverty — and that’s before accounting for the deleterious effects of tyranny or corruption.
The corporation doesn’t rule anyone. They can only profit if they offer things people are prepared to buy, and go to extreme lengths to do so. Do you really believe they determine what we eat, what we watch, what we wear, where we work, and what we do? Would you have more or less choice if you were limited to your own production and barter trade with your neighbours? Thanks to the corporation, we now have a vast array of food, mundane and exotic, on offer, at real prices (relative to our income) that our parents and grandparents would think fantastical. The picture alongside is one of hundreds of stores from which I can choose within five minutes of my home. Thanks to the corporation, we have a huge array of clothing available to us to suit every taste, from ordinary and practical to uber-cool and fashionable. If your needs or interests are more specialised, you probably know a store like the one below. There’s a lot you can say about golfers and golf equipment stores, but you can’t accuse them of not offering choice. And yet, not being controlled by corporations, I have never felt obliged to buy as much as a golf ball.
Corporations determine what we watch and where we work? Whether you sit in front of the TV all day is your problem, but don’t blame the people who create the thousands of different shows for different tastes broadcast on hundreds of different channels. If none of that extraordinary choice satisfies you, you can still read a book, you know.
Unlike our parents and grandparents, who were employed for life on the same boring corporate ladder, or our great-grandparents who were stuck on the same farm or village all their lives and did the work their fathers did, the modern professional workforce job-hops every few years. Many work for themselves, from home, doing things that companies don’t think worth doing. You’re saying people do this because they have less choice where to work and what to do than they used to have?
Even if companies are monopolies, people have choices, to buy or not to buy, to spend or save, to buy here or buy there. Only by serving the needs of customers can corporations profit. Therefore, corporations profit only to the degree in which they serve the public good.
When talking about monopolies, however, it is important to distinguish between those that are established or protected by law, and those that arise naturally. The latter simply reap the fruits of being better than competitors at providing a particular product or service, and are always vulnerable, should they abuse their position, to the emergence of new competitors with new ideas and better ways of doing things. Their power is restricted by the choice consumers have of buying their products or doing without them, as well as by the possibility for competition to arise — i.e. their power is restricted by the market, just as it would be if they were less powerful competitors.
A monopoly’s power becomes unrestricted when it is protected by law. For example, in South Africa, new cellular operators cannot emerge, rendering the three current “competitors” a cartel. To use an example that isn’t likely to be clouded by “essential service” emotion, the same goes for casinos. They are governed not only by licence conditions, but by a limit on the actual number of licences in issue. Hence the lack of choice, the lack of variety, and the uncompetitive house rules.
It is true that rich countries maintain some subsidies or trade barriers. This is not free-market capitalism. This is just as evil as the subsidies or trade barriers maintained by developing countries. The latter are, in fact, much higher, so focusing on farm protectionism in Japan or Europe, for example, is largely a red herring. In any case, no matter whether the rich countries do the right thing — from which their own consumers would benefit — the developing world could gain a great deal of the potential benefits by dropping trade barriers unilaterally. In fact, if they do so, but the rich world doesn’t, the developing world will become more prosperous more rapidly, and there is every chance that they will eventually overtake rich countries — especially those like Europe, where the socialist streak runs deep and trade barriers are relatively high.
On corporate abuses: how many people bought GM’s pickups after the media reported on the fact that they exploded? Its failure to care about the welfare of its customers had a massive impact on the company and its profitability, and on the industry in general. The same goes for other corporate abuses. First, they are covered by laws against theft and fraud — laws which apply to all of us. Second, they open a company to potentially crippling civil liabilities. Third, they can harm the reputation of a company gravely; many have gone bankrupt after the public’s trust was destroyed by a major disaster or consumer safety scandal. Yes, corporate social responsibility is cynical, in some way. It is designed to convince customers that the company is serving them well and deserves their patronage more than a competitor does. I can’t see how this dynamic is a bad thing. Or did you want to start legislating the moral motives for people’s actions?
On subjecting corporations to the state, doesn’t the state serve its citizens, and exist at the pleasure of the people? And isn’t a corporation merely a voluntary association of citizens designed to pool resources and better divide labour, so the whole becomes more productive than the parts? Why, then, if the state is to be subject to the will of the people, advocate that certain groups of people should be subject to the control and regulation of the state (beyond ordinary laws against murder, theft and fraud)? This is philosophically inconsistent with a belief in the freedom of individuals, and a democratically elected state with constitutionally limited power, established by citizens to uphold laws that protect common rights and liberties.
Undoubtedly, some people do not act legally, or charitably, or morally. But this doesn’t change when you place them in a state bureaucracy with power over citizens. As long as such actions fall outside the boundaries of limited and justly applied law under which everyone’s rights are protected from infringement by another, individual self-interest pursued through free association and voluntary choice remains the best way to organise production in society. If you demand to see why, to quote Christopher Wren’s epitaph, look around you.
Beyond the ties that bind us all — to respect the person and property rights of others — what justification is there for wishing to tie down the capitalist Gulliver? What will be the consequences, unintended or otherwise? Fewer choices? Lost wealth creation? Fewer jobs? Less innovation? Forfeit poverty alleviation? I contend that there is no justification, except that Gulliver is big and free and independent. This makes the Lilliputians afraid of him. That such an instinctive, emotional response is natural makes it no less irrational.
(First published on my own blog.)
@ Ivo
Thanks
I see the financial sector as being the most important pillar in the capitalist system. My jitters are a function of the symbiotic relationaship that exits accross the global financial network, of which Freddie and Fannie are a part. If the global financial system fails what happens to capitalism (thats rhetorical).
I sincerely hope that you are right and that my jitters are without foundation.
I am going to archive this and look at it again one year hence
Ivo
So what about BEE and AA. They totally distort the picture – especially in relation to tenders and procurement?
@ Lyndall Beddy: They do. Whether that’s justifiable or not, given exceptional circumstances, is another debate. Some believe so, and that may well be a defensible position. I am, however on record saying that although BEE was a justifiable temporary remedial policy, many of its goals have been achieved, and the unintended costs are beginning to outweight the incremental benefits, so it is time to scrap this policy and permit the more equitable and higher growth of an unconstrained market take over.
@ Anton Kleinschmidt: Don’t get me wrong, I’m deeply concerned about the global economy. Though I think underlying fundamentals remain strong, I think we’re in for a very rough ride in the next few years. But I attribute economy-wide booms and busts such as these not to the vicissitudes of free market capitalism, but to interference with it. In particular, to the policy of price controls for credit, via central banks. The purpose of central banking — and the associated laws that only the government can establish a currency, determine its value and enforce its use with legal tender clauses — is to be able to increase money supply as a matter of policy, to inflate away government debt. Nevermind for the moment that this is essentially an invisible and undemocratic tax on citizens to which they didn’t knowingly agree. Whether or not there is merit in permitting governments this regressive stealth tax, the more serious problem with this policy is that like any price controls, the central bank interest rate causes surplusses and shortages, which means capital is at times too cheap and at other times too expensive, which causes misallocated capital, which translates into economy-wide boom and bust cycles. The cause is the legal monopoly and government mandate of central banks, not the capitalist system. The cause is the lack of free markets in capital, not free market capitalism. John Maynard Keynes should have been burnt at the stake for sorcery.
As usual, free market capitalism and state socialism have been defined as the only two options….It’s shameful that people so clearly educated in the fineries of Marx and the Austrian School haven’t taken the time out to research other options – specifically anarchism, which is socialism without the state.
The exceptionally well designed Participatory Economics system (www.parecon.org) is an anarchist ’3rd way’ to the false binary constructed by Ivo – it convincingly addresses the fears of statism expressed by the libertarians as well as the much more pressing concerns around unbridled corporatism expressed by anti-capitalists.
Finally, it has a much more realistic conception of ‘human nature’ (to the extent that this term has any meaning whatsoever) than capitalism, which seems to be stuck in a Cartesian + Social Darwinist model of human nature believed only by economists and not by any biologists, sociologists, anthropologists or psychologists worth their salt.
Free market fundamentalism is a kind of autism – it operates from the axioms of an internally consistent system that nonetheless bears no resemblance to the dynamisms of the real world in which it it is applied. In this sense, it is little better than unquestioned religiosity; nor does vanguardist socialism escape this fate, being the playground of sophists and narcissists.
“Under capitalism man exploits man. Under communism it’s the other way round.”
Ivo
Moeletsi Mbeki is on record as saying that BEE benefits “only those in power” and that “wealth distibution is not a solution to poverty” but can possibly make it worse.
No wonder he was on the SABC blacklist of analysts!
@ Ivo
Again…thanks
But then I read something like this…..
http://www.thestreet.com/s/cramer-the-danger-is-immense/newsanalysis/investing/10426463.html?puc=articletoparticles
Ivo,
I’m still left somewhat unfulfilled by your retort or lack thereof.
I have waited patiently for you to respond to my raising the idea of the Competition Commission in relation to the milk farmers. Is it inconvenient w.r.t. your argument?
It does seem unfair to me that your capitalist system needs to regulate the free market so that like-minded milk farmers are disallowed from joining forces against the monopolising corporates like Clover/Danone. One would think that a cooperative or private bargaining body would be a fairer model to negotiate prices with the middleman, a bit like Opec in your oil market model.
I thought you were pro FREE free market. Surely everything goes then, including allowing collective bargaining?
I’m not anti capitalism, I merely pointed out to you how it has evolved into a Frankenstein monster. Since you hijacked Bert’s post, I would like to remind you that his was about the EXCESSES of capitalism, not capitalism itself. YOU are anti socialism as an idea. Some excesses are excessive as Inspector Fowler would have put it.
Sareffriken
Has it not struck you that the ANC government price fixes all the time? Petrol, cell phone charges, electricity etc etc. All under seperate laws of parliament – outside the scope of the Competitions Commission.
Actually price fixing, done openly, legally, and with concent is a GOOD thing – like the old Maize Board, Wheat Board, Bread prices etc
Lyndall,
Yeah, and when exactly is the fabled “second network operator” going to be allowed to compete with Telkom? I wonder whether there will be behind the scenes price fixing there too! I mean, Telkom prints money and there’s nowhere else to go! I wonder then why it was necessary to privatise? Sasol, Iscor etc. were convenient ways to asset-strip the old state and redistribute wealth to struggle buddies. Mooeletsi Mbeki is very vocal on that one. That’s the most glaring difference with capitalism, you don’t have to know anything to make the deal, it’s more about WHO you know. But I’m sure you already knew that as well…
Lyndall,
The govt. does NOT fix telecom charges (whether fixed line or mobile). The operators (Telkom and Noetel for fixed line), and mobile operators for GSM voice services file their tariffs once a year with the Regulator (ICASA) for approval. The regulator however does not regulate “Value Added Services” such as voicemail or SMS, which means there is no limit to what prices may be set for these, but competition does put some sort of cap on these prices. Telecom policy is determined by the govt. (Dept. of Communications). Both DoC and govt as a whole have repeatedly called for LOWER telecom prices, especially basic voice and internet.
Likewise electricity prices are regulated by the electricity regulator, which did not grant Eskom the full increase applied for this year.
High telecom prices are retarding development in SA. A govt. response to the continued high prices of telecoms, are its plans to license a third fixed line operator, which would of course compete with Neotel and Telkom, and also the other companies offering some fixed services (Sentech, Vodacom Business, MTN Network Solutions etc.).
Lyndall
The government has enacted laws which make telephone charges and petrol prices subject to regulators and NOT TO THE COMPETITIONS BOARD which has no authority over them. Eskom as well.
So what REALLY hurts us is outside their scope.
Oldfox
On top of which the ANC removed the regulatory bodies like the wheat board, the maize board and the other 21 bodies that controlled the price of food! So food prices don’t matter – because Mbeki put Africa before South Africa and neo-liberalisation before us!
Whoa, slowly there. Why should government control the prices of anything? Since when does it have that power, or should it have that power, or is that power fair to anyone? If they price-floor it, it is unjust to consumers. If they price-cap it, it is unjust to producers.
Worse, price-floors cause surpluses, and price-caps cause shortages. So instead of expensive food, price regulation would have given us food shortages. Is that the way to put South Africans first? Just look like you’re “doing something”, no matter how counter-productive and dangerous the result?
No, what government can do is remove the restrictions and regulations and subsidies that artificially inflate prices, or artificially restrict competition. In the case of telecoms, that would involve not guessing at what the market can bear, not limiting the numbers of licences available to operators, and not “managing” market liberalisation. If I recall correctly, over 15 years, South Africa is the only country in the world (other than Burma) where telecoms prices have risen, thanks to goverment’s “management”.
In the case of food (as I’ve argued before, here, here and here) that involves removing subsidies for biofuels, ending price-fixing and taxation of inputs such as fuel, and expediting the transfer of land that lies fallow or underproduces thanks to land reform bungling.
Beyond that, the solution to high prices is high prices. This limits demand, encourages alternatives, and, most importantly in the case of something like food, signals to investors that higher production is required and promises profits. As one agriculture commentator said, “If a farmer can’t make money in this environment, he’ll never make money.”
Fix prices, and all you do is tell the farmers who are productive and do make money that their effort is better spent working for the bank. Or working for the wheat board.
This is how famines start: people who think it’s a good idea for bureaucrats to mess with prices, “in the interest of the poor”.
Ivo
When other countries subsidise – so should we. We don’t live in a vacuum.
Lyndall,
You need to study more SA history before making pronouncements and accusations!
The transition govt PRIOR to 1994 (i.e. Nats + ANC)got a large foreign loan which required that SA adhere to IMF/World Bank conditions.
If you have read my previous posts, you will know that such conditions typically includes abolition of agricultural marketing boards etc.
So the ANC is not entirely to blame for following IMF type policies. The first governor of the Reserve Bank and minister of Finance post 1994 were from the old establishment, not the ANC.
Oldfox
I know – that was when De Klerk and Mandela were forced to sell Sasol. BEFORE the Arma Deal.
AND Chris Liebenberg, our first Minister of Finance was not a politian at all- if that is what you mean by “old establishment”.
When Chris Liebenberg, who was a banker, heard that the ANC was considering nationalising banks, he asked for a meeting with Mandela. Just think what a disaster it would have been if the ANC had run the rest of our banks like they ran the Land Bank?
He met with Mandela, and explained money and banking to him. Mandela realised this was a man that knew what he, Mandela, did not know and made him Minister of Finance.
That was Mandela’s strength – tha ability to delegate to the RIGHT people, which is one of the first rules of management!
@Lyndall Beddy: You’re wrong about responding to the bad policy of other countries with bad policies of our own. The only upside of such tit-for-tat subsidising is to have a bargaining chip at global trade negotiations. But what are governments doing negotiating trade anyway?
Research shows that trade barriers in the developing world are on average much, much higher than in developed countries. It also shows that if developing countries were to unilaterally drop barriers to trade, they would gain 80% of the potential benefit from trade with other developing countries. How does it make sense to forgo this benefit in the vain hope of getting the other 20% first? By contrast, if the developing world did drop trade barriers, they’d be taking the moral high ground, and could shame the rich world into conceding.
The deadlock we’re in now, where governments are holding their people’s welfare for ransom at global confabs, is the worst of all possible worlds.
Ivo
I wrote a blog on this topic this weekend – specifying in detail. Please read it.
Ivo, much as we’re on different sides to an extent (me being more a fence-sitter leaning towards your side and you being a purist hitting off the fence-sitters with a big stick), we’re on the same side with that.
You might notice if you read other blogs that Lyndall is a fan of swinging pendulum theories. Things must be ‘solved’ by retribution, by a massive swing in the opposite direction. She did say quite a few times elsewhere that the only way to fight racism is with racism (a theory that I can’t really reconcile with her opposition to affirmative action) and similar.
I personally favour some social intervention in the form of limited welfare application (bald transfer payments if necessary) and perhaps a broader sphere of public goods than you would, but I suspect we’re in agreement when it comes to things like grain boards, etc.
A quick look, for example, at the history of actions in India leading to famine might show you the dangerous side of this. Rural farmers being pushed into starvation so that the urban poor could purchase basics at heavily subsidised rates (sound familiar? it should). And then on the other side, perhaps even pushing exports to controlled markets with higher prices and leaving people to starve at home.
Price floors do not just cause happiness and health. They cause producers to stop producing for the local market, exporters to get happy exporting if they can and rural farmers to be whipped into starvation because they have to sell at stupidly low rates in order to provide the things that their excess harvests have traditionally provided them with like clothing and school fees and farm equipment.
See, as a politician you might balance these out and come down heavily in favour of the urban poor. But I don’t think it’s my place to determine who is going to starve by my actions on that kind of scale.
Market forces aren’t perfect but if you’re going to look at any method of interference it would need to be less invasive and messy than price fixing I’d think.
Kit
I said subsidise farmers not choose which of the poor to subsidise. It worked for the Afrikaner AND the whole country got cheap food AND they were under sanctions.
Also I said “fight fire with fire”. Got a better idea? Bearing in mind the following:
“Unfortunately, Mneki’s…definition of Africaness…has been ideologically mangled …The new historiography, often more by implication than by being explicit, makes it quite clear that a Coloured, Indian or White can never be an African.”
pg 3 “The Other Side of History” by Frederik van Zyl Slabbert.
I watch unfolding events with a level of trepidation that I would not have thought possible when we were debating this 2 months ago