In January, public relations firm Edelman published its “2020 Edelman Trust Barometer”—the results of a survey of 34,000 people in 27 countries and Hong Kong. Edelman reports that “more than half of respondents globally believe that capitalism in its current form is now doing more harm than good in the world.”
Let’s dig deeper.
One factor that makes the survey’s findings problematical is hinted at by Edelman’s own wording—specifically, “capitalism in its current form.” Nowhere in the world is genuine free-market capitalism being practiced. The current practice of “capitalism” isn’t capitalism, but shoddy counterfeits of genuine capitalism. This skews objectors’ perceptions of capitalism.
Furthermore, “capitalism” as practiced in Australia isn’t the same as in Germany or Spain or Hong Kong. It’s hard to draw any valid general conclusions about something as imprecise and protean as “capitalism” as it happens to be practiced at any given time in various parts of the world. Indeed, asking someone what he or she thinks of capitalism is similar to a Rorschach test. It gives one the opportunity to express one’s subjective feelings, beliefs, ideology, personal experiences, resentments, etc. about a topic about which there are no standardized definitions or parameters.
Let’s turn to specific complaints.
As stated in The Wall Street Journal’s report about the Edelman survey, “capitalism draws fire” due to “worries about income inequality, jobs disappearing due to automation and environmental sustainability.” Let’s examine these issues, both on their own merits and in terms of the state of those problems under the most obvious alternative to capitalism—socialism.
First, income inequality: I’ve written about income inequality before. Briefly, income inequality is unjust and objectionable when it results from the political powers rigging the system to favor certain constituents and cronies at the expense of others. Income inequality is just, perfectly normal, and healthy in free markets (i.e., true capitalism) in which the sovereign consumer determines winners and losers.
The problem of making income inequality an ideological fetish is illustrated by the opinions of egalitarians such as Thomas Piketty, the French economist who made a splash with his book, “Capital in the Twenty-First Century,” a few years ago.
There were enough economic errors in Piketty’s book to impel me to write a book in response (“Problems with Piketty: The Flaws and Fallacies in ‘Capital in the Twenty-First Century’”), but one strange perspective should be of special interest to those who fret about income inequality: Piketty praised the 1930s because statistical income inequality diminished, while he lamented the 1980s—a decade in which such inequality increased.
The ’80s, if you recall, was a decade of growing prosperity and rising standards of living for working Americans, whereas the ’30s were marred by the Great Depression, which featured increasing poverty and concomitant massive suffering.
Egalitarians may find widespread suffering a price worth paying to achieve greater statistical income equality, but I think it’s more humane to favor times when rising prosperity improves living conditions for the masses.
Prosperous periods are characterized by capitalist entrepreneurs making fortunes as they create lots of jobs and produce the goods and services that improve standards of living, and not by periods such as the Great Depression, when government intervention crippled free markets and economic activity consequently stagnated.
Under socialism, under which government control is even more pervasive than it was during our Great Depression, and consequently impoverishes a populace to a greater degree, you may think that at least everyone is economically equal, but that’s not so.
There are two classes under socialism—the elite planners and the masses of people subject to their edicts. Most people suffer from shortages, but the political elite do not. (See my colleague Paul Kengor’s article, “Bernie’s Billionaires.”) We can actually see a split in the United States today between the governing elite and the rest of us: Government employees are compensated better than their private-sector counterparts, and the wealthiest counties in the country are clustered around Washington.
Second, losing jobs to automation: First of all, automation due to technological progress is a global phenomenon, affecting socialist economies as well as relatively capitalistic economies.
Again, I’ve addressed the “threat” from automation before (see “Will Robots Make Americans Unemployable?”). This fear has been around for at least two centuries, but the good news is this: Today, there are more people working more jobs—both at home and abroad—than in any earlier era despite (and quite possibly because of) the development of countless labor-saving devices.
It’s understandable that there’s more anxiety about job loss today than in the past, since the pace of disruptive, job-shifting technological progress is faster than ever, but we must not lose sight of the fact that new jobs keep on appearing in free markets. The freest markets create the most jobs, so what the people should want is more capitalism, not less. Socialist promises of “jobs for all” drive hoped-for workers’ paradises into destitution and workers’ hells.
Third, environmental sustainability: Sadly, many children worry needlessly about environmental degradation. This is because they’re not taught important historical facts and economic principles. They’re oblivious to the dismal track record of socialist countries, which suffer far more severe pollution than capitalist countries.
In capitalist counties, the profit motive incentivizes the conservation and efficient use of scarce resources. Also, strong economic growth gets countries over the hump of the Kuznets curve where environmental conditions begin to progressively improve. The bottom line: If you care about environmental conditions (what rational person doesn’t?), then you should favor capitalism over socialism.
Corruption and Cronyism
In addition to concerns about income inequality, job loss, and environmental despoliation, the Edelman survey found that corruption has caused many people to distrust capitalism.
Indeed, corruption is a huge problem in the world today. But why blame capitalism for corruption? Corruption is a human shortcoming that appears in all societies, capitalist or socialist. In fact, under socialism, where scarcity of many consumer goods becomes the norm, corruption is rampant, as needy citizens often have to resort to bribing government employees to get what they want—even to the point of prostituting themselves. Capitalism, with its relative abundance, doesn’t eliminate corruption, but it makes it less necessary and less pervasive.
One other complaint in the Edelman survey is the common “perception … that institutions increasingly serve the interests of the few over everyone.” This is the very real and widespread problem of cronyism. It’s essential to understand, though, that cronyism is not a form or characteristic of capitalism, but the actual antithesis of capitalism.
Genuine capitalism is a private-property order in which individuals are free to exchange or not exchange with whomever they wish, and in which the government acts as an impartial economic referee instead of picking winners and losers. Socialism, by contrast, is a system in which the government essentially picks all the winners and losers. Under socialism, the state dictates who produces how much of what. Cronyism, then, is partial socialism—a practice by which the government chooses some, not all, of the winners and losers.
In sum, the Edelman survey reveals that the growing antipathy toward capitalism is tragically misplaced. It stems from faulty perceptions of what capitalism is and how it would work, if given the opportunity. Under genuine free-market capitalism, income inequality is benign and beneficial, job opportunities are maximized, environmental conditions improve, and cronyism is shunned rather than institutionalized.
If people understood what true capitalism is, and that what passes for capitalism today are shoddy, corrupted perversions of capitalism, they would realize that the world needs more capitalism, not less.
Mark Hendrickson, an economist, recently retired from the faculty of Grove City College, where he remains a fellow for economic and social policy at the Institute for Faith and Freedom.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.