Monday, September 24, 2012

Capitalism: Which Type is Best?

Last week my email exchange with "Pete" ended on his challenge that we discuss the idea "Chris is a capitalist."

Presumably "Pete" thinks that this would put me in a box and expose my hypocrisies, because it would expose me as a heartless exponent of unregulated capitalism of the sort practiced by 19th century robber barons and 21st century Bain Capital.

But "Pete" set me to thinking.  What do we mean by capitalism?

In the 19th century, when the great critiques of capitalism were published, it seems that a new force had been let loose on the world, a new way of enslaving people to the will of the powerful.  Critics proposed that the unregulated capitalism of the textile revolution and the railway revolution should be broken up and subsumed under political power, by revolutionary change or by administrative subordination.  It seemed like a good idea at the time, but it turned out that their diagnosis was wrong: capitalism soon softened up, partly from legislation and partly from the capitalists' own discovery that they could make more money from contented employees than from slave laborers.  And the critics' prognosis was wrong.  The laborers didn't get immiserated and capitalism didn't turn, according to a law of history, into socialism.

The result is that we are all capitalists now.  The Marxists propose "state capitalism," in which the entire economy is absorbed into the political sector and run like a state bureaucracy.  There is still "capital" there is still "production" there are still "consumers."  But everything is decided by the political and administrative elite.  The problem is, as Ludwig von Mises pointed out in the 1920s, that under state capitalism you can't compute prices and therefore you cannot compute profit and therefore you cannot know whether you are increasing human prosperity or diminishing it.  Actually, you don't need to find out.  State capitalism always diminishes human prosperity.

Our liberal friends propose a mixed economy in which government takes a leading role in guiding the activities of private businesses.  Conservatives and libertarians have taken to using a pejorative for this kind of capitalism: we call it "crony capitalism."  Let us instead call it "state-directed capitalism."  In state-directed capitalism the politicians and the activists merely call all the big shots while leaving the routine stuff to the capitalists.  The problem is that politicians and experts aren't very good at calling the big shots.  They back stupid ideas like solar power and wind farms and they upset the credit markets with their various attempts at easy money.  At any rate state-directed capitalism yields government-sponsored or subsidized businesses like credit banks and wind farms that only make a profit because of government subsidies and regulation.  Health care and drug development are areas completely dominated by government subsidy and regulation although nominally in the private sector.  The result is sluggish growth and big messes like Solyndra and Fannie and Freddie.

Conservatives believe in a full-on kind of capitalism.  Let us call it "Bain capitalism" after Bill Bain and Bain Capital and Mitt Romney.  You might also call it "creative destruction capitalism."  This approach owns that capitalism is inevitably a process that Joseph Schumpeter described in the 1940s as creative destruction.  We can think of it with a life-cycle metaphor.  Businesses are always being born as some young fellow comes up with a new idea and mortgages his home to start a business.  Many businesses fail in the start-up phase, but some graduate into the growth phase.  Think of Facebook in the years up to its IPO.  Think of Amazon in the late 1990s.  Companies that survive the growth phase get into the mature phase.  Think of Microsoft right now.  Then, of course, mature companies start to age and things start to go wrong.  Think of the unionized auto industry.

Under Bain capitalism the idea is to forget about the political sector calling the big shots and trying to second-guess businessmen and the future and just let the businessmen get on with it.  Let's make it easier to start a business.  Let's make it easier for growing businesses to get access to capital.  Let's make sure that mature businesses cannot game the system with their wealth and political influence to squeeze out challengers.  Let's not try to keep failing businesses in business to "save jobs."  Let's connect the ageing businesses with the Bain Capitals of the world, try to fix them, and if not, liquidate and distribute their assets to others.

For over 150 years "Bain capitalism" has been judged as heartless, for it treats workers not as human beings but as just another resource.  We conservatives and libertarians beg to differ.

We believe that the first two capitalisms, "state capitalism" and "state-directed capitalism," while advertising themselves as necessary responses to the inhumanity of capitalism, actually make things worse.  State capitalism, as practiced by Stalin and Hitler and the Castro brothers, needs no indictment.  It was, perhaps, the most inhumane way of organizing the economy ever implemented.  But state-directed capitalism is not much better.  Whatever its advertisement, state-directed capitalism is inefficient and cruel.  It privileges the agenda of politically powerful interests, and it is very slow to recognize and correct its errors and mistakes.  We have only to look at the mistakes of the political establishment in its support of "affordable housing" and the granting of mortgage credit to people that couldn't service their mortgages.  The whole thing ended up in the biggest financial meltdown since the Great Depression of the 1930s and untold misery for millions that have lost their homes and their jobs.  Green energy is another scandal, a vast hinterland of political favors and subsidies, based on very incomplete science about climate change.  It will end it tears and trillions in worthless investments.

Juergen Habermas understands modern society as divided between the systems sector and the lifeworld. The systems sector includes business and government and steering media like money and power.  We could say we regret the systematization of everything but it's a bit late for that, so we are left with the need to control the power of the systems on the principle of the limitation of all power, government power and market power.  We need to remember always that the core of lived human experience is still the "lifeworld," the face-to-face experience of communication between humans using language.

Conservatives have addressed this social dichotomy ever since Edmund Burke in the 18th century.  We want to protect and to grow and strengthen the lifeworld in associations of the "little platoons," "civil society," or the "mediating structures" between the megastructures, the systems, of business and government.  It is civil society and voluntary associations, we believe, that best addresses the basic problem of the modern age, people like steelworker Joe Soptic being thrown out of work in a business failure "through no fault of their own."

We conservatives believe that everyone should belong to familial, church, fraternal, or mutual-aid associations that are separate from the businesses we work in.  Businesses come and go, mechanical contraptions, and we should stop trying to turn them into social welfare organizations.  We should look to lifeworld associations to provide security and solidarity and human caring.

We should recognize that modern society is irretrievably divided into the systems world and the lifeworld and we can't go back.  Systems are systems and we can't make them into the lifeworld.  On the other hand the lifeworld sector means face-to-face communication.  If it isn't face-to-face, it isn't lifeworld; it is systems world.

And therein lies our basic argument with our liberal friends.  Every time you chaps propose a new government program you are shrinking the lifeworld and beefing up the systems world.  Systems world is the world of instrumental reason, and instrumental reason is all about domination, of nature and other humans.  This has been going on for 150 years, and surely it is time to realize that it is time to try something different and stop creating new bureaucratic monsters.

That's why this conservative believes in "Bain capitalism."  Don't look for compassion and caring in the systems world.  Make the systems honest, and make them fair.  But compassion and caring can only exist in the lifeworld of face-to-face communication and consensus.

It is, as the philosophers say, a category error to imagine that compassion and caring can be grown in the mechanical world of systems and steering media.

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