19 March 2019

A waning power? Rainer Zitelmann on the threats to global capitalism


There are few more enthusiastic advocates for capitalism than Rainer Zitelmann.

The German is a rare creature, an academic historian who has also worked on one of Germany’s biggest newspapers and later became a successful entrepreneur, selling his property PR company in 2016.

His views on the merits of capitalism are shaped not by armchair theorising, but a mixture of historical knowledge, academic study of entrepeneurship and his own hands-on experience in the world of business.

Zitelmann’s latest book, The Power of Capitalism – his 21st – is a full-throated defence of a system he believes has led to huge improvements in people’s quality of life the world over.

When we meet in his London hotel, Zitelmann is a picture of relaxation. But his personal ebullience cannot mask a deep concern about the way the world is heading. Be it Trump’s tariffs, Corbyn’s obsession with nationalisation or his own country’s drift into statism, assaults on free enterprise are all around.

Zitelmann says the problem for free marketeers is partly generational. “Someone who is 30 can’t remember what socialism means.

“I’m 61 and I remember those days, the Soviet Union and when Germany was divided with the GDR, but for the younger generation it’s history and they don’t know about it.”

In The Power of Capitalism, Zitelmann eschews academic debate and adopts a simpler approach, contrasting countries that have adopted free-market economics with those who have gone in the other direction. Compelling examples abound – North and South Korea, East and West Germany, and China before and after Deng Xiao Ping’s reforms of 1979.

He is firm in his conviction that this kind of analysis is more persuasive than any amount of theory.

“You should teach people history. Don’t argue about theory, I don’t discuss theory with anybody.”

Young people, he says, have “this idea that socialism is a good idea but they make one mistake — they compare a theory with reality…You should compare reality with reality, not a book with reality.”

It follows that while he is a passionate advocate of free enterprise, Zitelmann says he is not wedded to any particular model of how a country should be governed.

“I criticise this leftist utopia but I have no utopia on the other side and I’m not convinced about people who say ‘this is how a pure capitalist society should be’. If I did so, people could criticise me the same way I criticise leftists.

“I’m not dogmatic, but in reality, I see no single country all over the world where we have too much free market, I see only too much state.”

And is there any public figure he sees making a compelling case for reversing that trend? His response is blunt – “No, I see no one,” before a slight backtrack – “You have some, but not enough, so I try to contribute a little bit to defend the system which I believe has done so many good things.”

Historian, journalist and entrepreneur Dr Rainer Zitelmann is one of Germny’s foremost free-marketeers

While pro-capitalists find themselves on the defensive, the other side has undoubtedly been galvanised by the widespread perception that the 2008 crash was caused by “market failure” and “greedy bankers”, something the likes of Corbyn and Bernie Sanders have been keen to play up.

Zitelmann views this as “absolutely the wrong interpretation”. He devotes a chapter of his book to setting out the ways in which the US government poured oil on the fire through a mixture of the Fed’s artificially low interest rates and successive administrations encouraging people on low incomes to take on mortgages they could not afford.

While it’s common to describe the decade since then as the aftermath of the financial crisis, Zitelmann contends that it has never really ended, but simply moved to a new phase. For him, the fact central banks have kept interest rates low means the same mistakes that led to the 2008 crisis are being repeated.

“What will happen if we have the next step of our financial crisis, that reality isn’t over, the 0 per cent interest rate of the European Central Bank, that is not over.

“Some people speak about this like it is history, but neither the euro crisis or the financial crisis is history and when we get the next step of this and I fear that people don’t understand, it’s very complicated.”

And it’s not just Western voters who risk forgetting that their prosperity is built on free enterprise. In China, the country that has arguably benefited more than any other from opening up its markets, the political elite is now turning against the very reforms which turned the country into an economic superpower.

On a recent trip Zitelmann reports being told by a party official to avoid mentioning Deng Xiaoping. Far from being held up as the saviour of the Chinese economy, the great reforming leader is now swept under the carpet by politicians who appear convinced itself that China has hit upon a new economic model.

“There’s a wrong interpretation of the success that happened in China,” Zitelmann argues. “It’s an interpretation that it’s like a third way but it’s totally wrong and the problem is Chinese politicians have started to believe in this theory themselves – but [their success] is not because of the state, it’s in spite of the state.”

In the UK the big picture arguments about what kind of country we want to live in have been largely obscured by the endless tussles over Brexit.

Although many on the free-market right are excited at the prospect of breaking from from the shackles of Brussels, Zitelmann is concerned that his own country will become more isolated.

“Brexit is very, very bad for us because for Germany it was always very important to have you, Great Britain, with the belief in free markets and capitalism.

“Now we’re alone with all these attitudes from France, Italy and the south and for people in Germany who think like me this is a big disaster because the UK was so important for us.”

Not that he blames the British electorate for deciding to sever their political ties with the continent.

“I think it’s not the fault of the British people. The German papers write every day as though the British people are extremely stupid, they are in chaos and no one understands what is going on. I have a different attitude. I think it’s the fault of the EU because there was a lot of criticism that was absolutely correct from the UK.”

He says the “big fault” was not on the British side, but among European politicians who failed to take on board criticisms and meet the UK halfway.

And Germany has enough problems as it is. In the city Zitelmann calls home, Berlin, there will soon be a referendum on whether to expropriate property from large institutional investors.

For a city that has such recent and visible signs of communist failure, this kind of policy seems scarcely credible.

“We had the state-planned economy in east Germany and the result was after reunification we had to spend 84bn euro investment in housing because it was so bad,” Zitelmann points out.

“We had all this in East Germany, why do you want to have it again? People are so emotional they don’t think about it if you give them an easy solution.”

Of perhaps more lasting significance are a series of recent reforms to the German energy market, which in Zitelmann’s eyes amount to the wholesale abandoning of price mechanisms.

“In Germany we have the strongest economy in the EU and what we are doing now is like committing suicide because first we changed our energy industry into a planned economy.

“They destroyed it with all their crazy ideas, first to stop all the nuclear power plants, then to stop all the coal power plants.”

He is most concerned though about the German car industry, which he says risks being “destroyed” by political pressure to switch to electric vehicles.

Underlying all these mistakes, in China, Germany or at the extreme end, Venezuela, is the failure to appreciate the lessons of history. Nowhere is this clearer than in the repeated insistence from leftwingers that socialism is fundamentally a noble idea which has never been tried properly.

“The big problem is that people will tell you always the ideal is good with socialism only the execution is bad,” Zitelmann muses.

“I think the most important thing is to tell people that the idea is bad and not the way it is implemented.”

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John Ashmore is Deputy Editor of CapX