Imagine you are a child in a group picking strawberries with adult supervision. You are told not to eat while picking, and that the spoils will be shared evenly afterwards. Some children “cheat” by eating as they go, whereas others only pick lazily. The most efficient pickers end up the worst off, since they use more energy for no extra gain, and get to eat fewer strawberries than the cheaters.
The Swedish writer, August Strindberg, claimed that this very experience made him – after long deliberation – decide against socialism. The story is simple but it effectively sums up why socialism, no matter how worthy it sounds in theory, is a poor substitute for capitalism.
If there is no strong link between effort and reward, the incentive structure will be damaged, the total return diminished and those adding extra value to the group will be treated unfairly – and thereby demotivated.
Those who refuse to acknowledge this dynamic are arguably engaging in left-wing point-scoring, rather than truth-seeking. However, before we engage in right-wing point-scoring, we must acknowledge that capitalism unchecked will result in some market participants becoming so large and influential that they seek to both manipulate markets and buy political favours.
This too messes up incentive structures – just in different ways. Once again, it is made very hard for the most honest and hardworking people to compete fairly. And once more society loses.
So if we are genuinely trying to safeguard true capitalism, it is not enough to resist the state interventionists who are openly motivated by an anti-capitalist ideology. We must also fight the often more sneakily concealed manipulation attempts of the labour market giants. For in both cases, true capitalism is abandoned along with the hope of a truly vital society.
Capitalist abandonment always spells bad news for the upcoming small(ish) entrepreneurs who challenge the stale structures and outdated thinking of the status quo. These young challengers are the most typical architects of fresh ideas, productivity gains, consumer value, new job opportunities and boosted tax revenue. Certainly, the big established players can add value in a similar way but only if their market remains competitive. Complacency is inevitable otherwise.
Capitalism, after all, is a bearer of hope – far more so for those hoping to be able to leave the council estate than those hoping to buy yet another sports car. While not everyone can fulfil their dreams, it is better to be able to strive towards that dream, than be handicapped from the get-go by low general living standards and suffocating predictability, as is the case in command economy societies. It is certainly no coincidence that so-called capitalist (or market oriented) societies are far superior in combating poverty.
Why then, despite these massive benefits, is capitalism always under attack?
Ordinarily, the main threat would be posed by the socialists, its main threat and arch-foe. Not these days. Today capitalism might even draw strength from the poor state of socialism. Though, admittedly, attacking Team Corbyn has almost started to feel dishonourable; like kicking someone already on the ground.
But a second threat is still potent. It comes from those advocates who insist that capitalism is a Mädchen für alles – something that works for everyone. But it’s not true. The sick, elderly, disabled and children are often too vulnerable or unaware to make the consumer choices that otherwise oblige sellers to offer value for money. This explains why it is important to maintain welfare state elements within special sectors, such as social services. Otherwise the anti-capitalists will always use the capitalist shortcomings in special sectors to undermine capitalism everywhere.
A third threat to capitalism is linked to the fact that where money is produced, politicians will always emerge to claim it. For good reasons or bad. Already during the middle ages, bankers amassing substantial wealth always risked ending up chained to a wall in a damp dungeon. Why? Because their assets could be confiscated by monarchs who wanted money to fight wars or to rescue the state from budget collapse after years of financial mismanagement.
Few cared about the moneymen and many would be applauding the possibility that their debts might be forgotten and never collected. Of course, it is no longer in vogue to leave moneymen to rot in dungeons. However, there will always be politicians eager to exploit the constantly popular bad moneymen narrative. Right up to the moment they step in to claim their resources. Indeed, Jean-Luc Mélenchon, is a good illustration. The far-left presidential candidate almost made it to the second round by winning support from almost every fifth French voter. His top rate tax suggestion? 100 per cent.
We have already touched on the fourth threat to capitalism: the capitalists themselves. If small challengers do successfully transform into major players many will be keen to use their newly gained lobbying clout to rig the market against their smaller challengers. This is a major reason the labour market bigwigs across Europe typically lend their weight to the EU project. Due to the lack of decision-making transparency and voter distance, Brussels is the perfect place for anonymous deals between politicians and well-funded lobbyists. So no one should be surprised that innovation led growth, and the relative economic weight of Europe, is now in decline.
A fifth threat is the public servant urge to demand more money and a broader mandate. This public sector expansionism leads to the crowding out of the private sector, until the markets are so distorted and the public purse so underfunded that capitalism must be reintroduced to save the day. This was the case after the excess spending and monetary policies of the 1970s. It is telling (but often forgotten) that Labour leader Callaghan initiated the debt and inflation policy reversals that were to be pursued with much more vigour by Margaret Thatcher.
A sixth threat to capitalism comes when politicians and the labour market giants collude to intervene on a supposedly free market. The current housing market situation can be treated as a textbook example. Through artificially low interest rates and bailout guarantees, the degree of state intervention (and market manipulation) has for decades been breath-taking. Just as intended, mortgaged voters have been kept happy (for the time being) and the default risk has been passed on to tax payers.
Of course banks jumped at the opportunity to lend money as if there were no tomorrow. But have we forgotten what happened when the first bubble burst in 2008? Politicians blamed everything on the bankers who took it on the chin, considering the bad-mouthing a small price to pay for the bailouts, while hoping to subsequently resume the lucrative pact. And that is precisely what happened.
This was only made possible by the fact that that everyone involved asserted that the action taken was “absolutely necessary”. The alarm bells should be deafening when the link between risk taking and risk-taking responsibility is weakened. When both Treasury and regulators then explain away warnings by using the term “necessary”, you can be sure that a corporatist pact has taken hold of the system. Next to full throttle socialism, this is the gravest expression of capitalist abandonment.
But capitalism must be defended. As a concept, it is much misunderstood and often deliberately maligned by market manipulators who want to disguise the shortcomings of interventionism as the shortcomings of capitalism. They have also put much effort into portraying capitalist supporters as “nasty”, hoping to build a case for yet more interventionism.
This also explains why so many right-wing politicians, during election campaigns, typically play the game of capitalist-sceptics-of-sorts. Given that the public narrative is so twisted and confused, the politicians think they have no choice but to distance themselves from the ideology .
But it is also unfortunate. Capitalism is disrespected and misrepresented but also much needed. The problem is typically not that we have too much true capitalism, but too little. The anti-capitalists can virtue signal all they want, but nasty outcomes follow when they are in charge. That’s why it’s time to change the narrative.