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IMF Book Forum: Capitalism: critics and champions

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International Monetary Fund. External Relations Dept.
Published Date:
November 2003
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There is “a remarkable recurrence of fears, laments, and condemnations” when contemporary arguments against capitalism are compared with ones stretching back over 250 years, Muller said. The most fundamental condemnation of capitalism is its championing of the pursuit of self-interest. The “idea that collective good can arise from the pursuit of self-interest is not only counterintuitive to most people but morally scandalous,” he said.

Even Voltaire’s defense of economic self-interest was grounded in his belief that it was a less dangerous pursuit than other goals, such as religious zealotry. Voltaire’s position is evident, according to Muller, in his description of the London stock exchange as “a place more respectable than many a court. You will see assembled representatives of every nation for the benefit of mankind. Here, the Jew, the Mohametan, and the Christian deal with one another as if they were of the same religion, and reserve the name ‘infidel’ for those who go bankrupt.”

The great achievement of Adam Smith’s 1776 book The Wealth of Nations, Muller said, was to show how self-interest could be channeled to achieve the collective good. Smith argued that properly structured markets would lead to universal opulence by providing competition and spurring greater productivity. Smith did not assume that markets would be naturally competitive. In fact, Muller noted, he argued that producers and merchants would try to restrain competition, internally and externally, through protectionist measures. “One leitmotif of The Wealth of Nations, then, might be called saving capitalism from the capitalists” he said.

Other laments

Muller noted two other recurring fears about capitalism. One is that the development of markets, particularly at the global level, destroys indigenous ways of producing things and the social and political structures that go with them. This argument was prominent in the work of Justus Moser, a German contemporary of Adam Smith. Moser was concerned that the development of “tastes for imported goods” was destroying the guild system in Germany as well as the underlying political structures.

The second lament is that capitalism leads to inequality of incomes. This animus against the market, Muller said, dates back to Rousseau and is a platform of today’s antiglobalization movement. But Adam Smith and other thinkers argued that, despite breeding inequality, capitalism can nevertheless be beneficial to the great mass of people. This line of argument, Muller noted, “appeals most to those of us who think that the real scandal is poverty, not inequality.”

What are antiglobalizers for?

There isn’t much of an anti-capitalist intellectual movement in university departments today, according to Ann Florini, except perhaps in literary studies and, to some degree, in sociology departments. She said the book being hailed as the new Communist Manifesto—by Michael Hardt and Antonio Negri—entitled Empire was “largely incomprehensible,” but she added that “incomprehensibility is often not sufficient to derail bad ideas.”

Today’s antiglobalizers, for the most part, are not against capitalism or even, in fact, against globalization. What they object to, Florini said, are “exactly the kinds of negative consequences of insufficiently fettered market forces that Muller talked about and that Adam Smith warned against very early on.” At the national level, she said, ways have been found of counteracting the negative effects of the capitalist system by embedding market forces within social and political contracts. Many countries now have systems in place consisting of representative national governments and civil society mechanisms that provide “reasonably effective control over the dangerous tendencies from monopoly and concentration of power against which Adam Smith warned.”

The antiglobalization movement is partly a protest against the absence of similar mechanisms at the global level, Florini said. Antiglobalizers feel that decision making at the global level consists of a few powerful countries making rules for everybody else. Moreover, the processes by which those rules are made are “so conspicuously undemocratic and unfair” that they eviscerate the legitimacy of the decisions that result. To address these grievances, she said, we need to develop effective channels for citizen voice and citizen participation at the global level. We also need to reform the governing structures of international institutions so that they are seen as more broadly legitimate. In short, she concluded, “we have to invent new ways to be vigilant about globalization in practice.”

Easy to defend, hard to love

Norberg tackled the question of why, despite its many achievements, capitalism is treated with hostility or ambivalence. Why, he asked, is capitalism “easy to defend but hard to love”? This attitude, he said, reflects at heart “people’s discomfort with a commercial culture …with the fact that the source of our wealth is the constant discarding of old methods.”

Capitalism is based on creative destruction, and destruction makes for more “gripping” newspaper and TV stories than does creation. If a factory closes somewhere, Norberg said, “no reporter says, ‘Wow, this is fantastic! In the future we will see more efficient production with fewer workers. And the people laid off from this factory will surely end up in new sectors and in new careers, as we as a society grow richer and demand new goods.’” The focus of media attention is on the lost jobs in one location rather than on the jobs created later in other locations. Likewise, “when we see imports, we see the faces of our own people losing jobs, but we cannot tell the stories, at least not with the same drama, of other lives getting better or our own lives as consumers getting better as a wider array of goods becomes available at cheaper prices.”

Norberg expressed disappointment that politicians did not “explain to people why change is good, why new technologies are good, why trade liberalization is good.” The case for markets and capitalism was generally made in a very negative way, he said. Even Margaret Thatcher defended liberalization of the U.K. economy by claiming, “There Is No Alternative.” Similarly, developing countries today claim that they are carrying out trade liberalization because of pressure from the World Trade Organization rather than because trade is in their self-interest. All of this, Norberg said, is “like threatening that if your kids don’t eat their salad or brush their teeth, a goblin will come and get them.” When politicians tell people that market reforms are being carried out under pressure rather then because the reforms are beneficial, the people will always look for an easy way out, Norberg observed.

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