Capitalism Realised, Not Idealised


In an article written for Rapport titled “Our Problem? Too little rather than too much capitalism” Professor Johan Fourie, an economics professor at Stellenbosch University, provided reasons as to why he believes we need “more capitalism”, and that humanities students are taught to be biased towards Marxism. A major critique that Fourie had with his recent engagement with journalism students was the opinion offered that capitalism deprives people of freedoms and involves people being exploited. Perhaps this was because Fourie was appealing to an idealised capitalism, while students were engaging with its contemporary form. Neither group is incorrect. BY LUKE WALTHAM. 

As pointed to in his article, it is undoubtedly true that free markets contributed in very important ways to the declining global share of people living in extreme poverty over the last 200 years. However, laying the achievement of declining levels of extreme poverty solely at the feet of free-market capitalism neglects the role of government, particularly with regards to its increased potential to collect revenues and redistribute them to the worst-off in society. It is also true that capitalism is, and will most probably persist as the dominant economic system in contemporary society for the foreseeable future. Especially owing to recent history that has shown capitalism to outperform (and sometimes undermine) competing systems, because it “works”. Except when it doesn’t. 

Fourie is correct to criticise contemporary socialist systems. Surely we should be critical of all systems that exist, including capitalism? However, it seems that Fourie conflates seeing and voicing concerns with capitalism with not understanding it. As Bloomberg columnist Noah Smith recently wrote, “When even leading economists [Raghuram Rajan, current Governor of the Reserve Bank of India, and Paul Collier of Oxford University] are questioning the very idea of capitalism, you know the system is in trouble.” 

Fundamental to our critique of systems are the definitions we adopt. The definition of capitalism proffered by Fourie to journalism students – “the ability to choose what one produces and what one consumes. It is freedom: the restriction of an authority’s power to dictate where we must live, what we must eat, what job we must do and who we have to know” – is one that is biased towards an idealised Free-Market Capitalism. Although it is true that capitalism avails people with the freedom to choose what to produce and consume, it is important to note that the ability to do this requires not only the availability of opportunities, but also access to opportunities, where differences in the latter rely intimately on the distribution of resources, power and status (social positioning). That Fourie has opted for the phrasing “ability to choose” recognises choice as a capacity with prerequisites. In an idealistic world, it would be possible for anyone to have this ability to choose and determine what to produce and consume. However, in a society plagued by inequality, such as South Africa, what is possible comes under serious constraints that are related to your position in society. 

This definition also omits the role of the private ownership of production and the driving interest of profit. A basic, dictionary definition of capitalism reads: “[an] economic system in which the means of production are privately or corporately owned, and development occurs through the accumulation and reinvestment of profits gained in a free market.” By extension, a capitalist is a person who uses their wealth to invest in industry for profit in accordance with the principles of competition and freedom of private decision. The dynamic economic system that emerges from exchange (as opposed to reciprocity and redistribution) under capitalism (as opposed to traditionalism and modern socialism) operates on the profit motive. It is the belief that mutually beneficial, voluntary exchange, free of government intervention in markets will not only guarantee economic freedom and innovation, but also political and social freedom for all people. Failing to provide a definition that includes notions of private ownership of industry and profit is, perhaps, an attempt to make capitalism seem more attractive. Despite the detrimental, often disregarded, or wilfully ignored consequences.

Returning to the two critiques of capitalism offered by the journalism students – exploitation and lack of freedoms – the definition of exploitation is “to use another person’s vulnerability for one’s own benefit.” The unbridled capitalism of the 1800s and early 1900s in Western civilisations was infamously exploitative. Workers’ rights were near to non-existent, and the oppression and enslavement of black people, as well as the labour coercion that emerged soon after, was a driving factor to fulfil the demands and wishes of the rich, white capitalists during the colonial, imperialist era. If we look at apartheid South Africa, it is hard to deny that racial oppression and dictatorship was not rooted in the creation, regulation and distribution of cheap, black labour. Whether or not this was the cause of higher economic growth during the early 20th century has been contested. There is also the argument that apartheid’s long-term incompatibility with capitalism led to its eventual demise. 

It is also important to consider the definition of freedom as “freedom from” (negative) as opposed to “freedom to” (positive). Framing economic freedoms as “freedoms from” necessarily depicts states as the primary (or even sole) source of coercion, forgetting the coercive power of markets and private individuals. If framed positively, individuals’ freedoms compete, which often means that tough choices have to be made. For example, giving someone freedom of speech (a positive freedom) often results in the removal of someone else’s freedom of peace.  Both kinds of freedom imply that, because people have a say in the decisions that affect their lives, and the lives of others, freedoms should be exercised responsibly and discussed collectively. 

The proviso underlying capitalism that requires every transaction to be strictly voluntary is the freedom not to enter into any exchange at all, not the freedom not to enter into a particular exchange; as the saying goes “the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.” Robert Heilbroner elaborates in Behind the Veil of Economics, “The social power of capital is of a different kind… The capitalist may deny others access to his resources, but he may not force them to work with him. Clearly, such power requires circumstances that make the withholding of access of critical consequence.” Whilst critiques of Marxism only engage with authoritarian Marxist states, they often forget that capitalist states are often run and influenced by an elite of wealthy capitalists. As suggested by Domhoff’s results, in most capitalist regimes “power is based on ownership of the means of production”, and the majority of us (South Africans included) do not control the means of production. 

If you cannot see capitalism leading to exploitation in your immediate surroundings, this is not evidence that it doesn’t exist. As is often the case, it has been outsourced to some less regulated, still developing nation. For example, there is no such thing as an ethical smartphone. Similarly, experiences of unconstrained opportunities (and the ability to exercise choice in response to those opportunities) should not be generalisable, and do not mean that structural barriers are a myth. As neatly summarised by Joyce Appleby, Lynn Hunt, and Margaret Jacob in their book Telling the Truth about History, “… the social and compulsory aspects of capitalism slip out of sight and out of mind. . .  Far from being natural, the cues for market participation are given through complicated social codes. Indeed, the illusion that compliance in the dominant economic system is voluntary is itself an amazing cultural artifact.”

From the perspective of historians and political scientists, capitalism can exist in states that are not politically or socially free. Fascist Italy was fundamentally capitalist, and yet people were still oppressed by the authoritarian regime. Czarist Russia itself had an oppressive, dehumanising capitalist system which led to the Bolshevik Revolution. In Brazil, the military dictatorship promised “economic prosperity” by prioritising a capitalist system, whilst depriving its people of freedoms and civil rights. Even in democratic capitalist states, we see how there will inevitably be “losers”, and the mostly likely winners will be the 1% of the population who accumulate and hoard exuberant amounts of wealth. 

When presented with examples of modern socialist states in Europe, currently the most successful in terms of quality of life and general success, Fourie states that the “gears” often fail. Both Marx and Engels agree that capitalism is an economic system that will exist for a period of time before the stages of post-capitalism, socialism, and Marxism can take place. Furthermore, Fourie’s argument of “socialist” Sweden predominantly using private schools does not hold much weight when there are democratic socialist states such as Rwanda where private schools have closed due to the success of their public counterparts. 

Possibly the most crucial conversation that needs to take place is capitalism’s lack of sustainability for our world. When every society in the world aims at economic growth, and encourages the endless accumulation of wealth, we are building a culture of “impossible, futile, self-defeating enterprise” that diminishes our natural resources and degrades our environment through unchecked consumerism and materialism, both by-products of capitalism. China and the USA’s top capitalists have been preventing their governments from signing and agreeing to deals that will support eco-friendly policies. Their rationale for this is that it will become more difficult for them to make high profits since eco-friendly regulations will consequently add to the costs of their production. This highlights the significant truth in longtime investor Jeremy Grantham’s words delivered last year at the Morningstar Investment Conference, “We deforest the land, we degrade our soils, we pollute and overuse our water… and we do it all off the balance sheet… capitalism and mainstream economics simply cannot deal with these problems.” Furthermore, evidence points to there being no trade-off between economic growth and pollution-reduction, but that it “won’t happen through markets alone.”

The argument in favour of “more capitalism” is based on the fact that no society has ever really experienced capitalism in its ideal form. The one that, at its core, extends equal rights to all individuals to own capital and capital goods, the ability to manage and dispose of these however they see fit, and to pursue their own wants and needs, which may or may not be profit maximisation. This is very similar to Fourie’s definition. And, as pointed out by Noam Chomsky, is “a bit of a myth”. 

The capitalist societies of today are better described by a myriad of modifiers such as State Capitalism, Corporate Capitalism, Crony Capitalism, and Welfare Capitalism. Behind each of these is a difference in interests, the driving force behind the actions of individuals and groups of individuals. The plurality of interests (e.g. political, economics, legal etc) implies that interests (of the same or different type) interact in ways that can reinforce, block or counterbalance each other. Unfortunately, as pointed out by Swedish sociologist Richard Swedberg, the field of economics has largely failed to unite interests – and not just the economic ones – with social relations, where the latter has been the preoccupation of sociologists. There is also, then, the need to recognise that social actions are themselves driven by interest. None of the theories of capitalism sufficiently take the social dimension of production, distribution, consumption and profit-making into account. 

Swedberg goes on to point out that, outside of the economic machinery, there are the factors of law, politics and culture to consider, all fundamental to the realisation of the mythological capitalism. For example, an economy in which individual well-being is pursued thrives on peace, for which law is essential. Limiting or preventing the consolidation of control over the means of production, or the discrimination of minorities in the labour market, can also be applied through law. The role of politics is more complex. Even when there is no public control over the means of production, no modern capitalist state responsible for (at a minimum) the funding of an education and health system can exist without its own economic resources seized from what has been produced, and could have gone to consumption or profit. The capitalist state also steers and influences the economy through regulation and fiscal, monetary and industrial policy, all of which can be used to speed up and slow down the economy.

Finally, and probably the most difficult of topics for economists, is culture. Value and sense-making can be applied to all economic phenomena. One interesting case is that of South Korea, one of the darling nations of modern capitalism (if economic development is measured in height, and it often is, then South Koreans stand head and shoulders above the rest). Kim Seong-kon, a professor emeritus of English at Seoul National University, points out that “[South Koreans] adopt capitalism for our economic development, but strive for socialist welfare and demand equal distribution of wealth.” In a survey of more than 2 000 South Koreans aged 20 to 34 conducted by the Korean Presidential Committee for National Cohesion in 2014, more than half were in favour of a “de-growth” future; that is, one with no or even negative economic growth. 

Yes, we would agree that “the way we talk about capitalism matters”. As too does the way we study capitalism. And this would be assisted by not only entreating greater diversity of thought in the education of humanities students, but in the education of commerce students as well. It also means that, in order to advance academic pluralism amongst our students, we should not appeal to the use of undermining stereotypes about them, or the departments/faculties they come from. 

Luke Waltham is a 3rd year BA Law student at Stellenbosch University and is a freelance writer and human rights activist. The author would like to thank Dr Debra Shepherd for providing advice and academic guidance for the piece.

The views expressed in this article are the author’s own and do not necessarily reflect the editorial policies of The Daily Vox.

Featured image by Alisdare Hickson/Flickr