The Alternative to Capitalism

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Introduction

Many people argue today that there is no alternative to capitalism: much of the last century can be seen as a conflict between capitalism and communism, and capitalism won.  History is no longer going anywhere (or seen to be going anywhere) because we have arrived at the end point - as Fukuyama's famously misleading title ('The End of History') indicates.  In any case, very few people today would argue that communism is a viable alternative.

But questions remain.  There are two questions I frequently ask; and most people seem to be annoyed by one of them, or the other.

  • If capitalism is the answer, why is the world falling apart?
  • If capitalism is not the answer, what is the alternative?

If Capitalism is the Answer

Most Western countries place a great deal of faith in the pursuit of profit operating in a free market, and it's easy to see why.  People are living longer and healthier lives; they are more comfortable and have more opportunities than ever before in history, and much of this progress can be directly attributed to capitalism.

But, almost everywhere we look, it seems that the world is falling apart.  Almost all the problems we face - global climate change, chemical and plastic pollution, the destruction of the rainforest - can be directly attributed to capitalism and its singleminded pursuit of profit.  And most of the remaining problems can be indirectly linked - wars, for example: people have always fought one another, but there is much evidence that the arms manufacturers and suppliers of other military equipment have a significant influence on governments' decisions to go to war.  There seems little dispute that the capitalist pursuit of profit is driving the destruction of our planet and increasing social inequality.

If Capitalism is Not the Answer

There are many left-wing people willing to describe themselves as 'anti-capitalist', and it's easy to see why: given the damage which capitalism inflicts, it seems obvious to them that capitalism must be replaced - as quickly as possible.  What they are not saying is what they would replace it with.

There are numerous models of social organization which don't require a market to function - but none of them attempt anything nearly as difficult as running a country.  Various communist countries attempted to allocate resources on the basis of a rational, centralized plan, and every one completely failed: the job is far too complex, and circumstances vary far too much for a single policy to work well everywhere.  Markets can be flexible and responsive to need, in a way that a centralized bureaucracy will (in all probability) never be.

So What is the Answer?

Capitalism cannot be the answer, because capitalism is not a thing.  That is, capitalism is not a single thing or a single idea: it is a term used to describe a wide variety of ideas and realities on the ground, and many of those realities are incompatible with many of those ideas.  There are many different ways to understand capitalism, and many ways to implement it.

Many people are happy to celebrate and promote the 'free market', but there is no such thing as a free market.  Every market exists precisely because many constraints are imposed.  Goods and/or services are exchanged for money.  Other constraints depend on the rules and law in effect: you generally can't just change your mind and get your money or goods back; what can be sold; what counts as legal currency; what you sell must match, within certain limits, what you advertise - most obviously, weights and measures must conform to agreed standards; items sold for human consumption must not contain harmful substances; and so on.  Much of it is considered common sense, but the precise details vary from one country to another - so, in the UK, when you take out many kinds of loan, you have a cooling off period in which you can change your mind.

The rules which apply to a market will inevitably change over time, partly because circumstances change, and partly because one group or another will feel that the rules are weighted against them - as we have seen recently in the conflict between landlords and tenants.  People frequently disagree about what the rules which govern the market should say.

Capitalism may not be 'the' answer, but it seems fairly obvious that, depending on what you want to achieve, some forms of capitalism will be better able to deliver that goal than other forms.  As the old saying goes, money is a good servant but a bad master, and the same can be said of capitalism: it should serve people; they should not be forced to conform to the 'needs' of the market.

Adam Smith, the "father of economics", believed that the market should operate within a moral framework which cared about the wellbeing of the people involved - but many people today argue instead that economists and politicians should keep away from making moral choices, and leave those to the individuals concerned.  This leaves the market to concentrate only on material and financial concerns, with the results we see today.

Moral concerns - caring for people and the planet - must be the responsibility of politicians as they set the laws which govern our markets, and of economists as they measure the activity and success of the markets.  It is hard to get people to agree what the moral principles ought to be, but that alternative is to resign ourselves to working within a system which is destroying the planet, knowing that what we are corporately doing is wrong, but defending our individual right to make as much money as we can.

And this means that we, the electorate and the shareholders, must demand that those who shape the market get their priorities right, and require that they put morals above profits.  If we fail to recognize that caring for people and the planet is a higher priority than making money, then we will soon have no market and no planet.

 

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