Two Cheers For Capitalism

A survey on … capitalism in 34 countries. In only 6 of these countries – led by Poland & the United States – do pro-capitalist attitudes dominate. (More)

That survey gave these four statements as most often endorsed re capitalism:

1. Capitalism is dominated by the rich, they set the political agenda.

2. Capitalism leads to growing inequality.

3. Capitalism promotes selfishness and greed.

4. Capitalism leads to monopolies.

The vagueness of the label “capitalism” has long put me off from debating the topic. But slowly, over decades, I’ve learned more ways to engage vague labels. So let me now describe two key ways I am “pro-capitalist”, each connected to a way that our world is substantially but not maximally “capitalist.” Re each way, I’m glad the world is as capitalist as it is, and wish it were more so.

But first let me make clear my priorities. First and foremost, I want a world that works. I want the trains to run on time, food to be tasty and nutritious, patients to not die, and all the other little details done right. And I want that to remain true into the distant future. I’m not much comforted by the fact that it takes time for a working world to decay, if we start neglecting it.

Sure, I probably care to some degree about all the other things the rest of you care about, and I am willing to sacrifice how well the world works somewhat to achieve them. But I’m much less willing than many to assume that the world will keep on working well if we mostly ignore that issue and fight over other stuff. (Technically, I highly prioritize economists’ standard concept of “efficiency” in outcomes.) 

Okay, the first key way in which our world is substantially but not maximally “capitalist” is that it allows a great many, though hardly all possible, trades. That is, trades that are less distorted than they might be by taxes, subsidizes, and regulations. (Some trades are obscured as gift exchanges, and we also prevent most but not all possible theft.) That is, our world is somewhat “free market”, and is far from maximally “regulated”. I don’t deny that there can be “market failures” so yes sometimes restraints on trade do make the world work better. But in our world today, on the margin, actual regulations of trade seem to on average make things work worse, not better. 

A world of fully free trade would not be perfect, but it would put an awful lot of important parameters roughly in the ballpark of optimality. Which is quite an achievement, given how complex and highly dimensional is our world. A simple way to understand this is via economists’ standard first model of everything: supply and demand. (See any intro econ text.) This is in fact a decent rough model of our world, and within it, parameters are roughly set well, with random limits on trade typically making things work worse. Actual limits on trade do in fact seem random enough to make this a coherent critique of our world; we’d be better off with fewer limits on trade. 

The second key way in which our world is substantially but not maximally “capitalist” is that most of our most important decisions are made by a small elite strongly selected for success when repeatedly facing strong incentives regarding a precise numerical success metric that is admirably well correlated with our world working well. Such a system seems well suited to making the world work well. (This metric would be correlated even better if we fixed more market failures and cut more random limits to trade.)

That is, most of our most important choices are made regarding our larger orgs, most of which are owned and controlled by investors. Those investors choose both which ventures to invest in, and also how to manage each one. Much of the status and identity of such people is tied up in their wealth, which they risk if they make bad choices. Venture profit is the precise numerical metric to which they are encouraged to carefully attend, and which also correlates admirably with our world working well.

Most people object more to this second key feature than the first. They’d rather that key-choice-making elites were more visibly and directly admired and chosen by them, and more vulnerable to being quickly removed upon widespread criticism. Such as often happens for celebrities and politicians. The fact that their market choices indirectly greatly influence who are these elites does not comfort them. They want more to be seen as having the potential of immediate deliberate veto power, than to actually have important overall influence. 

I think this is what people actually mean when they complain that capitalism is “unequal, selfish, and dominated by rich”. Most probably realize that most any large social world we share will probably result in great inequality of status and influence (including over politics), with many high status folks selfishly pursuing even more status. And as to the complaint that capitalism “leads to monopolies”, pretty much all “fixes” to this create even more powerful monopolies, typically in the form of government agencies. 

And that’s it, my brief two cheers for “capitalism”, at least of the sort I can sufficiently define.