Increasing economic inequality and decreasing mobility have entered mainstream consciousness and been identified as among the most pressing challenges of capitalist societies like the United States in the 21st century. Today, capitalism has a distinctly pejorative interpretation here in its free-market Mecca.
Increasingly, Americans are questioning the ideology of capitalism itself. This crisis manifests itself prominently among the nuevo millennial socialists for whom capitalism is all about profit. For them, profit is a bad word. They ignore the reality that in any economic system people hope to gain more value from things than they put into them, and that this is true in whatever you do in life.
According to a new Harris Poll, more millennials would prefer to live in a socialist country (44 percent) than a capitalist one (42 percent). The percentage of millennials who would prefer socialism to capitalism is a full 10 points higher than that of the general population. What’s more, this crowd rejects capitalism as an economic system because it benefits the wealthy and powerful; poses large social costs; and contributes to the obscene prosperity of a tiny, privileged minority.
Alternatively, proponents of capitalism argue that it is the only system humans have developed that maintains both improvement in living standards and individual freedom. Despite criticism that it is morally bankrupt, capitalism has spread prosperity across the planet. Free markets have generated enormous wealth in recent decades, as documented by the World Bank delivering millions of people out of poverty and raising living standards throughout the world. In 1990, about 40 percent of the global population lived on less than $1.90 a day, according to the World Bank; today it is less than 10 percent.
But the story is different for the average American. Since the 1970s, their wages have stagnated. Since the 1990s, cheap imports made available by NAFTA and Chinese accession to the World Trade Organization benefited consumers, but depressed wages and robbed blue-collar Americans of the secure manufacturing jobs and the health and retirement benefits that went with them.
Technological advances certainly played a major role in worker displacement, but trade policy also contributed to the U.S. losing seven million of its 19.2 million manufacturing jobs from 1980 to 2015. Yes, consumers have enjoyed lower costs for imported products, but displaced workers in the United States have paid the price and contributed to what has been labeled the crisis of capitalism: the growing gap between haves and the have-nots.
How then to define capitalism? In theory it is another ism that describes an economic way of life, a system that emphasizes private ownership of personal property and business assets, property rights that protect ownership, the sanctity of private contracts, using prices to allocate resources efficiently, a reliance on competition and incentives, voluntary exchanges between consenting adults, profit maximization, an effective legal system and limited state intervention.
In practice, capitalism is not monolithic; it takes many forms. For instance, in the United States, government plays a more limited role in economic decisions than under China’s form of market driven state capitalism. There, the government has a substantial role in shaping the rules of the market and is a significant player in the economy. In the Russian style of state capitalism, the Kremlin relies on both direct government intervention in key economic sectors and control of politically connected businessmen to promote the interests of the Russian state and those who run it.
Like any economic system, capitalism is a human institution and, as such, is imperfect. It should be judged on the basis of whether it is the best system available, not the best imaginable. And it is capable of reform. As the saying goes “nothing is forever, not now, not ever, never.”
Finally it is worth remembering, to paraphrase John Kenneth Galbraith’s comment, “under capitalism man exploits man while under socialism the reverse obtains.”
Originally Published: May 11, 2019.