Capitalism is an Abstraction; It's People That Need Attention

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Today (7/31/15), David Brooks writes about some new questions being asked about capitalism. He recently attended a conference devoted to this topic. He reports only on a keynote address made by his “friend and Times colleague Anand Giridharadas.” Anand’s comments were directed more towards capitalists than at the underlying system. He argued that the capitalist philanthropists need to be held to account for the harm they do in acquiring their wealth as well as for the “good” they do with the money. Second, he noted that the new form of labor this is growing off-loads much of the risk that should go to the capitalists. I would add that so does the whole idea of the “sharing economy” tend to shift the roles of producer (capitalists) and consumer. (See my recent post on that subject.) And, third, he notes that capitalists are increasingly removed from the community.

Anand’s speech struck me as deeply patriotic in its passion and concern. He didn’t offer a policy agenda to address these deep structural problems, but his description of them implied that government would have to get much more heavily involved in corporate governance and private-sector investment decisions than ever before.

Brooks would have none of that. Quoting Hillary Clinton and others, he writes.

Indeed, progressive economists are already walking down this path. Hillary Clinton’s new tax plan is based on the assumption that government officials are smart enough to tell investors how they should time their investments. Her corporate governance proposals are based on the idea that federal officials know better than executives how they should run their own companies. There will be much more of this in years to come.

Then he lets the other shoe fall. “People like me will argue that it’s a wrong turn.” He follows this with the standard conservative argument that the corrective agents in government “are not smart enough.” I agree, but not for the reasons he would offer. It is not about being smart at all, it is about understanding that the economy is a complex system, which inherently is not subject to analytic thinking. If this picture would be accepted, conventional economists and other related experts have little or no role at all. His next sentence boggles the mind. “The beauty of capitalism is that it takes a dim view of human reason.” Capitalism does not take a dim or any other view since it is only a name for a system that doesn’t think or speak. He should have replaced “capitalism” by “conservatives.” But that would be an oxymoron since conservatives would have to reason out their conclusions.

But this next couple of sentences illustrates the serious flaws in his argument most acutely.

Capitalism sets up a system of discovery as different people compete and adapt in accordance with market signals. If you try to get technocratic planners organizing investment markets or internal business governance, you will wind up with perversities and rigidities that will make everything worse.

He is correct about his statement that capitalism works with signals coming out of the market, but maybe that’s not the point. If one abstracts the market from the society as a whole, perhaps, his statement holds up. If you examine only the flow of goods and wealth, the Smithian market conservatives love is arguably the most efficient. But to accept this as the primary governing mechanism for a society of real, living human beings is inhumane. In the days of Smith’s pin factory, efficiency was important because so many people lacked the material necessaries of life (to use an old phrase). Not so today unless you toss smartphones into that bundle of goods. What people lack today are the necessary qualities of life required for flourishing. The market cannot provide them. Indeed, the keynoter was telling us just that. Nor can a few capitalists spreading their wealth around.

So let’s look at some other institutional possibilities. Business is out since it is the primary instrument that allows capitalism to run. Churches used to be the provider of salvation, but that went out with modernity. Civil society? Volunteering and philanthropy help but enough. The military. No comment needed. That leaves only government unless I have left something out.

Since many, but importantly not all, of the qualities associated with human flourishing rely on material inputs, the market is inextricably connected to anything that the government attempts to do about life in general. Following the argument of conservatives, anything the government tries to do lessens the efficiency of the market. I will concede this point since I am unable to muster any facts otherwise. Liberals, who tend to be more concerned with life qualities than quantities, tend to frame their policies about interventions in the market, thus, fueling conservative passions, although Brooks notes that recent proposals from the left are different.

This strikes me as a departure from recent progressivism. In the recent past progressives have argued for a little redistribution to fund human capital development: early childhood education, child and family leave, better community colleges. Unregulated capitalism is at odds with democracy and free market economy because it results in consolidation of wealth and political power. …But the next wave of thinking implies that it is not enough to simply give people access to capitalism and provide them with a safety net. The underlying system has to be reconfigured.…This is a bigger debate.

I really need to quote the entire column to give you the full story, but that’s against the rules of blogging. I encourage you to follow the link above and read it. He is dead on, however, about the core issue when he noted (above) “The underlying system has to be reconfigured.…This is a bigger debate.” But the debate must not be couched in terms of the impacts of public policy on the market as it has historically been in the US. If those who have the power and commitment to humanity are be successful, they must have two criteria to balance in their effects to move ahead toward a flourishing world. (As we now know, it is critical for human flourishing to have a flourishing world as well.) One piece can be the standard economic criteria like efficiency and output, but with the caveat that they are just numbers measuring the functioning of an abstract machine, and, further, that they are measures of convenience based on the relative ease of acquiring data.

The other essential piece would be criteria referring to the quality of life. You should quickly see that there is something problematic in this last sentence. Qualities are notoriously hard to measure, lacking objective standards. That’s another way of saying they cannot easily be abstracted into quantitive terms. In a society, like us and the rest of the modern world where positivism and objectivity rule, the numbers always win. There is a way, however, to combine the two. Try configuring the system, as Brooks thinks would be necessary, by applying pragmatic, not analytic processes. Add back reason, which he writes is abhorrent to the market.

Planners and policymakers and those who would implement their outputs need to start with an agreement that the entire socio-economic system is out of balance: too much GDP and efficiency; not enough flourishing, by whatever measures they adopt. Then, using their reasoning powers to settle on a putative plan, try something and check it out. Continue the process until the “underlying system” does change its shape and begins to behave as wanted. Given the complexity of the world, this may never happen, but there’s more likelihood that we can nudge the world in the right direction in this way than through the endless bickering or both left and right. Compromise is a necessary part of any pragmatic system. This fact alone suggests that part of any restructuring we do in the US must include a hard look at our political system, now stuck in perennial loggerheads.

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