Saturday, 26 September 2015

The Case for Capitalism

Since the financial crisis, there has been a lot of protestation about our current economic system and how it is not fit for purpose. This has resulted in widespread protests, upheavals in the Eurozone, ideological battles between Left and Right, and what can only be described as a communist being elected Leader of the Labour Party. Even the Pope has stuck his oar in, complaining about how horrible the current setup is.

Variously, the charges against capitalism are:
  1. It serves the needs of the few, not the many. Equality between the rich and the poor is at an all-time high. Capitalism is fine if you're lucky enough to be one of the elite, but ordinary people are crushed by it;
  2. It is prone to crisis. As the various market bubbles of the 20th Century and ultimately the financial crisis of 2008 show, unrestrained markets massively overheat, requiring expensive State intervention to set it right;
  3. It is an affront to democracy. Because it concentrates wealth into the hands of a select few, they are ultimately the ones which wield political power. Capitalism is in effect a kleptocracy, with the very rich profiteering out of the very poor.
 There's just one problem with all of these accusations... they're all bollocks.

1. Capitalism Serves the Needs of Everyone
A quick history lesson needs to be brought forward here. From the advent of human civilisation, up until about the 17th-18th Centuries, life expectancy of your average human remained pretty much the same, i.e. between 20 and 30 years of age.

Let that sink in for a moment. For virtually the entire time that humans have been in existence, from about 2.5 million years ago to 300-400 years ago, life expectancy didn't change that much. If you lived to age 30, you were lucky to be alive.

The reason for this is pretty simple: technology. Human technology, before the 17th and 18th Centuries, was relatively primitive. It involved lots of manual labour, and societies were pretty much entirely agrarian - farmers subsisted on the land, with barely enough to get by on. Disease and famine were rife.

Something happened about 300-400 years ago which significantly changed that. All of a sudden, we became much more efficient and productive. Humans - especially in the Western world - started to realise that, if they specialised in one particular thing, they could excel at it, and produce a surplus which could then be traded for other things. And we started doing it big style. With sudden leaps forward in technology, resulting in mechanisation and industrialisation, trade exploded, and capitalism was born.

The great thing about capitalism isn't that it gives everyone more money, because it doesn't. But the massive increase in productivity brought about by the division of labour (i.e. specialisation) means that the goods the most people rely on to survive suddenly become a lot cheaper. Everything, from food, clothing, energy, water to housing, has become higher quality and more affordable over the last 300-400 years, because of the division of labour and the capacity to trade. That's capitalism. It doesn't necessarily make ordinary people richer, but it makes the things that everybody needs cheaper and more readily available. A direct consequence of this is a massive improvement in quality of life.

Average world life expectancy in the 21st Century is 65. That means that, compared to 400 years ago, the average human is living over twice as long as they were. That's a 100%+ increase in just 0.02% of the time that humans have been in existence, and it corresponds directly with the rise of capitalism.

And it's only going to get better. We are on the cusp of large scale automation - autonomous robots will soon be able to perform the vast majority of manufacturing and agrarian work. The result will be that the price of pretty much all foodstuffs and manufactured goods will drop through the floor. Of course, companies and their shareholders will profit from this, but so will everyone else. Ordinary people might not get a share of the profits, but they won't have to pay out as much. So they will have more money to spend on luxuries, and more free time. Roll on the good times.

2. Capitalism is a Surprisingly Resilient Economic System
The great advantage of capitalism as an economic system is that it is not heavily centralised. This gives it significant advantages:
  • If a single company fails, it is unlikely to bring down an entire industry. The company's competitors will step in to replace the supply left by that company;
  • The principles of market competition have a tendency to force companies to be increasingly efficient, especially when savvy consumers use their buying power;
  • Even the most calamitous failures, e.g. the banking system, can work out for the best. The UK economy is now recovering well from a massive system shock.
Ah, but the banks needed to be nationalised, I hear you say. Well, yes, they did, but only because they held hugely dominant positions in the market. If we had a more competitive and diverse banking sector, no one individual bank would have needed bailing out by the Government, because it would have been absorbed by its competitors. The problem with the banking sector is that it has very few players in the market, and there are significant barriers (many of them regulatory) to entering the market, making it difficult to establish new competition. If anything, some of the regulation has made things worse, not better.

Despite the banking crisis being the worst financial shock since the Great Depression, we appear to have weathered it quite well. Socialist economies have been ruined by lesser crises, even forcing entire regimes to their knees (Russia, Uganda, Cambodia, Vietnam, Korea...). Socialist command economies fare no better than capitalism in times of crisis - in fact, based on previous experience, they fare decidedly worse.

3. Capitalism Strengthens Democracy
As previously discussed, capitalism makes essential goods and services cheaper and better quality for ordinary people, freeing up more of their money to spend on luxury goods. This makes them consumers, and their combined buying power is far greater than those at the very top. There's only so many Aston Martins that a billionaire can be bothered with. Once he's got ten, why bother with any more? He's never going to drive them all.

Contrast that with 40 million people who all want a Ford. Which market are you going to go after? Capitalism is a great leveller, because it puts ordinary people's buying power on a par with rich people, on a level never seen before in human history. In terms of disposable income, life expectancy and quality of life, we are more equal now than we have ever been.

The idea the capitalism concentrates profits to a small elite is again, a fallacy. Most socialists imagine that the majority of corporate shareholders are fat, red-faced men in pinstripe suits and top hats, smoking cigars and drinking cocktails made from children's tears. Actually, the majority of corporate shareholders are retail investment funds, commonly accessed through pensions.

In other words, the biggest shareholders are ordinary people. So when company profits and share prices are high, the main beneficiaries are ordinary people, because the fund values in their pensions and investments are higher. This affords them a higher quality of life. And, of course, most people tend to work for companies, so when a company is doing well, it generally increases pay to retain its successful employees and attract new ones. Other companies then have to provide more competitive wages, so overall wages begin to rise. People get paid more for the same work... so their quality of life increases. Profits are good.

Capitalism increases people's quality of life, making them happier, healthier and more content. Such people are significantly less likely to engage in violent protest, and the governments of such people are significantly less likely to do anything to piss them off. This results in a massive increase in political stability. This is demonstrated primarily in the Western world, where political transitions happen regularly and peaceably following free and fair elections, compared to less capitalist countries, where elections are marred by corruption, intimidation and violence.

In short, capitalism is the best economic system yet devised. It has, and continues to, significantly improve the lives of billions of people, by making their essential needs more affordable to them, and increasing the amount of free time they have by making better use of their labour. It makes them happier and more content, is significantly more resilient than alternative economic models and also helps to strengthen and incentivise democracy, the fairest form of government yet devised.

Capitalism's fucking ace.