“Nominal” Capitalism and the Social Compact
Socialists, like Bernie Sanders and Alexandria Ocasio-Cortez, and Progressives, like Elizabeth Warren, are right about one big thing: Capitalism and democracy, as currently practiced in America, are broken. I assert, both boldly and baldly, that they are wrong about nearly everything else.
There is a malaise in American Capitalism. It is not, at least as yet, reflected directly in productivity numbers or unemployment rates, nor is it reflected either in absolute GDP or in its rate of growth. Economic inequality is a symptom of the malaise, though not necessarily in the ways that many people presume.
Nor is it a malaise merely of Capitalism, itself, for its roots are not in economics, per se, but in the intersection of economics with culture and with governance. We often presume – and it is a popular topic of conversation on the campaign trail in these times – that many of the problems within our politics and society spring from the corruption and the co-option of government and culture by Capitalism. But corruption and co-option go both ways: it is as accurate to describe the deleterious effects of government and culture on Capitalism as the other way around.
“Capitalism”, properly understood and practiced, is not merely a synonym for “the Jungle”. Quite the opposite: its purpose is to protect us all from the Jungle. Predation is a natural process, not an artifact of Capitalism, and a large part of Capitalism’s charter is to redirect that natural human inclination toward destructive predation into productive commerce. Laissez Faire does not mean “no rules” or “do whatever you want”, for it incorporates a fundamental presumption of ethical obligation: you have the right to be left alone to pursue your own interest in your own way because you agree, in turn, to respect others’ equal and reciprocal rights to do the same. “Caveat Emptor” was intended as a bit of pragmatic and prudent advice, not as a moral directive. And a “free market” is not a free-for-all. To the contrary, it is “free” precisely to the extent that it respects that ethical obligation, to the extent that it operates within the bounds of specific and definite moral constraints designed to allow a collaborative system of production and exchange to emerge freely from autonomous choices. The “free market” has canons: respect others; cooperate with them even as you compete with them; don’t steal from them; don’t deceive or defraud them and don’t take advantage of their obvious ignorance and naive vulnerability; don’t usurp benefits they have earned or foist costs on them that they never agreed to bear; deliver what you promised; pay what you owe.
In short, play fair. Honor the Golden Rule.
Capitalism and the Free Market are, after all, fundamentally social institutions, not solitary ones. They are designed to accommodate and manage the human interactions necessary for the pursuit of individual well-being through commerce with others. People act within the market according to their own individual desires and goals, certainly, but the market is by its nature communal. It can only function morally and efficiently if all its participants have actual opportunity to choose freely what costs they are willing to bear in pursuit of those desires and goals, and actual opportunity to benefit from their choices. A market utterly without rules or scruples is not free but constrained, hampered in its operation by anarchy and subverted in its purpose by intimidation, duplicity, and theft.
“Regulated Capitalism” is, in that limited sense, a tautology. A free market and a Capitalist economy depend on the same primary regulatory functions of government that our liberal republic does: a limited coercive authority to rein in the intemperance of those who would prey upon us, to reinforce their ethical obligation to respect our rights to “life, liberty, and the pursuit of happiness”.
That doesn’t mean regulation is always sensible, never mind appropriate. It is all too easy to march too cavalierly and too far down that self-righteous path once you set yourself upon it. But regulation that enforces “fair play” is both justified and, alas, often necessary. Regulation that standardizes market interactions in the name of transparency reduces the potential for bad faith and deception. Regulation that forecloses the opportunity for you to appropriate profits others have earned or to saddle others with losses you have accrued reinforces, rather than hinders, the prerogative of those others’ individual choice. Regulation that minimizes anomalies and artifacts – regulation that inhibits markets from operating in ways both perverse and counter-productive, from disconnecting costs from benefits, from allowing outside agents to inject themselves into others’ transactions, from impinging indiscriminately and too heavily upon the commons, and from creating obvious discrepancies between intended and actual outcomes – makes markets function more freely, rather than less, by correlating benefits and costs more closely with informed and expressed preferences, by associating benefits and costs less with ignorance, opacity, ambiguity, chicanery, malfeasance, political influence, random chance, and the law of unintended consequences.
Even bound by those ethical and regulatory constraints, Capitalism may leave unfulfilled some who are either unable or unwilling to be sufficiently productive in the marketplace for it to reward them. The possibility of failure is an inherent and inseparable companion to the opportunity for success. And the Market does impose an inexorable demand that people offer it value if they are to receive value from it in return.
Common decency, beyond the domain of economics, would suggest that those well able to succeed within the Free Market ought to provide succor to those who are unable to. Literal inability – whether the result of physical, psychological, or circumstantial constraint – is a condition, not an action, something borne, not something chosen. And, for practical reasons – purely because they have greater resources available, not because they owe a greater moral duty – those who are more successful might be expected to provide a greater proportion of that succor than those who are less so.
For we are social creatures who gather ourselves together into Societies and who reap the benefits of social interaction. If we choose to live not in primal isolation but in groups, if we choose to interact with others, then we do, indeed, owe those groups a duty, not as obeisance but as reciprocity. Individuals acting within and accepting the benefits of Society thereby also assume, as a simple matter of fair recompense, some associated social responsibility.
People who succeed in the Free Market have done so, at least in part, because of the very fact that the Market is free and not chaotic, because there is a formal and socially-enforced system of rules and procedures, and a socially-provided infrastructure, that makes commerce easier and that protects their right to benefit from their own efforts rather than falling prey to brigands and mobs. To that extent at the very least, they owe a duty back to the Market to help make its operations equally useful and fair to everyone else.
And, to be frank, people who succeed in the Free Market have also done so, at least in part, because chance and nature have blessed them with some modicum of innate ability to produce something of value. And, so, to that extent at the very least, honest humility and a sense of justice would suggest that they ought to pass on, in turn, what comfort they can to those to whom chance and nature have denied such blessings.
A liberal social order that respects individual autonomy operates as a community, rather than as merely an aggregation of competing factions, only because and to the extent that it is predicated upon a social compact: we allow individuals within the community to make their own determinations about what is good for them, to act in their own interest, and to reap the benefits of social interaction as they may; in return, we expect individuals to account for the needs of society when making their choices and to accommodate those needs – to reinforce Society’s functions and to strengthen the community overall – whenever it is reasonable to do so.
But we must also keep in mind that providing help to the helpless is a relative enterprise, not an absolute principle, because it depends entirely upon having the resources that make it possible. The necessary pre-requisite to any redistribution of wealth is the generation of wealth; the poor have naught to offer the destitute but commiseration. One of the primary practical critiques of Socialism is that it misunderstands the nature of production – that, by asserting “just” and majoritarian controls on the use of capital to generate wealth, it has always and everywhere succeeded primarily in suppressing the generation of wealth and making everyone poorer. Certainly, the historical examples of the Soviet Union and North Korea and Cuba, and the recent transformation of Venezuela, illustrate the point. But many articles have also been published recently, in response to the resurgence of Socialism as a seemingly viable option in American politics, examining claims about how well or poorly various models of Nordic Democratic Socialism have fared. Among the common conclusions from those articles is that the versions of Capitalism evolved over time in such places are now, in many ways, freer than our own because they found, to their detriment, that the highly regulated Capitalism they began with didn’t produce enough wealth to support their grand aspirations for Social beneficence.
For a similar reason, we should also be cautious about how much we offer as help to those who are not literally unable to flourish in the Free Market but are, rather, merely unwilling. A parasite is, after all, another form of predator, albeit one which plunders through stealth rather than through confrontation. We must acknowledge that there is a high level of disagreement between those on the political Left and those on the political Right, based on divergent assumptions about human nature, over how common such parasitism is, with those on the Left dismissing it as barely extant and those on the Right presuming it to be potentially epidemic. But whether you think it is an insignificant annoyance or a consequential challenge, you might at least agree that rewarding such passive predation is counter-productive for two reasons: first, because it reduces the total amount of wealth available – and even more so if it incentivizes an increase in predation, and a corresponding decrease in productivity, by making predation more profitable; and second, because taking from those who make an effort, in order to reward those who will not, is an actual and conspicuous injustice that inflames resentment.
Finally, Capitalism and the Free Market, like any other communal endeavor, become in practice unstable and untenable if a large fraction of their participants consistently fail to derive benefit from cooperation. Social institutions flourish when they satisfy social needs and wither when they do not. People who are bound consistently and immutably to misery and despair, despite what they perceive to be their best efforts, will eventually and inevitably rebel against their lot. That doesn’t depend on whether their self-perception of “best effort” is or is not accurate, on whether they truly are oppressed or are merely regrettably ineffectual or actively self-destructive. The oppressed may lead the revolution as a matter of justice, but the self-destructive and the ineffectual will man the barricades in sympathetic desperation.
Ethics and morality aside, then, social practice and regulation that encourages economic and social mobility, and some minimum level of economic wherewithal, forestalls such rebellion by providing respite from that misery and despair. Hence, even those who disdain fair play and the Golden Rule might find such social practice and regulation reasonable as a matter of prudent self-interest, as a hedge against the possibility of a social and economic upheaval that would splinter or sweep away both Capitalism and the Free Market in a purgative wave of populist rage.
In a perfect world, people would honor their social responsibilities or their self-interested investments in social stability without any need for supervision. In the real world, the extent to which people do so depends a great deal on the positive or negative reinforcements they receive, both from the Market, itself, and from the overall cultural environment. And, in any case, there will always be that subset of predators who must be coerced into acting ethically. Hence, the enforcement of social responsibility will always fall, to some smaller or larger extent, to government, through law and regulation and supported by taxation.
One might reasonably ask, then, what the effective difference is between enforcement of a social responsibility evolved from a liberal social compact and enforcement of a social responsibility asserted as Society’s moral prerogative. Both imply a certain level of social admonishment and governmental coercion to bring individuals into line with a communally-determined notion of what comprises the Social Good. Why should we care which motivation justifies such enforcement?
We should care because the motivation and justification define the boundary between what level of duty – and, therefore, what level of coercion – is and is not presumed to be appropriate and acceptable.
The fundamental moral premise of a social compact is that the relationship between the individual and Society is transactional: Society provides certain benefits, both tangible and intangible, and the individual owes Society some duties, both tangible and intangible, in return. Ideally, the benefits received and the duties owed come roughly into balance, at least over the long run. However, neither social benefits nor social duties are easily accountable and, so, there is not and has never been a “market” in which they can be “priced” in any authoritative way. Rather, social benefits and social duties operate and are assessed in an environment less like a market than like some combination of a commons, an insurance policy, and a family. That leaves plenty of room for legitimate debate about how much (or how little) any one individual may be expected to benefit from, provide benefit to, or “owe” Society, and over what form(s) their “payments” might reasonably take. But it does, at least, set an expectation and a notional upper bound: an individual’s duty to the Social Good derives naturally and justly from some amount of identifiable social benefit and should not be obviously, egregiously, and arbitrarily disproportionate to that benefit. And, to the extent that the justification for fulfilling social duty is not moral but purely practical – to the extent that its purpose is to minimize the likelihood of social upheaval – there is a similarly clear notional upper bound on the extent of that social duty: what is required is no more than what is enough to forestall such upheaval.
The fundamental moral premise of Socialism, by contrast, is that the relationship between the individual and Society is deferential. Society determines what it requires of each individual in order to achieve its vision of the Social Good and the individual must defer to that Social judgement, because Society’s claim on his effort and his conscience is morally superior to his own. There is no concern for how much benefit an individual may or may not take from Society in return for his contribution, for that is irrelevant to what is Good for Society overall. There is no philosophically or practically discernible upper bound on how large any individual’s contribution might be, for that can ultimately be determined only by whether the desired (and oft expanding) notion of the Social Good has yet been achieved – by whether or not Society still “requires” more. And the size of any individual’s expected contribution or benefit is, all too often, further prejudiced by a Societal judgement about the individual’s standing as friend or foe to the sanctioned Social order.
That dichotomy in viewpoint over the moral basis for Social obligation also affects the terms in which those obligations are debated as part of our political dialogue. If Social obligation is part of a transaction, then the tradeoff between individual Good and Social Good is a natural and necessary part of the discussion. If, however, Social obligation is a matter of fealty to a higher moral power, then those tradeoffs are irrelevant. The Social Good is a sufficient reason, on its face, for individual sacrifice, especially if that sacrifice may be presumed to be extracted primarily from enemies of Society, from the “rich” and the “greedy” and the “intolerant” and the “indifferent” and the “hateful” and all other manner of Social deplorables. And even to question those costs is usually enough to consign you, irrevocably, into one of those categories, to proclaim your antipathy to the needs and desires of “the people” and, thereby, to affirm your position as enemy and outcast to the enlightened Social consensus.
The everyday Capitalism we experience in modern America often seems far removed from the rosy and idealized version of Capitalism that was presented above. And our experience of governance often seems similarly far removed from the rosy and idealized version of the liberal republic suggested by the Declaration of Independence and codified into the Constitution.
We now have behind us more than a century of grand “progressive” attempts to use the power of government as a force for Social Good, from the so-called “Progressive Era”, itself, to Franklin Roosevelt’s New Deal, to Lyndon Johnson’s Great Society, to Barack Obama’s recent vision of “Change we can believe in” that brought us the Affordable Care Act. Certainly, those efforts have been moderated, to one degree or another, by ‘conservative’ resistance. But, by almost any measure you can imagine, that resistance has proven itself only modestly and sporadically successful, for the expansive transformation in the size and scope of American government over the course of that century truly is extraordinary. It is hard to argue that the failure of government to achieve idealistic goals for Social Good in the United States has all that much to do with a lack of authority to regulate and to tax: according to an OECD estimate, in 2015 governments at various levels spent nearly 40% of America’s GDP, just over $22,000 per person at a time when the officially-declared Federal “poverty-level” income for an American was on the order of half that and the median personal income was only about 40% above it; and it has been estimated that something like 4,300 new laws, and nearly 90,000 new regulations, were added to the ample number already a part of the Federal Register in just the single decade leading up to that spending benchmark.
And yet, despite that, those who claim the system is “rigged” against the “common man” have a point. There is, indeed, an epidemic of misconduct, callousness, and injustice running through our economy and our culture. And that epidemic is not only abided but, in a surfeit of ways, abetted by an accretion of common business practices, government rules, institutional priorities, perverse cultural incentives, political imperatives, public subsidies, and taxation policies that, though often well-intended, all too frequently serve only to lock into place the privileges of the privileged and to impede the strivings of the dispossessed.
Our versions of Capitalism and of liberal democracy are, in many ways, merely nominal, not actual. Rent-seeking – the practice of extracting value from someone without returning any value to them in return – is, indeed, rampant and almost always facilitated by some kind of governmental complicity, be it a tax-supported subsidy or a meaningless licensure requirement or a regulatory cartel. Complex financial systems and their arcane processes often expose subtle defects that allow people to game them into delivering unintended and counter-productive asymmetric consequences; and both the operators of those systems and the regulators who watch over them either ignore those consequences or are inept at forestalling or mitigating them. Externalities remain unpoliced, allowing some to reap the benefits of their activities while shifting the costs onto others or into the public commons. Sleazy and duplicitous activities go unpunished because they successfully skirt the edge of legality, or only furtively skulk beyond it, and go unchastised by a community obsessed with rigid adherence to bright-line regulation and the absolute letter of the law. Businessmen, whole businesses, and entire industries – and far too many “rich” people – behave in publicly disgraceful ways that discredit the very notion of business, the “Free Market”, and wealth, itself.
And, while all of that happens, far too many genuine geographical, historical, and cultural inequities that constrain both social and economic mobility do, indeed, remain unaddressed and stubbornly resistant to change.
Given the enormity of American government, its regulatory reach, and its nominally democratic provenance, how is that possible?
In the first place, the authority to level the playing field can be used just as easily to tilt it one way or another. For that matter, such authority can, instead, be used to cleave the playing field into a patchwork of isolated hills and valleys and soaring plateaus and plunging chasms, connected by broad stairways accessible to some and only by vague and meandering trails for others, and dotted with pitfalls to trap the unprepared and the unwary. Authority provides a means to action, but it doesn’t provide its own intrinsic mandate to exercise that means in a useful, intelligent, or ethical manner.
People are really good at finding ways to get around rules that disadvantage them. People are amazingly adept at finding flaws in economic and social and political structures that allow them to attain greater benefit for lesser cost and at someone else’s expense. People are as facile at trading in influence and prestige as they are at trading in goods and services. And even the best-intended and best-designed human systems are corruptible, because they are human. The greater the potential for cost or benefit a system offers – and the less opportunity there is to escape the powers it exercises when they are applied against you – the more your fortune rises or falls on the decisions of those who run the system and the more imperative there is to attempt such corruption.
Moreover, neither “business” nor “corporation” is a synonym for “Capitalism”. People conducting business – individual workers and consumers (and politicians) included – are capitalists, not Capitalists, wielders of whatever capital they can bring to bear to the benefit of their own needs and desires, not advocates for an elegantly orthodox and ethical Capitalistic economic system. Capitalism may not be safe at the hands of government or politics, but it is also not, and has never been, fully safe in the hands of capitalists. And, in a similar vein and for similar reasons, Democracy is not, and never has been, fully safe in the hands of democrats.
Most important, however, it is actually quite difficult to use laws and punishments to force the great mass of people to behave in ways that are at odds with the received and persistent values of the culture in which they live. The law may push on culture, but culture pushes back in equal measure. And, in many ways, ours is not a culture that reinforces the ideals either of a liberal republic or of ethical Capitalism.
Next: A Culture for Democracy…