I have been doing a bit of thinking and reading lately about the nature of business and my assumptions surrounding it. As a modern lover of entrepreneurship (I will reserve assuming the title until such time as I have been part of creating a sustainable business), I have maintained the unconsidered opinion that capitalism, to parallel Churchill’s remark about Democracy, is the worst form of economic system “except all those other forms that have been tried from time to time.”
As there is nothing new under the sun, so it seems that people have been ill at ease with capitalism as a form of Faustian bargain nearly since its inception. In this view, an unchecked pure capitalist system would lead to a form of anarchic competition, with extreme inequalities in the distribution of wealth, and the eventual self-destruction of the system as its “winners” become so powerful they institutionalize monopolies that destroy competition and eventually the capitalist economic system. They contend this inherent instability is the logical conclusion of capitalism’s separation of ownership from labor, since unchecked ownership will naturally accumulate towards an aristocracy. If this is the case then Karl Marx was right about the disease, but wrong about the cure.
Marx, seeing the potential for (and at that time reality of) abuse of private property by capitalists, advocated the collective ownership of all property. In practice, as we have seen in various countries over the last century, “collective ownership” (socialism) becomes state ownership and similarly promulgates the concentration of the control of capital in the hands of an oligarchy. We are therefore apparently left with two sides of the same ugly coin.
After the Great Depression, some economists (notably John Maynard Keynes) argued for interventionist government policie
s to ensure stability, through stimulating demand via low interest rates, infrastructure projects, or various other income redistribution schemes. and creating what is known as a “mixed economy” by combining elements of both capitalism and socialism. Some form of this compromise solution has been the policy of governments from the US to France to modern China, ever since. Despite this strong effort by government to subdue the forces at play in the economy, by placing boundaries on capitalism through the power of the state, we continue to struggle with booms, bubbles, and busts.
As we have seen over the last several years though, there is still much room for instability and abuse from both the private sector and government in the current system. Think of Enron, MCI WorldCom, and pals from the private sector side, along with the Fannie Mae/Freddie Mac contribution to the subprime mortage debacle and the ethanol subsidies’ exacerbation of worldwide food shortages from the government side. While the interventionist’s contention is of course that these problems are far milder than they would be in an unregulated economy, others argue that their existence is either enabled or prolonged due to interference that slows needed market “corrections.”
With all these problems, it is interesting that the only significant public policy discussions currently circulating essentially entail whether to pull closer to laisse-faire capitalism or push on towards a more pure manifestation of socialism. I am not aware of a major political group advocating a significant departure from this either/or line of reasoning… Please let me know in the comments if you are aware of any!
In the next installment (or two) we will visit some corporate “top down” efforts to address some of the ills inherent to our current system, as well as a few interesting initiatives from the grassroots of entrepreneurship.
