Prize-winning essay

The future of capitalism

Tim Congdon

In Capitalism, Socialism and Democracy, published in 1942, Schumpeter said that the condemnation of capitalism was "a requirement of the etiquette of discussion": It remains true that 'most prognoses of capitalism are full of gloomy foreboding, and denote implicit or explicit concern for its current or future ills. The anxieties are perhaps explicable by the permanent condition of Change in Which capitalist societies now find themselves. There is a temptation to see a minor readjustment of the status quo as an affront to the 'status quo ante' and, therefore, as a sign that 'something is wrong' rather than that 'something is better.' The temptation is strongest where popular understanding of the issues at stake is slight, in, for example, the arena of international monetary affairs.

The problem of analysis is furthered by the .scale and complexity of the phenomena under scrutiny. It is easy to recruit an army of indictments from the population of characteristics, good, bad and indifferent, that capitalism presents. But the survival-power of capitalism has not been reduced by this mood of discontent. By the criteria of those groups who define, operate and conserve capitalism, by the criteria of the business community and right-wing political parties, it has never been more successful. Its antagonists cannot deny the existence of "the long post-war expansion," in which the output of the OECD countries taken together has increased at an average of over 41 per cent p.a. for more than twenty years.' Capitalism's recent past cannot be bullied by criticism; it is capitalism's future that serves as a pincushion into which its detractors may stick their abuse.

It is important, therefore, to consider the plausibility of the more or less dire prophecies that have been made about — or, rather, directed at — capitalism. The argument of this essay is that these dire prophecies are without foundation. The dictum, "plus ca change, plus c'est la merhe chose," applies. Capitalism may be mellowed by age; its hard edges may be sandpapered by the dual incidence of dissent and reform; but its essential institutions, private property and a complex structure of property rights, will persist.

The task of prediction is complicated by the absence of an ideal-type capitalism. British capitalism is unlike Norwegian capitalism, and both differ from Japanese capitalism. There used to be a habit of regarding the US as representative of 'capitalism,' but this will become increasingly obsolete. The identification of a particular example of the order with the capitalist order itself was a by-product of the 'Big Two' rivalry of the EisenhowerKhrushchev era. The dominance of the US in the free world, and of the USSR in the communist, focused attention on their comparative economic performances, and the intermittent threat of military confrontation lent urgency to the capitalism-socialism debate. In the 1960s the economic supremacy of the US waL, less absolute, and Russian intentions were less overtly aggressive. The boat-race between capitalism and communism was replaced by a football league of capitalisms, in which the Japanese usually came out winners. The capitalism-socialism debate has gone into hibernation, and interest has shifted towards anticipating the trends of advance among members of the alternative systems.

The simplest method of doing this is to extrapolate recent growth rates into the fu

ture. One such exercise provides the following result: Assumption about

Shares of OECD growth rates (based on

output recent experience)

1973 1988 1993

US

45% 34% 30% 3% per annum Rest 45% 45% 45% 5% per annum Japan 10% 21% 25% 10% per annum This exercise cannot be taken as a forecast, but it has a degree of validity as a benchmark for discussion.'

The striking feature that emerges is that the change in the balance of the Western economy will take place between the US and Japan alone. The figures might seem to indicate that capitalism will acquire two centres, not one. However, this conclusion must be qualified for two reasons. One is obvious: "the Rest" is dominated by the EEC countries and they may co-operate as a distinctive centre of capitalism in contacts between themselves -and other loci of economic power. The other is, perhaps, unexpected. The present Third World contains a number of countries which have consistently maintained a high rate of growth, on the Japanese model. These fall into three categories — small nations in the Far East; oilrich Mid-Eastern countries; and three Latin American republics, Mexico, Brazil and Venezuela. These adolescent capitalisms may eventually join the OECD rich man's club. Capitalism may become polycentric and need no longer be associated uniquely, and disparagingly, with the US.'

This polycentrism gives the cue for the entry of multinational enterprises into the discussion. They have been seen as the tentacles of the octopus of American economic imperialism, but, should the relative economic strength of the US decrease, this interpretation appears suspect. If the multinationals behave in a way contrary to the interests of the countries playing host to their investment, these countries need feel less intimidated by the American power supporting them. The experience of the recent past has been, moreover, that the principal victim of the multinationals has been America itself. They have sold dollars for marks and yens with the wayward disobedience of prodigal sons.

It has been argued that this subverts international capitalism by increasing its instability and by debasing domestic monetary policy. These rents in the institutional fabric can be patched up by exchange controls and better international monetary arrangements, and they are the perhaps inevitable costs of the benefits foreign investment confers in other directions. It should be recalled that the

bulk of cross-frontier capital flows since 195° has been of a fixed, rather than portfolio, investment kind. In other words, whatever the volatility of certain funds owned by the multi. nationals, most of the capital is immobile. As, such, it contributes to the transfusion 1. technology between advanced and less a°vanced capitalist countries, because the fac" tories and plants constructed as a result have to employ the nationals of host countries' Advantages should accrue to the adolescent capitalisms, in particular. Moreover, international 'Monopoly CaPi talism' disciplines 'Monopoly Capitalisrn within national boundaries. It toughen! foreign competition; it makes it more difficulL for companies to see the home market as "a domestic game preserve against the intrusin,n, of poachers from other capitalist countries'. But this is only one factor which contradictl the common argument that the increase' concentration of industry entails a decrease competition. The operationally significan'e measure of the degree of monopoly is not th number of firms in a particular product-,i but the size of the margin between price all", cost that firms may charge. The deterrenif against an excessive margin is the inflU0. new entrants as competitors in the produ'i area; the susceptibility of potentt,,ae monopolists to such behaviour depends on expected speed of the competitive resporn and it can be argued that, as the tyPicao, capitalist unit has become larger-lirobetts capitalism has become more athletic. A competitive reflexes have improved. The multi-product firm may switch fr'Dril signs of industrial take-off and the influence of Aretbo socialism in Libya and Irag makes it difficult if regard them as adolescent capitalisms. Howe"' Saudi Arabia and the Gulf sheikhdoms can Snter cessfully assimilate the oil revenues they may ethe category.

5. Schumpeter ibid. p. 50.

6. Schumpeter ibid. p. 84. The argument presen,.teticit here owes much to the spirit of Schumpeter's, its elements are more contemporary. 7. Galbraith, American Capitalism (Hamish hien° ton 1952), p. 105. 8. Whyte, The Organisation Man (Cape 1957)' PP' 11-12. 9. Baran, The Political Economy of Growth (Penguin 1973), p. 197. Market to market with greater agility and more adroitly than the traditional specialised concern; the large corporation possesses the resources to invest in research and development, to pioneer new technologies and to sustain "the gale of perennial destruction"6; and there has been an increase in the speed With which information about profit opportunities is processed by the business comrnunity. Furthermore, the mistake of seeing 'front-door competition' (rivalry of sales-efforts) as the sole correctiveof inefficiency has become apparent with the growing influence of 'back-door competition' (threat of takeover). The rationalisation of the British textile industry in the last ten years is an illustration of the potency of the acquisition threat as a Spur to better methods. The stiffening of backdoor competition reflects the greater skill Of the financial institutions which monitor the transfer of capital, the merchant banks, for example. The greater agility and diversity of capitalism have placed a premium on the information function, as distinct from the entrepreneurial or managerial functions. A host of consultancy services, consecrated by the computer and paying homage to the Management school, symptomise this tendency. They are peculiarly the characteristic ,Of advanced societies. The expansion of °usiness journalism and the sophistication of management technique — in, for instance, stock-control and investment-appraisal — are Lasnects of the same process. Advertising can r seen as an appendage to the information !Unction. As the number of products 1.ricreases, consumers forget brand names and itt Pays firms to spend millions of pounds on or three-word advertising messages as a 4eMory-device. When Galbraith says, 4'intericans would indeed be mentally retard if they still had to be advised that the 43-rierican Tobacco Company has Lucky trikes todispose of," he senses this, without Perhaps fully appreciating the rationale for ie31(tremely crude salesmanship.' Many of the fureaucratic excesses of modern life also stem ',rent the incapacity of the human brain to "artless the information flows that accom?anY it. The proper organisation of informant°n collection, storage and retrieval assumes 7.11 ever greater significance. Modern civilisaMI will be the civilisation of the card-index ;41d videotape. The Protestant Ethic has been j1PPlanted by the Social Ethic; but OrganisalcM Man will soon have to concede to InforZlation Man.8 It is not unlikely that the e eanderthal instincts so necessary in the srttjepreneur will become even further rttolimated in the technicalities of market search. With some justice, Baran has '0"offed, "The entrepreneur is now to be found fulY in the 'demi-monde' of business — funding new ice-cream klarlours or 'deep`eeze subscription clubs'." k It is not clear, however, that the Charles eich commercial proclaiming that human a"ature can be washed whiter than white is I n g-Y easier to believe. The sloganism of 'The eteening of America' — the taxonomy of ke'll_sciousness I, II and III echoes the Brand Y and Z of the advertising agency — is ,4„self a sign of the shallowness of the mass f,"clience. This shallowness has become a tourite target of abuse for critics of capithilarn, although it is not clear how evidence otkat human nature has been different at any aZer place or any other time can be readily t,711-tced. Nevertheless, concentration on this s7get has had notable side-effects. The asa"Illt on capitalism as such has been muted, allg:1 the volleys of denigration have been

d at the false set of values it is alleged to mote

14.‘;be economic insignia of capitalism, private sarAPerty and its attendant institutions, are not. th:4 to be evil; they are merely despicable; rh'Y have smelted the tarnished alloy of "aterialism and alienation. The occlusion of

interest in the mechanics of the capitalist economy has been succeeded, therefore, by a vitalisation of concern for the ills of capitalist society, and there has been a displacement of intellectual and crypto-intellectual preoccupation from economics to sociology. This displacement is not unimportant; it may improve understanding of social problems and accelerate social reform; but it betokens a change in the question that is being asked rather than a fundamental realignment 'of allegiances. It is no longer 'when will capitalism be overthrown?'; it is, rather, 'how will capitalism evolve, and how far will its objectives be modified?'

Capitalism may safely continue, then, to submit to the flagellation inflicted by its more acidulous members; the role of social critics is, after all, to criticise; they can only be conservative insofar as they rebut other critics. But there must be caution in interpreting their remarks. They frequently commit the error of confusing the greater immediacy of disagreement in Western societies with the heightening of tensions. The error is most serious when they comment on the interaction of trade unions, employers and the government in negotiations to solve problems of inflation and labour unrest. The immediacy of disagreement, that is, the rapid and articulate expression of grievances and the quicker spread of news about the antagonisms to which they give rise, may not reflect a sharpening of issues, but merely the impact of the information and communications revolutions. The implications of recurrent incomes policy squabbles for the basic problems of social organisation may well be marginal. It is time to conclude. Capitalism will be centred decreasingly on the US. The feature of the next twenty or thirty years will be development of friendly rivalry between more equal capitalisms, rather than a prolongation of the cosmic duel between capitalism and communism. Individual capitalisms will retain the defining structure of private property and the typical process of competition. There may be some softening of the harsher aspects of the system, because of the greater prominence of the information function and the more humane values permitted by material abundance. But the mellowing of capitalism will result in an increase in its survival-power, not a reduction.