Question Is global capitalism workable? That is, if capitalism is a system where most of the economic activity is based on self-interest, are the kinds of restricting factors like social welfare, laws, charity and human instincts enough to stop the polarizing of wealth, destruction of the environment and stuff that we see?

Accepted:
April 15, 2006

Comments

National capitalism in the advanced industrialized countries worked after social security legislation -- pioneered by Bismarck in Germany -- was widely instituted (in the US through the New Deal). Such legislation became gradually accepted by the rich owners of capital (productive assets) as they understood (a) the workers' economic power wielded by their unions, (b) their own vulnerability in the event of civil unrest bred by severe domestic poverty, and (c) the advantages of the social security apparatus for stabilizing the economy. Once established, social security legislation is difficult to abolish given universal suffrage, which is now commonplace in the more affluent countries.

The globalized capitalism that has been instituted mainly by the US and EU after the end of the Cold War is stimulated mainly by the economic gains it can bring to the owners of productive assets in those rich countries. These gains are of two main kinds. There are, first, the frequently emphasized economic gains from free trade through comparative advantage. And there are, secondly, the economic gains from reducing the rewards of labor by cutting back on wages and social security.

The rewards of labor are reduced by making use of much cheaper workers in the poor countries (typically through "outsourcing"). Massively using such workers has three advantages. First, even if unionized, such workers wield very little economic power because corporations have many national workforces to choose from. Mindful of this fact, poor-country governments are eagerly competing to offer (e.g., by suppressing or co-opting unions) ever more exploitable and mistreatable national workforces. Second, such workers pose little threat to the foreign owners they work for. If they are desperate and angry enough to rebel, then their governments have a problem on their hands. But the foreign investors are safe in their persons and possessions, and can shift their operations across national borders. Third, the availability of cheap labor abroad provides a plausible justification -- buttressed by substantial unemployment especially in Europe -- for reducing wages and social security in the affluent countries. Each government of such a country can tell the poorer strata of its population that it has no reasonable choice but to accept reduced wages and social security. If it does not, then its country will become internationally uncompetitive, leading to capital outflows and ever shrinking employment opportunities. Insofar as the poorer strata in the affluent countries buy this story, they will accept the reductions because they have no one plausibly to blame: not their own government, which cannot enforce a better deal for its domestic workforce as corporations would respond by shifting production elsewhere; not corporations, because they are competing with one another and cannot survive if their competitors have substantially lower labor costs; and not the workers in the poor countries, who are much worse off.

One point that emerges from this rough analysis is that things are in one sense worse than you present: The "restricting factors" are soft and flexible, and the first two have been massively eroded in recent years -- a trend that is likely to continue for a while.

The other two restricting factors you mention have very little impact internationally. While nearly a third of all human deaths are from poverty-related causes, the citizens of the affluent (OECD) countries spend about 0.02 percent of these countries' gross national incomes in donations to international NGOs. OECD governments spend about the same again on official development assistance for basic social services -- even while they extort vastly greater sums from the poor countries for use of "intellectual property" in seeds and potentially life-saving drugs and also expend vastly greater sums on subsidizing (all their free-market rhetoric notwithstanding) domestic corporations to the detriment of producers in the poor countries.

Is this emerging system workable, you ask. This depends on how we define "workable." In a moral sense, it is solidly bankrupt on account of the massive poverty and inequality it avoidably produces. As the poorer half of humankind have been reduced to well under two percent of global income, some 300,000,000 human beings (matching the entire population of the US) have unnecessarily died from poverty-related causes since the end of the Cold War. Most of them were children.

Of course, massive poverty and rising global inequality do not threaten the system's survival. To the contrary, they may cement the system by undermining the ability of the global poor to mount effective resistance to it. So what forces could produce substantial change?

I see three potential such forces. First, as you say, the environment -- pollution, climate change, depletion of essential natural resources. In the foreseeable future, this factor is unlikely to pose much of a direct threat to the global elites, who can protect themselves against pollution and climate change and can outbid the rest -- or use military force if necessary -- to acquire the natural resources they seek.

Second, there are the global poor. The first factor will harm and weaken them the most, but it may also strengthen their determination to fight for social change. They may succeed in installing in their own countries governments attentive to their needs and interests (there has been a recent trend to this effect in Latin America). And these governments may collaborate to exert increasing influence in negotiations about the rules of the world economy. This possibility is very weakly foreshadowed in recent WTO negotiations (Doha Round) where Brazil and India have begun to build a coalition of governments of the poorer countries.

The third factor are the poorer strata in the affluent societies whose share of domestic income and (especially) wealth is steadily eroding. Rising discontent among them could motivate them to develop a better understanding of their situation and of their own democratic possibilities for improving this situation and for living up to their responsibilities toward the rest of the world.

The second and third factors can play an important role in reducing and controlling the destructive impact of the emerging global economic regime. Potentially, they could even move us to a different path of globalization which would share its benefits fairly. This would be a regime designed to serve two mutually reinforcing goals especially: eradicating severe poverty and ensuring that all human beings can benefit from new life-saving knowledge in medicine and biotechnology. But such progress toward a morally framed and constrained global capitalism -- somewhat analogous to the morally framed and constrained national capitalisms of many of today's affluent countries -- is by no means automatic. It depends on the success of ordinary citizens in poor and rich countries in raising awareness and building effective social movements. A better world is possible, for sure, but turning the going trend in that direction would take a lot of effort.

To take a different line, those defending capitalism would argue that despite its inequalities and inefficiencies, it nonetheless produces more overall wealth than any other economic system. There is no reason why that wealth should not subsequently be distributed in fair and sensible ways, provided that such an allocation does not interfere unduly with the production of yet more wealth. In fact, some capitalist societies have been rather good at doing this, and there seems no a priori reason why all could not. After all, it might strike people that what you call unbridled self-interest involves social security, protection of the environment and so on. It is not in most people's interests, after all, for the streets to be unsafe due to poverty or the ice caps to melt and drown us all.