Capitalism with a human face

Aug 25, 2013 Features / Columnists, Ravi Dev

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A few centuries ago the west stumbled on a new way of organising production – dubbed “Capitalism”. Even its most severe critic agreed that it delivered undreamed of wealth and improvements in living conditions for some. But unfortunately, at the same time, debilitating by-products such as the exploitation of others and the ravaging of both the social and physical environments were unleashed. After trying and experiencing failure with its antithesis, communism in our lifetime, the search for a “middle way” is preoccupying policy makers.
Its early grand chronicler Adam Smith described capitalism’s central feature, the profit motive that fuels the supposedly impersonal “market”, in 1776 as follows: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” Over the years, however, deliberate confusion over Smith’s usage of the term “self-interest” as the “invisible hand” that would guide the market to deliver the “goods” that society needs, has contributed greatly to the debilitating by-products of capitalism.
Twenty-seven years before he wrote his magnum opus, Smith had produced “The Theory of Moral Sentiments” in which he clearly defined self-interest not as selfishness or greed, as some would have it, but as an innate psychological need to win favour with other members of our society. To improve one’s lot is not ineluctably to oppress others. Self-interest is in inextricably intertwined with the societal interest. When he revised the latter book after the Wealth of Nations had been published, it is important to note that he did not alter his original formulation of what he thought was “self-interest”: self interest and moral sentiments are coterminous.
It is a subtle point that bears development at this time when the excesses of capitalism is roiling the western nations where capitalism has been successful. All of us are innately pushed to “better” ourselves, but this is ambition not greed. Greed is the uncontrolled, unmediated primeval id which will bring down the whole edifice, destroying those that believe they can “game” the system. Greed must be tempered into moral “self-interest” of the Adam Smith formulation: being socially directed.
But we cannot ignore the reality that nowadays our methods of socialisation throw up many individuals who are only driven by their id and greed. But we cannot afford to throw out the baby with the bathwater as the USSR and China discovered. In addition to the demons of the id, (what Lord Keynes called “animal spirits”) we recognise also that none of the institutions that we design around our values will ever work perfectly – hence imperfect socialisations to begin with.  Macro-institutions were therefore created over the years to temper those exigencies. And so in matters economic markets became increasingly regulated (especially after the great depression of the 1930s) so as to mitigate the inevitable excesses precipitated by greed and “imperfect markets”.
The neo-liberalism that became ascendant globally in the 1980s, however, insisted that Adam Smith’s “invisible hand” meant “no hand” in the workings of that much-abused term, “free markets”. And the regulations were thrown out of the windows. But they spoke from both sides of their mouths. Take, for instance, the creation and issuance of money which is regarded as the sine qua non for the creation of markets in the modern sense of the term. These have been regulated, by definition, from the earliest days, either by the institutions that issued them in the first place or later by governments. One can’t very well have everyone creating money and expect markets to function. The problem is that those who ritually invoke the ethereal “free market” do so only when the regulation in question hinders their efforts to make excess profits over what other regulations allow them to make in the first place.
Karl Marx’s early critique of capitalism (“Das Kapital” 1867) was remarkable for its prescience in highlighting several of its inherent contradictions, but the attempts to institutionalise his insights failed miserably in our own lifetime. It would appear that, ironically, Marx was too unrealistic about human nature. To paraphrase Churchill’s aphorism about democracy, capitalism is evidently the worst type of economic system – excepting for all others that have been tried and failed.
While we must work on inculcating more cooperative values at the individual level through our socialisation mechanisms, we have to get back to vigorously regulating the markets to satisfy the social good. We wonder, once again, why those that rail about corruption in Guyana today do not question the premises of the system that make much of the corruption inevitable.
P.S. My deepest sympathies and condolences to the family of Mr Doodnauth Singh. He was a Kshatriya (fighter/warrior) in every sense of the word.

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