Economía

Capitalism - questions and answers


What exactly do you mean by "capitalism"?

By capitalism I mean a liberal market economy with free competition. A system where the individual is his own master and the master of his property, with the power of making contracts and starting up in business, and the ability to move about, travel and trade regardless of national boundaries. Decision-making, as far as possible, rests with people themselves, not with politicians and government.


How can you justify capitalism? Capitalism means all power to the corporations.

That isn't true. Corporations can acquire monopoly status in a system of tariffs, licensing and coercion, because then consumers are denied the option of buying from anyone else and potential new businesses are prevented from competing. Capitalism means freedom to pick and choose and to reject the businesses which aren't up to scratch. Corporate liberty in a capitalist economy is the same thing as the waiter's liberty of giving the customer a menu to choose from. And the whole point of free trade is that other waiters - even foreign ones - are allowed to come running up with alternative menus.


Hasn't the globalisation of capitalism made the world a progresssively worse place, as the anti-globalisation movement maintains?

The statistics speak for themselves. Over the past 40 years, average life expectancy in the developing countries has risen from 46 to 64 years. Since 1950, infant mortality has fallen from 18 to 8 per cent. The proportion of illiterates has fallen from 70 per cent to about 25. Since 1970 child labour and the proportion of people in the world who have to go hungry has fallen by more than half. Since 1980 the number of people in absolute poverty was reduced by more than 200 million. The number of states which are democratically governed and respect human rights is increasing all the time. Today there are 120 democratic states with a combined population of 3.5 billion people (roughly 60 per cent of the world population), more than ever before in world history. There are still enormous problems in the world, but to anyone who cares to look it is obvious that the world, in most ways, has become a better and a fairer place.


But these improvements don't necessarily have anything to do with globalisation and capitalism, do they?

The improvement has above all been due to the spread of information, technology and prosperity throughout the world, and that has been made possible above all by free people, that is to say, people who are free to live in a capitalist society. There are clear connections between the degree of economic freedom and the growth of property and welfare. The countries making up the one-fifth with the most liberal economies are almost ten times more prosperous than the least liberal fifth. During the 1990s the most liberal had an annual growth rate of 2.56 per cent, whereas the least liberal had a negative growth rate of 0.85 per cent. The most liberal countries have poverty levels which are 60 per cent lower than in the least liberal countries. An average life expectancy in the most liberal fifth is almost 20 years longer than in the least liberal fifth! The connection between economic liberty and political liberty is shown by citizens with the right to trade internationally being more than four times as likely to enjoy political liberty than those who do not have this freedom to trade.


But everyone knows that capitalism and free trade mean that the rich get richer and the poor get poorer.

In that case "everyone knows" wrong. There is nothing to show that economic liberty, generally speaking, spells greater inequality. On the contrary, it is through privileges and state benefits that the mighty are favoured and the people are shut out. In the least liberal economies, the income gap between the wealthiest fifth and the poorest is more than twice as much as in the most liberal countries. As regards differences between rich and poor countries, it's true that one large group, mainly among the African countries, lags behind the affluent. And that is above all because they have not committed themselves to democracy and capitalism. Poor countries introducing liberal reforms grow faster than affluent countries. During the 1970s and 1980s, developing countries with open markets had annual growth of 4.49 per cent, whereas open industrialised countries had only 2.29 per cent. During the 1990s, globalising developing countries had 5 per cent growth annually, whereas the industrialised countries had 1.9 per cent. Free trade, in other words, gives poor countries a means of moving up on more affluent ones and eventually catching up with them.


Haven't you read Naomi Klein's "No Logo"? She shows that multinationals are destroying the occupational environment and paying starvation wages in the Third World.

Yes, I've read Klein, and although the book is skilfully written I'm unimpressed by her anecdotal pleading. You can't compare working life standards in poor countries with those of affluent countries, because productivity there is much lower, due for example to their having fewer machines, not such a good infrastructure and lower educational standards. Mexico's Ambassador to the USA, Jesús Reyes-Heroles, has explained: "In a poor country like ours, the alternative to low-paid jobs isn't well-paid ones, it's no jobs at all." The interesting comparison, and the one which decides whether foreign businesses in a developing country are a good thing or not, is how well off these employees are compared with other workers in the same country. And because multinationals are more productive than native businesses, they help to raise wages and improve working conditions in poor countries. On average, foreign corporations in the least developed countries pay their employees twice as much as the corresponding native businesses. In the poorest developing countries, somebody working for an American employer earns no less than eight times the average wage in their own country!


Classical capitalism, with businesses and factories, may possibly be a good thing, but surely speculation and the hectic speed of financial markets are generating crises in the Third World and making the poor poorer?

On the contrary, I'd say that free financial markets are a good thing for the poor. Their main function is to handle risks and transfer capital to where it is in short supply but there is a good return to be had. During the 1990s, investors channelled about one trillion dollars into the developing countries. That roughly equals all the development assistance they received in the past 50 years. This has made a huge difference to their economic development. It is true that free exchange movements cannot be combined with regulations such as a fixed exchange rate, for example, because then you get negative speculation. But in that case we must abolish the fixed exchange rate, not the movements of capital. It's an empirical fact that increased turnover in the market has not meant increased fluctuations. It is states with capital controls that have the jerkiest exchange rates.


But surely you don't mean to say that institutions like the IMF and the World Bank run perfectly?

Of course not, what makes you think I'd say any such thing? What I'm defending is the globalisation which gives people more freedom. Political institutions running after this globalisation and trying to structure it isn't necessarily a good thing - it all depends on what they do. I'm just as critical of these institutions as the globalisation critics are. For example, as regards their bail-outs of bad investments, their effort at remote control of other countries' economies and their enticement of the Third World into a debt trap.


You advocate open borders and free immigration. That sounds fine, but it will never work.

What do you mean, "work"? On averagre one individual dies every day round the frontier of the EU in a desperate attempt to get here. Does that work? That's the practical result when governments decide who is and who isn't needy enough to get into the EU. That puts refugees into the hands of unscrupulous refugee smugglers, the sort of people for example who shut them inside hot, air-tight lorries or dump them overboard at sea so as not to get caught. The big question is whether business and welfare systems will be able to keep going if we don't step up immigration. The UNFPA estimates that the EU will need 13.5 million immigrants a year to keep the ratio between the working and the retired populations constant for the next 50 years. Immigrants aren't a burden, they're an asset, and even refugees put more into the national treasury in the course of a lifetime than they get out of it. If large numbers of migrants become permanently dependent on handouts, that's merely an argument for seriously reforming our social security systems and our labour market regulations. But that isn't the main argument. The main argument is that being allowed to migrate, even if there is a national boundary in the way, is in fact a human right. The western world moralised, and rightly so, about the communists forbidding their citizens to leave their native country. But now that they are allowed to do so, we are forbidding them to enter our countries.


For sources and facts, see

In Defence of Global Capitalism.
http://www.globalcapitalism.st

La globalización del bienestar humano
http://www.elcato.org/goklany_estudio.htm

Relación entre economía de mercado y desarrollo humano
http://index.heritage.org