Capitalism and its discontents

DAVE SPART has been a stalwart of Private Eye, a British satirical magazine, since the 1970s. The bearded Bolshevik has never wavered in his enthusiasm for denouncing capitalism (“totally sickening”). But in recent years the Eye’s editors gave their fictional columnist progressively less space as the left made its peace with free markets and consumerism. Now, Mr Spart is back—not only on the pages of Private Eye but in the corridors of power. Britain’s main opposition Labour Party this week held its first conference under a new, hard-left leader, Jeremy Corbyn. In Greece and Spain new left-wing parties have emerged. Greece’s Syriza has come out on top in two successive elections and Spain’s Podemos is set to make big advances in December’s general election. In the United States, Bernie Sanders, a self-described independent socialist, is making a spirited run for the Democratic nomination. And in the Vatican Pope Francis denounces the “invisible tyranny of the market” and recommends “returning the economy to the service of human beings”.

Why is anti-capitalism gaining ground? Dave Spart would no doubt argue that the people are finally realising that the free market is an illusion. Big companies act as rent-seeking monopolies, with their executives lobbying politicians for special favours and tax breaks. The boss-class awards itself huge pay packets regardless of success or failure: it is said that Martin Winterkorn, the departing CEO of Volkswagen, may leave with a pension-plus-severance package worth €60m ($67m). This argument is gaining ground on the right as well as the left. On September 25th Charles Moore, Margaret Thatcher’s official biographer, wrote in the Wall Street Journal that Marx had a valuable insight “about the disproportionate power of the ownership of capital”. A Gallup poll of confidence in American institutions found that “big business” came second to bottom, just above Congress, with only 21% expressing “a great deal” or “quite a lot” of confidence in it.

Free-marketeers have a ready-made answer to this argument. Messrs Spart and Moore are complaining about the problems of corporatism rather than capitalism. The best way to solve the problems of “bad capitalism” (monopolies and cronyism) is to unleash the virtues of “good capitalism” (competition and innovation). The welcome news for such free-marketeers is that good capitalism is gaining ground. Look how hard it is nowadays for big firms and big bosses to entrench themselves. The average time a company spends on the Fortune 500 list has fallen from 70 years in the 1930s to about 15 years today; and the average job tenure of a Fortune 500 CEO has gone from ten years in 2000 to five years today. The bad news is that good capitalism may be doing as much as bad capitalism to create the current backlash.

Globalisation and digitisation have speeded up the pace of creative destruction. Successful firms can emerge from obscure places such as Estonia (Skype) and Galicia (Inditex) to straddle the globe. Digital technology allows businesses to become huge in no time. WhatsApp, a mobile-messaging platform, reached 500m users within five years of its launch. But the champions of this brave new world can be disconcerting. They are usually light on both people and assets, partly because digital services are highly automated and partly because of outsourcing. Ten years ago Blockbuster had 9,000 shops in America with 83,000 employees. Netflix employs just 2,000 people and rents the computing power for its streaming video from Amazon. Gerald Davis of the University of Michigan’s Ross School of Business calculates that the 1,200 firms that have gone public in the United States since 2000 have each created fewer than 700 jobs worldwide, on average, since then. They are also ruthless: the new champions are constantly reinventing and reconfiguring themselves in order to avoid the fate of former champions such as AOL and Nokia.

Rapid change is provoking anxiety—and resistance. Supporters of good capitalism argue that employability is what matters, not employment. But what happens when change is so fast that “skills security” goes the way of job security? Those in the good-capitalism camp say, too, that rapid change is the price people pay for prosperity. But surely people value stability as well as the fruits of technology? In 1988 William Samuelson and Richard Zeckhauser, two economists, described a case in which the German authorities wanted to move a small town, so the coal underneath it could be mined. They suggested many options for the new town but, rather than something more suited to the age of the car, its citizens chose a design “extraordinarily like the serpentine layout of the old town, a layout that had evolved over centuries without (conscious) rhyme or reason.”

I am Spart

Pro-capitalists rightly argue that the creative bit of creative destruction outweighs the destructive side. Thanks to Google and its likes we can search a good portion of human knowledge in an instant. Thanks to firms like Apple we each carry a supercomputer in our pockets. Thanks to sharing-economy companies such as Uber and Task Rabbit, people who do not want to work regular hours can find work whenever it suits them. The best way to solve some of our most nagging problems is to unleash the power of innovation. Airbnb is cutting the cost of temporary accommodation and MOOCs (massive open online courses) are democratising access to an Ivy League education.

But pro-capitalists should also remember two things. The first is that most people do not distinguish between good and bad capitalism: they see a world in which the winners are unleashing a tide of uncertainty while reserving themselves luxury berths on the lifeboats. The second is that the forces sweeping through the capitalist economy are also sweeping through politics: the old party machines are imploding, and political entrepreneurs have the wherewithal to take over old parties or to build new ones. Anti-capitalism is once more a force to be reckoned with.