Capitalism Corrupts the Inclusive Market Mechanism

panthera logoMarkus Schuller, founder of Panthera Solutions

The Brexit debate in the United Kingdom shows that archaic drivers of our societies can emerge again, even in the cradle of democracy. The opponents in this fight are not the UK vs Brussels, but the disenfranchised vs the elite. And even this only represents the outcome of false premises and their validating concepts. As former Labour Party minister Tony Benn put it: “This country and the world have been run by rich and powerful men from the beginning of time.”

The development of capitalism from the 18th century through to the 20th saw radical and sometimes rapid change not just in technologies and production processes, with the invention of the steam engine or mass production, for example, but also in philosophical and political concepts. The humanist project of the liberation of the individual was strengthened during the Enlightenment, but a new idea emerged too, that the whole of society could improve – social progress. The political translation of this included the fight for universal suffrage, human rights, minority rights, etc. The attitudes and actions that flowed from this were not always coherent with the ambitions they exemplified. Remember the euphoric belief in technology before WWI or the social/national questions during the second half of the 19th century in several monarchies and empires.

Despite all the upheavals the transition to the modern industrial age entailed, the process also produced stabilising social phenomena through the self-empowerment of the individual, such as labour unions or the new property-owning, entrepreneurial middle class. Twin phenomena were at work again, this time economic and political rather than philosophical and political.  The mass consumerism the new economy that would allow the new socioeconomic system to emerge and flourish depended on a widened participation of the individual in both the economy and society. It was only through this widened participation that narratives like the American Dream could manifest themselves – the prototype of social mobility driven by an inclusive market mechanism.

Society benefitted from increased social mobility not least because of the stark contrast it presented with anachronistic injustices like slavery, discrimination against women, oppression of ethnic or religious minorities, and inequalities of income and wealth. This in turn benefitted the economy by expanding the consumer base, for instance through increased labour market participation by women throughout the 20th century.

In short, social mobility was a necessary condition for political and economic self-empowerment of individuals, combined with an inclusive market mechanism that allowed them to live this self-empowerment in many different ways. And this remains the case today. Through social mobility, an inclusive market mechanism and equality of opportunities enable the best in our societies to get a chance to make it to the top. At the same time, the best are forced to compete responsibly for the best solutions of the problems of our times on a level playing field.

Here, the “false premises and their validating concepts” becomes visible. In the early 1980s, when Margret Thatcher and Ronald Reagan began to increase the competitiveness of their economies for the upcoming globalization on the basis of the theories of the Chicago School, their reforms were labeled as liberalisation, deregulation and privatisation. The claim was that this trinity would strengthen the individual in their societies and the competitiveness of their economies. The “victory” of capitalism over communism in 1989 reinforced the reform agenda. The interpretation of capitalism that dominated this agenda however shows a lack of congruence with an inclusive market mechanism. As Noam Chomsky said in September 2015): “Progress requires puncturing the bubble of inevitability: austerity, for instance, is a policy decision undertaken by the designers for their own purposes. US capitalism also benefits from ideological obfuscation: despite its association with free markets, capitalism is shot through with subsidies for some of the most powerful private actors.”

The game plan that would play out as globalisation was designed in Bretton Woods in 1944 and through GATT in 1947. Since the 1980s, the dynamics of this process has led to a massive reduction of extreme poverty worldwide, especially since the economic convergence of emerging markets gained momentum in the 1990s. In parallel, those dynamics damaged the social cohesion of developed economies as productivity gains and participation through gainful work became decoupled, while employees were tamed by increasing their consumption not through higher income in return for their productivity gains, but by getting into debt. Paraphrasing Margaret Thatcher: “You may not be able to get a wage increase, but you can get a loan.”

This development led to a weakening of the inclusive market mechanism through an oligopolisation of market-based allocation processes and a plutocratically-biased political decision making process.

This development also led to a weakening of equality of opportunities through a disintegration of the middle class and its stabilising factors like democratic participation or solidarity movements like labour unions.

Altogether it led to a weakening of social mobility in our societies. And a return to business as usual as described by Tony Benn. The debate is not about political ideologies and their partisan views on whether more public or private sector dominance is better.  The question is how to make sure our societies stay competitive in an evidence-based, innovation-driven search for democratically legitimized solutions for the challenges of our times.

Useful links

This article is based on Kapitalismus gefährdet Marktmechanismus by Markus Schuller

The economic consequences of Brexit OECD Insights

OECD Centre for Opportunity and Equality (COPE)

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  1. Charles Kovacs - 23/06/2016 Reply

    This is an interesting but strange article. I do not know what an inclusive market is, but in practice everyone is part of the market and has been for thousand of years. Meanwhile, a few comments/observations:

    1. The cradle of democracy was not the UK, but Athens and the Roman Republic. Universal suffrage did not arrive until World War I, but it was based on institutions inherited mainly from the Ancients and developed by the UK, US and France.

    2. The quest for universal suffrage, human rights, minority rights is a very recent development, these came almost two centuries after Voltaire, etc.

    3, I would not link labour unions with the self-empowerment of the individuals. Guilds existed centuries before unions for much the same purpose, and were arguably equally harmful to society as a whole. For what it’s worth, longshoremen in the UK and in Barcelona had unions by the XVIII Century, albeit under another name.

    4. Social mobility has been an integral part of Western history going back to ancient Greece. It varied from country to country, but there was a lot of it, even when only as a function of frequent wars, epidemics, and, more importantly, historical developments. Slavery almost disappeared in Europe about a thousand years ago and even where it remained, it had a very different character than in earlier periods. The inequalities in wealth and income probably were not very different then than now, although statistics are relatively scarce,.

    5. Bretton Woods and GATT were not a game plan for globalisation, but an attempt to avoid another Great Depression through more or less free trade, and not incidentally, to speed the recovery of a devastated Europe.

    6. The notion that employees were somehow tamed by their prosperity did not start in the 1990’s. Socialists bemoaned this already in the 1920’s when American workers began owning cars and their own homes.

    Social mobility may be less now than 50 years ago, but this is due to many reasons, including government intervention through higher taxes, more regulation, including racial and ethnic quotas, and the development of a culture that does not value achievement and excellence.

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