24 June 2009

The Return of Capitalism: Already?

Yesterday I noted Jonah Goldberg's autopsy on capitalism, a coroner's inquiry that blamed the death blow on corporations that sought shelter from both competition and the consequences of their mistakes by accepting the government's ruling that they were "too big to fail." A week before this, I'm just learning, Fareed Zakaria announced the "return of capitalism" in a cover story for Newsweek magazine. He asserts capitalism's resiliency, and calls it, in Churchillian language, the worst of all economic systems, except for all the others. No other arrangement makes as much economic growth possible, he contends. If it seems to have problems correcting itself at the moment, that's partly because government is preventing the necessary shake-up that has to happen.

This is the disease of modern democracy: the system cannot impose any short-term pain for long-term gain. For 20 years, most serious structural problems—Social Security, health care, immigration—have been kicked down the road. And while the problem is acute in America, Europe and Japan face many of the same difficulties. Right now, the U.S. government's boldness is laudable, but it is being bold in spending money. In a few years, when the bills come due, and Congress must enact major spending cuts as well as raise taxes (and not just on the rich), that's when we will see if things have changed.

It may be true that no government accountable to voters tells them to tighten their belts, but I wonder whether Zakaria concludes from this that other forms of government are more compatible with the laws of capitalism. In other writings he's drawn distinctions between democracy and the rule of law while recommending that developing nations make the latter a higher priority. For now, it looks like he expects this country to reach a moment when it has no choice but undertake the retrenchments he recommends.

Zakaria's main point, however, isn't to rail against government. Instead, he blames government's present excessive role in the economy on a cumulative failure of self-regulation on the part of the business community, especially the financial sector.

Most of what happened over the past decade across the world was legal. Bankers did what they were allowed to do under the law. Politicians did what they thought the system asked of them. Bureaucrats were not exchanging cash for favors. But very few people acted responsibly, honorably or nobly (the very word sounds odd today). This might sound like a small point, but it is not. No system—capitalism, socialism, whatever—can work without a sense of ethics and values at its core. No matter what reforms we put in place, without common sense, judgment and an ethical standard, they will prove inadequate. We will never know where the next bubble will form, what the next innovations will look like and where excesses will build up. But we can ask that people steer themselves and their institutions with a greater reliance on a moral compass.

That sounds admirable, but it seems a little inconsistent with the way Newsweek is promoting Zakaria's article. The subtitle of "The Capitalist Manifesto" is "Greed is Good (to a point)." I hope the author didn't come up with that himself, and if he didn't he should kick his editor. Greed cannot be good. The best we can say is that greed is an excessive form of some healthy ambition that (to a point) can be good if regulated as Zakaria suggests. Whether Zakaria's manifesto will do good depends on whether capitalism itself can get by on that healthy ambition, or needs full-scale greed to function.

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