In Our Time - Capitalism

Episode Date: June 24, 1999

Melvyn Bragg and guests discuss capitalism throughout the last two centuries. In 1848 Karl Marx in The Communist Manifesto described the dynamic force of capitalism as it swept through the 19th century: Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation. ‘All that is solid melts into air’. Was Karl Marx, in criticizing capitalism, actually responsible for defining it? From Marx’s critique of capitalism in the 19th Century through to the collapse of Communism at the end of the twentieth century, have we witnessed the triumph of capitalism? Or are we only now learning the full costs and the social impact of unfettered capitalism?With Anatole Kaletsky, economics commentator and Associate Editor of The Times, and author of The Costs of Default and In the Shadow of Debt; Edward Luttwak, Senior Fellow at the Center for Strategic and International Studies, Washington DC and author of Turbo Capitalism: Winners and Losers in the Global Economy.

This BBC podcast is supported by ads outside the UK. Thanks for downloading the In Our Time podcast. For more details about In Our Time and for our terms of use, please go to BBC.co.com.uk forward slash radio 4. I hope you enjoy the programme. Hello, I'm joined today by two economic commentators, Edward Lutvac and Anatole Kaletsky, to look at capitalism through the century. In 1848, Karl Marx in the Communist Manifesto described the dynamic force of capitalism

as it swept through the 19th century. Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation. All that is solid melts into air. From Marx's critique of capitalism in the 19th century through to the collapse of communism at the end of the 20th century, have we witnessed the triumph of capitalism?

Or are we only now learning the full costs and the social impact of unfettered capitalism? Edward Lukwak is Senior Fellow at the Centre for Strategic and International studies in Washington, D.C. A native of Romania, he lived much of his early life in Italy, and who was educated in Europe and the United States, where he now lives. He's the author of The Pentagon

and the Art of War, the Endangered American Dream, and his latest book is called Turbo Capitalism, Winners and Losers in the Global Economy. He's been in London giving a last word in the city lecture on the future of the European Monetary Union. Anatole Kaletski's economics commentator and associate editor of the Times, educated at Cambridge University in Harvard,

he's written extensively for the economist and the financial times. As well as a regular contribution to the times, he's the author of The Costs of Default and in the Shadow of Debt. How far, Edward Lookback, do we owe our definition of capitalism to Marx? Not much, really.

He never used the word capitalism as it happens. The origin of the concept and the understanding of the phenomena is really sombarred, Werner Sombart, now really forgotten, much red, and by the way, a wonderful writer. His attitude is mine. It is unlike Marx, not hostile to capitalism, but ambivalent about it. By being hostile to capitalism, do you think Marx in that sense helped to define it,

even though he didn't name it? Well, yes, but he defined it in a way that was really quite useless. Sombard captured the dynamism, stressed the fact. capitalism is born from the restless soul of the European civilization, which wants to conquer and discover and create and reshape. He did focus on the human engine of it, the entrepreneur, the creator of the company, the creator of the business. And he did systematically explain how it could transform areas of poverty and raise general prosperity. At the same time, he was also aware, as Marx correctly foreshadow,

that every economic change involves involuntary social change, often very good, often very bad. Anato Kuletsky, I'm going to revert back, despite what Edward Lutvast said to the quotation used in the introduction, which ended with all that is solid melts into wear. That seems very modern in some ways when you read it today. And Eric Hobbesberg, in his recent introduction to the Communist Manifesto, said what 1918, 48,

have struck an uncommitted reader's revolutionary rhetoric can now be read as a concise characterization of capitalism at the end of the 20th century. Would you agree? Yes, I would. I think much of what was said about capitalism by Marx, even if he didn't use the term, he certainly used the word term capital, and he recognized it, and he recognized the, or he regarded the accumulation of capital as being the key phenomenon that defined this phase of economic evolution. and I think much of what he said really in the mid-19th century about capitalism

as a historical phenomenon turned out to be accurate, you know, where Marx went wrong, as most analysts of economics and society do tend to. He was very good at analyzing the present and the past, where he went wrong was projecting that into the future, and this is what one finds again and again in books about the future of the world in any context. But yes, capitalism is an incredible. dynamic and in some sense destructive force, as Schumpeter, of course, described it later as the concept of creative destruction, and it only progresses by destroying and melting down

what already exists. Marx, as I understood it, described this system as being dynamic but inherently unstable. Would you agree with that? No, I think that's where he went wrong. Well, it is inherently subject to fluctuations, but And, you know, this is really the essence, I think, of a lot of the debate that's going on right now. I think with people like Edward or George Soros and so on who describe the global capitalist system as being inherently unstable. Now, it is unstable in the sense that it gives rise to crises.

But where I think Marx was wrong and where a lot of these people are wrong is in saying that these crises are unbounded and tend to get bigger and bigger and bigger until the system breaks down. My feeling is that capitalism is a highly cyclical system, which is volatile and erratic, but in the long run, the crises even themselves out. Did Marx underestimate capitalism's capacity to deliver prosperity, Edward Rufeldman? Oh, absolutely. I mean, what I believe Marx really went wrong was that he correctly saw that capitalism works as a sort of spiral. And he believed that it was a downward spiral. And in fact, it's an upward spiral.

I'm going to put a fairly dramatic quotation from your book to Anatole Kaletsky and then come back to you in Edward Lutbukk's your book, which is turbocapitalism. He writes, quote, with the possible exception in nuclear weapons, capitalism is the most powerful of human inventions, unquote. That's quite a claim. Do you agree with that, Anato Kalevsky? Well, yes, I certainly do. I mean, I think in a sense it's almost by definition true

because we see what has been created over the last 200 years and the scale of creation, the scale of sheer physical progress in the sense of the amount of steel produced if you want to put it very crudely is so immense that one has to say

that actually it's far more powerful than the bomb in the sense after all it has managed to harness even nuclear power to its own uses. So I would agree. I think where Marx was wrong really was in believing that ultimately

economics is a zero-sum game, that it's about distribution. There's a bit of growth at the margin, but he completely failed to imagine the scale of the growth, as Edward says. We have to do a couple of things. First of all, we have to remember what capitalism is defined against,

and it's defined against the traditional society, which has not only traditional, colorful costumes, also has a way of producing and consuming, which doesn't change. production and consumption governed by ritual, by religion, by habit, by custom, and simply don't change. What capitalism is about is only change and competitive change. You're the first fellow, you change something, and you produce more and you become richer.

Somebody comes along and he outchanges you, the third person outchanges the other, and so it goes. And Shumpait's creative destruction, just mentioned, has to do with the fact that If you want resources to do things, if you want to have labor, you want to have buildings, you want to have access to raw materials, you really have to knock somebody else out of the running, and that's the destruction. And it's creative because you're doing it not by force, but because you're more productive. You can take away his workers by paying more. You can take away his raw materials by outbidding him and paying more,

and therefore you have a machine there which systematically conveys resources, human and material, to the most productive producer. And the destruction part is crucial. And in fact, if one visited the servitude union as I did in the 70s and 80s, you saw lots of modern factories brought lock, stock, and barrel from the West. And they were great. And the reason the whole economy was such a rotten shape was because the old factories, the ones using all machinery, all technology, were going right along.

And they were trapping within their walls, the labor, the materials and so on, they should have gone to the new stuff. So destruction is part of it, is it? Destruction is not only part of it, is a crucially productive part of it. And the problem is that when it comes a lot of social destruction. I think that is, the destruction is very important because you ask yourself,

what is the difference between modern capitalism and the kind of trading that has gone on in the world for thousands of years? After all, the Greeks were great traders, they had markets and so on. And to a certain extent, I think they did have a capitalist system, but I think one of the key differences were, the key difference, I think, was science and technology, which didn't exist until 300 years ago.

But another key difference was a social difference. They're not in harness. Not in the same way. But the other thing was the willingness to accept very dramatic changes in society. Well, I don't think it's willing. And societies that weren't willing to accept it couldn't have. capitalism got going. Was there something inevitable about it? Was this what the economy had been waiting for, as it were? Well, it was not inevitable at all, and it did not emerge in the Chinese

world. It did not emerge in the Indian world. It did not emerge in any other world. It only emerged in the core of the European world. And it emerged at a particular time when there had been a spiritual shift. A long time ago, as you well know, Weber and son demonstrated that it required the change of outlook. From an outlook in which you pursued salvation, happiness, the proof that you're godly is that God gives you wealth, etc. Calvinism, we know all that stuff, and it's unique to Europe, emerges from a certain collision that takes place only here. And what's happened, of course, most dramatically in the last few decades, is its global spread. But it's used.

European origins are so strong in it, and its particular, I would say, Calvinist origins are so strong in it, that to this day, when capitalism is found in countries that may be down the road just around the corner from you, but which happened not to have a Calvinist background, it still is very different. We're talking about something that is on the rampage, and let's accept your proposition that it's the most powerful of human invention with the possible exception of nuclear weapons. it's failed again and again and again and various attempts to sort of solve and solve the failures have been made. Maynard Keynes would be the first name which come to mind. How does he fit into this 20th century story, Anato Gillesquayette. Well, I think he fits absolutely crucially

because I think you could argue that up to the 1930s the Marxist analysis of capitalism was proving not too far, are off the mark. I mean, the system was developing, but it was generating crises. The crises were in some ways getting more and more severe and more uncontrollable. They were leading to greater degrees of class conflict, international conflict, imperialist conflict, all this was happening. I think the big change that occurred in the 1930s intellectually and then beyond that in terms of public practice was that the capitalist world found a way.

of controlling the crises through a degree of government intervention. I think without a degree of government intervention in the functioning of the economy, we would have had bigger and bigger oscillations, which would have led to intolerable degrees of social unrest. And we might have got the kind of communist crises that Marx was talking about. So the addition of the sort of Keynesian element, the addition of the concept that you have to have a government mechanism of some kind, to make the capitalist system in all its manifestations more stable

was something that was simply unacceptable in the 19th century when Marx was writing. It was considered the antithesis of capitalism. Can I just come in as a little parenthesis because we're talking happily about turbocapitalism and could you just tell people briefly what it means why it's right now? I hate new words and I only was forced to coin this new word, Turbo capitalism to try and capture the basic change which has taken place, which I think is a

qualitative change, brought about by the concurrency, the coincidence, the mere coincidence, if you like, of massive privatization in the world economy, the whole of the Russian economy, Chinese economy privatized, Italian, French, in Argentina, the first time I went there, everything was state-owned. The last time I went, when I went, even the zoological garden of Buenos Aires is private. So massive privatization worldwide, which drastically, abruptly extends the reach of the market. Secondly, the American deregulation.

And you have deregulation, privatization, the same time, combining with massive technological change. Does turbocapitalism suggest to you, Anatole-Kalewkludgey, overdrive on the course of being out of control? Well, that's exactly, I think, what the word, it's a very good word for suggesting that, But I actually think it's a concept which is an inaccurate one. It's not the right description to talk about what's going on now

because although there is a lot of dynamism in many ways, despite notwithstanding the privatizations and so on and so forth, the fact is that government role in the economy is greater now, if you look at the world as a whole, and particularly if you look at the leading capitalist countries, than it was even as recently as 30 years ago and far greater than it was in the so-called, heyday of free market capitalism and is growing. So it's a different kind of role, but you know,

even the US is not a deregulated, it's a deregulated economy, but it is an economy that cannot function without government intervention, as we saw very clearly last autumn. Yeah, but we see government intervention at some level, but in my own lifetime, in this country, Britain, the market has advanced enormously in British society. All sorts of institutions, the BBC, the universities, the Royal Zoological

other than, institutions of all sorts that were run on the basis of principles other than the principle of profit maximizing have been engulfed by the market. All kinds of human behavior, which was governed by

rules and customs, perhaps very silly ones, have been converted into market-oriented. That's all true, but nevertheless, government has 40% of GDP. Yes, maybe so, but it has not spared. This does not mean that the market is not advanced. Let's turn to another remark of yours which struck me forcefully. You say free markets and less free societies go hand in hand.

Can you give us one of two examples of that? Well, in the United States, you've had massive deregulation massive free market advance of capitalism, and the amount of insecurity generating the society where you have many more opportunities, but at the same time no job is secure, that insecurity generates a lot of social anger, which is vented in this sort of endless demand

for tougher laws, more prison terms, and this endless demand for being tougher on crime. What's your take on this, Anatole? Let's get the free markets and less free societies go hand in hand. I can't. actually see the connection, although I think anecdotally what you describe has some validity. And where I do agree is that I think capitalism, very dynamic capitalism, does make people more insecure. Clearly, it makes jobs more insecure. It makes some people more worried about the future.

But actually the paradox of this, which is rather curious, is that that actually isn't borne out in the facts, in the statistics, if you actually ask people. Now, this may seem a very very crude question, but you know, if you ask people, are you happy about your job? It is remarkable that a far higher proportion of the population... Which country are you talking about? Well, actually, in most countries, I love their jobs, but if you ask them, are you secure in your job? Absolutely. If you say, are you worried about losing your job? They say, yes, I am. But it is a paradox. And I don't have any great theory for this, except that to the extent that people have become more prosperous, they, you know, they feel insecure about the job that they're in at the moment, but they

feel actually fairly secure about the general state of their lives. Well, if they did, why are they demanding ever stricter penalties, reintroduction, death penalty, longer prison terms, transformation of removing all television sets from prison cells and stuff, all this anger of dignity. I saw the same kind of language, the same demands emerging in Britain at the same time when the British economy itself was undergoing privatization and stuff. This is mere anecdote. However, if you're interested, in my book,

there is a systematic, sociological argumentation, laying it out step by step, which in order to make it totally systematic, I actually wrote in German and retranslated into English, just to give it the proper tootonic toughness. And you can read it there, but please notice that wherever you have the deregulation, privatization, six months later,

prisons start filling up, and there is a reason for it. Can I turn to another subject now? It's often said, it has been said, that the collapse of communism bringing down the wall represents a triumph of capitalism. Do you agree with that, Arnold Klatsky? Not really. I think it represents a disastrous decay of communism, but I think communism was collapsing under its own contradictions, really.

I mean, the competition from capitalism and maybe the last straw was. the increase in defense spending in the Star Wars program, but I think communism was a dysfunctional system and one that was probably incapable of surviving for very much longer than it did. In another of your phrases that are irresistible, you've said that Russia's move into a free market economy in the last 10 years is, quote,

an epic worthy of Homer or Tolstoy. Yes. Well, I say that because the Soviet economic system that was in existence, let's say in 1985, was a system which delivered a lot of production. It delivered more steel per capita than the German economy, more meat per capita than the British economy, and all these other things.

And it was disastrously going wrong because all this stuff was being wasted, not years and so on. Very good Uzbek cotton, long strand cotton, was turned into shore. that the Russians themselves could only use as rags because they were so ugly and something. This system was rather like the European Monetary Union in a sense that it was a system from which it was not clear how you could get out of it. It was not clear how you could privatize.

It was not clear whether you could privatize. How do you help you privatize a public system in which there are no capitalists, no entrepreneurs and something? Well, the miracle was achieved in a very large part. It was achieved with a lot of disorder, a lot of mess, a lot of waste, a lot of gangster. The fact of the matter is that if you fly to Moscow today, there is a market for real estate. You can get real estate. You can get an apartment. You can get an office building.

You can get a little one, big one, a small one. There is a manpower. You can hire people. You can fire people. You can get what you want. Your raw materials and stuff. In other words, a market has been created. And it was epic because of its scale.

Epic because of its speed. And I think that the imperfections and frictions and irritations. and shortcomings are much less important than what has in fact been achieved. Do you see this is an example of capitalism really sweeping over the world? Well, I do, but actually I think it's an example of something that's even more fundamental than capitalism and perhaps actually is even more powerful than capitalism in a specific historical form. And that is the human instinct to trade, as Adam Smith said, the capacity instinct to truck and barter on the one hand.

and secondly, an even more fundamental human instinct, which is greed and the desire to accumulate. Now, the reason communism collapsed, greed is inevitable. Greed is as natural as sex or appetite or anything like that. In every society you look at, people try to accumulate wealth in one way or another. People also have an instinct to trade. Now, there are societies which try to restrict that because these things are too disruptive to their social structure.

and communism went further than that and actually tried to deny the existence of these instincts. That's why it was bound to collapse. I think the unique thing of capitalism was that it actually channeled these and encouraged them. Greed into creation. And what you see in Russia is a lot of greed which would not have built anything

and you also see a lot of creation. A lot of people have built a lot of things. There are a lot of new things in Russia. And the thing is you saw lots of greed in Russia under the communist system as well, but they pretend that they exist. There's a lot of greed in Britain. In fact, a lot of very greedy people in Britain

who have never created a firm. They wanted a beautiful house in Belgravia, but they've never built houses and so on. In Russia, we have not merely greed. We have the capitalist transformation of greed into creation. You think capitalism is suitable for all sorts of society? And if we look just a little ahead, it will actually be the economy of the world will be capitalist.

Well, what I'm saying really, that I think an economic system based on the idea of trading in markets and on trying to channel greed in some way, I think is suitable because I say this is inevitable because these are basic human instincts that can't be suppressed. I don't think it has to take the precise form of deregulated market fundamentalist capitalism, which in fact is going outfashion even in America and Britain now. There are those who think that turbocapitalism, as you described,

is causing social destruction and this creative destruction is more likely to be destruction than creative. What would you reply to that? Well, on the economic side, the destruction is creative. On the social side, it's just destruction. I read so today, an economist quoted in the financial time saying, you know, we have to stop all this home ownership nonsense

because it prevents workers from rapidly moving from place to place and causes unemployment. In other words, forget about the whole notion of the emotional, the artistic, creative, invested in home ownership. What I really believe is that political intervention is appropriate, not to really

slow down the process, but it should function to ensure the certain sectors are in fact not governed by the market. I think that's perfectly doable. I think you can have a perfectly competitive society in which you have competitive sectors,

let's say the export sectors, competitive, your banking and finance are competitive, but it doesn't doesn't mean that, for example, your transport should be competitive. Your transport may be run on a sensible basis that you want to make losses in running London transport because you want to lure people on it so you'll have less congestion and give people more access to more things that they can't get to, etc. So I think that the political intervention worldwide today is wrong. I make this bold statement because what happens is the governments

want to limit the advance of turbocapitalism across the board, which can never be done. They prattle about the third way and something. All of this doesn't amount to anything. But what can be done is to, in fact, segregate entire sectors. For example, France, a country which has all kinds of barriers and restraints against it, in which to preserve a way of life and national identity and something, and which is now in deep trouble with high unemployment because of it,

what the French could do would be to say, right, Let's deregulate the entire restaurant in hotel trade. We are the world's largest tourist country, abolish the minimum wage, abolish to the Code de Travae, abolish the permissions, licenses, made that totally a free sector. That does not mean that you have to make agriculture free sector if you want to preserve the province the way now sees.

That's what the third way I think is all about, and that's what the worldwide reaction. I don't see it being applied. No, no, I think that's exactly what the worldwide reaction against staturism reaganomics is about. It is about recognizing that there are parts of human existence that should not be governed by market forces and, in fact, even parts of the economy.

The clearest example we have in this country, the health service, there were people who believed, even as recently as five or six years ago in this country, that health services should be opened completely to market forces and competition. That idea has now, I think, rightly, gone out of fashion. And that's an example of exactly what you described. But I do not see, in fact, this effort to segregate turbocapital. capitalism within sectors that are economically important and which ensure your competitiveness while safeguarding the others.

I see them sort of limiting the impact of the market than others, having some barriers, some filters, but very weak ones. And I do see the transformation of sectors that ought to be protected in ways which I consider very negative. Finally and briefly, do you think capitalism will ever be superseded? If so, by what, Anatole-Belisky? Well, I think in the sense of trading and the motivation for profit, I don't think it will be superseded. I think in the sense of the precise system we have now of trying to open everything out to market forces or precise trading arrangements we have, yes, I think it may be. But as I say, I think the fundamental instincts to trade and to accumulate are going to be there as long as humanity is around.

Yeah, but that's not capitalism. And it's certainly not terrible capitalism. I don't know what will, but what should. is in fact the notion that the economy exists to serve society. And we need as much of it as we need to achieve our purpose. Hence, I would say not just allow the market to govern Britain except the health service, but to the country to make a deliberation about what parts of the economy must be turbocapitalists, have them totally free, and what parts of the economy you wish not to have.

I mean, for example, agriculture has become so small that there's an argument for running like a national park for the sake of the humanity of the rural area and so. I have not seen this happen on the part of the people who talk a third way. Well, thank you, Edward Lundfark, on the back of your book, Turbocapitalism, and Anatole Kuletsky, and thank you very much for listening. We hope you've enjoyed this Radio 4 podcast. You can find hundreds of other programs about history, science and philosophy

at BBC.com.com.uk forward slash radio 4.