Capitalism is in crisis. That much is clear. The capitalist order stands accused of having caused a torrent of problems from the global financial crisis to inequality, alienation and climate change. These days voices on the right of politics habitually calls for an end to what they like to call the ‘excesses of the free market’. Center-left parties are embracing anti-capitalist rhetoric. The hard left is cautiously celebrating the long-awaited crisis of Marxian lore.
But the crisis facing capitalism is not the notion of the inherent contradiction between overproduction in the pursuit of profit and the squeezing of surplus value from the working class; according to Marx this would eventually lead to a breaking point where the total production of goods could no longer be sold to increasingly impoverished workers. No, the crisis originates outside the capitalist order. It is a crisis of confidence in the system, where capitalism is used as a convenient scapegoat to push political solutions to an easily misled electorate. The cancer of anti-capitalism which has festered on the far left since Marx is spreading to the mainstream. And the prescribed cure is making the problem worse: less capitalism exacerbates the ills that are erroneously blamed on capitalism in the first place.
It is our highly regulated version of capitalism which has given rise to the disaffection plaguing Western democracies. But people are not directing their anger at the market traders or the independent businesses openly competing for customer affection. Almost everyone understand and appreciate this basic manifestation of capitalism. The anger is directed at multinationals and financial institutions who are seen to have rigged the game. But these organisations often operate in an environment governed by state interference, not unimpeded competition. Regulation, subsidies, barriers to entry, professional licensing or tax arbitrage are not features of the free market. It is exactly where the free market is not allowed to function that rent-seeking and cronyism is allowed to flourish. Paradoxically, it is where capitalism is restrained that the left finds fodder for their anti-capitalist narrative.
Those who defend capitalism recognise that people are motivated by self-interest and that capitalism is the only system which channels this basic human trait into mutually beneficial actions through free exchange. In the words of Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”. But the system needs to be left alone to function properly.
To cure the crisis of capitalism, then, we need not less capitalism, but more. Freeing up markets, cutting regulation and taxes and doing away with subsidies would expose businesses big and small to competition and force them to compete for custom. It is when free, unimpeded competition between incumbents and disrupting entrepreneurs is keeping prices down and innovation up, that the true virtue of capitalism is laid bare. That is when the virtue of the system that over the last two centuries has dragged billions out of poverty is exposed. Voluntary exchange leading to innovation, falling prices and continuous improvements in living standards – that is true capitalism. And where’s the crisis in that?