Julian Glassford is a UK-based multidisciplinary researcher and social entrepreneur.
The American Enterprise Institute recently featured a spotlight essay which posited that: “Smith’s liberalism, not Marx’s socialism has achieved prosperity and human flourishing”.
Certainly, the experience of recent generations bears testament to capitalist systems winning out, but in truth there is rather more to it than that, as current events clearly indicate.
In his opus magnum, The Wealth of Nations, Adam Smith famously explained how rational self-interest may lead, incidentally, to widespread economic well-being. Perhaps less well known are the observations that the father of liberal economics recorded in his earlier work, The Theory of Moral Sentiments, regarding man’s capacity for both sympathy and self-approbation.
Centuries later, the rise of populist counter-culture illustrates mounting hostility to what is perceived as a hubristic, self-serving, and less than empathetic elite, who have been lining their pockets for decades in the near total absence of a self-regulatory “invisible hand”.
Smith’s friend and contemporary, David Hume, held that economic institutions follow an evolutionary course determined by the norms of commerce. That being so, Smith’s own reckoning that economic structures are often a strong function of education, habit, and custom, poses an awkward question for triumphalist capitalists.
Plainly, territories that historically fell under the yoke of communism tended not to be in quite the same privileged position as nations of the ‘Western enlightenment’, in said respects. What we can say with confidence is that greater productive autonomy tends to mean more efficient economic outcomes – if not necessarily “human flourishing”.
Socialism may have failed to deliver on its promise, but its prescient founding fathers did get at least one thing right: under capitalism, ever-increasing concentration of wealth in the hands of a privileged few is both fairly inevitable and inherently destabilising.
Karl Marx and Friedrich Engels foresaw structural economic problems, social degradation, political disenfranchisement, and associated frictions spilling over into rebellion. The above-noted counter-cultural trend is demonstrative of this direction of travel.
Sadly, the only unified response that the powers that be have yet mustered, in doubling down on low-interest fuelled bank debts, ironically bears greater resemblance to global communism than to libertarianism. Victory for Boris Johnson’s Brexit and Donald Trump’s ‘Brexit Plus Plus Plus’ are both a repudiation of the shambolic status quo and a powerful mandate for change.
Unfortunately, overhauling the grand Ponzi scheme we call the financial system is every bit as likely to crash the global economy as a rash, Trump-style recourse to mercantilism; today the market value of derivatives contracts alone amounts to roughly ten times that of Gross World Product (GWP).
Critics would, however, suggest that the system is therefore manifestly so stuck in a rut that collapse is a virtual inevitability anyway. Why not roll the dice?
No Western incumbent is likely to send the house of cards crashing down any time soon, if it can be helped – not the reformist British Prime Minister, nor, even, the capricious US President.
However, canny leaders understand that we must breathe new life into Smith’s concept of free market economics: a system of commerce unencumbered by exploitative monopolies and overzealous regulation, and instead centred on delivering real utility through genuine, dynamic innovation. ‘Crooks in suits’ must change their stripes, and crony capitalists quickly comprehend that sporting competition – that quaint British value – is key.
Real progress entails improvements in welfare across “all the different orders”, as Smith said. Plainly, this has not been witnessed in the decade following the great recession; hence, a significant and growing public appetite not just to steady the ship, and to balance the books, but to also even the score.
Although a compensatory lurch to the redistributive left currently seems unlikely, going forward social democracies look set to give cosy capitalistic coteries something of a culture shock nevertheless. Arbitrary, skewed reward structures that may promote extractive and destabilising short-termism are looking increasingly socially, economically, and politically unsustainable.
Unsurprisingly, then, we now see considerably more policy chatter concerning corporate governance, pay restraint, and transparency, and not just from the Bernie Sanders of this world.
Along with measures like raising minimum wage levels and/or reducing the tax burden on the working poor, endeavours to rebalance commercial stakeholder interests should help foster a timely sense of renewed equitability, and hence political tranquillity. Furthermore, they somewhat mitigate perverse incentives and moral hazard, and hence macro-systemic financial volatility.
But don’t hold out too much hope of banks deemed “too big to fail” losing the demonstrated capacity to hold entire nations to ransom any time soon. At least, not this side of ‘the great reset’ that no-one dare provoke.