Monday, 16 February 2015

Failed alternatives to capitalism

The rise of a new economic system to acquire wealth and social status is usually disliked by the established elites, and capitalism was no exception. This repulsion was also encouraged by the progressive replacement of serfs tied to the land by an urban proletariat working in factories under appalling conditions in the early years of industrialization. So, from the beginning there were calls for its reformation or replacement by alternative systems.

One the earliest attempts to find an alternative to capitalism was undertaken by businessmen who wished to promote a more humane form of industrial organization based on the ideal of a model village. We shall group these various experiments under the general heading of utopian socialism. Utopian socialism has its roots in the works of Henri de Saint-Simon, Charles Fourier, and Robert Owen who developed the fundamentals of voluntary cooperative socialism established among like-minded people.

Owen. established a textile factory in New Lanark, Scotland, and devoted much of his profits to improve the lives of his employees by introducing shorter working hours, schools for children and housing. He also established the New Harmony commune in Indiana, USA, which collapsed when one of his business partners ran off with all the profits.

Fourier was more radical. He rejected the industrial revolution and advocated the transformation of work into play and the creation of colonies based on love and passion. Today it is still possible to find similar initiatives among religious sects, hippies and new age travellers.

In general, all these peaceful utopian experiments subsided because they lacked the profit motive and the free markets necessary to create wealth. Moreover, the shared leadership adopted initially usually turned into a patriarchal dictatorship.

In contrast to the peaceful and voluntary creation of ideal societies, anarchists advocated terrorism and revolution to replace the state with self-managed institutions federated in a non-hierarchical structure. Anarchism is often also called libertarianism and has many distinct variations among left and right wing groups. Pierre-Joseph Proudhon’s political philosophy, expounded in his book What is Property? published in 1840, is among the most influential. It considers that property is a theft and is against the state, church and any other form of hierarchical organization. Currently, many remnants of the anarchist ideals can still be found among the anti-war, anti-capitalist, and anti-globalisation movements.

Despite its many ideological strands the number of actual anarchist experiments is very small and short-lived. For instance, the Paris Commune lasted only two months in 1871. Likewise, during the Russian revolution, the anarchist society established by the Revolutionary Insurrectionary Army of Ukraine in the “free territories” in eastern Ukraine lasted only for a few months. The same happened with the anarchist collectives formed in Aragon and Catalonia during the Spanish Civil War (1936-1939).

Since these anarchist experiments took place during civil wars their organization was mostly military and we cannot say that they really constituted an economic system. Should they have tried one it would have certainly failed because of their opposition to private property. This conclusion is corroborate by the fact that mutuals, cooperatives and other forms of non-corporate entities inspired in the social property ideal are being progressively abandoned.

On the contrary, the alternative proposed by Marx and Engels in the Communist Manifesto of 1848 was tried in various forms in many countries following the Russian Bolshevik revolution in 1917 and lasted until 1989. The central features of communism (or centralized planned economies as they were also called) are the abolition of private property and the replacement of markets by centralized planning. At the political level these regimes abolished democracy and established the so-called dictatorship of the proletariat.

The actual experiments with communism can be grouped in terms of the importance given to central planning relative to the market system to define three major gradients – the Soviet, the Chinese and the Yugoslav models – with the later relying more on self-managed organizations supervised by the state.

Notwithstanding their military success after World War II, their economic performance was abysmal and in the 1980s the ruling dictators began to be questioned by the party elites and the people alike. So, communism fell apart by itself in most countries after the fall of the Berlin Wall in 1989. With the notable exceptions of North Korea and Cuba where the god-like communist dictators so far managed to cling to power.

In spite of the various attempts to modernize communism and the efforts of economists to demonstrate how central planners could mimic the market system through an Arrow and Debreu tâtonnement process, central planning did not work efficiently. The theoretical superiority of the market economy demonstrated by Adam Smith back in 1776 and the inferiority of the communist system already pointed out in 1925 by Keynes were empirically vindicated when most countries, which at one stage accounted for more than half of the world population, replaced communism with some form of capitalism.

Apart from those attempting to find an alternative to capitalism, another group of thinkers, although critical of capitalism, accepted capitalism as the basis of the economic system provided that it was limited, regulated or controlled by the state. These may be categorized under two main lines - socialists/ social-democrats and corporatists/national-socialists.

Following Bismarck's Sickness Insurance Law of 1883 many dissenting Liberal Party politicians in Britain began arguing for similar social measures while non-revolutionary socialists inspired by the Fabian Society began supporting the idea of creating a party based on the trade union movement. So, the labour party was established in 1900, it endorsed socialism in 1918 and won its first election in 1924. Similar movements took place in the Scandinavian countries where Social Democratic parties began their social reforms in the 1920s.

After World War II major experiments with the nationalization of key industries and the creation of universal welfare states aimed at creating a mixed economy were tried in the UK and Scandinavia but only the later remains today as a type of state capitalism.

The other line of “controlled capitalism” was inspired in Pope Leo XIII’s Rerum Novarum encyclical of 1883 opposing the tri-partite (labour, capital and state) corporative cooperation to the Marxist concept of class struggle and the unregulated capitalism. In 1927 the Italian fascists adopted the carta del lavoro, setting the principles of corporatism, namely the strong influence of government over investment, as opposed to having a merely regulatory role. Corporatist models were adopted by the other Southern European countries.

Some of the corporatist policies were also adopted by the German National-socialists, but the Nazis introduced a new Darwinian approach based on racism, the ideal of racial supremacy and the conquest or elimination of the inferior races. Hitler’s control of labour relations and the key sectors of the economy was a tool for rearmament and the multiplier effect of such spending initially had a positive impact in the growth of the economy.

However, because the German experience from 1934 to 1945 was under an economy of war, it is better to assess this form of state capitalism through the experience of the more moderate forms of Christian-fascism. For instance, in Portugal corporatism lasted 40 years from 1933 to 1974. But, by the mid-1950s, the Portuguese ruler had to ease some of his corporatist policies to achieve a significant rebound of the economy. Still this was not enough to avoid the collapse of the regime and the restoration of democracy in 1974.

Overall, with the possible exception of the Scandinavian model, all historical attempts to create alternative economic systems or to control capitalism had a dramatic cost for humanity. In terms of economic misery and loss of human lives they surpassed everything experienced before during the turbulent past of the human species.

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