Capitalism and globalization

Will capitalism conquer the world? May be yes, but, per se, this is not a desirable outcome, because some diversity in economic systems is always beneficial for humankind.

What is more relevant is to assess whether the globalization of capitalism will be a positive or negative force in the current world. In this regard the balance between positive and negative impacts is clearly positive. I shall explain why below, but first let me explain why anti-capitalism movements are often also anti-globalization.

The detractors of globalization have three main lines of attack, namely that: globalization kills local and national cultures, that multinationals exploit non-unionized labor and lax regulations in poor countries and destroys national sovereignty and decision centers. Anti-capitalist advocates attribute to capitalism whatever they think is wrong in society. For instance, feminists blame capitalism for the unfair treatment of women, animal rights groups blame it for animal maltreatment, environmentalists say it is responsible for the destruction of nature and “climate change”, civil rights groups charge capitalism with promoting racism, peace activists attribute war and conflict to capitalist greed, moralists claim that commercialization and consumerism are responsible the loss of religious and social values, consumer-advocacy groups accuse capitalism of putting profits before people.

As explained in previous chapters none of these charges withstands the most simple scrutiny, let alone the counter-evidence provided recently by the turn to capitalism of former socialist and communists systems in China and other less developed countries.

First, and foremost, the globalization of capitalism accelerates the eradication of extreme poverty on a global scale, with the consequent positive effects on health, education and consumption. But, as is normal, accelerating economic growth also has its side effects, namely in terms of environment and demography. Likewise, it will accelerate the rise in the capital/labor ratio and the consequent impact on their relative share of income, which needs to be tackled through an increased capital ownership by workers either directly or through pension funds.

Nevertheless, the major impact of globalization will be through changes in political systems and regulations. Globalization unleashes forces that simultaneously strengthen and weaken the case for regulation. For example, greater freedom of movement for goods, labor and capital weakens the role of national governments. But the fear of sudden mass movements with disruptive consequences on infrastructure and employment calls for global regulation. Thus, using a parallel with monetary theory, the question whether the world is an optimal jurisdictional area for all the fundamental principles of capitalism is critical.

Without detailing all the issues let me just illustrate with a few. For instance, can we conceive of a global corporation reporting and paying taxes to single world entity? Or, can we anticipate an international court to judge violations of the rule of law? Would it rule under a system of common or civil law? Most of these question remit to the fundamental problem of how to structure different levels of government from a local to a global level and the respective enforcement apparatus, within a democratic system.

Although a body of generally-accepted international law is being developing slowly, it will probably take some centuries before a comprehensive system makes its mark. In the end, the fastest route may still be a progressive economic and political integration at the regional level like in the European Union.

In conclusion, although capitalism and globalization are both desirable and reinforce each other, any non-synchronized acceleration in one of them may backfire into a joint relapse.

Why socialism often ends-up in dictatorship

In contrast to a capitalist system, socialist regimes invariably transform into authoritarian or totalitarian political regimes; regardless of whether they reached power through popular vote or revolution.

That revolution often ends up in non-democratic regimes is an historical fact that can be explained by the revolutionaries desire to cling to power, regardless of whether they are pro or anti-socialists and anti-democracy.

What needs explaining is why socialists who were voted into power and promised to respect democracy also turned into non-democratic regimes. We can find two different routes.

First, when socialism evolves into communism. Then, it necessarily abandons its pro-democracy ideals because communism was based on the concept of a class (proletariat) dictatorship later renamed popular democracy.

Whether socialism will inevitably degenerate into communism was already debated in the XIX century. For instance, in Bastiat’s Law (1850), the author claimed that “men will resort to plunder whenever plunder is easier than work… As soon as the plundered classes gain political power, they establish a system of reprisals against other classes. They do not abolish legal plunder”.

Indeed, one hundred years later, a similar pessimism about human nature was the basis for Schumpeter’s (1942) prediction that capitalism would degenerate into a form of corporatism to be replaced by socialism.

Fortunately, history has shown that socialism does not always evolves into national socialism or communism and sometimes reverses into social-democracy, which accepts both capitalism and democracy. However, as the Scandinavian experience shows, this reversion has to be substantial otherwise the regime will not survive.

There is another possibility for socialism to survive temporarily within a democracy by exploring what we may call Latin-American populism.

The most emblematic example is found in Venezuela, a country with the oldest bipartisan democracy in the region. Former President Hugo Chavez was elected with the support of a largely impoverished population which was “bribed” to re-elect him through state sponsored social programs paid by the middle classes and the un-economic exploitation of the rich natural resources of the country for the benefit of a small group of trusted cronies.

However, this model of socialism is inevitably doomed for two main reasons: 1) the economic inefficiency of the system is so high that even the dilapidation of natural resources is not to enough to hide a generalized economic decline, and 2) the demands of its supporters on the welfare state rises with any new benefit so that public finances soon collapse.

These two factors are abundantly seen in Venezuela, where the socialist rulers, faced with growing opposition, have introduced all sorts of paranoiac prohibitions and persecutions in order to hang on to power, including the prohibition of travelling abroad for media directors and the detention of the opposition leader.

In conclusion, socialism will inevitably send democracy to a kind of limbo, from which it is only possible to exit by reversing its path towards social-democracy or by evolving towards state capitalism or communism and dictatorship.