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Does Capitalism Cause Social Decay?
One of the paradoxes of our time is that even though material conditions have improved dramatically across the world over the last several decades, it is commonly asserted that more people feel anxious and depressed. Surely there are more reports of such dislocation and perhaps better treatment of these conditions. Understanding this alleged conundrum is critical to the future course of social policy. An increasing number of important conservative thinkers point to modern capitalism as the source of our malaise. Oren Cass of the Manhattan Institute criticized labor markets in his recent book The Once and Future Worker. And Raghuram Rajan, a professor at the Booth School of Business at the University of Chicago, offers his account of why more people feel despair in his new book, The Third Pillar: How Markets and the State Leave the Community Behind.
I’ve covered Cass’s book previously, so will focus on Rajan’s work in this column. Before joining Booth, Rajan was the governor of the Reserve Bank of India. His training is in finance, not sociology, which is a far more nebulous field of study. But his book ventures quite often into sociological territory. A distinguished conservative intellectual, Rajan writes in his book: “We are surrounded by plenty. Humanity has never been richer as technologies of production have improved steadily over the last two hundred and fifty years. It is not just the developed countries that have grown wealthier; billions across the developing world have moved from stressful poverty to a comfortable middle-class existence in the span of a generation. Income is more evenly spread across the world than at any other time in our lives. For the first time in history we have it in our power to eradicate hunger and starvation elsewhere.”
I should have thought that this news was cause for huge celebration. But, no, there is a black cloud on the horizon. “In an era of seeming plenty,” he writes, “a group that once epitomized the American dream seems to have lost hope.” That group consists of “the moderately educated middle-aged white male in the United States.” His book is an effort to explain this paradox.
But Rajan enters intellectual hot water with his flawed definition of community. He believes that community consists of local government institutions and voluntary organizations. He writes: “We will view government, such as the school board, the neighborhood council or the town mayor as part of the community.” This move runs immediately into serious difficulties because the two operate on totally different premises. Local government institutions are dominated by local electoral and regulatory politics, where factional disputes are every bit as intense as in statewide or national elections. In contrast, voluntary civic institutions operate under the principle of reciprocity, dominated by a principle of unanimity.
The two are polar opposites, which makes it incorrect to categorize government at any level as part of the community. Lots of local citizens serve on school boards and city councils, and would consider their activities community service. But that form of public service is often bitterly partisan and hence fundamentally different from participation in voluntary organizations. There, the notion of community refers to informal social relations that exist among people who live in close proximity to each other. These close relations allow people to know each other well and to form bonds of trust that do not depend for their stability on any system of legal enforcement. Rajan rightly identifies reciprocity as an important norm in successful communities. In its simplest sense, reciprocity operates as a form of social barter.
But just how does market capitalism undermine reciprocity and cooperation in the social sphere? Rajan does not specify any particular mechanism that makes it impossible for people to wear both a market and a cooperative hat. Most people commonly do both. In the cooperative mode, the basic practice is that I help you when you need some assistance, and my only compensation is the expectation—not the obligation—that you will extend a helping hand to me when I am in need. The system of reciprocity works best when individuals stand in rough parity with each other. These relationships are not purely altruistic. Each person has the shared expectation that both will cooperate over time, which brings a level of social security. Reciprocity quickly becomes a norm in larger groups of individuals in a cohesive community where people share values and expectations. If A gives some assistance to B, the norm of community reciprocity is satisfied if either C or D supply needed assistance to A.
It would, however, be a mistake to limit the practices of voluntary assistance solely to cases of reciprocity. The implicit norm of benevolence can also kick in when it is well understood that the recipient of the aid may never be in a position, say for reasons of illness or poverty, to provide return assistance. Within traditional legal theory, moreover, it is often said that all individuals, even those of modest means, are under an imperfect obligation to provide assistance to others in need. These imperfect obligations do not generate any legal obligation enforceable in a court of law. They specify neither the individuals to whom the obligation is owed nor the amount of assistance to be supplied. But make no mistake about it: relevant social, religious, and psychological sanctions produce in abundance the desired effects.
Of course, today, people receive tax deductions for such acts of charity—making those acts seem less motivated by a benevolent community norm. But charitable giving was at its height during the period of laissez-faire in the late nineteenth and early twentieth centuries, when the absence of an income tax meant that no one made charitable gifts with the hopes of getting some tax deduction. A constellation of moral duties and social pressures during that time led to the foundation of major universities like Johns Hopkins (1876), Stanford (1885), the University of Chicago (1890), and the Carnegie Institute of Technology (1900), later Carnegie-Mellon University. Even today, similar practices continue, most notably with the Buffett pledge whereby 168 billionaires and counting promise to give away at least half of their private wealth to charitable causes. Rajan believes that the market only involves quid pro quo business exchanges. But that is far too narrow a conception. The world of voluntary transactions is far richer and more diverse, and a capitalist system easily accommodates these charitable activities.
Rajan’s effort to treat local governments like community rests on the assumption that both are proximate to the populations they serve. But in large cities, that argument breaks down. Take a city like New York, whose multiple boards and commissions are often locked in power struggles over which special interest prevails. Community school boards engage in highly political and divisive actions when they are forced to negotiate union contracts, or to decide the boundaries between adjacent school districts, which has created intense political controversy on New York’s Upper West Side. That controversy has been eclipsed now that Mayor Bill de Blasio is trying to introduce a greater measure of diversity in New York City’s elite high schools at the expense and over the fierce protest of (mostly, but not exclusively) Asian-American parents and students.
The local divisions are every bit as great when the question turns to the issue of zoning: what land uses should be permitted in which areas and why. Do we include affordable housing for lower-income people who want to live in a small suburban community? The case of NAACP v. Mount Laurel (1975, 1983) has raged for two generations on just this question. Indeed, volumes on local government law have grappled with the question of what legal protection people get when their land is rendered worthless by oppressive zoning regulation. Norms of benevolence and reciprocity do not rear their head in these political struggles.
To explain how capitalist innovation produces social unraveling, Rajan points to the “Information and Communications Technology Revolution”—that is to say, the rise of the Internet, social media, and smartphones. To be sure, each new technology introduces some social dislocations, but the net positives are enormous. Those same smartphones also make it easier for people to meet and work together—and to connect, like the grandmother in Iran who can FaceTime with her grandchild in Michigan. Rajan mentions the elderly person who now gets her medicines online and no longer has to depend on the good graces of a neighbor for a ride to the pharmacy. But that development is great news for these individuals, who can acquire health care at lower cost and risk. The traditional norms of reciprocity and benevolence can now be directed to other activities, like taking elderly people to visit family and friends. Technology may eliminate opportunities for benevolence. But it also creates vastly greater new opportunities for it.
Nor is capitalism or technology responsible for the plight of Rajan’s “moderately educated middle-aged white male,” aka Trump supporters, whose opportunities have diminished in recent years. Their discontent is not thanks to capitalism, but to the government-supported apparatus that promotes programs of diversity and inclusion in government jobs, private firms, and educational institutions, from which this demographic benefits little. Trump has made many blunders on issues of free trade, and has browbeaten particular companies like Harley-Davidson and General Motors for shutting down unprofitable plants and shifting activities overseas. But by the same token, the Trump administration has exercised a light regulatory hand on employment relationships such that many hard-to-place employees—former criminals, teenagers, and members of minority groups—have found a foothold in the economy that would be undermined by aggressive enforcement of the minimum wage and other applicable statutes. Rajan also writes of the opioid crisis that has afflicted small communities—but, again, why charge that to the market rather than the state? The same places wracked by the opioid epidemic are also where labor and environmental regulations have made it harder for residents there to find gainful employment.
I am in favor of strengthening community. But I strongly oppose taking any steps that will slow down the innovation that has led to remarkable global progress. Recently, the prestigious British medical magazine Lancet tweeted the familiar dirge that “disease, violence and inequality threaten more adolescents worldwide than ever before.” Nonsense: the historical blindness of statements like that is epic and inexcusable. Just look at the response posted by the American Council on Science and Health that tells, using hard data, a very different story of the rapid decline of disease and poverty throughout the world. We do not get to that situation by killing off capitalism or innovation. We need more capitalism, not less, to loosen the shackles imposed by the state so that markets can perform their vital functions and continue bringing health and prosperity to people across the globe.
© 2019 by the Board of Trustees of Leland Stanford Junior University
Published in Economics
No.
Just tooth decay.
I really dislike books like this that try to snatch defeat out of the jaws of victory just because we haven’t yet made our way back to the Garden. One of the theories behind the increased incidence of autoimmune diseases and allergies in developed countries is that our environments are too sterile. With nothing external to fight, our innate defenses turn against us. I doubt any level of prosperity, no matter how evenly distributed, would lead to humans feeling any better. We’d just find something else to fret about. When we have a lot, we have a lot to lose. But the key phrase there is ‘we have a lot’. Capitalism and free markets led to prosperity and my experience is that free people rise to the occasion when someone needs help. The networks of people who are there to lend a hand-whether you need a place to live, a job, or other help- is truly heartening. We can always do better, but that is what life is for, isn’t it?
One very large factor that has adversely affected moderately-educated white men in the last two generations is Radical Feminism. This ideology has pounded into men the idea that they are inferior to women in all things, are generally misogynist, and need to be something other than what they are (Men). Despite the fact that Women get the majority of college degrees, the Radical Feminists still disseminate the myth of female oppression. Women get first dibs on promotions at the office (because there are never enough women in management), and have pretty much carte blanche to accuse men of sexual harassment anywhere and everywhere (and are presumed to be telling the truth). Male-bashing is all around us, in the media, advertising, and social media. Is it any wonder that so many middle-aged white men succumb to drug and alcohol addiction?
Capitalism causes freedom and prosperity. Freedom and prosperity cause people to not realize their need for God. They turn away from God, lose their minds, and stop valuing freedom, prosperity, & capitalism. So yes, after a few generations capitalism causes decay, democrats, & AOC. Virtue prospers under hardship.
If capitalism provides the tax revenues by which an ever-expanding government provides more and more of what people need to live every day, instead of them earning it themselves and becoming self-reliant and engaged people, then yes, capitalism causes social decay.
If we’ve spent half our federal budgets and 18 trillion trying to “help” people over the last 50 years, why then would the numbers of those needing help increase? It has more to do with political incentives (the ease by which politicians can buy votes with policy and spending) than it does with the human condition.
No mention of the social decay of the millions living under communism, I guess. Must be because there’s no good data on that to write about from a very comfortable room, by typing on a computer built by a capitalist.
Most people seem to be ignorant of what “prosperity” means and where it comes from. As a society, were were better off, when we were taught to be grateful for good things we have and opportunities we have and freedoms we have *and* the bad things we don’t have. Feeling grateful is the key to feeling prosperous. It is also important to understand that material prosperity comes from productivity and that productivity comes from application of capital.
I read another editorial today proposing that Millennials don’t feel prosperous and do embrace socialism out of an unrecognized sense of guilt living a life of great prosperity. To me that is another example of people not being taught to be grateful.
I agree completely. One of the things that has bothered me since the early days of “social justice” is that it comes from a place of guilt and self-hatred, rather than a place of gratitude, compassion and generosity. The SJ view turns that self hatred onto the very system that produced these blessings, finding it corrupt and wanting. Whereas those of us who believe in gratitude, compassion and generosity celebrate our achievements while acknowledging that we can and should do better.
Educating little boys and little girls together is unfair to the little boys, whose brains are slower to develop, and who find it more difficult to “shut up sit still and do what you’re told”. I remember I didn’t catch up with the top girls until the seventh grade.
But what about the average little boy. His experience of school is failure failure failure failure failure failure; until he gets to, say, the seventh grade, and finally becomes — potentially — an average student. Except that, by that time, he has given up: he “hates school”.
This being my field of expertise, I think I should correct this analysis. New York is strange. It is an unnatural merger of 5 separate jurisdictions forced upon it by the State of New York. One of the original 5 (Staten Island) has tried to secede within living memory (they did not secede because Rudy Giuliani devolved some powers to them and stopped dumping trash on them). Within the NYC MSA, a majority of the population live in the 200 other jurisdictions -11 million outside NYC to the 9 million inside NYC. I don’t have the data handy to calculate the average population size of the cities in the NYC MSA, but I do know that the median jurisdiction in the United States is Akron, Ohio -about 200k residents. 70% or so of Americans live in either rural or suburban jurisdictions.
Americans do think of their cities as part of their community -is the reason for the low median size of jurisdiction and the high number of smaller jurisdictions that surround major central cities. And when they have the level of animosity Epstein is discussing, they resolve the issue by dividing the jurisdictions further. The reason that New York hasn’t split up is because it has used the money it gets from Wall Street to compensate the residents of the other jurisdictions to stay in the city -otherwise Staten Island would have left long ago, as would Brooklyn. LA hasn’t broken up because California won’t let it, and Chicago has such massive devolution to the neighborhood level that the city barely counts as a single jurisdiction.
It is incorrect to analyze American local government as if it looks like New York. It doesn’t. New York is the aberration.
Decay is caused by sin. Sin will exist regardless of what system any human puts in place. Capitalism is bad but it is far better than any other economic system we’ve come up with so far.
Caught up with an old friend of mine, a guy I went to grade school and high school with, hadn’t seen him in 25 years. One of the topics of discussion, among many, was gratitude. He’s an extremely successful dude professionally, has 4 kids, a couple of them with significant learning disabilities, and he’s happy as clams.
Why? Gratitude. Honestly, I didn’t see that coming, but it’s 100% accurate.
The history of the ancient Israelites reveals many times over that when people become prosperous they turn away from God (because they get arrogant that “we did this ourselves and therefore don’t need God”).
Capitalism does depend on a virtuous population to self-regulate the sinful excesses that humans are prone to want. I worry that as more Americans turn away from God, society (“community”) loses that self-regulating capability, which will require a coercive entity to adopt that role.
I have trouble with even the premise that “capitalism” (I prefer “free market,” but so be it) destroys “community.” Capitalism inherently builds community because it depends on seeking to understand what your “neighbor” might want or need so that you and your neighbor can agree on an exchange by which you meet that want or need and you receive some benefit in the exchange. You must interact with your “neighbor.”
Government coercion, and the voting that establishes such government coercion, inherently pits neighbors against each other and dissolves community.
Capitalism doesn’t cause decay, but consolidation, centralization, and scaling everything up are causes of social decay. Those are a feature of both free market capitalism and state capitalism (socialism). State capitalism tends to carry it to worse extremes.
Von Mises!
The problem these days is that its’ important for business to scale up, and the best way to do that is to remove the expensive person-to-person interactions. Google is probably the leading example. Or think of the way you can no longer buy clothes that fit. One way to scale up is to make one size that fits just about everyone, more or less. Or a minimum number of sizes. So there is an emphasis on not understanding what people need, and making them conform to your needs to scale up and beat out all competitors who might prefer to work on a more human scale, leaving us with only a Hobson’s choice.
There are diseconomies of scale, but also economies of scale, as you point out. Companies these days advertise ordering tailored clothing online. I have no idea how well it works. Even if it does work, you might do it all without interacting in person with another human being.
I realize you can still buy tailored clothing. There was recently a WSJ article about it. But I can no longer buy general, everyiday clothing in which I specify waist size, inseam, sleeve length, neck size, like I used to do, without getting dress clothing. I’d like to be able to order a pair of cool-weather bicycling tights that fits, for example. My choices are small, medium, large. Sometimes medium fits me, but if it fits me it’s a poor fit for others who have to make do with bad fitting clothes. More often there is no size that fits me well. I don’t think there are any tailors who will help with that. Well, unless I buy the tights, take them to a tailor and have him make adjustments. The economies of scale used to help us buy the clothes we need at good prices, but at the global scale at which companies now need to compete, market forces dictate that clothes are no longer made in a sizes to fit variously shaped people.
Socialism is worse, of course. I think of it as super-sized, reductio ad absurdum capitalism.
One way consumers cope with this is a community of pretty dedicated reviewers on Amazon.com (and probably elsewhere, too), as well as communities devoted to modding various pre-fab products (IKEA furniture is a big one) including clothing.
I suspect leaving feedback on what body type a given cut fits, whether it runs true to size, etc, etc, and if DIY alterations will get it to fit is more a woman thing than a man thing.
(Incidentally, I have rarely used in-person tailors, and when I have, more often to bad results than good. Maybe it’s bad luck. Or maybe it’s, when you don’t need tailors regularly, it’s harder to know how to spot a good one.)
There is a lot of feedback on Amazon about these sizing problems. Sometimes it’s from women ordering clothes for their husbands. It’s like tilting at windmills. It’s been going on for years, and the problem gets no better. I don’t think it will make a difference in our globalized economy. Those of us who are old enough to remember when clothes came to fit different shapes can get some small satisfaction from grumping about it.
It’s a bit time-consuming, but reading the feedback is useful for figuring out what not to buy and what’s worth taking a chance on. So in that sense, I think the feedback has gotten the problem a little better.
I can’t argue with that. Some small satisfaction in grumping is what Ricochet is here for ;-P
That’s a different problem. But yes, it has kept me from ordering any of the more expensive clothes, because I’m not willing to take a chance on the sizing, whereas I am more willing to take a chance on cheaper stuff. As to having any influence on the seller, no, I haven’t seen any sign of it
As to the claim that capitalism builds community by fostering interactions, I don’t buy it. It can at a local scale, but not in the global marketplace.
You write: Rajan also writes of the opioid crisis that has afflicted small communities—but, again, why charge that to the market rather than the state? The same places wracked by the opioid epidemic are also where labor and environmental regulations have made it harder for residents there to find gainful employment.
Your take on this is a decent one. The jobs left for the great overseas; the community that had been established by people living, working and spending their money locally was in intense pain at the same time that opioids were promoted by our FDA as totally suitable for chronic pain.
And us doing so is itself an example that capitalism builds community by fostering interactions. A capitalist system allows anyone (let’s call them “Peter” and “Rob”) to start an enterprise to serve a “niche” of the giant global media market is not being satisfied.
There are many types of communities built to meet needs and wants that are not being met by the giant global players. There probably are people ready to meet the specific bicycle clothing wants of @thereticulator . One of the challenges though is whether @thereticulator (and enough of his peers) would be willing to pay those people what they want to justify the business. The incentives for these “niche” market communities increase if the giant global players stray from the needs and wants of more consumers. Therefore, the possibility of those “niche” players force the global players to stay at least somewhat connected with the consumers.
I see this more clearly in the “artisanal food” world. “Communities” are built by people who don’t like the mass produced food.
Capitalism generates these communities by permitting them to exist and providing incentives to form them. Socialism (and other economic forms in which the government controls the means of production) must cater to the masses, and must prohibit the distractions of “niches” and therefore must oppose forming communities.
Sure, if I paid more than I can afford, I could get what companies used to compete to provide at prices I could afford when I had less income before the markets became so globalized. And if you allow your definition to become generalized and abstracted enough, you can call what we now have “community building.” And in theory, you should be able to convince people that they should like it, be happy, and reject any alternatives. Just because it doesn’t happen mean it couldn’t happen.
One of the built-in incentives of the welfare state is to encourage people to stay in a depressed community rather than pull up stakes and move to where the jobs are.
However the welfare state exists all over the country, so I am not sure how this applies. So if you are getting AFDC, you can still move somewhere else and still get it.
And same thing with unemployment.
The job market bottoming out as it did across the rust belt meant that people who had already almost paid off their homes realized now they had no one to sell those homes to. So it could then be argued that home ownership prevents people from moving away from a depressed community.
The one thing almost everyone who voted for Trump seems to agree on is that we all remember how well America worked back when Americans made things, and how vital jobs are to an economy.
@caroljoy — A government check gives people the option to stay in a dying community, whereas before they had to leave, no matter how much they had invested in that community. Leaving is difficult and traumatic, and some people won’t do it unless they absolutely have to.
A really wonderful book “What Went Wrong” by George R Tyler discusses various types of capitalism. We went from a family capitalism immediately after WWII, wherein the government made certain “socialist” style concessions to ensure that our economy grew and that our returning service people ended up on their feet. These activities included such items as the GI Bill, and the fact was that both Truman and Eisenhower had massive budgets to accomplish the goal of expanding the economy without bringing about massive inflation.
Eisenhower has traditionally been scolded, historically speaking, for cutting back on Truman’s budget. But despite his doing so, the American workforce saw the opportunity to work at building the nation’s Interstate Highway system. That program meant many men were working. That meant they had money in their pockets. So then they wanted to move their families from small apartments into suburban homes, with two cars in every garage. So now some people needed to be out their building homes, as carpenters, masons, electricians, plumbers et al.
What we have seen since the mid 1970’s is a lack of any such established programs. We have gone from family capitalism to vulture capitalism. The War in Vietnam was expensive, when viewed as a major expenditure of those times. This resulted in the recession of the late 1970’s. (Along with the various games Kissinger and others played with the oil supply.) The PTB allowed the Corporate State to run reign over everything else.
By the late 1980’s, a few on Wall Street made more money pushing papers around and buying up businesses, only to dismiss half the workers at those businesses. Anti Trust seemingly became a thing of the past. Consolidation exists such that we have fewer than 6 large Media Conglomerates, which mostly feed us the same news, and hold back on news we actually need.
Anyway Tyler’s book is far more entertaining and informative than my above spiel. I got my copy at the library, but by now it is probably a bargain on Amazon, where a used book is often only $ 3.50.