A legacy essay from 2017.
While the ends towards which capitalism tends are generally forces for social good, the means by which capitalism achieves these ends tend to be more of a mixed bag of social goods and evils. On balance, therefore, capitalism has the potential to be a social good while also having the potential to tend towards ostensible social evil. I take the capitalism’s ends to centre around the promotion of economic growth, while the means by which these macro-economic ends are achieved involve free-market competition. While growth is ostensibly a social good in promoting general human welfare, free-market competition risks creating a ‘race to the bottom’. In order to come to my overall conclusion that capitalism can be used for social good or evil, it is necessary to ask two questions. Firstly, is competition—part of capitalism’s ‘means’—a force for social good or evil? Secondly, is growth—part of capitalism’s ‘ends’—a force for social good or evil? I structure my analysis around these two questions, concluding that capitalism is, if it does constitute a ‘social good’ today, only a contingent social good, and has a considerable capacity for social evil if the system is poorly managed and regulated.
I define capitalism as a socio-economic system that seeks to achieve economic growth through free-market competition. Thus the political ‘state’ is seen as less important than the non-state entities which try to maximise the profit—that is, the difference between revenues and costs—of a given company. Through profit-maximisation and stiff competition, businesses are forced to deliver the most marketable goods to their customers. As a culmination of this competition, economic growth results. But what does it mean for capitalism to be a force for ‘social good’ or ‘social evil’? I define the ‘social good’ to be the maximisation not of company profits but of the general welfare of society as a whole. In other words, for capitalism to be a social good, it must satisfy everyone’s basic needs, delivering the ‘public goods’ such as food, water, security and education (Fukuyama, 2014). But social good also entails the freedom of everyone to pursue their desires (Singer; Mill). Generally, however, welfare or social good can be considered as a whole, in which social good entails benefits for everyone following the above criteria, whereas social evil entails benefits just for a privileged few.
Firstly, is competition—part of capitalism’s ‘means’—a force for social good or evil? It seems, on balance, that competition is a force for social good and social evil in equal measure. On the one hand, competition promotes individualism, or the ability of each individual to pursue their desires, thus maximising social welfare as defined above. Transnational corporations (TNCs) such as clothing companies may outsource labour abroad to less economically developed countries, but this in turn simply generates more jobs in those less developed countries. Thus capitalism, through the free market, allows for opportunity to create companies and join them. However, competition can also promote a ‘race to the bottom’ in trade standards, particularly in a globalised world in which the free market has been expanded to encompass the world through the reduction of tariffs under the General Agreement on Tariffs and Trade’s successive trade rounds, culminating in the creation of the pro-free market World Trade Organisation (WTO). Through the free market, companies, instead of being consistently encouraged to generate high-equality products, are often encouraged to manufacture products that simply are cheap enough for consumers to be willing to buy them. A problem with this approach is that it seeks to pay the lowest possible wages to workers, allowing TNCs to exploit workers in lower-wage countries.
Moreover, the quality of products is not always guaranteed—hence the reason why the US in August 2017 announced a move to investigate China’s apparent violating of WTO intellectual property rights (IPRs) through stealing the ideas of US companies. Although only 6 companies have come forward so far to the investigatory commission, it is notable that the US government deems it necessary to investigate a foreign government for the misuse of the capitalist system. Arguably, through the free market, WTO rules make violation of IPRs and other rules necessary in order to remain competitive. However, through WTO management—which has, through its dispute resolution mechanism, overseen around 500 cases since its establishment in the 1990s—the extent to which capitalism promotes rule-breaking, wage-minimising and behaviour which tends towards ‘social evil’ is limited. Through a comprehensive international system of rules and regulations under the WTO’s auspices, international trade is prevented from being an overly negative force, and instead has allowed economic growth to increase dramatically.
The fact that wages in developed nations since 1800 have increased by a factor of twelve suggests that capitalism has a great potential for, through competition, allowing people to pursue better lives (Fukuyama, 2014). But the potential for social evil must also be acknowledged if the general public is to be satisfied: the outcomes of the 2016 US election, with the election of an individual who threatened to label China a ‘currency manipulator’ and initiate a costly trade war with the country, together with the Brexit referendum in the UK and the resurgence of the far-right in Europe all tend to suggest that capitalism does not always work for everyone. In particular, the competitive free movement of goods, services and labour within the European Union has drawn ire from Eurosceptics and many parts of the public alike, suggesting that competition is not always either a popular or a necessarily beneficial policy socially. Sometimes the economic goods of capitalism, seen through higher growth and higher wages, do not equate with the social woes of seeing job insecurity and community disruption through extensive labour and capital mobility. Perhaps the pace of change in economic competitiveness is something that must be judged in conjunction with social views.
Secondly, is growth—part of capitalism’s ‘ends’—a force for social good or evil? On balance, it seems that growth is a net social good, but also has the potential to be used for social evil. The increase in growth averaged 4% in the post-war Bretton Woods System in the developed world, although since then economic geographer David Harvey estimates growth to have averaged around 2%. In the developing world, moreover, growth rates have increased dramatically, with the leapfrogging of countries like China to the ‘fourth industrial revolution’, involving automation, mechanisation and increasing economic productivity. Growth has, overall, helped to increase social welfare through increasing wages and maximising the extent to which countries and people are able to move up the socio-economic ladder. Since Deng Xiaoping’s capitalist reforms in the 1980s, China has moved from being a third-world country to the largest world economic by GDP PPP. But equally, the 2007-09 financial crisis demonstrated how global capitalism is often unstable, and deregulation has its consequences. Through urging companies like Apple to pay their taxes, perhaps the European Commission is setting an example to the rest of the world as to how to manage capitalism. This is because, without regulation of the market and management of the effects of apparently unlimited growth, wealth inequality increased and so can social resentment towards large companies. Hence the reason why more socialist—rather than capitalist—candidates such as Bernie Sanders in the US and Jeremy Corbyn of the UK have risen to prominence: it seems that capitalism does not always work for ‘the people’.
Unlimited growth, moreover, has the prospects for long-term social evil. For example, the climate may suffer as a result of further unlimited growth in areas such as fossil fuels, which risk creating an ecological mass-extinction through increasing global warming (Intergovernmental Panel on Climate Change). Growth, it seems, is not a panacea for social good: as James Lovelock has noted, as we destroy the ecological element of the planet, we risk harming human civilisation in the process. Management of growth through climate change mitigation—through such methods as the Paris climate accords—combined with management of inequality—which itself, as Wolfgang Streeck (2014) notes, risks harming growth rates—growth could be turned into a social good. If growth occurs, for instance, in renewable industries rather than in fossil fuels, and if growth enables higher wages through lowering the gender pay gap perpetuated by a system of male CEOs, perhaps capitalism’s ends can be forces for social good. But it is up to policymakers and companies to realise the potential for social good rather than simply ignoring the risks and social hazards associated with deregulated, unmanaged or unlimited growth.
In conclusion, capitalism seems to neither be a definitive social good nor a definitive social evil. If Adam Smith was right, then capitalism’s ‘invisible hand’ of free-market competition should make sure that everyone benefits from the growth-maximising market. But if Karl Marx was right, then capitalism, through favouring a profit-seeking bourgeois class over the working proletariat, is a force for great social evil and welfare minimisation for society as a whole. In reality, this essay judges that the truth lies somewhere in between these two opinions: capitalism is neither a social good nor a social evil, as it can be used for both purposes. If this essay were to definitively pick a side of the debate, it would be easy to say that capitalism is a social good, but any such claim must be caveated with an acknowledgment of capitalism’s equal potential for destruction. At least, in comparison with alternative modes of socio-economic organisation, capitalism has a considerable potential to be wielded for the purposes of social good.
Capitalism, nevertheless, can be used for both social good and social evil: competition generates an equal measure of goods and evils, while growth is a net social good which has the potential to be turned into a social evil through unwise politico-economic decision-making. It is therefore up to policymakers to demonstrate, through careful regulation and management of the associated social hazards, whether capitalism’s ends truly justify its means.