TCS Daily

'Compared to What?'

By Pete Geddes - August 1, 2003 12:00 AM

I recently spoke on the scientific and ecological issues of genetically modified foods. Many in the audience and friends I meet at our co-op are concerned about "globalization." Some want to arrest the spread of the market economy and modern technology. They believe these are the root causes of environmental degradation and social injustice. They're badly mistaken, 180 degrees off course. Here's why.

I agree global capitalism creates social stress. But angst over the real problems of globalization would be lessened if critics addressed one question: "Compared to what?"

The record over the past 150 years is clear. Beyond families and small groups, capitalism is the best and most humane way to organize modern societies. In market-based democracies, living standards rise ever higher, faster, and more inclusively. No other system compares. Developing countries that adopt market reforms and open their economies to global trade make as much progress in one generation as industrialized nations did in a century. Those that don't either stagnate or regress.

The Institute for International Economics has documented the progress. Thanks to faster growth in low-income countries, the share of the world population living in poverty declined from 44 percent in 1980 to 13 percent in 2000. Much of the gain occurred in
Asia. Sadly, little progress was made in the economically and socially repressed countries of Africa.

Liberal democracies and market economies go together. They alone nurture and protect individual liberty -- the key to social justice and progress. In light of these obvious successes, why is it taking so long for the Western system of political and economic governance to spread worldwide?

Capitalism surely is a profoundly powerful agent of change. This was articulated in 1942 by economist Joseph Schumpeter in Capitalism, Socialism and Democracy. Schumpeter recognized capitalism's destabilizing effects on social systems, and coined the phrase "creative destruction." As entrepreneurs discover and apply innovations, they cause old ideas, technologies, skills, and equipment to become obsolete. In some cases whole communities are displaced (e.g., steel workers in
Pittsburgh and copper miners in Butte).

The question, as Schumpeter saw it, was not "how capitalism administers existing structures... [but] how it creates and destroys them." Schumpeter believed creative destruction was essential for progress.

But losers bitterly resist the market forces responsible for their condition. Often they'll use their political power to seek governmental protection. American automakers demanded import quotas when facing superior Japanese products.

Ameliorating the unsettling effects of markets is possible in the short run, but is very costly. For example, it's clear the European welfare states are not sustainable. They produce high unemployment (ranging from 9 to 11 percent), huge pension liabilities, and a discontented youth.

The Japanese have tried mightily to insulate their economy from the forces of creative destruction. The government's continual support for insolvent banks and its failure to reform a political system riddled with cronyism has produced a 15-year recession. Is this a superior policy to allowing market forces to work?

Schumpeter predicted that capitalism's success would lead to its ultimate downfall. He feared the social stress created by creative destruction would breed a class of intellectual elites who make their living attacking the very system of private property and freedom necessary for their existence.

Karl Marx understood these social forces. He and Engels created a powerfully motivating ideology. Tragically, their utopian delusions created a political system that killed 20 million in the
Soviet Union and about 50 million in China... so far.

Western intellectuals have a romance with a system of government that promises "social justice," but delivers the gulag. As Nobel laureate Saul Bellow wrote, "a great deal of intellect can be invested in ignorance when the need for illusion runs deep."

The 20th century taught us that ideas have powerful consequences. It's naïve to think that sound theory and rationality will automatically triumph. The anti-globalization movement is terribly misguided, but powerful.

I share my friends' concern for human rights, environmental quality, and improving social well being, particularly for the poor. Their anger at the short-term disruptions of capitalism is real. But the alternatives are oppressive policies that retard progress and destroy liberty.


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