Inequality and the Varieties of Capitalism

My understanding of the latest economics work on any trade of between equality and efficiency is not that the trade of is not between equality and growth, but between equality and jobs. Advanced industrial economies which have done well on job creation have seen inequality rise, while countries that have more equal income distributions have higher unemployment. This argument only applies to large economies, becuase it is easier to make corporatist co-ordinating mechanism’s work in small economies.

Egalitarian Capitalism?

Isn’t this an oxymoron on a par with ‘Military Intelligence’? :-)

You can either have socialism. Or you can have capitalism. All that chaotic nonsense in the middle, over the last century, is what has created all of our problems.

If we have to live under socialism, give me the full-blooded kind every time. At least you knew where you were, with Uncle Joe Stalin. Obey or die.

Trying to combine a system based upon collectivism with an incompatible system based upon individualism just doesn’t work, as Hayek first said back in 1944, in the ‘Road to Serfdom’. Do we really need to read yet another book on this, sixty years later, or two megabytes of PDF, to keep re-realising it?

(BTW, there’s a great cartoon version of ‘Road to Serfdom’ here, for anyone with a few minutes to kill, this morning :)

Even if Kenworthy is right, growth is not the only good thing that capitalism brings. Some of us believe that the individual autonomy and dignity that comes from keeping what you get through free exchange is a good in itself. Now we can argue, and have argued before, over whether this truck-and-bartering autonomy is more important than equality or not. But nevertheless it is a good that may not be fully captured by growth statistics even if it positively correlates with them. And it’s a good which the welfare state seriously impacts even if its impact on overall growth is small.

“Some of us believe that the individual autonomy and dignity that comes from keeping what you get through free exchange is a good in itself.”

I don’t doubt that some of you do. Some people believe all kinds of things. Nevertheless, the vast majority of people don’t believe that or even think about capitalism in those terms. For those who accept capitalism’s ability to deliver efficiency but who think for ideological or practical resons, that the world should be more equal (according to his statistics most people), it’s a welcome case.

Alan Schussman writes:

…he’s interested in addressing the problems of egalitarianism and capitalism, not by pitting collectivist versus individualist in a cage…

Thank you for the clarification, on the question mark. It’s nice to know this paper’s author is aware of the irony, in this case.

But I think the point holds that, from first principles, you can know that you cannot blend socialism with capitalism.

Capitalism, at the very simplest level, is a man getting up in the morning, gathering such information as is available to him, rating all the actions he could perform that day, and then choosing the action which he perceives will gain him the most benefit, in his opinion.

Completely forgetting the cost of the socialist executive, which is usually substantial, and ignoring the tendency of those within the socialist executive to also work towards their own personal benefit, another major stumbling block, what socialism always tries to do, by definition, is to make this ordinary man choose whichever action is best for the group.

Now, I’m even going to ignore how it is decided what is best for the group, socialism’s third general stumbling block.

What we come down to is that this ordinary man sees two possible actions in front of him: one he would do, if he were left free, and the other he is being made to do against his will.

Now you may say that the socially desirable action and the individually desirable action are the same action. If so, what do you need socialism for? If free people are going to behave exactly the way you want them to behave, there’s no problem that socialism is necessary to solve.

However, if you do agree to the two actions model, then you have to agree there is always going to be perpetual conflict between the individual and the state, with the individual constantly trying to choose one action and the state constantly trying to make them choose the other, through all the usual processes of re-education, social engineering, indoctrination, and eventually, the noose.

And this is where you end up with the hell on Earth, of constantly being made to work against your own will to satisfy the wishes of the state’s chief executive, who in a perverse way ends up as being the only man in the state who is free to decide his daily actions, all via the personal benefit maximisation mechanism he is denying to all of his subjects.

Now in the less rigid social democratic egalitarian capitalist model, this eternal conflict results in chaos, with the individual always trying to evade their assigned tasks, whenever they can, and eventually either escaping to an environment where they can carry out freely chosen actions, or being crushed underfoot, for resisting the state’s admonitions.

This is because the social democratic model creates a chaotic system where nobody knows, or can decide, which of the two alternative actions an individual has available to them at any moment in time, should be the one carried out.

Hence, the eternal slide from minimal state intervention to maximal state intervention, as increasing controls are imposed to clear up the chaos. Thereby inducing ever more chaos, until eventually total state control needs to be introduced. This removes all uncertainty, and conflict, which is why it is the stable end point of all types of socialism.

Except in Sweden, obviously! :-)

However, it may be that in this rare exception case, with its small size, high sense of family-based community, and harsh climate, there is a very strong tendency for the two actions to often be one and the same action, again obviating the need for the heavy socialist hand usually seen elsewhere.

Though given enough time, totalitarianism will happen in Sweden too, especially if they shut down the escape routes for all those Swedish emigrees.

But, whatever the case, we must all choose. Do we want collectivism or individualism? You can’t have both, except in an unstable temporary sense. And this will always slide towards totalitarianism, for instance by people advocating measures to control what people can or cannot say.

And all the breast-beating and clever political hoop-jumping in the world isn’t going to get round the problem.

Of course, now we need to talk about the cost of the socialist executive, the tendency of the socialist executive to behave in the same personally-benefitting way they despise in all others, and the question of how we choose what action is best for the group.

Well, maybe another day…! ;-)

Distortion of the market is pretty unavoidable in a purely market oriented economy, indeed, competition sometimes only occurs with State intervention (look at the effects of deruglation on media ownership). In some areas (like health care insurance administration) the state is more efficient. The model of capitalist as information processor makes sense only up to the point that most of us have finite capacities for acquiring and using information (a circumstnace that has won the Nobel in econ for a couple of my fellow psychologists). An investor w/o access to “insider” info may try to be “rational” and utilitarian in their decision making, but will lose out because of the information they can acquire. A young person may choose not to buy health insurance based on rational assumptions that are erroneous in their case (i.e., young adults don’t get serious illnesses)…the list goes on. Plus, frankly, amny are not interested in having to continuously shop for things. The libertarian crowd and other pure market types talk an attractive theory, but a variety of social and psychological realities present insurmountable barriers to markets providing a standard of living proportional to the effort that individuals might make.

But I think the point holds that, from first principles, you can know that you cannot blend socialism with capitalism.

Yes, Andy, but the point of Lane’s book is that, according to comparative empirical data, balancing these forces in practice turns out to be well within the capabilities of many countries.

Andy,

“But Kieran, what we see around the world in the western social democratic countries, is a slide, in the form of the EU, towards a larger state with an increasing amount of control, and in the US, to a growing state with an increasing amount of control.”

That you get from the growth of the EU to the inevitable total domination of the state is laughable. Firstly, the EU is voluntary and any member state can just leave. People join it when it’s in their interests. If it wasn’t they would just leave. Secondly, the notion that the EU represents greater constraints on the people is wrong. The constraints come from a different place but they are no greater. Thirdly, if the EU were to harmonise tax, which seems to be something you’re concerned about, it would do so at a lower level than the Nordic countries, which are the best examples of social democracies. It’s instructive to note that two of the three EU countries who have opted out of the Euro are Sweden and Denmark. These nations are sceptical of the EU precisely because they think it will erode their welfare state not visa-versa.