There are many productive people in the world who don’t believe that they have a moral right to their life, property and the fruits of their labor from the very fact that they are human and that they worked and that they earned. They plead before the society and the state; they apologize for their productivity; they beg to be allowed to work because, they say, such work benefits the whole of society – it results in “the common good.” This is how many philosophers and economists have defended capitalism and the free market in the past.
And the mob licks its lips, and listens. These people are going to work, for free, for my benefit, it thinks. Let them, it says, but I can’t let them free – completely – I need to control them, regulate them, so that they don’t defraud me, disappear with my share of the wealth. But the only thing the mob is capable of is destruction. For all its rules, and regulations, and controls, the market cannot be “controlled” – invariably something will go wrong (because the mob is blind to the fact that its “intervention” tilts the scales in favor of the unscrupulous). And the mob won’t get its share of the promised wealth; it will cry “fraud”. It will demand that “capitalists” should commit hara-kiri, that they should be hanged, stoned, jailed etc etc. And the “capitalist”, the pleader-capitalist, will get his comeuppance.
The long decades of laissez faire have made a dogma of the ‘free market’. It has been seen not as a rule-guided mechanism there to serve social ends, but as an unrestrained process the consequences of which, however toxic or harmful for the economy and society, must be accepted as right and legitimate. This is the typical -perhaps inevitable- view that prevails during Installation periods. Those are the conditions that enable a technological revolution to really transform the economy and to let the new leaders emerge. But, once Installation has run its course, this view needs to be replaced. Fortunately, bubble collapses and the many revelations of market wrong-doing put the dogma into question. The debate has now moved from whether regulation is necessary or not to what is good or bad regulation. Further still, the notion that the State has a direct responsibility in what happens in the economy has been reinforced in two senses: first, by the widespread recognition that the lack of regulation facilitated the casino and, second, by a general agreement on the need for government to come to the rescue directly and to stimulate the economy well beyond simple monetary policy.
This is not merely a financial crisis; this is the end of a period. As Stephen Roach puts it: leaders must have “the wisdom and the courage to shift the policy debate away from tactics and toward strategy”. To move ahead is not just to restore the previous “normality”, the false prosperity created by the financial boom. What is needed is to facilitate structural change and to create new conditions for a very different sort of prosperity into the future, where market and competition function under well designed rules and with a set of incentives that maximise growth and well being in a socially agreed direction.
The condition for the necessary switch of leadership to take place is for the State to come back into action and tilt the playing field decisively in favour of real production investment–using market mechanisms in implementation wherever these are fitting– while creating policy instruments to spread the benefits of the new wealth to the widest possible number (which is also a way of widening markets). That is what Bretton Woods and the Welfare State did the previous time around. The legitimacy of capitalism rests on fulfilling its promise of achieving the common good through individual pursuit of wealth and power. Installation periods, and especially bubbles, bring the system to extreme individualism and callousness; bubble collapses and the ensuing Deployment periods tend to bring back the balance and put the accent on the common good.
So socialism, a philosophy adopted by every thief, mass-murderer and plunderer in history is good by itself, but capitalism is good only if it results in “the common good.” And the productive man is just the means to a “social end” – like a donkey or a mule or an ox. This is the philosophy that is at the root of the present crisis.
A “capitalist” who jettisons the “natural rights” theory of ethics and accepts utilitarian ethics is digging his own grave, building his own guillotine. And he deserves all the ridicule and unearned brickbats he gets.