Opinion

Edward Hadas

The social market economy

Edward Hadas
Jan 25, 2012 15:14 UTC

Capitalism is the name people give to the way the modern economy is arranged. Now that Communism has been discredited as an economic system, there seems to be no real alternative. But the word is misleading.

A capitalist analysis of any economic issue starts with capital, both physical capital – factories and land – and financial – shares and bonds. It is associated with free and competitive markets for goods and labour.  And capitalism has come to designate a system where private property is the norm, with any exception needing some sort of justification. Capitalist analysis usually treats governments and unions as economic interlopers, and ignores the broader society.

That perspective is too narrow. Capital and markets are only two parts of the complex modern economic system. People don’t only matter because they bring their labour to the owners of capital – as in the original, 19th century definition of capitalism. And governments over the years have become regulators and keepers of the monetary order. Moreover, the economy is so closely integrated with modern society that no clear border separates the two. Social forces – such as the thirst for technological innovation, the work ethic and other moral values – play a fundamental part and influence the workings of the purely “capitalist” system.

A limited analysis often leads to unnecessarily grim prognoses. Think back to the 1960s, when environmental pollution was first identified as a serious problem. Many observers, enthusiastic capitalists among them, thought that the capitalist system couldn’t deal simultaneously with environmental goals and the search for profits. Economic disruptions were predicted. But changes in the law, technology, corporate priorities and cultural values combined to bring about a remarkable success in reducing noxious emissions, without noticeable harm to prosperity or profits.  The system found a way to price externalities without endangering itself.

Half a century later, people, including enthusiastic capitalists, are again wondering whether the system can survive. Now they cite the long financial crisis, or issues such as the exorbitant privileges of the very rich. They are not wrong to be concerned. If the economy were simply or primarily capitalist, either of these problems could well be lethal. After all, neither factory nor financial capital can be expected to allocate income and wealth justly. And the financial system could be too wounded to heal itself.

The cruise industry’s rough sail

Edward Hadas
Jan 18, 2012 17:50 UTC

The cruise industry demonstrates much of what works well in the industrial economy. The debacle of the Costa Concordia – 11 people confirmed dead and at least 23 missing, and a financial loss of as much as $1 billion – shows some of the ways that the economy can malfunction.

The loss of life from the accident off the Italian coast is tragic, and the loss of money is remarkably large for a business that has global annual revenues of around $34 billion, according to Cruise Market Watch. That is not a big business by global standards; airline revenues, as calculated by the International Air Transport Association, are 17 times larger.

Still, the cruise trade is large and familiar enough to provide an illuminating microcosm of the modern economy at work.

It’s not always the economy, stupid

Edward Hadas
Jan 11, 2012 15:38 UTC

“It’s the economy, stupid.” The words date from Bill Clinton’s 1992 presidential campaign, but the basic idea that political shifts are the visible manifestations of hidden economic developments was first articulated by Karl Marx, who wrote before the word “economy” had its current meaning. When he declared, in 1848, that “The history of all hitherto existing society is the history of class struggles,” the notion was truly revolutionary. It has become a commonplace. Pundits ferret out economic causes for everything, politicians strive to present voters with economic good news, and careful studies show that economic trends influence elections.

Like most often-repeated generalizations (“Germans are orderly” or “an army marches on its stomach”) the claim that politics is fundamentally about economics has some truth to it. But I think pundits, politicians and voters would all benefit from a bit of revisionism. It’s not always the economy, and when it is, politicians cannot do much about it in a hurry.

Start with the expert commentators. I’m thinking of the people who confidently declare that the Arab Spring was caused by the increased cost of food. Or the ones who explain the poor performance of Vladimir Putin’s party in the recent Russian parliamentary election as a reflection of stagnating average incomes. The invasion of Iraq? It was the oil, stupid. The rise of anti-immigrant parties in Europe? Look no further than the job market.

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