Chapters 12 and 13
Study Guide by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
The Future of Capitalism Main Page
Chapter 12: Social Volcanoes: Religious Fundamentalism and Ethnic Separatism
Religious Fundamentalism
Those who don't like the uncertainly that comes with change, together with those who are losing out economically have historically retreated to religious fundamentalism, a religious world where they are told that by following a prescribed set of rules they will be saved. Religious fundamentalism (Hindu, Muslim, Jewish, Christian, Buddhist) is on the rise all over the world. Their message is that those who do not follow the prescribed rules deserve to be punished. Islamic fundamentalists blow up people at bus stops in Tel Aviv believing they will go immediately to heaven to enjoy sex with a multitude of beautiful women. American-Jewish fundamentalists kill Muslims at prayer. In India, Hindu fundamentalists tear down a Muslim mosque. In Japan, Buddhist fundamentalists release a nerve gas in the Tokyo subways injuring 5,500 and killing 12. In the United States, Christian fundamentalists shoot abortion doctors, derail trains, demand school prayers, and blow up the Oklahoma City federal building killing 167 people including 19 children.
All fundamentalists want to develop a social dictatorship where they are the dictators. According to Pat Robertson (From his 1991 book The New World Order), America's forty million fundamentalists voters are supposed to reverse the ruinous moral decay caused by 30 years of the radical left's war on traditional family values and religious heritage. But the forces driving economic change are producing an enormous gap between those who desire a return to ancient virtues and those who want to enjoy new freedoms. For example, the moral values related to sexual abstinence for unmarried young people are quite different before and after the pill. Libertarian values say leave them alone. But religious fundamentalists see it as their religious duty to force their neighbors to behave. In the end society will not adopt libertarian "anything-goes" values because they do not work. On the other hand society will not adopt the fundamentalist's religious values either, because they also do not work. Only social experimentation will determine what works. As a result more terrorism from religious fundamentalism lies ahead.
Ethnic Separatism
Ethnic separatism is also a common phenomenon during periods of economic uncertainty. When good jobs are scarce the average worker becomes sympathetic to ethnic separatism. The average worker sees a negative-sum game where there are more losers than winners. The old melting pot no longer works very well. Group identity becomes more narrowly defined. Without a sustaining ideology or an outside threat it becomes harder to live peacefully together. Nations break into warring ethnic, racial, or class groups. Group identity is defined by who they want to send back to where they came from. The enemies of ethnic homogeneity are like termites gnawing at the social fabric almost everywhere.
Chapter 13: Democracy Versus the Market
The underlying beliefs of democracy and capitalism are very different in terms of the distribution of power. Democracy believes in an equal distribution of political power, "one man, one vote." Capitalism in contrast believes that it is the duty of the economically strong to drive the weak out of business and into economic extinction. Democratic capitalism is driven by wealth and political position, and economic power is easily converted to political power. Without some intervention by government, democracy and capitalism are incompatible. Capitalism creates large inequalities of income and wealth. Since market economies don't produce enough equality to be compatible with democracy, all democracies have interfered to keep inequality from rising. Examples include publicly financed education, cheap land grant universities, antitrust laws, progressive income taxes, social security, GI benefits, affirmative action for minorities, Medicare, and Medicaid. These programs have not eliminated inequality, but they have kept it from exploding.
Conservatives are right when they argue that social welfare programs are antithetical to capitalism. They reluctantly accept the welfare state because it is not as bad as full- blown socialism. Important questions include how much inequality can be accepted before too much is reached, and what type of taxes and expenditures should be used to prevent inequality from reaching that tipping point? For example, taxes can be based on consumption, and taxes collected to finance skill-training programs do not have adverse incentive consequences. Income transfers on the other hand allow recipients to opt out of the capitalist process.
As the elderly problem outlined in Chapter 5 becomes worse, and the gap between the top and bottom widens while the middle class shrinks, democratic governments are going to face more severe problems with the unequal socioeconomic structure.
Living With Inequality
Inequality was accepted in ancient systems where no one believed in equality in any sense, theoretically, politically, socially, or economically. For example, the Roman system of democracy did not include women and most males who were slaves. Slavery was viewed as good for those with a slave mentality. This was a system where their social and political ideologies were congruent with economic reality. In contrast capitalism and democracy have very incongruent ideologies about the right distribution of power. Those who defend capitalism argue that capitalism will provide rising real incomes for almost everyone, but this has not been true as illustrated in Chapter 2. Another defense of sorts is based on Herbert Spencer's concept that individual defects lead to economic inadequacies that cannot be corrected by social actions. Spencer's idea was those at the bottom of the economic system deserve to be there and cannot be helped. But survival of the fittest versions of capitalism do not work as illustrated in the 1920s when our system imploded during the Great Depression. Enlightened aristocratic conservatives (Roosevelt, Churchill) adopted social welfare policies to save capitalism by protecting the middle class.
Inequalities persist for various reasons. Although everyone has one vote, everyone does not use it. In addition, political influence depends on campaign contributions as well as votes. Power is the ultimate consumption good and it can be used in unlimited quantities. Social welfare programs for the poor could be preserved if the poor got out and voted for politicians who support those programs.
Democracy depends on consent but it does not create it, assumes a level of compatibility between its citizens, but does not work toward that end, and works best when it has an expanding pie of resources to distribute. Unfortunately, today's democracies do not include those advantages. Earnings gaps have been rising for more than twenty years.
The Vision?
Successful societies need a vision or overreaching goal to bring everyone together to create a better world. But political parties do not have the answers. The right wants to go back to a mythical past, and the left has little to offer beyond the social welfare state. Real democracies need real ideological alternatives or elections become an exercise in tribalism where one is selected to be blamed for the country's problems and then punished. To work, democracy needs a route to a better society. But conservative parties are not expected to have a vision of the future. Capitalists believe the free market will take care of the future. The parties on the left have visions but they are often unworkable, i.e., socialism and the welfare state. Theoretically, socialism would ensure that everyone would be included in the fruits of economic progress. The welfare state would provide an income floor for those capitalism does not want (the old, the sick, the unemployed). The American variant of inclusion has required an increasing amount of government intervention (cheap public education, government regulations, antitrust laws, affirmative action, and middle-class social welfare benefits). But none of these methods are working for those whose real wages are falling. The political left appears to have nothing positive to offer and the welfare state cannot continue without major surgery.
Capitalism's underlying goal is for individuals to maximize personal consumption. But individual greed cannot hold societies together in the long run. Without a vision or goal, society will eventually retreat to ethnic separatism. To somehow make the world a better place the social system will focus its anger on some different or despised minority that needs to be removed. Those with a different religion, different language, different race, or different cultural background will become the scape-goats. Without a grand agenda there is no community to overcome economic paralysis. A solution has to be found in a common set of goals that make people willing to forget their narrow self-interest so that the economic system can be reconstructed to fit the new economic realities. But what is that common set of goals, and what is that restructured system to be?
Spiraling Down
Without a vision or common set of goals, how far can inequality widen before something snaps in a democracy? To snap there must be an alternative. Communism's alternative was capitalism. But there is no existing alternative to capitalism that would allow the people to regroup. The more likely scenario is a downward spiral of individual disaffection and social disorganization. Considering the Roman Empire and Europe's slide into the Dark Ages provides some parallels worth pondering. When there was no one left to conquer, wealth could no longer be obtained through conquest. Taxes to maintain the system became a problem even as large numbers of immigrants wanted to become Romans. Public consumption was increasing at the same time willingness to pay taxes was falling. Investments to support the infrastructure were no longer made. The process began with falling incomes at the bottom that gradually spread up the social ladder. The system eventually collapsed.
Considering the parallels between then and now we see immigrants flooding into the industrial world. Today, although productivity is still rising, real wages are falling for 80 percent of the population. Eventually the decline at the bottom of the social system will affect the living standards of those at the top. In the Dark Ages that followed the collapse of the Roman Empire, bandits were wide spread. The private system squeezed out the public system as unwalled cities and free citizens were replaced by walled manor houses and serfs. Capital punishment became the answer to any problem. Today the private is gradually squeezing out the public with private policemen, walled and gated communities, and cuts in public infrastructure. This has produced a group of people with little interest in the public sector. Capital punishment, religious fundamentalism and ethnic separatism are viewed by some as solutions, but now as in the Dark Ages there is no vision of how to create a better system. Social systems do not take care of themselves. Something has gone wrong, but no one knows how to fix it. If capitalism does not find a way to provide rising real wages for a majority of its participants when the total economic pie is expanding it will lose the support of a majority of the population. Eliminating affirmative action for women and blacks, immigration, and entitlement programs for the poor are not the solutions to any of our basic problems. These falsehoods are having a profound effect on American politics.
The Role of Government
In capitalism the role of government is difficult to define. Capitalism's theoretical answer is to limit the role of government to the lowest possible level consistent with its own survival. But government is needed to provide public goods that have three unique characteristics that include:
1. Any person's consumption of the good does not reduce the quantity of the good available to be consumed by everyone else,
2. It is impossible to stop others from enjoying its use, and
3. Because everyone can use it simultaneously, and no one can be prevented from using it, everyone has an incentive to hide their demand for it to avoid having to pay for the associated costs.
Public goods require taxes for support, and very few of the current activities of governments qualify as pure public goods. National defense comes close, but even that could be debated. Public education, health care, and safety don't quality, but they do have positive externalities. For example, capitalism cannot work in a society dominated by theft. To function well, most of the members of society have to behave most of the time. Individuality is a product of community, but free markets require supportive physical, social, mental, educational, and organizational infrastructure (social glue) to keep individuals from battling each other. The main issue is discovering the best mixture of individual and public actions that will allow a democratic society to persist and prosper.
Preferences
Inculcating the right set of values into the young might lead us in the right direction. But capitalism provides no theories related to values and preferences, how they arise, how they should be altered, or how they are controlled. But lessons can be learned from history if it is carefully analyzed to reveal what went wrong. Social accidents like the Dark Ages and the Great Depression must be understood.
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Go to the next Chapter. Thurow, L. C. 1996. The Future of Capitalism: How Today's Economic Forces Shape Tomorrow's World. William Morrow and Company. (Chapter 14).
Related summaries:
Martin, J. R. Not dated. A note on comparative economic systems and where our system should be headed. (Note).
Milanovic, B. 2019. Capitalism, Alone: The Future of the System That Rules the World. Harvard University Press. (Summary).
Oser, J. 1963. The Evolution of Economic Thought. Harcourt, Brace & World, Inc. (Summary).
Porter, M. E. and M. R. Kramer. 2006. Strategy and society: The link between competitive advantage and corporate social responsibility. Harvard Business Review (December): 78-92. (Summary).
Porter, M. E. and M. R. Kramer. 2011. Creating shared value: How to reinvent capitalism and unleash a wave of innovation and growth. Harvard Business Review (January/February): 62-77. (Summary).