Capitalism part deux

Capitalism as a concept needs to be redefined. We need to start to break things up into subcategories of what kind of capitalism we are talking about. Rajan talks about managed capitalism in his book. China has state-run capitalism. We had free market capitalism, which wasn't that free market. Now we have some government ownership of some means of production but we won't stop calling it capitalism.

We need new words and names for all these types of systems so we can adequately discuss the. Sure, socialism and communism are dead but there are still too many types of capitalism to honestly compare them.

Thoughts on Capitalism/ Personal

So, I have tried to write three blog posts today but keep thinking about this one to the extent that I scrap whatever garbage is on my screen. This will be a longer and more personal post than this blog is accustomed to, so I apologize if that bores or frustrates you. This entry will discuss why I believe in capitalism and some of the reasons I am rethinking some of my positions into a softer capitalism.

I am a capitalist for two reasons. First, I believe it to be the most efficient ever devised by man at allocating scarce resources. Second, every person deserves to be free and capitalism allows and requires a level of freedom that other systems do not permit.

Let's look at the first reason:

Capitalism is certainly the most efficient system once it gets up and running. This fact is nearly beyond dispute. Even those that support a system closer to socialism than I am comfortable with admit that they are sacrificing some level of efficiency for equality. No one has been better about analyzing this topic that Peter Leeson, who is a Professor at the University of Chicago and George Mason University. In one of his best papers entitled Two Cheers for Capitalism (linked) he argues that people in countries that have become more capitalist in the last 25 years are generally doing far better than those who live in countries that have become less capitalist. No one should be shocked by this. I was just strumming along the last 18 or 9 years content with the belief that free markets, free trade and free people lead to a more productive and better society... until a month ago when I picked up Raghuram Rajan's absolutely fantastic book Fault Lines (Amazon link Provided).

Rajan argues that recently developing economies have built up their economies through a "managed capitalism." He goes so far as to say that no recent country has built up their industries by the stereotypic austrian beliefs of free trade, free markets, etc. The rise in free markets has ONLY occurred after a period of protectionism in which their countries industries were allowed to grow after building up organizational capital (think networks). This would tend to suggest that Leeson's study might show that the countries that have become more "capitalistic" are just further along in their development track.

Why this kept me up last night: I am genuinely concerned that Rajan might be right. The progression of the country might go from making bad products that are illegally manufactured though use of copyright violations, etc to making higher quality goods after a learning curve. Then, and only then, can the country feasibly export the good to become more productive. If a country needs to have "managed capitalism" to seriously expand, my worldview, at minimum, needs to be altered and that is something I am currently thinking about and researching. So far, I have read an article that gives me some hope. It argues that Rajan's theory is correct for some of the cases but points to the error that he is only looking at countries and not cities. So, China is doing well under a managed capitalism but that is because of Hong Kong which had far more stereotypic capitalism. China piggybacked on that success. I will be looking into this over the next few months so look for updates.

The second reason I support capitalism is the freedom it allows individuals to experience. Capitalism permits and even requires individuals to act in their own self interest. Central planning is not just inefficient, but I believe, morally abhorrent. People deserve to be free and make their own choices. Central planning is a lesser form of slavery. In both systems people are forcing decisions on unwilling participants. There is no doubt the degree of the force is different, but similarly, there is no doubt that the force is still present.

The biggest problem I have with other forms of government is the condescending attitude the powerful have against the powerless. They somehow have deemed themselves to be so superior that the rest of the community at large that they have the right to demand me to take a positive action. In many cases, no one has even elected these individuals. Their only power is violence and threat of violence. Humans were meant to live free from this type of force and coercion and capitalism provides the single best way to create an environment where the attitude of freedom prospers and the attitude of coercion disappears.

Just my .02 of this tricky matter.