What is the promise of capitalism?
That may seem like a strange question, and when I ask it of my MBAs, I suspect they regard it as an exercise in the pedagogical pastime Guess What Teacher Is Thinking. Still I ask it, for I hope it prompts my students to think about the kinds of problems capitalism is equipped to solve as well as those that are beyond its compass.
This is hardly a matter of idle speculation, especially for those who have good reason to believe that they will someday enjoy a disproportionate amount of the system’s spoils. Those fortunate individuals sometimes need to be reminded that free markets, however mighty, will not mend their marriage, relieve their cold, or stop their brother-in-law from bragging about his golf game. Indeed, there are plenty of things capitalism can’t do, and reflecting on them is a good way of distinguishing what it can do—and what it should.
Naturally, what capitalism can and should do are not one and the same. The first is a technical matter best left to economists; the second is more of an ideological affair, the province of moral and political philosophy. The distinction is an important one, but it tends to fade whenever one believes that free markets will solve most any problem: moral, social, and political as well as economic. If capitalism can do anything, so the thinking goes, then it should do everything.
Now, with the kind of intellectual prodding the question above intends, almost no one honestly believes that capitalism can, or should, do everything. Yet up until recently, it passed for conventional wisdom, in the United States and throughout most of the developed world, that capitalism could do most things, that the obvious solution to nearly any pressing problem of social organization was freer trade, fewer regulations, and far less government intervention.
With the benefit of hindsight, it is now plain that this was a central lesson many people took from the end of the Cold War and the fall of communism in the early 1990s. Rather than simply disqualify one extreme formulation, the failure of the Soviet system cast doubt on the very idea of a mixed economy, particularly in the US. The challenge was not to figure out the right balance of power between the invisible hand of the marketplace and the visible hand of government, but to enfeeble, if not eliminate altogether, the latter, not only to liberate capitalism but to deprive civil servants of what was assumed to be an ineluctable impulse and sinister raison d’être: central planning.
So commenced an unprecedented era of liberalization and global capitalist expansion. Sure, there were holdouts, but they were either deemed irrelevant and hopelessly backward (Cuba, North Korea) or, in the case of China, obstinate in the face of what they knew to be the inevitable.
That sense of “the inevitable” was never more than an ideological conviction that the power of free markets, supported by restrained exercises in liberal democracy, would prove so compelling that no problem might arise—either beyond capitalism or as a consequence of its development—that would seriously threaten the system’s preeminence. Such a possibility famously compelled the political scientist Francis Fukuyama to proclaim “the end of history,” a phrase that served as the title for his 1992 book. It elaborated on a thesis Fukuyama had auditioned three years earlier in the pages of Foreign Affairs. “What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history,” he wrote in that essay, “but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”