Capitalism, the keystone of modern prosperity

By Chelsea Follett of Cato.

"Despite the rise of anti-capitalism across the political spectrum, Johan Norberg sheds important light on the benefits and major advances brought about by capitalism.

Good news for fans of bipartisanship: even in today’s hypercharged political environment, an increasing number of people on both sides of the aisle agree on something! Unfortunately, it’s a notion that, if incorrect, could undermine the policies and institutions that form the very foundation of the modern world. The newfound area of agreement is the idea that capitalism, globalization, and free markets have failed.

Indeed many of the ideas expressed by Karl Marx and Friedrich Engels in their magnum opus, The Communist Manifesto, are gaining ground. Obsession with class warfare now transcends political tribes, dominating both the halls of deep blue academia and the lyrics of the chart-topping anthem of the “new right,” Rich Men North of Richmond. A swelling bipartisan chorus of voices dismiss laissez-faire economics as out-of-date. The complexities of the modern world, they claim, require robust government action to support domestic industries, repatriate risk-ridden globalized supply chains, and protect domestic markets from the vicissitudes of international competition.

Recent polling shows that only around 21 percent of Americans hold a very positive view of capitalism, dropping to just 11 percent among those under age 30. Mounting skepticism toward capitalism is not restricted to the United States; from Latin America to Europe, anticapitalism is all the rage. For example, a majority of French adults, 62 percent, express a negative view of capitalism.

In this age of growing derision toward the system of free enterprise, there is a man who stands athwart the anticapitalist zeitgeist declaring, “The global free market will save the world.” Who is this individual who dares to express such an unfashionable view? “No one is particularly keen on globalization now,” observed journalist Po Tidholm on Swedish Public Radio in 2020, “except possibly Johan Norberg.”

Norberg, a Swedish author and historian of ideas and a colleague of mine at the Cato Institute, wears the accusation with pride, quoting it at the start of his latest book, The Capitalist Manifesto. Given the current intellectual climate, the timing of the U.S. release of the book could not be better.

He was not the first to come up with the title; prior Capitalist Manifesto authors include Robert Kiyosaki, Andrew Bernstein, Louis Kelso and Mortimer Adler. As Norberg notes, there is only one Communist Manifesto, but there are many capitalist manifestos—appropriately, as capitalism allows for a diversity of thought.

Norberg’s prior books include In Defense of Global Capitalism, which, as its title suggests, mounted a defense of free enterprise—against the system’s vocal leftist critics. But in the two decades since that book’s publication, expressing hatred of capitalism has become a bipartisan pastime in vogue among populists on both the left and right alike. In light of this trend, The Capitalist Manifesto presents an updated, sorely needed, and eloquent restatement of the principles of free market.

The book addresses the most frequent criticisms leveled against markets today and generally seeks to rehabilitate capitalism’s image in the mind of the skeptical modern reader. As business magnate Elon Musk put it in a recent post, “This book is an excellent explanation of why capitalism is not just successful, but morally right.”

How can Norberg, Musk, or indeed anyone remain enthusiastic about a system that so many people spanning the political spectrum now agree has been a failure? Examining the last couple of decades, the book acknowledges they have been filled with shocks, wars, and failures. Examining the problems of the last 20 years, including financial crises, violence in the Middle East, an industrial-scale war in Europe, various other disasters, and of course a global pandemic, Norberg never shies away from recognizing the bad. But, the last 20 years, he argues, despite so many devastating catastrophes, have nonetheless been the best years in all of human history.

How is that possible? Step back and examine the trendlines. A third of all wealth ever created was created over these last two decades alone. Over the last 20 years, during every minute of complaining about how global capitalism has wrecked the world, over 90 people climbed out of destitution. Child mortality has fallen so dramatically that the number of annual child deaths is down by millions compared to a decade ago even as the total population has grown.

The greatest progress occurred in the countries that most integrated into the global economy. Why is that? The miraculous problem-solving capacity of human beings that allows us to improve our conditions—if given the freedom to do so. Hence countries in the economically freest quartile enjoy more than twice the average per capita income of less free countries.

Capitalism’s haters fail to recognize modern prosperity’s origins. Norberg characterizes well-off anticapitalist thinkers such as Thomas Piketty this way: “taking pride in ignoring what’s going on down there, in garages, in shops and factories, and how that might relate to the fact he lives in history’s richest civilization.”

But, the anticapitalist might protest, modern abundance rests atop a proverbial house of cards. Surely the pandemic revealed the unacceptable fragility of globalized markets?

Yet pandemic shortages proved short-lived as entrepreneurs found ways to adjust the manufacturing process to changing conditions. In many cases, companies with more complex supply chains actually adjusted faster than those with less complex supply chains, because they had more options and found alternative suppliers or manufacturers who weren’t under lockdown. Concentrations of supply chains, Norberg warns, in fact pose a greater risk of disruption than diversified ones, due to their total reliance on a smaller number of suppliers–having all their eggs in one basket. Domestically produced goods were often more likely to see shortages than imported ones; recall that it was international trade that alleviated the United States’ baby formula shortage when policymakers lifted import restrictions in response to the crisis.

The book defends capitalism from charges that it simply represents theft and exploitation, pointing out that it in fact embodies the opposite of those things: enrichment and freedom of choice. Replacing markets with a system of more centralized government control concentrates decision-making power in the hands of a small elite.

Substituting the collective wisdom produced by billions of people with the preferences of a few bureaucrats whose own money isn’t on the line tends to spell disaster. Norberg cites numerous examples including Quaero, the stillborn dream of a government-backed search engine from 2005. Quaero was intended to outcompete Google. Despite the best efforts of numerous European politicians and bureaucrats, and despite the French and German governments wasting millions of taxpayer dollars on the project, Quaero collapsed within a year. Its implosion demonstrates what happens, again and again, when decision makers are divorced from the reality of market signals and financial consequences.

With abundant data and memorable examples, Norberg shows the historical ignorance of the new vogue for anticapitalism. He unmasks it as nothing new at all, but something wizened and old that has reared its ugly head again. Tariffs, industrial policy, repatriation, and price-setting have repeatedly failed. Will policymakers on the left and right alike heed Norberg’s warning, or will humanity relearn the lesson the hard way?

The Communist Manifesto ends with the words, « The Communists … openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions. The proletarians have nothing to lose but their chains. They have a world to win. Working men of all countries, unite!” Instead of a call for violent revolution, The Capitalist Manifesto ends with a plea for the peaceful preservation of the system of global capitalism endangered by unwise policies: “We pro-capitalists of the world have nothing to lose but our chains, tariff barriers, building regulations and confiscatory taxes. We have a world to win.”"