Review of The Capitalist Manifesto by Johan Norberg

Reviewed by David Weinberger. Excerpt:

"In his new book, The Capitalist Manifesto, author and historian Johan Norberg makes a powerful, informative, and eminently readable defense of the free market for our time.

Capitalism is simply a system that allows people to trade freely with one another. This means that two people will engage in trade only if they both believe that doing so will leave them better off. For instance, and in the simplest of terms, I may like Kit Kats and my neighbor may prefer Reese’s peanut butter cups. If I trade my Reese’s for his Kit Kat, we both walk away happier as a result. Furthermore, this trade requires me to consider the desires of my neighbor. I must give him what he wants. If I fail to do so, he will not trade with me. Free trade, therefore, promotes selflessness. Consider, for example, that on a larger economic scale, businesses must produce goods and services that please their customers in order to make sales and survive, which puts consumers ultimately in the driver’s seat. Either please consumers or go out of business. In short, serving others is the essence of capitalism.

Many people, however, mistakenly perceive such a system to be manifestly unfair. Perhaps the most common charge against it is that it enables the powerful and wealthy to exploit others who are then left with little to trade themselves, and who must work harder just to get by. The truth, however, is the opposite. As Norberg explains, “The unequal distribution in the world is due to the uneven distribution of capitalism: people who have it become rich; those who do not have it stay poor.” To demonstrate this, he highlights numerous measures of global well-being, including rates of illiteracy, child mortality, poverty, hunger, per capita GDP, even environmental impact, to show that on virtually every available metric, as countries around the world have grown to embrace capitalism, people’s lives have improved dramatically, while the relatively few countries that have resisted it continue to flounder.

Still, critics continue to insist that capitalism creates major injustices like “income inequality.” Within wealthy capitalist countries, for instance, statistics show that the rich get richer while the poor stagnate or worse. Capitalism, in other words, hurts some—perhaps many—people more than it helps.

Before examining this claim, it is important to clarify that differences in income should concern us less than the existence of poverty. Poverty, after all, is an evil that prevents human flourishing. We all wish to eradicate it. But if poverty were completely eliminated tomorrow, would it matter that some fortunate few earn many multiples more than you or I do? It is hard to see why. Unless evidence is produced to show why income differences in themselves are harmful, we should focus on lifting the increasingly few people in poverty out of it rather than on trying to even out incomes for the sake of some elusive egalitarian vision.

Even so, one might wonder, is it true that capitalism is responsible for the rich benefitting at the expense of everyone else? According to mainstream media, the answer is a resounding yes. Consider how often we hear about the increasing share of income supposedly going to the “top one percent,” or about “stagnating household incomes.” Of course, popular media portrayals are designed to make things look bad, but we ought to be careful not to confuse statistical categories (“income quintiles” or “households”) with actual human beings and how they fare over time. In other words, what is important in these discussions is not the income quintiles themselves and how far apart they may be from one another, but whether individuals rise through those income quintiles over the course of their lives. On that question, the evidence is encouraging.

Major studies from the University of Michigan, the Federal Reserve, and the U.S. Treasury have followed people over decades and have shown that, in fact, people tend to ascend the income scales as they age, which is unsurprising given that people gain skills and become more productive throughout their working years. It is true that the poor and middle class quintiles have shrunk, but that is simply because people are getting richer. As Norberg notes, after adjusting for inflation, the data show that “the missing middle class has moved upwards. The proportion who earn more than $100,000 a year has more than tripled since 1967, from 10 percent to 30 percent. It is not the bottom that has slipped, but the ceiling that has been raised.”

Nor, for that matter, is this impressive income growth due to people working more—or to women being “forced” to join the workforce to keep families afloat in the ’70s and ’80s, as we often hear. On the contrary, working hours have steadily declined over the past few decades. We now work fewer hours than ever before. And women joined the workforce not because they had to, but because we became wealthy enough that they could choose to. The truth is that incomes have grown significantly because of free enterprise, which rewards with profit the innovators and creators who figure out how to produce more goods and services while consuming fewer resources—i.e., how to improve productivity—which yields higher incomes and more leisure time. For example, though it is sometimes said that the 40-hour workweek was the victory of labor unions, the truth is that whatever role they may have played, the shorter workweek was in fact made possible by capitalism. After all, we had to be wealthy enough to afford to work fewer hours while remaining competitive, and we became that wealthy because of free market capitalism.

Furthermore, the word profit in that last paragraph strikes many today as tantamount to profanity. It often evokes images of greed and money obsession. Why focus so heavily on profit, some ask (and not only on the left), when there are more important things in life, like family, friends, community, and faith? This is a good question, and it helps us clarify what capitalism is and what it is not.

Capitalism is vital not because it measures profit and loss, critical though they are for a prosperous economy, but because it protects and facilitates the dignity of human freedom and human flourishing. As Norberg puts it, capitalism is about “opening the dams for human creativity” and putting people in control of their destiny. Capitalism, in other words, is necessary for human happiness."