Capitalism is on trial — again. Critics of capitalism have at least in part been vindicated. Governments have their work cut out for them at this time of crisis. How governments and policy makers frame their work will be of crucial importance. They will now have to make the case for capitalism even as the critics circle round and close in. This post suggests a few things which should inform the framing of policy and governance.
First, governments must remember that this global crisis follows at least two other major crises of capitalism in the twenty first century. The great financial crisis, and then the crisis of the legitimacy of global capitalism which can be seen in the rise of right-wing nationalism. In particular, (1) the election of Donald Trump, (2) the Brexit refferedum, and (3) the infighting among the left and the move of conservatives away from traditional conservatism in both the US and the UK, are especially significant. Capitalism’s good health relies on the good health of progressives and conservatives. That both have been in a crisis of sorts in the US and UK suggests that there may be a general crisis of the legitimacy of global capitalism.
Second, governments must remember that the world economy and as well as national economies will require relief, recovery and reform. These tasks are distinct but related. It will be a tricky balancing act and governments will need to manage their political capital (domestically as well as internationally) wisely as they try to accomplish all three goals. This balance will depend a great deal on the political cultures of particular countries. India is not the United States, the United States is not Japan, and Japan is not Pakistan.
In order to accomplish reform and recovery, governments and policy makers will ultimately have to be advocates of capitalism, because a case for reform or recovery is a case for the reform or recovery of a capitalist economy. That a case for reform and recovery is a case for capitalism ought not to be left as an inference. Governments should and will have to present the argument. They will have to persuade the public that this beast can be put to work for the good of the general population. This needs spelling out because it is not obvious and cannot be taken for granted. Governments, policy makers and central bankers who have been cultivating trust and goodwill with their publics for some time will be able to do this much better than others. For the rest, now would be a good time to start cultivating trust and goodwill rather than squandering whatever little reserves they have. This will require picking and choosing which battles to fight and which to let go. Trump’s tussle with and then suspension of funding to the WHO is helping nobody.
Making this case will require good judgement, diplomacy and leadership. As someone pointed out to me once, there is a world of difference between leaders and people who find themselves in positions of leadership. The two groups might not overlap. Leaders listen and truly care about those under their care. Even people who find themselves in positions of leadership but had pursued those positions out of personal ambition rather than the desire to serve the public will find that listening will take them a long way, even if they can’t bring themselves to truly care about the public. They can also look around themselves for plenty of examples of decent leadership, as in New York state with Andrew Cuomo, Jacinda Ardern in New Zealand, and Antonio Guterres at the UN.
A failure to make the case will undermine the ability of governments, political leaders, central bankers and policy makers to ensure recovery and achieve reform. Intelligence, fancy models (however good at forecasting), personality, threat of force and violence, social and technical means of control – all will be undermined. The case must be made, repeatedly if necessary. Arguments must be put forth and debate must continue. The case will become sharper in the process. Governments, like anyone trying to make a case in front of an audience, must not ask too much of their public and must at the same time refrain from asking too little. They must, as Keynes put it, go for “reasoned experiment within the framework of the existing social system.” Governments must experiment, persuade with confidence, and fully commit to the process and practice of “feeling your way by trial and error.”
The challenge is of a fundamental nature: solving the economic problem, or the problem of material provisioning, and its sub-problems of mobilizing human energy, production and distribution — all at a time when the sort of mobility to which we are accustomed is compromised. In the final analysis, governments which will be able bring together warring parties to focus productive and allocative energies in the system, will be governments which will have made the case for capitalism reasonably successfully. In turn governments which will have made the case for capitalism will be governments which will have employed an economics up to the task at hand.
Such an economics would be an effective means of persuasion by virtue of being deadly honest, without pretensions of foreknowledge. It would see policy as an improvisational, open ended, exploratory, imaginative and creative exercise rather than as levers on a machine. At the same time, there must be acceptance of the limits of social science, namely that “social science can do little, if anything, to help resolve the structural tensions and contradictions underlying the economic and social disorders of the day”. Yet, this acceptance is exactly what will make economics more ambitious and powerful.
For all of capitalism’s failures, governments will have to be the devil’s advocate without shying away from the reality of its repulsive underbelly, whether they like it or not. They will have to acknowledge both the beauty and brutality of capitalism. And they will have to employ an economics which is without sentimentality but not without sentiment, and certainly not without humanity.
(The two quotes are from Keynes’s letter to FDR from 1933. Collected Writings, Vol. 21, pages 289 and 295. The point made in the third paragraph of this post also relies heavily on the points made by Keynes in the same letter.)