May 5, 2019

CHANG | Capitalism Is Worth It

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Editor’s Note: This piece is part of The Sun’s dueling columns feature. In this feature, Darren Chang ’21 and Jade Pinero ’19 debate, “Is capitalism good?” Read the counterpart column here.

Today, fewer than half of young Americans support capitalism. It’s a sympathetic statistic, since young adults’ conception of the economy has been irrevocably shaped by the Great Recession, unequal wealth distribution and poor wage growth. Yet, while capitalism may not be perfect, it’s worth keeping and fixing because of the prosperity it has wrought.

Let’s get this straight: Capitalism is an economic system. It features primarily private ownership and a drive towards accumulation of new capital. It generates the conditions for scientific innovation, creates enormous wealth and underpins an indispensable global openness. Certainly, capitalism inherently struggles with distributional inequalities. But despite its flaws, we should find a better and more sustainable capitalism — instead of wishfully looking for alternative economic systems that cannot deliver the broad-based prosperity of capitalism.

Capitalism drives economic growth and global trade, both of which have increased well-being across the world. The free market determines the most efficient allocation of resources towards developing unprecedented solutions, thus producing the newest technologies at cheaper prices. Case in point: The price for a TV has fallen by 98 percent since 1950, even as the quality of electronics has steadily improved. We now have life-saving pharmaceuticals such as AIDS medications and chemotherapy that wouldn’t have been produced without the guarantee of profit. To innovate, researchers need the assurance they will own the lion’s share of the reward of their risky investment, which is only possible under a capitalistic system.

The benefits of globalization — increasing global interconnectedness thanks to trade and capital exchange across borders, spurred by corporations that want to expand their market power — are not only substantial but also irreversible. A world without trade required that companies produce goods only for their localized economies, resulting in fewer, less innovative and more expensive products. But globalization built supply chains linking the world to take advantage of regional resource and manufacturing advantages. The benefits to consumers include cheaper products: For example, if Apple made iPhones entirely in the United States, the price would increase by $100. Quantitative analyses also reveal trade discourages conflict because interdependent economies communicate depend on each other for economic stability.

Unraveling the gains of capitalistic trade vis-à-vis localized economies — a characteristic of statist planning that heavily intervenes in trade patterns — would make us worse off. High tariffs like those proposed by the isolationist Trump administration would decrease trade flows by 70 percent, make consumer goods unaffordable and make way for a surefire recession. Worse yet, we have historical gauges for how trade wars and protectionism end: The 60 percent Smoot-Hawley tariff of 1930 engendered the preconditions for World War II.

Although the gains of capitalism may be distributed poorly, inequality doesn’t negate the benefits of capitalism. Rather, we should develop a more equitable distribution of capitalistic gains. As Columbia University economics professor Joseph Stiglitz writes, “If globalisation worked as it should, there would be enough benefits to go around. American capitalism in recent years has been marked by unbridled greed — the 2008 financial crisis provides ample confirmation of that.”

Anti-capitalists will contend that capitalism has a nasty habit of creating the conditions for its own implosion — climate change being the primary example. But this doesn’t mean that capitalism isn’t the economic system that’s best suited to solve these issues. Given that we have a short timeframe, we should institute pro-market green tech measures like a carbon tax that would levy a fee on fossil fuels and force corporations to reckon with their environmental impacts.

High-income economies that transition from capital-intensive to knowledge-based production shift more resources to R&D for solving climate change, substitute dirty technologies with cleaner, carbon-neutral technologies and use less raw materials. The best data demonstrates that economic growth is already decoupling from environmental overuse, and it’s our job to ensure we switch to more sustainable growth.

The majority of the developed world has already accepted a certain level of consumption. No amount of persuasion will convince the Koch brothers or the world’s 2,153 billionaires to give up their wealth for the promise of a smaller economy that might, in the best of best cases, be more sustainable. Economic downscaling, or degrowth, can’t be the answer — it has neither the political support nor any guarantee for a peaceful transition. Anti-capitalists often point to climate change as the greatest downfall of capitalism and a mark of its unsustainability. But, capitalism is the best (or at least the least worst) system to develop the requisite technical knowledge to address these existential threats.

Both theory and data confirm that capitalism can address poverty and provide for equitable development. China’s GDP per capita under communism was $300. Now, it’s $10,000 and still rising. The story of global growth has changed since the early 1990s: Today, developing nations are consistently outpacing developed countries, confirming economic theory that less developed economies can quickly achieve prosperity through market mechanisms.

Each time a revolution has occurred and capitalism is overthrown, it comes back to life after a period of authoritarian violence and decreased quality of life (see: China, the USSR and Venezuela). Each time central planning has been tried, special interests intervene at every step of the bureaucracy, creating more inefficiency and waste. Each time a socialist says “not our socialism,” I cry a little inside. Capitalism has lasted far longer than Engels and Marx thought it would — even in the midst of the 2008 financial crisis, capitalism proved resilient, demonstrating its corrective nature.

In light of these facts, we should shift to the most sustainable and equitable forms of capitalism. As young adults, we aren’t just organizers or consumers. We’re the next architects of the world’s economic systems. We should compensate the losers of globalization, combat the negative externalities of capitalism and promote (dare I say #YangGang2020) “human-centered” capitalism that accounts for corporate greed and the worst excesses of growth.

Darren Chang is a sophomore in the College of Arts and Sciences. He can be reached at