Capitalism isn’t going to pop anytime soon

The crack and totter of some of the pillars of capitalism — Citibank, Merrill Lynch, Lehman Brothers, and General Motors, to name just a few — suggests that the roof may cave in soon. When once-proud institutions turn up at the government’s door in sackcloth and ashes, asking to be part-nationalised, it is time to ask: is capitalism dying?

The Left, which has never fully recovered from the ignominy of the fall of the Berlin Wall, certainly hopes so. The Right is looking embarrassed, and looking for explanations on what went wrong, and why. Sooner or later, capitalism will rise again, it hopes. Who is right?

The answer is neither. Like Comrade Trishanku, who stayed suspended between heaven and earth, attaining neither, capitalism will always survive between the extremes of adulation and abhorrence. Reason: it is an amoral engine, not an inspirational ideology. With the right fuel, it whirrs into action. If you throw sand in it, it stalls.

It will never achieve ultimate respectability, because the end result it produces (excessive wealth disparities) appalls us all; but it never regresses to ultimate ignominy, for it always rebounds and brings hope.

Communism failed because it was (and is) just an idea, and an ideal. It inspired (and may continue to inspire) generations to work for an exploitation-free world, but it was not (and is not) a vehicle you could board to reach nirvana. Marx looked into the rearview mirror of economic history and came up with predictions on how the future would unfold. That was one of his many egregious errors. Any intelligent person can analyse the past well, but no one can predict the future. That’s why Marxism was a flop. No one can predict well beyond the extreme short-term because new information and developments keep changing the long-term course of history.

That’s where capitalism scores. It is the only economic system known to man which works on the basis of information. In turn, it transmits information. Every time we get a new view of changing dynamics, the market throws up information in the form of a price. The price may be wrong - it often is - because it may be based on wrong premises or false facts, but there’s no getting away from the fact that capitalism is based on information. Any system based on information is capable of correction and regeneration. That’s the key to its longevity.

Feudalism died because it kept labour away from the market. Communism failed because it denied the existence of a market for information. Apparatchiks decided what one should produce and for what price without much reference to what consumers wanted or desired. A system based on whim and diktat will always fail. This is not to say that capitalism is great, and socialism is bunkum. Socialism, communism and religion are values-laden, and the end-product they seek is a changed human being. Capitalism, on the other hand, is values-neutral. It delivers results that you may not like, but it is capable of responding to incentives and penalties and delivering better results. Add democracy to the mix and you can get near-socialist results (Scandinavia is an example) even with capitalism.

Consider how capitalism has changed beyond recognition in the 20th century. When communism rose as a challenge, it quickly created the welfare state. When industry was seen to be destroying nature and ecology, the resulting change in public priorities forced companies to abandon short-term profits and think greener. In fact, the nominally communist, but formally authoritarian China, has a more cavalier attitude to ecological damage than capitalist Europe, US and Japan.

Let’s cut now to the current disenchantment with capitalism. Why did the sub-prime crisis happen? Why is the world collapsing into recession and turmoil? Why is one institution after another asking for bailouts from government? The glib answer is bad regulation, but the answer that would be closer to the truth is this: like human beings, capitalism oscillates from excess to austerity. When times are good, it goes overboard and lands in a mess. It runs to mommy for solace and Band-Aid. After playing bad boy, capitalism has come to mommy in a penitent mood. But once the crisis is past, it will dump mommy for the playground. Boys will be boys, and capitalism capitalism.

At a time when it is still recovering from self-inflicted wounds, capitalism may seem to be on its last legs. But this too shall pass. Capitalism will emerge stronger from this crisis.