Opinion | Why capitalism must allow competition for its own good

Capitalist America did a great disservice to itself when it ‘defeated’ the communist Soviet Union

Raghuram Rajan recently had an opinion piece titled, Why Capitalism Needs Populism. He is on to something with that title.

It becomes clearer when you see these lines from Samuel Huntington’s book The Clash Of Civilizations And The Remaking Of World Order: “It is human to hate. For self-definition and motivation people need enemies: Competitors in business, rivals in achievement, opponents in politics." And, “there can be no true friends without true enemies. Unless we hate what we are not, we cannot love what we are."

Samuel Huntington cites the second quote above from Michael Dibdin’s novel, Dead Lagoon.

By that token, one can say that capitalist America did a great disservice to itself when it “defeated" the communist Soviet Union in 1990. The latter was needed to cushion, smoothen or even hide the rough edges of capitalism; to lend it a human face; to suffuse it with humane tendencies via welfare policies, via policies that seek to provide (if not succeed) a level playing field in terms of opportunities.

Without the “check and balance" that communism provided, the excesses of capitalism manifested themselves first in 2001 and then in a much bigger way in 2008. As a result, within a little over a quarter century of capitalism having triumphed over communism, America has a politician who has called for a 70% top marginal tax rate. So much for the end of history.

With victory over enemies and rivals, one loses a force that actually keeps one “battle fit", intellectually or otherwise. So, we all need the “other" to remain fit ourselves. No point in becoming totalitarian. That is the short but definite first step towards decay, sloth and eventual extinction.

So, capitalism needs populism to redefine and reinvent itself for the better. But, that is only a necessary condition and not a sufficient condition. One may still read the wrong lessons from competition and make the wrong course corrections. I think that is what is happening to the so-called “liberals".

They now face competition from those who espouse “populism-nationalism" as they pejoratively describe those who do not think like them. Going by Rajan’s thesis, the so-called “liberals" should welcome this competition as a tool or an opportunity to “up their game" intellectually. But quite the opposite is happening with the Democratic Party in the US and with several so-called “liberal intellectuals".

One example of a counterproductive and delusional reaction is their characterization of the ongoing trade and intellectual disputes between the US and China. They characterise it as “Trump’s trade war". One moment, they blame him for compromising with China, and the next moment, they blame him for triggering a trade war. All along, it has been about China not living by its own commitments when it signed up to join the World Trade Organization in 2001.

The second example is, as Robert Barro points out in another Project Syndicate piece (My Best Growth Forecast Ever), liberals wishing ill on the economy in America because it is doing well under a president they hate.

What happens if competition fails to hone and sharpen or if competition is removed? Crises emerge in short order. Having seen off competition from communism (or so they thought), capitalists have been behaving (enriching themselves) in a manner that has resulted in a crisis that threatens their very existence. The crisis of 2008 was a warning sign ignored.

Indeed, that is what has been happening to so-called Western liberal and democratic societies lately. They are blaming demagogues and politicians for the rise of protectionist sentiments with respect to trade and immigration. Perhaps, ageing societies are prone to such sentiments naturally and all the more so when an economic crisis has shrunk their savings pie and placed their social security, pensions and healthcare in jeopardy. Ageing individuals no longer welcome new ideas and strangers in their midst. Why should ageing societies be exceptions? If seen that way, the answer certainly does not lie in forcing further immigration upon them.

For societies and ideas, a failure to harness competition could mean a revolutionary overthrow and the emergence of a new order. This new order may not be for the good. Further, there could be a prolonged period of chaos and disorder before that new order emerges.

In recent times, 1914-45 and 1967-82 are examples of such “disorderly" and “chaotic" interregnums, although the latter far less so than the former. That is why the chaos, disorder and violence of 1914-45 produced two decades of order and prosperity all around.

The chaos and disorder of 1967-82 produced a new order that appeared to usher in an era of prosperity—globalization and all that. But, it has landed the world in a crisis of capitalism, for capitalism got rid of the “check and balance" of competition along the way.

Therefore, what awaits us is another prolonged (or, short, if we are lucky) period of uncertainty and turbulence, followed by a new social order that will not look like 1945-65, nor like 1982-2000, but a lot worse. Brace yourself.

V. Anantha Nageswaran is the dean of IFMR Graduate School of Business (KREA University). These are the author’s personal views