Photo: Mint
Photo: Mint

Opinion | Why socialism is gaining traction among millennials

Capitalism has failed to prevent unfairness, but socialist rhetoric can’t provide the answer

The cover of the current edition of The Economist depicts the rise of “millennial socialism". It is about the preference for socialism among children born around the birth of the new millennium and now stepping into adulthood. Who could have thought that, less than three decades after the triumph of capitalism and globalization, The Economist will have such a cover and will be carrying a leaderarticle on the topic of the resurgence of socialism?

The end of communism, the collapse of the Berlin Wall and the disintegration of the Soviet Union were supposed to have ended history. This demonstrates, yet again, how remarkably difficult it is for humans to predict the future. But, as Will and Ariel Durant write in their book, The Lessons Of History, the first lesson of history is humility.

The second lesson is that western experts are more likely to get their predictions wrong because of their linear view of the world. However, in the east, the return of socialism as a topic for discussion with potential political and policy implications—in the US, of all places—should hardly be surprising, forfor easterners know that events unfold cyclically. Stuff repeats itself.

At first glance, the solutions offered by millennials, or by the leaders who have taken up their causes, appear stale and areunlikely to have lasting effects. If anything, they may have unintended lasting consequences.

Second and, most importantly, facts are always complex and the more one knows, the less one is sure. Take, for example, the righteous indignation against the wearing of fur and the use of leather in personal wear, and the preference for cotton, etc. Drawing upon the work of Melissa Kwasny, poet and writer, (famous works include Putting On The Dog: The Animal Origins Of What We Wear), a recent article in Quartz (There’s A Strong Ethical Case For Wearing Leather And Fur, 7 February 2019) shows the complexity and difficulty of being judgemental about some of these things. One can never be absolutely good, but only “goodish", as the article says.

These subtleties are likely lost on most millennials considering the ‘lynch mob’ judgement that is dished out on social media. The millennial’s love of socialism might end up taking us back to the economically unstable world in which we lived in the 1970s.

That said, the resistance—this counterpoint—to capitalism is long overdue. Commentators who are frightened by these developments must reflect on what brought things to this pass. Capitalism—both of the arm’s length variety and of the relationship variety (pejoratively referred to as “crony capitalism")—has failed to prevent unfairness from becoming the foundation of the interaction of capitalists with the rest of the society. In an oft-cited 1998 paper (https://www.nber.org/papers/w5758), Raghuram Rajan and Luigi Zingales wrote that relationship capitalism would have to eventually make way for arms-length capitalism as economies matured.

Barely after the publication of this work, limitations of “arms-length capitalism" surfaced. The pillars of contracts-based capitalism are the independent agencies of analysts, accountants and credit-rating agencies. The collapse of Enron early in the new millennium exposed cronyism and other weaknesses that had infiltrated the first two of these three agencies of the checks and balances that allow arms-length capitalism to facilitate scale and foster economic growth by enabling transactions between strangers. The financial crisis of 2008 brutally exposed the limitations of the last one. Arms-length capitalism had adopted, as its own, the worst of “arms-around" or relationship capitalism.

Another example of arms-length capitalism gone awry is that of stock ownership for executives. It was meant to be an institutional response to the potential for trust deficit between principals and their agents. In reality, in the last 40 years, it has ended up as an instrument of material aggrandizement on the part of executives at the expense of both shareholders and workers. Stock buybacks serve the short-term interests of executives at the expense of the long-term interests of shareholders.

In the meantime, relationship capitalism embraced the trappings of arms-length capitalism, while scrupulously steering clear of its substance. For example, in India, in 2016, there were 73 AAA-rated companies, while China had 14, Indonesia 10 and the US had only two. Some of these 73 have gone belly-up less than three years later. It is hard to believe that they really merited their AAA rating if they could become insolvent in less than three years.

Both forms of capitalism—arms-length and arms-around—stand discredited because they abandoned the invisible hand of morality that undergirded interactions between members of the society. If a return of the socialist rhetoric were needed to restore even a modicum of morality to capitalist societies, then it is necessary and welcome. But, it cannot be the answer, for equality is unnatural, and socialism is intertwined with totalitarianism.

V. Anantha Nageswaran is the dean of IFMR Graduate School of Business (KREA University). Views are personal.

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