[This post has been replaced by one somewhat newer that addresses these issues more completely. It does not reject any of what is written here but improves the analysis. I am keeping it here primarily for historical reasons and if this is your first visit, recommend going to What’s in a Name?]
A number of people to whom I have sent the previous paper have replied there is much here with which they agree, but as classical liberals or genuine conservatives (rather than right wingers) they think I should use the term “crony capitalism” rather than “capitalism.” They point out that my arguments would be more likely to be well received in free market circles if I avoided a battle over terminology.
At one level I agree. Much of what is most distasteful about capitalism is captured by the term “crony capitalism.” Most people to the left who dislike “capitalism” would also be just as happy with “crony capitalism.” If I were planning a political campaign I would use that term because it would be easily understood and at that level of use, not be misleading. I agree if we got rid of “cronyism” we would be doing pretty well.
But at another level I think the term is seriously misleading. I have two reasons.
It’s not just cronies
First, the term “crony” suggests the problem is bad people, cronies, and as such fits comfortably into our cultural bias to think in purely individualistic terms. But my entire argument points to this as a misdiagnosis.
Hayek, Polanyi, and my own work building ion their insights emphasize the role of systems, not individuals. Hayek started out a methodological individualist, but as he developed his insights about spontaneous orders he no longer was. He began to think in terms of systems. We emphasize that systems provide the context within which individuals live and act.
Capitalism is like an ecosystem. It provides a context which actively promotes some actions and penalizes others even though occasionally an action normally penalized will succeed and not every plan in harmony with its underlying bias will succeed. In the terms of my critics, capitalism promotes cronies as organizations seek allies to manipulate the rules in their favor.
Remember, back in 1776 Adam Smith famously described the tendency of businessmen to conspire against the public. But there is a big difference between these efforts when the market limits their impact as compared to when their ability to change the rules subordinates market forces power.
Once we clearly distinguish between capitalism and markets, we will also be better able to envision alternative frameworks that preserve the benefits of markets without the disadvantages of capitalism. But for now this is a promissory note.
Individuals do not disappear in this kind of analysis, as they did in most Marxist theory for example. But they, we, exist within a context we did not create, but which helps create us as the beings we are. Of course we also help maintain and create that system. And this is the point: we and the systems within which we exist are co-creators. Emphasizing only the crony aspect lets the systemic dimension off the hook. And it is this dimension that pushes corporations to act they way they do, and pushes out CEOs motivated by deeper sets of values.
There already is a good term for what some of my readers want to call “capitalism:” civil society.
Getting clear about civil society
This brings me to reason number two. As a concept “civil society” has been largely pushed aside by the term “capitalism” in market-friendly analysis. Some writers even equate the two. Yet it is capitalism’s subordination of civil society to the market, or to rephrase it, to the power of money, that causes the problems I am describing, just as it is the market’s subordination to civil society that makes a free society possible. In terms of human values, capitalism is a toxic expression of the market, where its feedback, money, comes to override all other values.
Civil society includes more than markets and subordinates them to values that cannot be derived from economics alone. I believe our growing inability to grasp this is one of the most worrisome intellectual and moral failings today. This failure renders us unable to really understand or push back against capitalism’s bad effects, which includes but is not limited to magnifying the power of cronies to conspire against the rest of us.
While my analysis takes Hayek’s thinking in directions he did not, I think he saw the same point I am trying to make. Hayek favored government measures such as a guaranteed income floor because he acknowledged that a growing market economy would dissolve the local ties that supported people in times of misfortune. He also worried about the growing power of organizations in a society where most were employees rather than independent producers. He described the good society as the “Great” or “Open” society, not the free market. Richard Cornuelle made a complementary point in describing a third sector that was neither government nor market as essential for a good and free society. When we think in terms of markets vs. government (or worse, the ‘state’) we miss this important distinction or try and reduce it to economics.
Civil society is the pattern of cooperation that arises when people of equal status are free to cooperate in whatever ways they want so long as they aggress against no one. It is, as David Hardwick puts it, the “Interdependence of independent equals.” Prices emerge from this cooperation, but so does science, and I argue, democracy. In my book Faultlines I argue with the rise of the market, mass democracy, and science, the liberalism that inspired our Founders later tended to split, emphasizing one of those three spontaneous orders as a way to solve new problems. Classical liberals gravitated to the market. Egalitarian liberals gravitated to democracy. Managerial liberals gravitated to science. All three resulted in an impoverished liberalism that fails to address today’s issues adequately compared to one recognizing and balancing all three within a more complete conception of what a good society is.
Civil society helps us do this. It is a system like markets, democracies, science, and ecosystems. But unlike these it is dominated by no single feedback signal, but rather can incorporate all of them, leaving it to each individual to integrate them as he or she will in the pursuit of plans and projects in harmony with peaceful cooperation.