Defining Ideas

Does Capitalism Cause Social Decay?

Sunday, March 24, 2019
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One of the paradoxes of our time is that even though material conditions have improved dramatically across the world over the last several decades, it is commonly asserted that more people feel anxious and depressed. Surely there are more reports of such dislocation, and perhaps better treatment of these conditions. Understanding this alleged conundrum is critical to the future course of social policy. An increasing number of important conservative thinkers point to modern capitalism as the source of our malaise. Oren Cass of the Manhattan Institute criticized labor markets in his recent book The Once and Future WorkerAnd Raghuram Rajan, a professor at the Booth School of Business at the University of Chicago, offers his account of why more people feel despair in his new book, The Third Pillar: How Markets and the State Leave the Community Behind

I’ve covered Cass’s book previously, so will focus on Rajan’s work in this column. Before joining Booth, Rajan was the governor of the Reserve Bank of India. His training is in finance, not sociology, which is a far more nebulous field of study. But his book ventures quite often into sociological territory. A distinguished conservative intellectual, Rajan writes in his book: “We are surrounded by plenty. Humanity has never been richer as technologies of production have improved steadily over the last two hundred and fifty hears. It is not just the developed countries that have grown wealthier; billions across the developing world have moved from stressful poverty to a comfortable middle-class existence in the span of a generation. Income is more evenly spread across the world than at any other time in our lives. For the first time in history we have it in our power to eradicate hunger and starvation elsewhere.”

I should have thought that this news was cause for huge celebration. But, no, there is a black cloud on the horizon. “In an era of seeming plenty,” he writes, “a group that once epitomized the American dream seems to have lost hope.” That group consists of “the moderately educated middle-aged white male in the United States.” His book is an effort to explain this paradox. 

But Rajan enters intellectual hot water with his flawed definition of community. He believes that community consists of local government institutions and voluntary organizations. He writes: “We will view government, such as the school board, the neighborhood council or the town mayor as part of the community.” This move runs immediately into serious difficulties because the two operate on totally different premises. Local government institutions are dominated by local electoral and regulatory politics, where factional disputes are every bit as intense as in statewide or national elections. In contrast, voluntary civic institutions operate under the principle of reciprocity, dominated by a principle of unanimity. 

The two are polar opposites, which makes it incorrect to categorize government at any level as part of the community. Lots of local citizens serve on school boards and city councils, and would consider their activities community service. But that form of public service is often bitterly partisan and hence fundamentally different from participation in voluntary organizations. There, the notion of communityrefers to informal social relations that exist among people who live in close proximity to each other. These close relations allow people to know each other well and to form bonds of trust that do not depend for their stability on any system of legal enforcement. Rajan rightly identifies reciprocity as an important norm in successful communities. In its simplest sense, reciprocity operates as a form of social barter. 

But just how does market capitalism undermine reciprocity and cooperation in the social sphere? Rajan does not specify any particular mechanism that makes it impossible for people to wear both a market and a cooperative hat. Most people commonly do both. In the cooperative mode, the basic practice is that I help you when you need some assistance, and my only compensation is the expectation—not the obligation—that you will extend a helping hand to me when I am in need. The system of reciprocity works best when individuals stand in rough parity with each other. These relationships are not purely altruistic. Each person has the shared expectation that both will cooperate over time, which brings a level of social security. Reciprocity quickly becomes a norm in larger groups of individuals in a cohesive community where people share values and expectations. If A gives some assistance to B, the norm of community reciprocity is satisfied if either C or D supply needed assistance to A.

It would, however, be a mistake to limit the practices of voluntary assistance solely to cases of reciprocity. The implicit norm of benevolence can also kick in when it is well understood that the recipient of the aid may never be in a position, say for reasons of illness or poverty, to provide return assistance. Within traditional legal theory, moreover, it is often said that all individuals, even those of modest means, are under an imperfect obligation to provide assistance to others in need. These imperfect obligations do not generate any legal obligation enforceable in a court of law. They specify neither the individuals to whom the obligation is owed nor the amount of assistance to be supplied. But make no mistake about it: relevant social, religious, and psychological sanctions produce in abundance the desired effects. 

Of course, today, people receive tax deductions for such acts of charity—making those acts seem less motivated by a benevolent community norm. But charitable giving was at its height during the period of laissez-faire in the late nineteenth and early twentieth centuries, when the absence of an income tax meant that no one made charitable gifts with the hopes of getting some tax deduction. A constellation of moral duties and social pressures during that time led to the foundation of major universities like Johns Hopkins (1876), Stanford (1885), the University of Chicago (1890), and the Carnegie Institute of Technology (1900), later Carnegie-Mellon University. Even today, similar practices continue, most notably with the Buffett pledge whereby 168 billionaires and counting promise to give away at least half of their private wealth to charitable causes. Rajan believes that the market only involves quid pro quobusiness exchanges. But that is far too narrow a conception. The world of voluntary transactions is far richer and more diverse, and a capitalist system easily accommodates these charitable activities.

Rajan’s effort to treat local governments like community rests on the assumption that both are proximate to the populations they serve. But in large cities, that argument breaks down. Take a city like New York, whose multiple boards and commissions are often locked in power struggles over which special interest prevails. Community school boards engage in highly political and divisive actions when they are forced to negotiate union contracts, or to decide the boundaries between adjacent school districts, which has created intense political controversy on New York’s Upper West Side. That controversy has been eclipsed now that Mayor Bill de Blasio is trying to introduce a greater measure of diversity in New York City’s elite high schools at the expense and over the fierce protest of (mostly, but not exclusively) Asian-American parents and students. 

The local divisions are every bit as great when the question turns to the issue of zoning: what land uses should be permitted in which areas and why. Do we include affordable housing for lower-income people who want to live in a small suburban community? The case of NAACP v. Mount Laurel (1975, 1983) has raged for two generations on just this question. Indeed, volumes on local government law have grappled with the question of what legal protection people get when their land is rendered worthless by oppressive zoning regulation. Norms of benevolence and reciprocity do not rear their head in these political struggles. 

To explain how capitalist innovation produces social unraveling, Rajan points to the “Information and Communications Technology Revolution”—that is to say, the rise of the Internet, social media, and smart phones. To be sure, each new technology introduces some social dislocations, but the net positives are enormous. Those same smart phones also make it easier for people to meet and work together—and to connect, like the grandmother in Iran who can FaceTime with her grandchild in Michigan. Rajan mentions the elderly person who now gets her medicines online and no longer has to depend on the good graces of a neighbor for a ride to the pharmacy. But that development is great news for these individuals, who can acquire health care at lower cost and risk. The traditional norms of reciprocity and benevolence can now be directed to other activities, like taking elderly people to visit family and friends. Technology may eliminate opportunities for benevolence. But it also creates vastly greater new opportunities for it.

Nor is capitalism or technology responsible for the plight of Rajan’s “moderately educated middle-aged white male,” aka Trump supporters, whose opportunities have diminished in recent years. Their discontent is not thanks to capitalism, but to the government-supported apparatus that promotes programs of diversity and inclusion in government jobs, private firms, and educational institutions, from which this demographic benefits little. Trump has made many blunders on issues of free trade, and has browbeaten particular companies like Harley-Davidson and General Motors for shutting down unprofitable plants and shifting activities overseas. But by the same token, the Trump administration has exercised a light regulatory hand on employment relationships such that many hard-to-place employees—former criminals, teenagers, and members of minority groups—have found a foothold in the economy that would be undermined by aggressive enforcement of the minimum wage and other applicable statutes. Rajan also writes of the opioid crisis that has afflicted small communities—but, again, why charge that to the market rather than the state? The same places wracked by the opioid epidemic are also where labor and environmental regulations have made it harder for residents there to find gainful employment. 

I am in favor of strengthening community. But I strongly oppose taking any steps that will slow down the innovation that has led to remarkable global progress. Recently, the prestigious British medical magazine Lancet tweeted the familiar dirge that “disease, violence and inequality threaten more adolescents worldwide than ever before.” Nonsense: the historical blindness of statements like that is epic and inexcusable. Just look at the response postedby the American Council on Science and Health that tells, using hard data, a very different story of the rapid decline of disease and poverty throughout the world. We do not get to that situation by killing off capitalism or innovation. We need more capitalism, not less, to loosen the shackles imposed by the state so that markets can perform their vital functions and continue bringing health and prosperity to people across the globe.