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How Capitalism Survived The Twentieth Century
One hundred years ago many thoughtful people predicted the decline and disappearance of capitalism. What happened to make their prophecy wrong?
November 1987 | Volume 38, Issue 7
After the war state-directed economies were everywhere: some were built on presumably Marxist principles in Eastern Europe and China (where the expenses of the governments that controlled production and distribution were theoretically to be met by the profits of state-owned enterprise), some were organized according to the peculiar principles of Peronism, a political doctrine named after the Argentine dictator Juan Perón by which military-based governments resident in cancerously growing cities could reward their supporters and pay the losses of nationalized industry by confiscatory taxation of the export earnings of the farmers.
This second approach to the organization of economic society was widely adopted in newly liberated Africa, most notably on the Gold Coast, which became Ghana, one of the richest and climatically one of the most salubrious of the developing countries, and which was set on the path to its present misery by its first national leader, Kwame Nkrumah. The government of Ghana still insists on buying its cocoa farmers’ product at very low government-fixed prices for resale abroad at the much higher market price, with the result that the paths through the forest between Ghana and the Ivory Coast are festooned with the rotting corpses of cocoa smugglers caught and hanged by the Ghanaian Army, and the Ivory Coast’s share of world cocoa exports, once less than half of Ghana’s, is now the largest in Africa. A few years ago I spent an afternoon with Kojo Debrah, then the Ghanaian ambassador to both Australia and Malaysia. It was important for him, he said, to report back to Accra on what was happening in Malaysia. That country had won its independence in the same year as his and had then been much poorer, but in the 1980s, after a quarter of a century of more or less capitalistic development, it had a per capita income approaching three times that of Ghana.
Free markets seemed certain to produce the “immiserization” of the masses.
It was not only that the Ivory Coast with its freeholders did so much better than Ghana with its collectivized farms, or that Panama for all its corruption did better than Cuba, or that South Korea and Taiwan generated far higher living standards than North Korea and China. The Eastern bloc countries in Europe recovered from the war much less rapidly than the West. Part of the reason, no doubt, was the difference between American generosity in the Marshall Plan and Soviet rapacity in reparations demands under Stalin (America could afford generosity and Russia couldn’t), but by the latter 1950s the world had perceived that West Germany was so much more prosperous than East Germany because market capitalism was a far more efficient system than state command for the generation of wealth. One must honor the memory of the East German freedom fighters of 1953, who threw rocks at the tanks on Stalin Allee, but East German demands for liberty were less important than the West German standard of living in Khrushchev’s decision in 1961 to build the Berlin Wall. As those who lived inside them knew, moreover, these socialist states were desperately corrupt societies, where the goods and services people earned from their labors depended very much less on what they produced or what they “needed” than on whom they knew.
The insight most visibly validated by the years after World War II was that of the French revolutionary syndicalist Georges Sorel in the years before World War I. “When politicians intervene,” he wrote in his book Reflections on Violence, “there is, almost necessarily, a noticeable lowering of ethical standards, because they do nothing for nothing and only act on condition that the devoured association becomes one of their customers.” Sorel was writing of what he called “political-criminal associations.” Sixty-odd years later the foreign minister of Singapore coined the term kleptocracy, rule by thieves, to describe the governments of certain—alas, many—Third World countries.
There are doctrinaires who prefer general poverty under the rule of rightminded or at least indigenous leaders like Castro or Mobutu to prosperity created by the greedy and often foreigninfluenced buccaneers of the marketplace. Ian Buruma, cultural editor of the Far Eastern Economic Review, wrote recently of what he saw as a sinister conspiracy in capitalist Japan: “The sharp rise in living standards that began with the economic boom of the 1960s was part of a deliberate political strategy to undermine political activism.” But ordinary people—and, in fairness, most “political activists” too—have a preference for progress rather than poverty, especially, of course, in the United States.