A capitalist criticises capitalism

“The global capitalist system… is coming apart at the seams”. So declared capitalist and arch-speculator George Soros before a US congressional enquiry on 19 September 1998. He has since expanded on this in a book entitled The Crisis of Global Capitalism. What has he in mind?

By “global capitalist system” Soros doesn’t mean what we would understand by the term, i.e. capitalism as a world-wide system of production for profit, but the more restricted sense of present world financial arrangements which allow the more or less free movement of capital throughout the world:

“The global economy is characterized not only by free trade in goods and services but even more by the free movement of capital. Interest rates, exchange rates, and stock prices in various countries are intimately interrelated, and global financial markets exert tremendous influence on economic conditions. Given the decisive role that international financial capital plays in the fortunes of individual countries, it is not inappropriate to speak of a global capitalist system” (Introduction).

It is these arrangements-this single world financial market-that he is saying is in danger of disintegrating; which of course would not at all be the same thing as the collapse of capitalism that has sometimes been mistakenly predicted by some writers in the Marxist tradition.

Unstable system

Soros, following, consciously or not, a distinction made by one school of anti-imperialist thinkers in the 1970s and 80s, divides the “global capitalist system” into a centre (US, Western Europe, Japan) and a periphery (Asia, Latin America, Russia, East Europe, Africa). Under this system capital flows from the centre to the periphery and back, supposedly to the mutual benefit of both. He sees the danger of disintegration coming from countries on the periphery taking steps to stop the free flow of capital in a bid to avoid the negative effects of the system’s instability on their economies and populations:

“To put it bluntly, the choice confronting us is whether we will regulate global financial markets internationally or leave it to each individual state to protect its own interests as best it can. The latter course will surely lead to the breakdown of the gigantic circulatory system, which goes under the name of global capitalism” (p. 176).

So what Soros means by the “breakdown” or “disintegration” of global capitalism is not the collapse of the world-wide system of production for profit based on the exploitation of wage labour, but only states coming to adopt measures that impede the free movement of finance capital.

Soros does not believe this to be an inevitable process. As the quote above makes clear, he thinks it can be stopped if appropriate measures are taken at international level; global institutions must be created to lay down some basic ground rules for the operation of global capitalism.

For Soros is no free marketeer. In fact part of his book is a devastating attack on those he calls the “market fundamentalists”, the followers of Von Mises, Von Hayek and others, who advocate that market forces be given complete free rein and who came into intellectual prominence in the time of Reagan and Thatcher. Soros levels two charges at them. First, that they think that markets have an in-built tendency towards creating a stable situation through supply and demand being in balance, while this is not the case. Second, that they preach that the market is the best way to regulate all human activities.

Writing from his own experience, admittedly not of the real economy but only of financial markets, Soros challenges the equilibrium theory:

“Market fundamentalists have a fundamentally flawed conception of how financial markets operate. They believe that financial markets tend towards equilibrium… Financial markets are characterized by booms and busts and it is quite amazing that economic theory continues to rely on the concept of equilibrium, which denies the possibility of these phenomena, in face of the evidence. The potential for disequilibrium is inherent in the financial system; it is not just the result of external shocks” (Introduction).

The external shocks which the market fundamentalists invoke are usually, of course, government interventions of one sort or another. According to them, if governments just stood aside and let the magic of the market operate, there would be no slumps just continuous, smooth growth. But there is no evidence for this. Throughout the 19th century British governments pursued a policy of laissez-faire yet slumps still occurred on a regular basis.

The fact is that the market system does have a built-in tendency towards creating booms and busts rather than stability and smooth growth. As Marx pointed out, this applies to the real world of market-oriented production and not just to financial markets. Soros is even prepared to give Marx some credit here:

“… the capitalist system by itself shows no tendency toward equilibrium. The owners of capital seek to maximise their profits. Left to their own devices, they would continue to accumulate capital until the situation became unbalanced. Marx and Engels gave a very good analysis of the capitalist system 150 years ago, better in some ways, I must say, than the equilibrium theory of classical economics” (Introduction).

He claims, however, that thanks to “countervailing political interventions in democratic countries” Marx’s “dire predictions did not come true”. This is based on a misunderstanding of Marx’s view. The “dire predictions” that Soros mentions were not, as he seems to assume, that the unregulated profit-seeking of capitalists would lead to the collapse of the capitalist system but simply that their competitive struggle for profits meant that steady, smooth growth was impossible and that growth proceeded by means of booms and slumps.

Capitalism has not collapsed because it was never going to, not because of government intervention Marx didn’t foresee. And government intervention has not been able to eliminate the boom/slump cycle which Marx saw was an unavoidable feature of capitalism.

Creeping marketisation

Soros sees himself as continuing the political philosophy of Karl Popper. As expounded in books such as The Open Society and Its Enemies Popper argued against the idea of trying to establish a “perfect” society in favour of accepting an “open” society as one subject to permanent improvement by piecemeal social engineering, by which he understood capitalism with a political structure involving elected institutions, the rule of law and pluralism, i.e. more or less what the West has had for years.

For Popper the main enemies of his “open society” were the totalitarian ideologies of fascism and “Marxism” (which, for him, was not just Marx’s own views but those mixed up with Lenin’s and Stalin’s). Soros adds a third which he says has come into prominence since the collapse of “communism”: uncontrolled capitalism. Hence the subtitle of his book “Open Society Endangered”, though he had already expressed this view in a famous article “The Capitalist Threat” that first appeared in The Atlantic Monthly in February 1997 and which was widely reproduced.

Soros sees the danger coming from the penetration of market values into all aspects of life, leading to social disintegration. “Monetary values”, he writes, “have usurped the role of intrinsic values and markets have come to dominate areas of society where they do not properly belong” (p. 206). He is in fact quite forceful in his criticism of this aspect of global capitalism:

“The functions that cannot and should not be governed purely by market forces include many of the most important things in human life, ranging from moral values to family relationships to aesthetic and intellectual achievements. Yet market fundamentalism is constantly attempting to extend its sway into these regions, in a form of ideological imperialism. According to market fundamentalism, all social activities and human interactions should be looked at as transactional, contract-based relationships and valued in terms of a single common denominator, money. Activities should be regulated, as far as possible, by nothing more intrusive than the invisible hand of profit-maximising competition. The incursions of market ideology into fields far outside business and economics are having destructive and demoralizing social effects” (Introduction).

“A transactional society undermines social values and loosens moral constraints. Social values express a concern for others. They imply that the individual belongs to a community, be it a family, a tribe, a nation, or humankind, whose interests must take precedence over the individual’s self-interests. But a transactional market economy is anything but a community. Everybody must look out for his or her own interests and moral scruples can become an encumbrance in a dog-eat-dog world. In a purely transactional society, people who are not weighed down by any considerations for others can move around more easily and are likely to come out ahead” (p.75).

Soros does not realise just how fundamental a criticism of capitalism this is. Although he rightly says that “a purely transactional society”, in which the only links between people would be monetary, “could never exist”, the market fundamentalists are equally right to insist that the logic of capitalism is to work towards this-they are just crazy in thinking that this nightmare situation is the ideal form of society.

Soros’s mistake is to think that you can have capitalism and somehow keep its money-commodity relations from spreading everywhere. The history of capitalism is the history of the continuous spread of such transactional relationships-i.e., the market-into more and more fields of human activity. It is a process that cannot be stopped within capitalism as growing marketisation is just as much a feature of capitalism as capital accumulation; indeed the two go together.

Soros, however, is a supporter of capitalism:

“I want to make it clear that I do not want to abolish capitalism. In spite of its shortcomings, it is better than the alternatives. Instead, I want to prevent the global capitalist system from destroying itself” (Introduction).

We doubt whether he has given serious consideration to the alternative of a global society based on the common ownership of the world’s resources and production directly to satisfy human needs. Not that we would really expect him to. Some of his fellow-capitalists already think he has gone too far in his criticism of their system.