IN THE PUBLIC MIND, capitalism is associated with everything that has gone wrong with the world. For many, and not just adherents to the political religion of anti-capitalism, the word itself is synonymous with the ultimate evil. Wherever you look, capitalism does not seem to have many friends or allies—despite the fact that it has been the most successful economic system in human history.
The greatest trick anti-capitalists have pulled is to compare the realworld system under which we live with an ideal of the perfect world of their dreams, an ideal that does not and has never existed anywhere in the world. Anti-capitalists rely on the fact that most people know little about history and the extreme poverty and inhumane circumstances our ancestors lived in before capitalism emerged. And they know that most people today will have learned very little from their teachers at school or university about the cruel and callous conditions under socialism.
Finally, they paint the future in the blackest colors, whereby they attribute every problem and crisis not to failures of the state, but to alleged deficiencies in the market. And the fact that every single anticapitalist system without exception has ended in failure is an argument socialists are not willing to accept. They always have a response ready— That was not “true” socialism at all!—and confidently insinuate that, after 100 years of failed socialist experiments, they have finally found the right recipe to make socialism work after all.
In essence, capitalism is an economic system, based on private ownership and competition, whereby companies themselves are free to determine what and how much they produce, aided in their decisions by the prices set by the market. The central roles in capitalist economies are played by entrepreneurs who serve to develop new products and discover new market opportunities, and consumers whose individual purchasing decisions ultimately determine the success or failure of the entrepreneur. At its heart, capitalism is an entrepreneurial economic system. In fact, “entrepreneurial economics” would be the most appropriate term to describe it.
Under socialism, in contrast, state ownership dominates, and there are neither real competition nor real prices. Above all, there is no entrepreneurship. What products are produced and in what quantity is determined by centralized state planning authorities, not by private entrepreneurs.
But, neither of these systems exists in its purest form anywhere. In reality, all economic systems are mixed systems. Under socialist systems in the real world, there was and is limited private ownership of capital goods and the means of production and traces of free market economics (otherwise they would have collapsed much sooner). And in modern capitalist countries, there are numerous components of socialism and planned economy (which often hinder the functioning of the market economy and distort its results accordingly).
In my book, The Power of Capitalism, I developed a “theory” that I now call the “Test Tube Theory.” It is less a theory and more a metaphor that can be used to better understand historical developments: Imagine a test tube containing the elements of state and market, socialism and capitalism. Then add more market to this test tube, as the Chinese have been doing since the 1980s. What do we observe? A decrease in poverty and an increase in prosperity. Or put more state into the test tube, as the socialists have been doing in Venezuela since 1999. What happens then? More poverty and less prosperity.
All over the world, we see this struggle of opposites: Market versus state, capitalism versus socialism. This is a dialectical contradiction, and the development of a country—whether it experiences more or less prosperity—depends on the development of the ratio between market and state. While in the 1980s and 1990s, we saw a strengthening of market forces in many countries (Deng Xiaoping in China, Margaret Thatcher and Ronald Reagan in Great Britain and the United States, reforms in Sweden and in the early 2000s in Germany), today it is the other side—the state—that seems to be gaining the upper hand in many countries. At the level of ideas, anti-capitalism has come back into fashion and is increasingly shaping the thinking of a new generation of journalists and politicians.
As I have toured the world, promoting The Power of Capitalism, I have frequently been asked questions that I did not deal with in that book, such as: What about environmental degradation? Or: Aren’t human values lost in capitalism, and doesn’t everything else ultimately play second fiddle to the pursuit of profit? Is there not a fundamental contradiction between democracy and capitalism? After all, when we look at the United States, people ask, isn’t it clear that it is not the majority of voters but big money that determines political outcomes? What about the gap between the rich and the poor, which, as the media constantly reports, is continuously widening? And what do you say about global monopolies, such as Google and Facebook, which are becoming more and more powerful? Isn’t capitalism to blame for military conflicts all around the world, and hasn’t it produced terrible dictatorships—including Hitler’s National Socialist regime in Germany? Finally, people who doubt or despair of capitalism ask: Shouldn’t we try alternatives to capitalism? These, then, are some of the questions I address in this book.
As you read through the chapters that follow, you will soon realize that I do not argue on a theoretical level. Opponents of capitalism love to discuss theories because they know that in conceptual discussions, it is not always so easy to decide who is right and who is wrong and because they enjoy soaring to the heights of abstraction. For most people, however, theories and abstract economic models are too intangible and difficult to understand. That is the first drawback. The second, which is even more serious is: Some theories are seductive because they are consistent with what we think we know, with our preconceptions about the world. If they are coherent, engagingly formulated, well presented, and, above all, consistent with what we think we already know, they exert great appeal. I think it is more important to first ascertain whether the facts on which a theory is based are really true. And that is the sore point with the theories promoted by anti-capitalists: They do not fit with historical facts; they simply reinforce our biases about the world.
Some advocates of capitalism also like to discuss economic models. I have nothing against that, and such models have their justification. However, I think it makes far more sense to discuss historical facts rather than engage in a debate on theoretical models before deciding who is right.
In this book, I have adopted the following approach: In Part A, I focus in detail on the arguments repeatedly leveled against capitalism. In the middle section, Part B, I deal with the question of alternatives to capitalism. Socialism always looks good on paper—except when that paper is in a history book.
The third section of this book, Part C, is about popular perceptions of capitalism. Perhaps you have already read Steven Pinker’s Enlightenment Now!, or Hans Rosling’s Factfulness? I was fascinated by these books because they prove how wrong most people are when they believe that everything was better in the past and that the whole world is getting worse. There is a striking contradiction between survey data about how most people perceive the world around them and the facts. The same applies to people’s opinions on capitalism, where there is a sharp divergence between the historical and economic facts on the one hand and people’s perceptions on the other. I know this because, in a large-scale, international research project, I asked people in 21 countries what they thought about capitalism.
The primary purpose of this book is not to engage with other scholars, but to challenge popular opinions about capitalism. Nevertheless, in some chapters, I do directly address the arguments put forward by a number of prominent anti-capitalist intellectuals—such as Thomas Piketty, Naomi Klein and Noam Chomsky—and in books and articles written by scholars who are critical of capitalism. I do this primarily when I believe that their theses have now found acceptance among broader sections of the general public. Of course, most people who hold anti-capitalist opinions have never read the works of Karl Marx or the modern critics of capitalism. But many of their theses—imparted by the media, universities and schools—have found their way into the general consciousness and are even regarded, at least in part, as received wisdom, despite containing numerous errors.
You will also see that while some of these theses might appear to be quite new and innovative (e.g., the critique of consumption), they are actually much older. While the arguments put forward in support of anticonsumerism may have changed—at times, the movement was concerned about the destruction of culture, then the alleged dangers of “alienated consumption,” now it is climate change—the target has always remained the same: capitalism. The constantly shifting reasoning of anti-consumerists would suggest that the rationale is not as important as the actual target. Some anti-capitalists, including Naomi Klein, have even openly admitted that they only became interested in issues such as climate change when they discovered that this issue was a new and effective weapon in the fight against the one thing they detested above all: capitalism.
Critics will probably accuse me of “one-sidedness.” This is because a large number of the facts and arguments I present in this book will challenge many of the “truths” about the world that most people have come to believe. It will also contradict the narrative that is peddled by large sections of the media (I will come to that in a moment).
And that is why a prerequisite for reading this book is an openness to facts that may challenge your view of the world. In our international survey, we presented respondents in 21 countries with 18 statements to ascertain their opinions on capitalism. One statement that elicited little agreement was that capitalism has improved conditions for ordinary people in many countries around the world—far more respondents believe that capitalism is responsible for hunger and poverty. The figures I present in Chapter 1 of this book clearly show that exactly the opposite is the case.
In relation to hunger and poverty, however, it is very difficult to have a fact-based discussion. The more emotionally charged a topic is, the less willing people are to accept empirical data that contradict their own opinions, a fact that has been repeatedly confirmed by scientific experiments and studies. For example, in a series of almost identical representative surveys over the last three decades, researchers gave respondents a sheet of paper with a picture and a speech bubble and presented them with the following scenario: “I would now like to tell you about an incident that happened the other day at a panel discussion about [then followed various topics such as genetic engineering, climate change, nuclear energy, air pollution, etc., all of which are emotionally polarizing]. Experts were talking about the risks and the latest developments in the field. Suddenly, an audience member jumps up and shouts something to the panelists and the audience.”
The researchers then asked respondents to look at the person and the speech bubble on the paper that contained the words, “What do I care about numbers and statistics in this context? How can you even talk so coldly when the survival of mankind and our planet is at stake?” Below the speech bubble was a question: “Would you say this person is right or wrong?” This question was repeatedly asked over a period of 27 years in 15 different representative surveys on a variety of highly emotive and controversial topics. Invariably, the majority of respondents agreed with the heckler who was not interested in the facts. On average, 54.8 percent said the fact-resistant heckler was right, only 23.4 percent disagreed.
In writing this book, I am in no way interested in adopting an artificial “centrist” position or accommodating the mistaken opinions of large numbers of people when the facts are undisputable. That said, given the hundreds of books that have been written to denounce capitalism, there would certainly be nothing wrong with writing a book in its defense. In any court case, the defendant is always allowed a defense attorney. The judge—in this case that is you, dear reader—arrives at a judgment only once all of the facts have been presented. In this case, that includes the facts in favor of capitalism. A trial in which there is no defense and the prosecutor and judge are in cahoots is a show trial. Unfortunately, the debate on capitalism more often than not resembles a show trial rather than a fair trial.
I was very impressed by the clear and simple terms employed to defend the market economy used by my friend Professor Weiying Zhang, a renowned economist at Peking University. I have included his paper, which you will find on pages 350–370. For readers who have not yet studied the topic of capitalism in any depth, I recommend reading this chapter first—as soon as you have finished this preface—rather than saving it until the very end.
Finally, I would like to thank the scholars and friends who helped me with their encouragement and critical comments on this book. Some have read individual chapters, others the whole manuscript. My thanks go to Prof. J.rg Baberowski, Dr. Daniel Bultmann, Prof. Jürgen W. Falter, Prof. Thomas Hecken, Dr. Christian Hiller von Gaertringen, Dr. Helmut Knepel, Prof. Eckhard Jesse, Prof. Hans Mathias Kepplinger, Prof. Wolfgang K.nig, Dr. Gerd Kommer, Prof. Stefan Kooths, Prof. Wolfgang Michalka, Reinhard Mohr, Dr. Kristian Niemietz, Prof. Werner Plumpe, Prof. Martin Rhonheimer, Prof. Walter Scheidel, Prof. Hermann Simon, Prof. Frank Trentmann, Prof. Bernd-Jürgen Wendt, and Prof. Erich Weede.
My special thanks go to Dr. Thomas Petersen of the Allensbach Institute, who steered the international research project over many months, and to my friend Ansgar Graw, who again brought his skills to bear in expertly editing this book.
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