Capitalism: The Continuing Revolution

When I wrote The Capitalist Revolution five years ago, the word revolution was, of course, intended to denote the fundamental changes, the radical transformation, that capitalism brings about in a society. It did not imply an overthrow of existing regimes and, alas, did not constitute a prediction of the cataclysmic events that have shaken the socialist world since the spring of 1989. (I can console myself with the thought that hardly anyone predicted these events.) All the same, much of the international scene today is dominated by what can only be described as a “capitalist revolution” of massive dimensions. It seems plausible, in view of this, to ask whether these developments support or weaken any of the propositions around which the book was constructed. But first I would like to make a few observations about the current capitalist upsurge and the triumphalist mood it has engendered among advocates of capitalism.

I

The most spectacular manifestations of this turn toward capitalism have, of course, occurred in the socialist societies of Eastern Europe and, to an extent, within the Soviet Union itself. The speed with which the new democratic or democratizing regimes in Eastern Europe have begun to dismantle the structures of socialism and to move toward a market economy has been astonishing, as has been the pro-market-economy rhetoric that has accompanied this revolution. Poland, under its Solidarity-dominated government, has opted for the most radical form of the transition to capitalism, rejecting a gradualistic process in favor of a cold-turkey treatment, the success or failure of which remains to be revealed. Within the Soviet Union there has been more talk than action about marketization of the economy, but there seems to be a growing consensus within the Soviet elite that something along these lines is a condition of survival (although clearly this consensus does not extend to the political implications of such a change).

The attention of the world media has rightly been focused on the upheaval within what used to be the Soviet empire. The outcome of this upheaval will have far-reaching and long-lasting consequences, not only for those countries themselves, but for the world as a whole. Yet the current capitalist revolution, if it is to be called that, is not limited to this one region. There has been turmoil in that other socialist giant, China, at least temporarily coming to a brutal halt with the repression of the summer of 1989. It is not at all clear, though, that the gerontocracy now in charge will manage to put the revolutionary genie back in its bottle; it is not even clear whether the present regime really wants to reverse the economic liberalization that has occurred, or whether it rather wants to put a stop only to the democratizing movement the former has engendered.

In many other parts of the world, meanwhile, market-oriented policies and pro-market rhetoric are flourishing. This is notably the case in Latin America, where a number of democratically elected governments have embarked on vigorously capitalist economic policies. The same has been true, though to a lesser extent, in a number of African countries. It has been true for quite a long time in most of East and Southeast Asia. Since capitalism continues to be a negatively charged word in many places, especially among intellectuals, it is often avoided in favor of the less upsetting synonym market economy. Conversely, where socialism is still a word that uplifts some hearts, it will also be avoided as the term to describe a non market economy; instead, reference may be made to command, Communist, or even Stalinist economies. These are semantic games. What is being described is, very clearly, a broad shift from socialist to capitalist models of economic organization.

Understandably, this turn has created a rather euphoric mood among those who have been in favor of capitalism all along. There is great satisfaction to be had for anyone who is in a position to say, I told you so!—especially anyone who used to be in a minority often treated with derision. It is also very satisfying to feel that one is ideologically attuned to the wave of the future or even (heaven forfend) the “end of history.” The left used to bask in just these satisfactions. Fair enough. Needless to say, I am a member of this pro-capitalist party within the West’s intelligentsia. This membership has not been altogether comfortable over the last twenty years, and it is nice for a change to be able to indulge in a bit of Schadenfreude. All the same, I think that the triumphalist mood prevailing at the moment in right-of-center circles is somewhat premature.

One hears the statement that socialism is “finished” or “discredited.” Both adjectives are ambiguous. To say that socialism is finished implies that there can be no successful attempts to restore it, in the same way that one might declare, for example, the Holy Roman Empire or the Albigensian heresy to be finished. That, however, is by no means clear. Not only may socialism survive for a long time in enclaves ranging in size from gargantuan China to minuscule Albania—even if most of the world goes capitalist—but there is also the very real possibility of restorations in countries that have already moved some distance in another direction. No sensible person would predict today what the Soviet Union will look like some ten years from now. A neo-Stalinist scenario can by no means be ruled out, and such a scenario would inevitably have powerful repercussions beyond the Soviet borders. In a different part of the world, the pro-capitalist governments in Latin America do not have many years to demonstrate that their policies can indeed help to solve the intractable economic and social miseries of that continent, and there is every reason to expect that, in the wake of failure, socialist solutions would gain credibility once more. I am convinced that such a return to socialism would be disastrously misguided, but I have learned not to confuse my own intellectual convictions with the logic of history.

If one then says that socialism has been discredited, one would have to answer the question. Discredited with whom? With those who used to believe in it? With objective, informed analysts? With historians in the future? In some sense, I tend to think, no idea is ever finally discredited, once and for all finished. Even the Albigensian heresy has resurfaced in some versions of contemporary feminism, and while the resuscitation of the Holy Roman Empire would not appear to be a promising political project, some of the notions now in vogue in Central Europe are surprisingly consonant with at least the later manifestations of that empire’s ideology.

Historians in the future, looking back to our time, will presumably be as confused, as divided, and as opinionated as our own historians. There is no such thing as a “verdict of history,” only the stumbling and often silly interpretations of those who make it their business to judge the past. I regard myself as both informed and objective, and socialism is certainly discredited with me; there is probably a growing number of reasonably informed and thoughtful people who agree with me. Again, this is gratifying, but one should not make too much of it: most of mankind is neither objective nor informed. As to those for whom socialism has been a sustaining faith, they will find ways of reinterpreting current events in such a way as to leave their faith intact.

This process of reinterpretation can already be observed daily in various commentaries on the transformations in Eastern Europe: What is being swept away is “Communism” (or “state capitalism,” or “Stalinism”), but not “socialism”—which will live to see a better reincarnation. Or: These countries are being delivered from one bad system only to be plunged into one just as bad or worse—greedy, exploitative, oppressive capitalism. Or: The present situation is temporary; once these societies settle down and come to their senses, they will appreciate the advantages they still have over the West—precisely the fruits of socialism, however distorted this socialism may have been in other ways. And so on. To be sure, there will be some, perhaps even many, who will concede that their god has failed; there will be others who will confront the contradictions between their beliefs and reality not by changing their beliefs but by making the necessary adjustments in their definitions of reality.

Groups as much as individuals are ingenious in denying inconvenient or disagreeable facts. This is what psychoanalysts call rationalization. But, to stay within the Freudian universe of discourse one instant longer, there is also something called the “reality principle.” Facts have a way of being there, stubbornly resisting efforts to wish them away and haunting those who deny them. They even haunt those (such as, understandably, many on the left) who theorize that there are no facts outside our interpretations of them (an immensely convenient theory, by the way, for those with an interest in denying reality). It follows that, while one must not exaggerate the historical efficacy of rational argument and empirical evidence, one must not fall into the opposite exaggeration of regarding the latter as having no effects at all. Actually, Freud put it very well when he observed that the voice of reason is quiet but persistent. This very modest optimism may serve as grounds for expecting that the scientific study of human affairs (including the social sciences) may be something more than the pastime of an esoteric underground—that is, it may have some public relevance. Be that as it may, let me now turn to the issue of what, if anything, may have to be revised in The Capitalist Revolution in the light of recent events.

II

As is to be expected, many propositions are unaffected, either way, by recent events. These propositions are as plausible or as implausible as they were five years ago. There are four important areas, though, to which recent events are indeed relevant: the relation of capitalism and prosperity, the relation of capitalism and democracy, the nature of socialism, and perhaps also the mythic power of the socialist idea.

When I say that recent events are relevant, I mean relevance in the business of theory construction to which The Capitalist Revolution was intended to contribute. In that strict sense one might say that recent events have added nothing that we did not know before or, more accurately, should have known as social scientists or otherwise as people attentive to empirical evidence. The crucial fact here, of course, is the vast superiority of capitalism in improving the material standards of living of large numbers of people, and ipso facto the capacity of a society to deal with those human problems amenable to public policy, notably those of poverty. But, if this fact had been clear for a long time, recent events have brought it quite dramatically to the forefront of public attention in much of the world, and by no means only in Europe. It is now more clear than ever that the inclusion of a national economy in the international capitalist system (pace all varieties of “dependency theory”) favors rather than hinders development, that capitalism remains the best bet if one wishes to improve the lot of the poor, and that policies fostering economic growth are more likely to equalize income differentials than are policies that deliberately foster redistribution.

Whereas these propositions have long appeared credible in economics departments in Western countries, they are now being propounded by governments from Budapest to Buenos Aires, by Communist apparatchiks and Peronist politicians, even here and there by revisionist Marxist intellectuals. This widened resonance is, strictly speaking, scientifically irrelevant, but it certainly improves the cultural context within which social scientists must operate. Put simply, social scientists uttering these propositions about capitalism sound less and less like the proponents of flat-earth theory that, to many, they still appeared a few years ago. To be sure, there are holdouts, and not only among so-called conservatives in the Communist parties of China and the crumbling Soviet empire—for example, in the political and intellectual establishments in India, in the English-speaking universities of South Africa, or in the social-action bureaucracies of mainline Protestantism in the United States. But it is these holdouts, rather than their intellectual adversaries, who now appear as people who argue that the earth is flat.

In this connection the propositions in The Capitalist Revolution about the relation of capitalist prosperity and equality should also be reemphasized. We continue to hear that, yes indeed, capitalism increases prosperity, but at the price of gross inequalities. Since I wrote the book, nothing has changed my mind about the strong probability that the notion of a trade-off between growth and equality is false. The weight of the evidence indicates that the Kuznets effect does indeed hold (increased inequality as a modern economy takes off, with a leveling-off occurring within a reasonable time thereafter), but that it holds regardless of whether economic growth takes place under a capitalist or a socialist system. In other words, the basic choice between capitalism and socialism is irrelevant to the issue of equality, except that capitalism greatly accelerates the growth process, thus accelerating both the inegalitarian and the egalitarian phases of the Kuznets curve.

It follows that to opt for capitalism is not to opt for inequality at the price of growth; rather, it is to opt for an accelerating transformation of society. This undoubtedly produces tensions and exacts costs, but one must ask whether these are likely to be greater than the tensions and costs engendered by socialist stagnation. Moreover, the clearer view of the European socialist societies that has now become public radically debunks the notion that, whatever else may have ailed these societies, they were more egalitarian than those in the West: they were nothing of the sort. One must also remember that, comparatively speaking, these European societies were the most advanced in the socialist camp. The claims to greater equality are even hollower in the much poorer socialist societies in the Third World (China emphatically included).

We also hear a good deal today about social democracy as the putative “third way” between Soviet-style socialism and the allegedly brutal capitalism of the West. This talk is based on both a conceptual confusion and a lot of empirical uncertainty. Conceptually, it continues to be important to insist (as Marxists have always done, correctly) that capitalism and socialism are systems of production; under either one, there can be very different systems of distribution. Social democracy is precisely an approach to distribution. Thus Sweden, the Utopia of those who consider themselves social democrats, has an overwhelmingly capitalist production system; what distinguishes it (though not as much as some would think) from other capitalist societies is the size and scope of its welfare state. This is not a third way; it is a variant of the first way. It is thoroughly confusing to refer to it as a variant of socialism (as, incidentally, its critics often do as much as its advocates).

There continues to be a lot of empirical uncertainty about the amount of welfare-state expenditures a modern capitalist society can afford without undermining its productivity. And, by the way, the present condition of Sweden does not exactly enhance the Utopian perspective on it. The same uncertainty prevails about the economic and social costs of non-welfare-state interventions of government in the economy. These are and will continue to be important issues between right-of-center and left-of-center parties in capitalist democracies; they are issues that have nothing to do with socialism. Very few people in the respectable spectrum of Western politics favor the abolition of the welfare state or the withdrawal of government from all economic interventions other than the printing of money and the enforcement of contracts. In other words, die-hard libertarians are a possibly endearing but politically irrelevant sect.

In terms of the capacity of capitalist societies to safeguard the welfare of their weaker members, the difficulties of integrating the former German Democratic Republic into Federal Germany throw sharp light on this matter. The problem was not how to integrate the superior welfare system of the DDR into the ruthless social policies of the Federal Republic; it was precisely the opposite. In this context it is worth recalling that from 1948 on (the beginning of the West Germany economic miracle), the phrase used by all, especially conservatives, to describe the system prevailing in the Federal Republic has been social market economy (soziale Marktwirtschaft). In that important sense, we are all social democrats.

By far the most dramatic relevance of recent events to the propositions in The Capitalist Revolution is in the relation of capitalism and democracy. And here I would say, at the risk of sounding self-congratulatory, that the plausibility of two key propositions has been enhanced—to wit, that capitalism is the necessary but not sufficient condition of democracy, and that market forces in a socialist or heavily statist society have a democratizing effect.

The former proposition is now being shouted from the rooftops in the formerly Communist societies in Europe. The urgency with which these governments now seek to install market economies is, of course, motivated by the desire to get out of the economic disaster created by forty years of socialist mismanagement; but it is also due to the insight that, without an effective market economy, the prospects for democracy are very poor indeed. The theoretical issue here is the relation between economic and political liberalization; in Soviet terms, one might substitute perestroika and glasnost.

It seems likely that the underlying relation between these two processes was not clear at all to the Soviet elite that launched the reform process; it may not be quite clear even now in those circles (though there are indications that it is becoming more so). Put simply, to open up a socialist society politically while leaving in place most of the structures of the command economy is asking for trouble: the economic gains will be sparse, slow, and very unequally distributed, and those who are thereby hurt will have increasing opportunity to complain, to organize politically, and to destabilize the process. Put simply, the Soviet regime would have been better advised to keep glasnost limping a few steps behind perestroika; in the event, it did precisely the opposite and by now it is probably too late to reverse the effects of the sequence.

By contrast, the Chinese regime did have something like the “correct” sequence in mind, and it pursued this course with a good deal of success for several years. It seems that what the reformist elite in Beijing had in mind was not too different from what happened in Taiwan after the Kuomintang regime was installed there following its retreat from the mainland—a broad economic liberalization presided over by an authoritarian government (indeed, in mainland debates the phrase “the new authoritarianism” was used to describe the political management of the marketization process). It is not clear why the regime abruptly changed course in 1989, not only repressing the political liberalization with great brutality but also putting brakes on the economic liberalization. It requires no great Sinological competence to predict that, unless there is a reversion to the earlier course, a very high price will have to be paid in terms of China’s economic development.

It is important to reiterate that, while capitalism appears to be a precondition for democracy, the converse is not the case. Much as one might deplore this, it is quite possible for capitalism to develop under nondemocratic regimes (although these will be of the authoritarian rather than totalitarian variety). The entire history of capitalism both in the West and in East Asia testifies to this, but recent history provides additional examples. The astounding economic takeoff of Spain in recent years began with the procapitalist policies during the final years of the Franco regime; a similar economic drama has been unfolding in Pinochet’s Chile. Needless to say, this in no way justifies the atrocities committed by these two governments, both distinguished by odious records in the area of human rights. But it is important to understand that the relation between capitalism and democracy is asymmetrical—the latter presupposes the former, but not vice versa. It might be observed that economic success is not necessarily hindered by tyrannical and inhumane governance. Thus the Kuomintang regime brutally suppressed an independence movement in Taiwan in the early years of its establishment there, with bloodshed that, in that smaller territory, can probably vie with the massacres on the mainland in 1989. The further observation is equally important, though: As the Taiwanese economic miracle took off, the regime progressively liberalized itself and is now decisively on the road toward democracy; the Beijing rulers appear headed in the opposite direction, with socialism still intact.

To repeat, while there can be capitalism without democracy, successful capitalism releases democratizing forces; similar democratizing effects can be observed if a socialist or heavily statist society makes successful moves toward the market. Both Spain and Chile can be cited by way of evidence. It may well be that this relationship was understood only too well in Beijing in 1989. I see no reason to change the way I formulated this relationship earlier. Peasants who are no longer hungry become uppity—a very inconvenient situation for those who used to lord it over them, no matter whether the lords are feudal oligarchs or a socialist nomenklatura. The differences between these two types of elites are not as great as their respective rhetorics would make one think—which is why socialist regimes are so easily superimposed on traditionally feudal or oligarchical societies. One might even say that the only genuine revolution under modern conditions is that of democratic capitalism.

So recent events have not instilled doubts in my mind about my earlier characterization of socialism, neither about its economic inefficiency nor its propensity toward dictatorial governance. The events of 1989 and 1990, however, do necessitate an important theoretical adjustment and raise an important question. The theoretical adjustment concerns the understanding of totalitarianism. Ever since Hannah Arendt, Zbigniew Brzezinski, and Carl Friedrich gave the concept of totalitarianism wide currency in political science, a common view (initiated by them, especially by Arendt) has been to the effect that a totalitarian system, once established, is very difficult if not impossible to remove from within—only outside force can do so (as was the case with Nazi Germany). The collapse of Communist regimes in Europe and the unfolding political drama in the Soviet Union itself, no matter the eventual outcome of these developments, can already be said to have falsified this proposition. On the contrary, it became clear that only outside force (the might of the Soviet military) had kept these regimes going; remove that outside force, and these governments collapsed like card houses. The steps by which this collapse then took place, from the first stirrings of popular discontent to the defection of security forces to the side of the revolution, closely resemble similar stages in nontotalitarian dictatorships, indeed closely follow the prescriptions of Leninist revolutionary theory. This falsification of at least Arendt’s notion of the invulnerability of totalitarianism does not invalidate other features of her theory, nor does it detract from the usefulness of the concept (including the distinction it makes between the two types of dictatorial regimes). But I certainly regard as good news our new insight into the fragility of the totalitarian project and into the dogged persistence of elements of “civil society” even after decades of relentless assault.

The important question about the transition from socialism raised by recent events is that of the optimal way to manage it. The basic alternative is between incremental and “big-push” approaches, and there are good theoretical arguments to be made for both. General knowledge of history and, more specifically, of the rapid revolutions of modern times make one lean toward gradualism, toward incremental rather than cataclysmic change. Both capitalism and democracy require special institutions through which to operate, and institutions take time to be constructed and to become taken-for-granted presences in people’s lives. On the other hand, even a general bias toward incremental change cannot foreclose the possibility that there may be particular situations in which something else is called for; the transition from socialism to capitalism may well be such a special case.

The long experience with gradualism in Yugoslavia and Hungary does not encourage the incremental approach; it appears that the half-measures toward the market are economically unsatisfactory and that they create new problems, notably that of widespread corruption. Almost inevitably, in a partially marketized economy there must be collusion between the new entrepreneurs and the bureaucrats who still control the “commanding heights” of the economy. This type of corruption evidently reached heroic dimensions in China and was the most immediate grievance of the students’ protest movement (an unfortunate fixation on a symptom instead of the disease, one might say). These considerations in turn would favor a single, radical push”one cold-turkey treatment currently being tried in Poland and being at least considered in other socialist societies in Europe. In a nonsocialist but statist context, similar big-push strategies are now being implemented in several Latin American countries. As of now, the question must remain unresolved. Fortunately or unfortunately, some answers are likely to be forthcoming fairly soon.

Just as there is no third way, there is no such thing as market socialism. Not that recent events were needed to demonstrate this, but it appears that this conclusion has now been reached by quite a few people who previously thought otherwise. Among these has been no less than the current pope, who both in Sollicitudo Rei Socialis and even more clearly in Centesimus Annus explicitly repudiated the idea, widely popular on the Roman Catholic left, that it should look for a third way between what it considered two morally equivalent evils. (I will not comment here on the peculiar morality that makes such a perspective possible.)

My earlier proposition about the superior mythogenic power of socialism has not been falsified, either. It may yet be. But even if the glittering vision of socialism should seriously pale, it is still very doubtful whether capitalism as such would generate a myth of its own (for more people, that is, than can be counted as followers of Ayn Rand). Democracy is a more likely candidate. There are less attractive possibilities. Nationalism continues to be an ideology (or, more accurately, a collection of ideologies) of unbroken appeal, and the homicidal tribalisms breaking out throughout the decomposing Soviet empire suggest even more chilling scenarios for the age that was to be the end of ideology (a.k.a. the end of history).

The startling aspect of the collapse of Communist regimes in Europe has been its rapidity and relative ease, once the restraining force of Soviet bayonets was removed. It is this aspect that has, I think, falsified that portion of the theory of totalitarianism that asserted the invulnerability of such regimes against internal challenges, and this would be so even if the democratic and pluralistic tendencies in the region were to be reversed in the near or distant future. The monolith, it is now evident, had many more holes in it than Arendt and others envisaged.

But equally startling has been the survival, beneath the glacial structures of the totalitarian states, of a variety of social and cultural traits that faithfully replicate the pretotalitarian situation. Institutionally, these are especially rooted in the family and in religion. But there are also cultural configurations (or, if one prefers, structures of consciousness—beliefs, values, moral and ideological propensities) that have reemerged, seemingly unscathed, with the demise of Communist power (or even, as in the Soviet Union, with a diminution of that power). Nationalism, an emphatically modern ideology, is only one of these. There are other beliefs and values, some of them reaching far back into the premodern past. They range from ancient ethnic antagonisms to ways of looking at work. Some of them may turn out to be decisive obstacles to the establishment of democratic and pluralistic societies. They are also likely to influence in an important way the success or failure of efforts to establish market economies in these countries. The cultural differences between, for example, Czechs and Romanians, or Slovenians and Serbs, simply cannot be ignored in the considerations of economic reformers, not to mention the even more glaring differences among the nationalities that make up the Soviet Union.

As I noted earlier, it is very doubtful whether any body of ideas can ever be declared to be “finished” in human history, particularly socialism, with its mythopoetic power. I would say, however, that this particular idea should be finished as a serious topic of inquiry for social science, except for its continued relevance in the analysis of specific groups (be they African dictators or Western intellectuals) with a vested interest in its survival. Not only the economic dynamics but also the political and social consequences of the two basic modes of production of the modern era should by now be quite clear. Put differently, as far as social science is concerned, the question of socialism may now be safely put to rest.

III

As I tried to express emphatically in the opening pages of The Capitalist Revolution, science deals in probabilities, not certainties; in hypotheses, not dogma. Social reality is ever in flux, and recently it has been in flux with a vengeance. It is gratifying to see some of one’s hypotheses confirmed, annoying to have to admit that one was wrong or not prescient enough. Unanswered questions can gnaw and irritate, especially if they remain unanswered for many years. But what draws one back to the social-scientific enterprise, ever again, is what drew one in the first place: the rich diversity and often stunning surprises of human behavior. Capitalism is a phenomenon of rich diversity indeed, and again and again its vitality and its inventiveness surprise us. It is unlikely to lose its fascination in the lifetime of even the youngest reader of The Capitalist Revolution.

Peter L. Berger is Director of the Institute for the Study of Economic Culture at Boston University. He was awarded the Manes Serber Prize, presented by the Austrian government for his contributions to culture. 

Excerpted from The Capitalist Revolution: Fifty Propositions About Prosperity, Equality, and Liberty by Peter L. Berger. Copyright © 1986 by Peter L. Berger. New introduction Copyright © 1991 by Peter L. Berger. Reprinted by arrangements with Basic Books, a division of HarperCollins Publishers Inc.