The Triumph of Capitalism

We live in an era of unparalleled economic freedom. Since the fall of the Soviet Union, free markets have ruled without much in the way of resistance. As a consequence, for the most part our political problems now involve coming to terms with the global triumph of capitalism.

Of that triumph there can be no doubt.

• In 1980 American banks could not open branches in more than one state. They were subject to regulations limiting interest rates on savings accounts. They could not underwrite, invest, or deal in equities. Despite concerns about regulations since the 2008 financial crisis, by any measure financial institutions are far, far freer today than they were thirty years ago. The same is true of many other industries.

• In 1980 the global financial industry was dominated by the United States, and therefore was constrained by American financial regulations. Today it is multi-polar. To a degree unimaginable in 1980, corporations, financiers, and investors can wiggle around many regulations, and play one country off against another. Capital has never been freer.

• In 1980 the world was divided into Soviet and American spheres of influence, which not only limited options but also meant that risks associated with international investment were higher. Put differently, the Cold War created a high coefficient of friction in the global economy. Today the risks are much lower. As a result, capital can play on a much larger and more profitable monopoly board.

• In 1980 a few multi-national companies were beginning to move production to countries with cheaper labor. Today whole industries are scattered across the globe as capital seeks the most efficient balance between labor costs, transportation, and quality.

Our new freedom isn’t only economic. The relative political stability of the last twenty-five years has led to freer movement of people. Before the financial crisis it seemed that every ambitious young person in Europe had moved to London. Indians work in Saudi Arabia and Texans in Australia. In 1980 the number of college-age Nigerians with the resources to participate in Western education and pursue international careers was in all likelihood below one hundred. Today there may well be tens of thousands. Just as global financial capital now flows much more freely toward opportunities, so also does global human capital.

I could go on with more examples. But it’s enough to point out that today it’s possible to start a company in Chicago to have products designed in Japan that are made in Thailand to be sold in India. For that matter it’s easy to imagine a German student educated in America going to Australia to found an Internet company (lured there by tax incentives) to sell to customers all over the world iPhone apps that are designed by independent programmers from all over the world. Thirty years ago the political, cultural, technical, and regulatory barriers would have made that unimaginable.

I don’t see much future for American conservatism until we wake up from our dreams of oppression. Conservative worries about “socialism” are patently absurd. At its worst it reflects a strange mental derangement that confuses ideals (the complete absence of barriers and regulatory friction) with realities (the dramatic growth of economic and political freedom over the last thirty years). The more mild instances of delusion stem from an inability to see the forest for the trees. Yes, health care in America is being rolled into an almost comprehensive national regulatory scheme, but that’s only a small part of the picture. (And a complicated part: American health care in the past has never been thoroughly organized by free-market forces.)

If we wake up from our dreams we’ll see what the postmodern left already sees, which is that the explosive growth of economic freedom in recent decades has created two very large social problems.

• Greater economic freedom has brought greater economic inequality, as it always has in the modern era. Those with sufficient capital, talent, and ambition are able to use their greater freedom to exploit opportunities and capture efficiencies. Others fall behind. This is a threat to social solidarity.

• Greater economic freedom accelerates the rate of creative destruction, again, as it always has in the modern era. This means that communities, and even nations, organized around existing industries and types of employment are increasingly vulnerable to dislocation and disintegration. This too is a threat to social stability.

These are not economic problems , and therefore cannot be addressed by increasing economic freedom, as the Romney campaign imagined. In the broadest sense of the term, they are political problems , as the social problems associated with the explosive successes of capitalism have always been in the modern era. Dealing with them will require political and not economic approaches.

The history of modern politics shows again and again that we can exercise political power to ameliorate and mitigate the social consequences of free market capitalism. This can only be done by limiting its powering motor, which is economic freedom, whether directly through regulation, or indirectly, through taxation.

I want to be clear: The triumph of economic freedom is a good thing. It’s made possible a global economy that has lifted and promises to continue lifting hundreds of millions of people out of poverty. But that’s only part of the story. If American conservatism is unwilling to face the fact that economic freedom creates social and therefore political problems”political problems that will require in one way or another limiting economic freedom”it will be irrelevant to our age.

R.R. Reno is editor of First Things . He is the general editor of the Brazos Theological Commentary on the Bible and author of the volume on Genesis . His previous “On the Square” articles can be found here .

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