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8 July 2023

Why do you love capitalism?

Johan Norberg’s The Capitalist Manifesto is a feeble defence of a system under attack.

By Michael Lind

The ongoing backlash against neoliberalism began as a limited critique of economic policies associated with Margaret Thatcher, Ronald Reagan and their Third Way heirs. Now, “neoliberalism” stands for everything from capitalism to liberalism in toto. A nuanced defence of the post-1980s Western economic order would therefore be both timely and interesting. Johan Norberg’s The Capitalist Manifesto: Why the Global Free Market Will Save the World is not that book.

The problems begin early – the second page, in fact. Norberg, a senior fellow at the libertarian Cato Institute in Washington DC, considers The Communist Manifesto. “Marx and Engels were right,” he says, “when they observed in that other manifesto, the communist one of 1848, that free markets had in a short time created greater prosperity and more technological innovation than all previous generations combined and, with infinitely improved communications and accessible goods, free markets had torn down feudal structures and national narrow-mindedness… Marx and Engels realised much better than socialists today that the free market is a formidable progressive force.”

This is a lazy misreading of Marx and Engels. True, they hailed the role of the then new and mostly British industrial capitalism in promoting technological innovation and economic growth. But as Engels commented 40 years later, “It was under the fostering wing of Protection that the system of modern industry – production by steam-moved machinery – was hatched and developed in England during the last third of the 18th century. And, as if tariff protection was not sufficient, the wars against the French Revolution helped to secure to England the monopoly of the new industrial methods.” As Engels noted, “well into the 19th century” protection “was then held to be the normal policy of every civilised state in western Europe” – including Britain, which was only beginning to pursue free trade when The Communist Manifesto was published.

Nor did Marx and Engels believe “that the free market is a formidable progressive force” in the way Norberg believes they did. In his 1848 speech “On the Question of Free Trade”, Marx declared that “the protective system of our day is conservative, while the free-trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free-trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favour of free trade.”

As a historian of capitalism, Norberg is just as unreliable as he is as a historian of socialist thought. Laggard economies, he argues, “can use technologies and solutions that have already been developed at great cost in the leading countries. But this convergence did not take place before the 1990s, since global markets were not very open until then and protected companies had not been pressured to upgrade methods and technologies by the competition.”

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Tell the Americans and Germans of 1900, or the Japanese, South Koreans and Taiwanese of 1980, that technological and economic convergence didn’t take place before globalisation in the 1990s. Once it seemed to have achieved an insurmountable global lead in manufacturing, Britain switched from its earlier policy of mercantilism and preached a doctrine of universal free trade, hoping that its superior exports would kill infant manufacturing industries abroad, even as the rest of the world competed to provide British factory owners and workers with cheap materials and cheap food. The Americans and Germans, however, rejected free trade and built up their domestic manufacturing industries to compete with Britain and other countries with the aid of tariffs and various government industrial policies. By the early 20th century, protectionist America and protectionist Germany had caught up with, and in some areas surpassed, free-trade Britain as manufacturing powers.

The subsequent industrial convergence of Japan, South Korea and Taiwan with the US and Europe in the last 50 years has not been the result of unfettered free markets, either. It was the work of successful “developmental states”, authoritarian and democratic alike, which have used means such as non-tariff barriers and targeted loans to protect their domestic manufacturers, while encouraging them to export to the more open markets of the US and Europe. China has followed its own variant of the East Asian developmental state model, using export-processing zones and foreign corporate investment to transfer technology and skills to its own firms and workers. 

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Nowhere in The Capitalist Manifesto does Norberg address the fatal flaw of a trading system in which mercantilist countries such as Japan, South Korea, Taiwan and China take unfair advantage of the openness and liberalism of their trading partners to gain market share in export industries supported by the state. “I know I’m sticking my neck out when I predict that China’s authoritarian model will not survive,” Norberg writes, recalling his 2003 book In Defense of Global Capitalism. “I got it wrong last time. But I think the reason I got it wrong was that the Communist Party identified exactly the dilemma I pointed to: continued economic liberalisation will lead to openness and diversity that will eventually undermine the dictatorship… What I don’t believe is possible is that a totalitarian superpower will be able to replace the leading role of the United States and Europe.” 

But in numerous economic sectors China has already supplanted the US and Europe. China surpassed the US in global manufacturing in 2010: it now accounts for 28.4 per cent, compared with only 16.6 per cent for the US, 7.2 per cent for Japan, and 5.8 per cent for Germany. 

With the help of subsidies and other forms of state support, China in 2022 captured 48 per cent of global output in shipbuilding, an advanced manufacturing industry, according to the maritime services Lloyd’s Registry. This compared with South Korea’s 25 per cent and Japan on 15 per cent. Civilian shipbuilding is nearly extinct in the US, while in the UK and Germany it is entirely dependent on Chinese supply chains. 

China is trying to gain market share from Western multinationals for its state-owned aerospace corporation, Comac, as well as its state-backed automobile manufacturers. One state-funded Chinese company, DJI, controls more than half of the global market for civilian drones.

Norberg claims that the reliance of the US and European countries on imports of critical medicines and medical supplies – from China, among other places – during the Covid epidemic “exposes the danger of the popular idea of ‘friend-shoring’ – trading more with close geopolitical partners while avoiding rivals”. Apparently, there is nothing imprudent about allowing your country to become dependent for essential medicines and protective equipment or other goods on a nation that is a military and strategic adversary. 

[See also: Making democracy safe from capitalism]

Norberg cannot deny that information technology and the internet were largely the result of US defence department procurement. Instead, he quibbles with the economist Mariana Mazzucato’s definition of mission-oriented innovation: “The government was involved in many ways, through ARPA [the department’s Advanced Research Projects Agency], with procurement and research money, but”– a significant but! – “the result was a happy, unintended side effect of public funding and something completely different from the notion of mission-oriented innovation where charismatic leaders get people involved in large-scale projects.” That may be so, but it was still publicly-funded state capitalist industrial policy in the broad context of the Cold War military contest.

In the absence of government support, would information technology have developed at the same rate – or developed at all? Norberg says yes, just look at the porn industry:

“You could actually write a Mazzucato book like that about active industrial policy, but replace the government with the porn industry. Think about it: it is well established that pornography has played a crucial role in several technological developments. The printing press, photo, film, video streaming, online payment system, chat features, peer-to-peer sharing and virtual reality have in many cases been developed and disseminated to satisfy carnal desires… If I were one of the new cheerleaders for active industrial policy, I would conclude from this that we should pour tax money over the porn industry to stimulate technological innovation.”

The obvious difference is that, in the absence of legal repression, there has always been mass private demand for pornography, produced by various technologies. But there was no consumer or corporate demand that would have justified private investment in the 1930s, 1940s and 1950s in jet engines, rockets, computer technology, the polio vaccine or nuclear energy, all of which were developed initially by government contractors or government employees. And there still is no adequate civilian demand to sustain many of these technologies. The rockets of Elon Musk and Jeff Bezos depend on US government subsidies; nuclear, solar and wind power need government subsidies and market-rigging regulations to compete with hydrocarbons; and Covid vaccines require huge government investment.

There is an indispensable role for creative entrepreneurs, but, as in the case of information technology, their contribution is usually to develop innovative commercial applications of breakthrough technologies that had to be developed first by some combination of government funding and non-profit academic research.

In discussing workers and workplace conditions, Norberg recycles the stale libertarian talking point that any increases in wages may cause lasting or permanent unemployment for a substantial part of the workforce. In reality, this has never happened in any industrial country. Mass unemployment has always been caused by financial crises or external supply shocks, not by decent wages and benefits. Defending the gig economy, Norberg writes: 

“When it comes to food deliveries, permanent employment means that workers must be very productive. They must, for example, cycle fast uphill in the rain, and the company must monitor them so that they know they are doing so. If you get the same salary no matter how fast you pedal, the slow cyclists will be thrown out.”

What would low-wage workers do without fellows at donor-funded libertarian think tanks like Norberg looking out for their interests?

Weirdly, Norberg sometimes attributes the beneficial results of government regulation or union contract agreements to free markets: “Workplaces have also become much safer. In the 1950s and 1960s [in America], there were around twenty to twenty-five workplace fatalities per 100,000 workers, and that figure has declined continuously – it is now around 3.4 per 100,000 workers according to the [US] Occupational Safety and Health Administration.” Surely the existence of something called the “Occupational Safety and Health Administration”, established by Richard Nixon’s administration in 1971 as part of the US Department of Labour, had something to do with the progress he celebrates. 

Norberg dedicates his free-market manifesto “to classical liberals of all parties”. But the major classical liberals of the 18th and 19th centuries were worldly and sensible pragmatists who acknowledged the legitimate role of the state in a market economy. Adam Smith favoured Britain’s protectionist Navigation Acts, which sustained the empire’s merchant marine, as essential for national security, while John Stuart Mill and Alfred Marshall believed that trade unions were necessary to make capitalism work for all. Norberg’s real audience is found among doctrinaire libertarians, in the various denominations that follow Ludwig von Mises and Friedrich Hayek, Ayn Rand or Milton Friedman. The choir to whom he is preaching will nod in assent to his sermon. But those looking for a thoughtful defence of neoliberal capitalism against its critics will have to look elsewhere.

The Capitalist Manifesto: Why the Global Free Market Will Save the World
Johan Norberg
Atlantic Books, 352pp, £20

[See also: Keir Starmer must dare to reimagine capitalism, not just beat the Tories]

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This article appears in the 12 Jul 2023 issue of the New Statesman, Tabloid Nation