It should surprise more people that idealists are attracted to socialism rather than capitalism. Part of the problem is the economists don't know history, the historians don't know law, and the lawyers don't know economics. Put simply, capitalism seeks to synchronize ever-changing supply and demand for labor and resources, whereas socialism focuses on the inevitability of owners exploiting dispersed workers. When condensed in such a way, one immediately sees the need for regulation; and yet, since people have never agreed on the perfect type and amounts of regulation, it may be useful to analyze the topic differently.
Globalization needs regulation, but everyone is reluctant to demand it for fear that it may discriminate against them. -- Misha Glenny, McMafia (2008)
1. Economic Systems Should Not Be Discussed without Historical Context
Countries with strong militaries tend to use their navies to steal not just resources, but human labor from weaker countries. The United States, a slave-owning, capitalist country from inception, used slaves to maximize output from cotton, sugar, and tobacco fields in the 1700s and 1800s.
America was founded on the double standard. That's our history. We were founded on a very basic double standard: slaveowners who wanted to be free. -- George Carlin
Even aside from anecdotal evidence, we know slavery in the West was handled differently than slavery and indentured servitude elsewhere in the world because few African or Muslim-majority countries have anyone who resembles Shaquille O'Neal or wrestler Mijaín López--indicating some slaveowners selected or bred people for certain traits while others didn't. Given that the Arabs had armies in the Middle East and Africa, were savvy traders, and the Prophet Muhammad's first wife was an affluent businesswoman, was capitalism or religion the difference in the way workers were treated?
The natural state of human beings according to the Quran is freedom, and all believers are equal in the eyes of God. The Quran repeatedly urges believers to treat their slaves [indentured servants] humanely; to feed, clothe, and educate them; and to free them... Children of a free man are born free, and... the mother of a free man's child becomes an um walid, who cannot be sold. -- Martin Klein, Historical Dictionary of Slavery and Abolition (2014), pp. 307
If we say the former, the Europeans--who invented the first international debt trading markets in Venice and Belgium and the first publicly traded corporation (The Dutch East India Company) in the Netherlands--were as capitalistic as the Americans. So why has Europe become more "socialist" than the United States? Any reasonable answer must include the French Revolution (led by military commander Napoleon) and/or post-WWII agreements, whereby the United States drove global economic growth through military alliances and investment, allowing other countries to spend higher percentages of their budgets on social programs. Was Europe's acceptance of higher social spending the outcome of a non-European country's military victory or a specific economic structure? Whatever your answer, you must admit history, both distant and near, deserves a role in the discussion.
2. History Shows Military Strength Trumped All Other Considerations, including Economics
At the same time, since many voyages capturing slaves and other resources were funded by companies issuing shares in joint stock companies in exchange for profits (minus royalty's cut), one could argue widespread inequality--both racial and economic--caused by European and American slavery would not have been possible without capitalism. After all, the more people who profit from immorality, the easier it becomes to mistreat labor. Indeed, at one point, the British East India Company had a larger military than the Queen of England's, which is consistent with the Exchequer's funding through imports of (stolen) gold and silver, plus fees on other items, rendering homeland defense subservient to military adventurism. (Defense is a cost most countries try to minimize unless they are empires, in which case they maximize it in hopes of being the first empire in history to avoid certain collapse.)
If we continue pursuing the "capitalism equals inequality" argument or "more government equals more equality," we may agree America's pernicious treatment of slaves stemmed from a desire to maximize the profit motive; however, we must also admit the country's lack of morality would have allowed its military to go to Africa and coerce or mislead local leaders into selling their human capital under any economic system. Such conversations, with or without government approval, must have involved false promises of work and wealth or threats of genocide, followed by shiny gifts to helpless leaders to give the appearance of congeniality, then a transfer of resources. Remember: there were no videocameras or journalists to document human rights abuses, and almost all English-speaking philosophers and academics of the day believed in the inherent inferiority of non-whites.
Why should they ask me to put on a uniform and go 10,000 miles from home and drop bombs and bullets on brown people in Vietnam while so-called Negro people in Louisville [Kentucky] are treated like dogs and denied simple human rights? No, I am not going 10,000 miles from home to help murder and burn another poor nation simply to continue the domination of white slavemasters of the darker people the world over. -- USA boxer and conscientious objector Muhammad Ali
So was it capitalism, racism, Christianity, immorality, and/or military power that most contributed to the lack of fair wages for Africans in the United States? A clue to the best answer involves answering another question: had an arms-length transaction and voluntary departures occurred between white naval officers, African tribal leaders, and individual Africans, would we consider such transactions acceptable even if workers were exploited? Persons convinced they would answer a certain way may want to examine the skin color or guess the immigration status of the next worker they see in the back of a restaurant or agricultural field.
3. Why Trade at All When You Can Steal?
By now, Machiavellian types must be wondering why anyone bothers signing trade agreements. If you have the stronger military, why not steal what you need? In fact, this is exactly what has happened for most of human history, which explains our current cultural malaise--and misplaced economic priorities.
The reason Canada is called Canada is because the Quebecois beat back American invaders. Cuba is socialist and not capitalist because a Spaniard from noble lineage succeeded in repelling American-sponsored troops. The reason the Ottoman Empire is now called Turkey is because it fought on the wrong side of WWI. You think socialist Sweden was really neutral in WWII? The so-called "neutral" Swedes allowed the Nazis to use their rail systems to transport troops and materiel. Too often, economic experts fail to realize a country's success hinges on which side of the most recent war they chose and geographic accident rather than particular economic preferences. It's as if experts think WWI ended one thousand years ago instead of approximately one hundred years ago.
In fact, by 1932, borrowing by military allies had left the United States with over 40% of the world's gold reserves plus billions of dollars in outstanding European loans. Please read the last sentence again. The allies--the side that won, which also happened to be called the Allies--ended up owing billions of dollars, giving them incentives to maximize the losers' reparations/debt.
Look closely, and everywhere you look, military and political leaders have erred on the side of expansion or compromise at any cost. Under such historical precedent, economic systems, whether socialist-leaning or capitalist-leaning, have logically prioritized military spending and R&D.
The Malaysians are observing the agreements they have signed without trying to retaliate in other directions, such as water... which will lead to war. -- Singaporean founder LEE Kuan Yew (July 26, 2013)
4. Diplomacy Has Failed, but We're Talking about Capitalism
Quick, name three genocides or civilian massacres the United Nations averted. You can probably cite a conflict the U.N. shortened. You might even be able to name peace agreements the U.N. negotiated post-war or post-bombings. Overall, however, diplomatic efforts have been oddly ineffective in reducing weapons sales and military spending.
We find it repulsive that the Western countries that more loudly make rhetorical speeches about human rights are the ones that manufacture most weapons that have killed more than 20 million people in the developing world since WWII. -- Nobel Peace Prize laureate José Ramos-Horta (1996)
Today, no one talks seriously about nuclear disarmament because the only weapon preventing a larger power from invading a smaller power is a nuclear one. Such is the result of a world where economic futures are subordinate to threats of foreign invasion, coups d'état, sanctions, and/or onerous tariffs. And still, when people argue capitalism is the problem, they don't seem to realize diplomacy has failed.
In some of these situations, the UN is almost absent, for instance in the South China Sea dispute, because China doesn’t want to internationalize the tension by allowing the UN special envoys to be present there... The UN can be present and can act only if the parties involved seek help, otherwise it cannot force itself into those situations. Another issue, Kashmir, is on the UN agenda since Day One but the UN has mostly a residual and symbolic presence, hence it is tolerated by India. There is not much more that the UN can do, at least at this stage. India is far too powerful, and they reject UN involvement to avoid internationalizing the issue and India is not keen to allow the UN to take part in any discussion regarding the status of Kashmir. -- José Ramos-Horta, Nobel Peace Prize Laureate, 2019 interview
Conclusion
As Western voters divide themselves politically over increasingly meaningless economic terms, the really interesting developments are technological. In some countries, governments have maintained relevance by providing education, healthcare, social services, and public transportation, only to be challenged by less costly private actors, including religious entities responsible for large voter turnout. These governments are in disarray because they have privatized technological development or delegated to allies exempt from domestic regulation to such an extent, private corporations now host military and other confidential data, a similar situation as Britain's outsourcing of important affairs to the British East India Company--which it had to eventually dissolve and bail out. Meanwhile, governments elsewhere have maintained power by controlling or approving technological advances, especially in security, but have not invested adequately in creative enterprises or social services, thereby neglecting social cohesion.
Allow me a prediction: the future will not be about capitalism or socialism, but who controls the technology and under what terms. That's the discussion we ought to be having, and sadly, it's a discussion most voters are totally unqualified to have--which explains why people prefer to discuss the "isms" du jour.
© Matthew Rafat (April 2020)
Bonus I: I didn't properly explain the link between slavery, immigration, and capitalism, so let me try again. If USA was not trying to maximize profit and output from its cotton and tobacco fields in the 1800s, it would not have needed to import labor. The importation of slaves is immigration in a sense, and in this case, immoral not because of capitalism--i.e., the desire to maximize profits--but because of the way the labor was treated and paid.
Note that capitalist USA in the 1900s was able to attract immigrants voluntarily, even though labor conditions were similarly exploitative, because immigrants believed their first and second generations would be better off. Such progression was a function of automatic citizenship rather than a specific kind of economic system, but the demand for immigrants would not have been as high had companies not been able to maximize output under a globalized system of trade. In short, suboptimal diversity is often a function of the lack of investment and need for excess labor (immigration), which is the result of the absence of conditions favorable to the maximization and expectation of profit.
Bonus II: After I wrote this article, I began to wonder: why didn't USA manufacturing and plantation owners in the 1700s and 1800s hire more laborers from Mexico rather than enslaving Africans? I suspect the French, who had set up shop in Mexico, would have stopped them; and conditions in Mexico must have been pleasant enough not to drive residents to uproot themselves. If my guesses are correct, I would be interested in knowing the relative value of Mexican currency (Spanish dollar and Mexican centavo/peso) to the US dollar in the 1700s and 1800s, though such an analysis might be impossible because the US dollar only came into existence as an agreed-upon monetary unit between 1785-1792.
Bonus III: Why bother with cross-continent trade? Well, Indonesian cinnamon tastes better than cinnamon grown elsewhere; Iranian dates are juicier than Tunisian dates; and apparently cocaine from the Colombian jungle is the most potent. Why? Growing conditions in some places are more favorable to certain crops than others. Without investors and globalized trade, either fewer people would be exposed to the same variety of items and experiences, or such exposure would be limited based on the whims of not-always competent governments.
Similarly, talent, like growing conditions, is not equally distributed. For example, MIT is considered to have the world's best technical minds (Harvey Mudd College and Caltech may disagree, but I digress). According to MIT in 2011, "over 40% of our graduate students, over 70% of our postdocs, and about 40% of our faculty were born outside the U.S." How can the United States steal so many talented people? Why aren't these great minds working at universities back home? Part of the answer is the inequality of the US dollar, which has been stronger than other currencies, making it easier to buy products and immigrants from overseas. Economists use the term "attract" rather than "buy" when discussing immigrant labor, but if you want to be hard-nosed, there's really no difference. In other words, the same currency that allows a country to exploit others in trade negotiations also allows it to steal their talent voluntarily--increasing opportunities, innovation, and quality of life for immigrants as well as everyone else. Equality may be a laudable goal, but most people go where they are treated or exposed to better--i.e., unequal--circumstances. Thus, if you are pro-diversity and pro-immigration, you want more inequality, not less--in your favor.
Finally, trade begets trade. A container ship returning only gold and silver will not be able to utilize space--or afford shipping fees--as well as another ship also transporting spices, clothing, handmade jewelry, and other products. If there is a complaint, the complaint once again involves inequitable treatment of workers, not globalized trade.
Bonus IV: I originally wanted to end this article with the following exchange from a Hollywood movie, but I ran out of patience. Perhaps the dialogue below will stand on its own. From Sabrina (1954):
Linus Larrabee: What’s money got to do with it? If making money were all there were to business, it'd hardly be worthwhile going to the office. Money is a by-product.
David: What’s the main objective? Power? [Capitalism?]
Linus: Agh! That’s become a dirty word.
Davis: Well then, what’s the urge? You’re going into plastics now. What will that prove?
Linus: Prove? Nothing much. A new product has been found, something of use to the world. So, a new industry moves into an undeveloped area. Factories go up, machines are brought in, a harbor is dug and you’re in business. It’s purely coincidental of course that people who've never seen a dime before suddenly have a dollar. And barefooted kids wear shoes and have their teeth fixed and their faces washed. What’s wrong with a kind of an urge that gives people libraries, hospitals, baseball diamonds and movies on a Saturday night?
Globalization needs regulation, but everyone is reluctant to demand it for fear that it may discriminate against them. -- Misha Glenny, McMafia (2008)
1. Economic Systems Should Not Be Discussed without Historical Context
Countries with strong militaries tend to use their navies to steal not just resources, but human labor from weaker countries. The United States, a slave-owning, capitalist country from inception, used slaves to maximize output from cotton, sugar, and tobacco fields in the 1700s and 1800s.
America was founded on the double standard. That's our history. We were founded on a very basic double standard: slaveowners who wanted to be free. -- George Carlin
Even aside from anecdotal evidence, we know slavery in the West was handled differently than slavery and indentured servitude elsewhere in the world because few African or Muslim-majority countries have anyone who resembles Shaquille O'Neal or wrestler Mijaín López--indicating some slaveowners selected or bred people for certain traits while others didn't. Given that the Arabs had armies in the Middle East and Africa, were savvy traders, and the Prophet Muhammad's first wife was an affluent businesswoman, was capitalism or religion the difference in the way workers were treated?
The natural state of human beings according to the Quran is freedom, and all believers are equal in the eyes of God. The Quran repeatedly urges believers to treat their slaves [indentured servants] humanely; to feed, clothe, and educate them; and to free them... Children of a free man are born free, and... the mother of a free man's child becomes an um walid, who cannot be sold. -- Martin Klein, Historical Dictionary of Slavery and Abolition (2014), pp. 307
If we say the former, the Europeans--who invented the first international debt trading markets in Venice and Belgium and the first publicly traded corporation (The Dutch East India Company) in the Netherlands--were as capitalistic as the Americans. So why has Europe become more "socialist" than the United States? Any reasonable answer must include the French Revolution (led by military commander Napoleon) and/or post-WWII agreements, whereby the United States drove global economic growth through military alliances and investment, allowing other countries to spend higher percentages of their budgets on social programs. Was Europe's acceptance of higher social spending the outcome of a non-European country's military victory or a specific economic structure? Whatever your answer, you must admit history, both distant and near, deserves a role in the discussion.
2. History Shows Military Strength Trumped All Other Considerations, including Economics
At the same time, since many voyages capturing slaves and other resources were funded by companies issuing shares in joint stock companies in exchange for profits (minus royalty's cut), one could argue widespread inequality--both racial and economic--caused by European and American slavery would not have been possible without capitalism. After all, the more people who profit from immorality, the easier it becomes to mistreat labor. Indeed, at one point, the British East India Company had a larger military than the Queen of England's, which is consistent with the Exchequer's funding through imports of (stolen) gold and silver, plus fees on other items, rendering homeland defense subservient to military adventurism. (Defense is a cost most countries try to minimize unless they are empires, in which case they maximize it in hopes of being the first empire in history to avoid certain collapse.)
If we continue pursuing the "capitalism equals inequality" argument or "more government equals more equality," we may agree America's pernicious treatment of slaves stemmed from a desire to maximize the profit motive; however, we must also admit the country's lack of morality would have allowed its military to go to Africa and coerce or mislead local leaders into selling their human capital under any economic system. Such conversations, with or without government approval, must have involved false promises of work and wealth or threats of genocide, followed by shiny gifts to helpless leaders to give the appearance of congeniality, then a transfer of resources. Remember: there were no videocameras or journalists to document human rights abuses, and almost all English-speaking philosophers and academics of the day believed in the inherent inferiority of non-whites.
Why should they ask me to put on a uniform and go 10,000 miles from home and drop bombs and bullets on brown people in Vietnam while so-called Negro people in Louisville [Kentucky] are treated like dogs and denied simple human rights? No, I am not going 10,000 miles from home to help murder and burn another poor nation simply to continue the domination of white slavemasters of the darker people the world over. -- USA boxer and conscientious objector Muhammad Ali
So was it capitalism, racism, Christianity, immorality, and/or military power that most contributed to the lack of fair wages for Africans in the United States? A clue to the best answer involves answering another question: had an arms-length transaction and voluntary departures occurred between white naval officers, African tribal leaders, and individual Africans, would we consider such transactions acceptable even if workers were exploited? Persons convinced they would answer a certain way may want to examine the skin color or guess the immigration status of the next worker they see in the back of a restaurant or agricultural field.
3. Why Trade at All When You Can Steal?
By now, Machiavellian types must be wondering why anyone bothers signing trade agreements. If you have the stronger military, why not steal what you need? In fact, this is exactly what has happened for most of human history, which explains our current cultural malaise--and misplaced economic priorities.
The reason Canada is called Canada is because the Quebecois beat back American invaders. Cuba is socialist and not capitalist because a Spaniard from noble lineage succeeded in repelling American-sponsored troops. The reason the Ottoman Empire is now called Turkey is because it fought on the wrong side of WWI. You think socialist Sweden was really neutral in WWII? The so-called "neutral" Swedes allowed the Nazis to use their rail systems to transport troops and materiel. Too often, economic experts fail to realize a country's success hinges on which side of the most recent war they chose and geographic accident rather than particular economic preferences. It's as if experts think WWI ended one thousand years ago instead of approximately one hundred years ago.
In fact, by 1932, borrowing by military allies had left the United States with over 40% of the world's gold reserves plus billions of dollars in outstanding European loans. Please read the last sentence again. The allies--the side that won, which also happened to be called the Allies--ended up owing billions of dollars, giving them incentives to maximize the losers' reparations/debt.
Look closely, and everywhere you look, military and political leaders have erred on the side of expansion or compromise at any cost. Under such historical precedent, economic systems, whether socialist-leaning or capitalist-leaning, have logically prioritized military spending and R&D.
The Malaysians are observing the agreements they have signed without trying to retaliate in other directions, such as water... which will lead to war. -- Singaporean founder LEE Kuan Yew (July 26, 2013)
4. Diplomacy Has Failed, but We're Talking about Capitalism
Quick, name three genocides or civilian massacres the United Nations averted. You can probably cite a conflict the U.N. shortened. You might even be able to name peace agreements the U.N. negotiated post-war or post-bombings. Overall, however, diplomatic efforts have been oddly ineffective in reducing weapons sales and military spending.
We find it repulsive that the Western countries that more loudly make rhetorical speeches about human rights are the ones that manufacture most weapons that have killed more than 20 million people in the developing world since WWII. -- Nobel Peace Prize laureate José Ramos-Horta (1996)
Today, no one talks seriously about nuclear disarmament because the only weapon preventing a larger power from invading a smaller power is a nuclear one. Such is the result of a world where economic futures are subordinate to threats of foreign invasion, coups d'état, sanctions, and/or onerous tariffs. And still, when people argue capitalism is the problem, they don't seem to realize diplomacy has failed.
In some of these situations, the UN is almost absent, for instance in the South China Sea dispute, because China doesn’t want to internationalize the tension by allowing the UN special envoys to be present there... The UN can be present and can act only if the parties involved seek help, otherwise it cannot force itself into those situations. Another issue, Kashmir, is on the UN agenda since Day One but the UN has mostly a residual and symbolic presence, hence it is tolerated by India. There is not much more that the UN can do, at least at this stage. India is far too powerful, and they reject UN involvement to avoid internationalizing the issue and India is not keen to allow the UN to take part in any discussion regarding the status of Kashmir. -- José Ramos-Horta, Nobel Peace Prize Laureate, 2019 interview
Conclusion
As Western voters divide themselves politically over increasingly meaningless economic terms, the really interesting developments are technological. In some countries, governments have maintained relevance by providing education, healthcare, social services, and public transportation, only to be challenged by less costly private actors, including religious entities responsible for large voter turnout. These governments are in disarray because they have privatized technological development or delegated to allies exempt from domestic regulation to such an extent, private corporations now host military and other confidential data, a similar situation as Britain's outsourcing of important affairs to the British East India Company--which it had to eventually dissolve and bail out. Meanwhile, governments elsewhere have maintained power by controlling or approving technological advances, especially in security, but have not invested adequately in creative enterprises or social services, thereby neglecting social cohesion.
Allow me a prediction: the future will not be about capitalism or socialism, but who controls the technology and under what terms. That's the discussion we ought to be having, and sadly, it's a discussion most voters are totally unqualified to have--which explains why people prefer to discuss the "isms" du jour.
© Matthew Rafat (April 2020)
Bonus I: I didn't properly explain the link between slavery, immigration, and capitalism, so let me try again. If USA was not trying to maximize profit and output from its cotton and tobacco fields in the 1800s, it would not have needed to import labor. The importation of slaves is immigration in a sense, and in this case, immoral not because of capitalism--i.e., the desire to maximize profits--but because of the way the labor was treated and paid.
Note that capitalist USA in the 1900s was able to attract immigrants voluntarily, even though labor conditions were similarly exploitative, because immigrants believed their first and second generations would be better off. Such progression was a function of automatic citizenship rather than a specific kind of economic system, but the demand for immigrants would not have been as high had companies not been able to maximize output under a globalized system of trade. In short, suboptimal diversity is often a function of the lack of investment and need for excess labor (immigration), which is the result of the absence of conditions favorable to the maximization and expectation of profit.
Bonus II: After I wrote this article, I began to wonder: why didn't USA manufacturing and plantation owners in the 1700s and 1800s hire more laborers from Mexico rather than enslaving Africans? I suspect the French, who had set up shop in Mexico, would have stopped them; and conditions in Mexico must have been pleasant enough not to drive residents to uproot themselves. If my guesses are correct, I would be interested in knowing the relative value of Mexican currency (Spanish dollar and Mexican centavo/peso) to the US dollar in the 1700s and 1800s, though such an analysis might be impossible because the US dollar only came into existence as an agreed-upon monetary unit between 1785-1792.
Bonus III: Why bother with cross-continent trade? Well, Indonesian cinnamon tastes better than cinnamon grown elsewhere; Iranian dates are juicier than Tunisian dates; and apparently cocaine from the Colombian jungle is the most potent. Why? Growing conditions in some places are more favorable to certain crops than others. Without investors and globalized trade, either fewer people would be exposed to the same variety of items and experiences, or such exposure would be limited based on the whims of not-always competent governments.
Similarly, talent, like growing conditions, is not equally distributed. For example, MIT is considered to have the world's best technical minds (Harvey Mudd College and Caltech may disagree, but I digress). According to MIT in 2011, "over 40% of our graduate students, over 70% of our postdocs, and about 40% of our faculty were born outside the U.S." How can the United States steal so many talented people? Why aren't these great minds working at universities back home? Part of the answer is the inequality of the US dollar, which has been stronger than other currencies, making it easier to buy products and immigrants from overseas. Economists use the term "attract" rather than "buy" when discussing immigrant labor, but if you want to be hard-nosed, there's really no difference. In other words, the same currency that allows a country to exploit others in trade negotiations also allows it to steal their talent voluntarily--increasing opportunities, innovation, and quality of life for immigrants as well as everyone else. Equality may be a laudable goal, but most people go where they are treated or exposed to better--i.e., unequal--circumstances. Thus, if you are pro-diversity and pro-immigration, you want more inequality, not less--in your favor.
Finally, trade begets trade. A container ship returning only gold and silver will not be able to utilize space--or afford shipping fees--as well as another ship also transporting spices, clothing, handmade jewelry, and other products. If there is a complaint, the complaint once again involves inequitable treatment of workers, not globalized trade.
Bonus IV: I originally wanted to end this article with the following exchange from a Hollywood movie, but I ran out of patience. Perhaps the dialogue below will stand on its own. From Sabrina (1954):
Linus Larrabee: What’s money got to do with it? If making money were all there were to business, it'd hardly be worthwhile going to the office. Money is a by-product.
David: What’s the main objective? Power? [Capitalism?]
Linus: Agh! That’s become a dirty word.
Davis: Well then, what’s the urge? You’re going into plastics now. What will that prove?
Linus: Prove? Nothing much. A new product has been found, something of use to the world. So, a new industry moves into an undeveloped area. Factories go up, machines are brought in, a harbor is dug and you’re in business. It’s purely coincidental of course that people who've never seen a dime before suddenly have a dollar. And barefooted kids wear shoes and have their teeth fixed and their faces washed. What’s wrong with a kind of an urge that gives people libraries, hospitals, baseball diamonds and movies on a Saturday night?
