Beyond capitalism

February 05, 1996|By William Pfaff

DAVOS, Switzerland -- The question of what capitalism is all about is subject for debate at the 1996 World Economic Forum that opened Thursday in this Swiss resort. Sessions discuss the morality of capitalism, the moral contract between corporations and employers, the environmental costs of the quest for competitiveness and the effects of growth on social cohesion.

The title given this year's conference, ''sustaining globalization,'' would seem to pre-empt the debate, since there is in fact an

alternative to ''sustaining'' globalization. Globalization could be braked, or shaped, rather than merely sustained, and there are many critics of the economic evolution of the last few years who would like to see that happen. They will have their influence on this annual meeting of international businessmen with academic figures and political leaders.

The conventional wisdom says capitalism is about the creation of wealth. Narrowly defined -- as it currently is, in the business schools and economics faculties -- this means return on invested capital for the corporation, underwriting technological growth and innovation.

Other concerns, which might be grouped as ''social return,'' have tended to be ruled out, or at least disregarded. These would include growth of wealth and well-being for employees, and community development and enrichment, as well as the currently more fashionable environmental concerns.

The conventional wisdom claims that this social return will automatically be provided by the emphasis in today's capitalism on fiscal return to corporations, since in the long term the wealth created by globalization, downsizing and corporate rationalization, will do good for all men.

Rationalizes evil

This is a nice theory that defies the common sense of any realist's observation of how the system actually works today and how it has worked in the past. It is a theory, or more properly, an ideology, that rationalizes much evil and suffering in contemporary society.

A major theoretical debate is gathering today that will greatly influence capitalism's future. Ostensibly scientific discussion within the economic community takes place in the context of a vision of society -- implicitly a vision of society as a whole, as well as of economic society. That vision now is shifting.

The dominant Keynesian economic assumptions and expectations of the postwar West represented one such vision, and produced conclusions about the obligations of economic actors. Business schools in those years taught the doctrine of ''corporate citizenship'' or ''stakeholder capitalism.'' The corporation was held to be responsible to all its ''stakeholders,'' who included the employees whose working lives were devoted to it, and the community in which it functioned, which gave the corporation its support, and which enacted the laws that gave fTC the modern business corporation its peculiar privileges and protections.

In this conception, corporate profit was an index of corporate efficiency, but profit to the stockholder (or executive) was assigned no absolute priority over the interests of other stakeholders, as usually is the case today. But as Robert Reich, the U.S. Labor Secretary, has recently noted, the modern business corporation is a creation of law, and if its present structure, immunities and method of taxation tend to reward socially regressive behavior, the law can be changed.

A new book by Robert Heilbroner and William Milberg, ''The Crisis of Vision in Modern Economic Thought'' (Cambridge University Press), examines the theoretical challenges that unseated Keynesianism, first monetarism and then the currently dominant ''rational expectations'' school of economists.

Perhaps the most important of the authors' observations, however, is one most preachers of the conventional wisdom today ignore. It is that economics is not an exact science, despite the strenuous efforts of mathematically oriented economists to establish it as such.

Economic behavior is embedded in a social and political context whose complexity and potentialities are certainly subject to scientific analysis, but not to comprehensive and scientifically objective conclusions. There indeed are truths to be ascertained about the economic behavior of men, as about their political behavior, but there is no final Truth. There are no universal laws in this, as there are universal scientific laws to discover in physics and the other ''hard'' sciences.

Defenders of the conventional economic wisdom usually claim otherwise. They purport to ''know'' that globalization will have benign consequences, that a universal marketplace is not only inevitable but in society's best interests, and that the present workings of corporate capitalism are generally constructive and contribute to the wealth of nations and the eventual enrichment of the individual members of society. To question the truth of any of this is, for them, generally to rule oneself out of the discussion.

They know these things just as their predecessors of the Gilded Age ''knew'' the truth and inevitability of their version of laissez-faire economics, and as the leading economists and economic ministers of Europe after the First World War ''knew'' the correctness of what they were doing when they adopted policies that a few years later ruined Europe.

They did not ''know,'' and we today do not know. We know a lot, but only that. The current wisdom about capitalism, the globalized marketplace, and appropriate corporate behavior, is today under increasingly severe criticism. As a ''vision'' of society it seems too narrow, defective in its social and political assumptions, lacking a sense of history.

What can take its place is unclear, and will come both from theoretical economics and the practical and political demands of society. But a change unmistakably is on the way.

William Pfaff is a syndicated columnist.

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