Transcript of an IMF Book Forum: Capitalism and its Critics

September 9, 2003

Washington DC, September 9, 2003

Jerry Muller,
Professor of History, Catholic University of America, Washington D.C.
Ann Florini
, Senior Fellow, Governance Studies Program, The Brookings Institution
Johan Norberg,
Fellow, Timbro
Prakash Loungani
(Moderator), Assistant to the Director, External Relations, IMF

(Photo credits: Michael Spilotro, IMF.)

LOUNGANI: Welcome to this inaugural book forum featuring Jerry Muller and Ann Florini. Every party should have a mystery guest -- we have one in Johan Norberg. Showing the flexibility for which the IMF is renowned,


we added Johan to the panel at the last minute when we learnt he was going to be in D.C. this week instead of in Sweden where he normally resides. More about him later.

The focus of today's forum is Professor Jerry Muller's book "The Mind and the Market: Capitalism in Modern European Thought". With less trouble than a trip to Cancun or Dubai, this book will put you in touch with the rich history of intellectual concerns about markets, capitalism and globalization. Following Professor Muller's presentation, Ann Florini and Johan Norberg will relate the themes of his book to the concerns of today's anti-globalization movement. But Ann and Johan are also free to do, transparently, what many discussants try to do covertly, which is to say something to the effect: "The merits of the book I've been assigned to discuss will emerge more clearly if I put things in the broader context of my own work".


As authors of new books themselves, our discussants have carte blanche to throw ideas from their own books into the hopper. But let's begin with Jerry Muller's book. This is what it looks like:

Mr. Prakash Loungani, Assistant to the Director, External Relations, IMF

The book has received rave reviews in the Wall Street Journal, The New Republic and several other newspapers and magazines. It has also garnered praise from academics and policy wonks alike, and from lay readers, one of whom wrote that the book is "a compulsively readable history of economic thought which deserves to be a best-seller ... Muller carries his erudition lightly, and his prose has the calm, effortless, sparkling lucidity of a great teacher lecturing in his prime."

It gives me great pleasure to present to you Professor Muller.

MULLER: Thank you. I'm delighted to be here and to have my book talk converted into a book forum by the addition of other speakers.

Mr. Jerry Muller, Professor of History, Catholic University of America

There is a striking continuity between many contemporary arguments against globalization and older arguments - stretching back over 250 years - against the spread of international trade, and indeed against market activity itself. Few people are aware of the recurrence of these arguments, in part because they don't know much about history, but also because the arguments are often couched in a different vocabulary and often in different languages. But once we analyze the arguments in their original historical contexts we see a remarkable recurrence of fears, laments and condemnations.

It is very difficult for people in this building, for those well-trained in economics, to realize that the idea that collective good can arise from the pursuit of self-interest is not only counter-intuitive to most people but morally scandalous. It is at odds with the enunciated ideology of many religions and many religious thinkers, especially those who stress the importance of motives and intentions behind actions over the results of actions.

Let me offer an example of this kind of thinking reflected in the work, written in 1697, of a Father Thomassin, a French friar (Traité de Négoce et de l'Usure):

"... if no one acquired or possessed more than he needed for his maintenance and that of his family, there would be no destitute in the world at all. It is thus this urge to acquire more and more which brings so many poor people to penury. Can this immense greed for acquisition be innocent, or only slightly criminal?"

Inside every Naomi Klein there is a Thomassin trying to get out.


So one of the great achievements of Adam Smith's 1776 book The Wealth of Nations is to show how self-interest could be channeled to collective purposes, above all to the collective purpose of what Smith called "universal opulence". By this term Smith meant raising the standard of living of the great mass of the population by decreasing the price, and increasing the availability, of goods.

Adam Smith did not claim that pursuit of individual self-interest leads always or automatically to collective well-being. On the contrary, his argument is that properly structured markets would lead to universal opulence, by providing competition and the greater productivity to which competition leads. Competition and productivity are the forces that diminish the cost and increase the availability of goods to consumers.

Far from assuming that markets are usually or naturally competitive, The Wealth of Nations argues precisely the opposite. It shows in great detail how it is in the self-interest of producers and merchants not to compete in the market, but to try to restrain competition, internally and externally, through protectionist measures. And those who will be most successful at this restraint of market competition are those with the most political and economic power -- landowners, guilds, towns, and merchants -- who are constantly lobbying politicians to use regulations to limit competition. One leitmotif of The Wealth of Nations, then, might be called saving capitalism from the capitalists - to use a phrase with which I suspect people in this building are becoming increasingly familiar.


It is a Sisyphean task to channel self-interest to collective national purposes and to collective inter-national well being. One of the great themes of The Wealth of Nations is the propensity of capitalists to be concerned with their welfare at the expense of that of consumers and workers at home and at the expense of producers abroad. Smith remarks upon the natural propensity to sympathize and favor those who are closest to us, geographically and culturally. One role of Smith's philosophy is to help us overcome this provincialism of sentiment, to extend our concern for the welfare of those abroad and to promote policies that favor consumers at home and abroad, and hence counter the influence of domestic producers, merchants, guilds and unions.

And all of this seems to me to be as true today as was in the days of Smith and Edmund Burke, another great thinker on many of these issues. Today we see lobbying of national governments, and through them, lobbying to get WTO regulations that will favor influential corporations, possibly at the expense of the ability of governments abroad to obviate the negative side-effects of capitalist development. Indeed I see that Jagdish Bhagwati has recently made this very argument.

So while it is reasonable to believe that globalization in general is a good thing, there is no reason to believe that it cannot be perverted by individual and group interests. This is why one should be supportive of globalization in theory, but vigilant about globalization in practice. The role of vigilance falls, as in the day of Smith and Burke, to intellectuals and social scientists, motivated by concern for the general good and armed with scientific knowledge.

Now Smith also argued very articulately in The Wealth of Nations that even a well-functioning market, one that does exactly what it is supposed to do, would have some negative effects. Let me mention just two of those effects.

  • First, Smith was concerned that the nature of work under conditions of mass factory production, because of the repetitiveness and degree of specialization involved, would be mind-numbing and soul-numbing. This would be particularly so if people did not have education beyond what they received at the factory.
  • A second concern was that the development of a market society would lead to a decline in courage and in individual military preparedness. So unless capitalist societies take counter-measures they could be easily conquered by less advanced societies.

It was, said Smith, the task of the social scientist to anticipate these negative effects of well-functioning markets and to urge legislators to adopt measures that would ameliorate those effects.

  • So for instance in the case of people forced into mind-numbing labor, Smith suggested the setting up of a universal system of public schooling. This was a very radical idea for the Britain of the time. In fact, it would not be adopted until a century later.
  • On the second issue, that of collective self-defense, Smith suggested it was worthwhile and important to have a standing paid army. Market societies would have the advantage of having more resources to devote to military technology so they could defend themselves against less advanced societies.

Obviating the negative effects of even a well-functioning market also remains an important task of public policy today.

Other arguments have been made through the course of history for resisting the spread of freer markets. These are in my view less reputable and less plausible, but no less anticipatable. Let me discuss a few of them briefly.

One - which is related to the notion of the scandal of self-interest - is in regard to the lending of money to make money - usury. There is a deep tradition, going back to Aristotle, of regarding the making of money from money as "unnatural" and hence disreputable. Money is unproductive and use of money to make money is bad. You find a similar tradition in Islam on the prohibition of interest - riba. That suspicion of money lending has a kind of cultural penumbra that often covers a variety of commercial activities, including - I'm afraid - many of the activities carried out in this building.


A second recurring argument is that the importing of cheaper commodities from abroad destroys indigenous ways of producing things, and the social and political structures that go with them. We find this argument made in the 1770s by Justus Möser, a German contemporary of Adam Smith. He worried that the guild system in Germany and the political structures that went with it were being destroyed by the development of tastes for imported goods.

The interesting thing about this assertion is that it is often true. Hence capitalism is resisted by those who champion cultural and religious particularism and want to discourage trans-cultural contact. The freer the market, the more likely it is that those with market-oriented skills and cultural capital will prosper, and those who prosper will often not be from the previously dominant castes; and often not from the dominant ethnic group. The classic example of this, analyzed by Friedrich Hayek and others, is Jews. The same phenomenon of merchant minorities exists in a wide range of cultures, and has recently been explored in a book by Amy Chua that same of you may be acquainted with.

And so capitalism is particularly resented by those with the greatest stake -- political, economic, or cultural -- in the existing system. Any departure from existing political and cultural structures is seen as a decline.

But is the destruction of indigenous structures always a bad thing? Was the guild economy, which protected a small group of producers by restricting supply, worthy of protection? What about the 35-hours work week in France - is that sacrosanct? What about the livelihood of small farmers - is that something to be protected at every price? One of the great arguments in favor of capitalism is that it diffuses cultural and religious sources of conflict - by having people trade with others it fosters cooperation with them and creates a kind of zone of indifference to ultimate goals of others. As Voltaire put it in describing the London stock exchange:

"Come into the London Exchange, a place more respectable than many a court. You will see assembled representatives of every nation for the benefit of mankind. Here the Jew, the Mohametan and the Christian deal with one another as if they were of the same religion, and reserve the name "infidel" for those who go bankrupt."


A third argument: capitalism is based upon inequality. This too is true. But it has been recognized from Adam Smith on at least that despite breeding inequality, capitalism can nevertheless be beneficial to the great mass of people. This line of argument appeals most to those of us who think that the real scandal is poverty, not inequality. To move people from incomes of $1 a day to $10 a day is a tremendous achievement. The fact that there is such absolute poverty is what is scandalous, not the fact that someone else makes $1000 a day. But to some it is the inequality that is a scandal. This is a source of animus against the market that goes back to Rousseau and it is prominent among the anti-globalization movement today.

Does the recurrence of these arguments against the international spread of the market mean that they are of ongoing validity?; Or could one assert that bad arguments continue to be made despite having been proven bankrupt in the past, perhaps because of inherited cultural propensities or because recurrent social constellations lead to similar psychological strains, resulting in resentment, envy, or simple fear of change? That I leave to the discussants and to you to resolve.


LOUNGANI: Our next speaker is Ann Florini. She's known to many of us at the Fund as the editor of an excellent book on global civil society and has a book hot off the press called "The Coming Democracy: New Rules for Running a New World". Ann will now discuss Jerry's book, perhaps in the manner described.

Ms. Ann Florini, Senior Fellow, Governance Studies Program, The Brookings Institution

FLORINI: Thank you, Prakash, I will start out by talking more about the themes in Jerry's book than in my own. Let me begin by agreeing with Prakash that "The Mind and the Market" is truly a wonderful book and I strongly recommend it. It's a very useful contribution to understanding the kinds of debates that have raged about capitalism over the centuries. I think Jerry also deserves a great deal of credit for saving Adam Smith from his most fervent supporters, many of whom seem to have read only part of his argument and ignore arguments Smith made about the need to embed capitalism in appropriate political and social structures.

Let me take some of Jerry's perennial arguments against capitalism and relate them to the kinds of debates that are going on today in the so-called anti-globalization movement. Jerry began by talking about the scandal of self-interest, which I think is tied also to the aversion to inequality. Is self-interest per se bad? Is inequality per se bad? Are these questions really being asked today? In short, is there really an anti-capitalist intellectual movement today?

In some places, yes. But it's not where you might expect to find it. It's primarily in literary studies and, to some degree, in sociology departments. There is one book that has been hailed by some reviewers as the new Communist Manifesto. It's a book by Michael Hardt and Antonio Negri called Empire, which I'm sure many of you have heard of.

Does the debate that is encapsulated in that book add up to the kind of earth-shaking thinking about the nature of capitalism that led to the Bolshevik revolution and that influenced political leaders in Europe and throughout much of the developing world? Not even close. For a couple of reasons. One is that the book is largely incomprehensible.


I have struggled with it mightily, so have several of my colleagues, and we're still trying to figure out exactly what it says. Although, as Muller's book notes, incomprehensibility is often not sufficient to derail bad ideas.


The more important point is that the book doesn't provide any political or economic agenda. It says that there is a global economic system, a capitalist system, dominated by the United States, but not particularly under anybody's control. It doesn't give the readers who object to this system any idea what it is they should do about it. It says nothing about who should have control of the means of production, nothing about class struggle, in what sense it is Marxist escapes me. It is hardly a prescription for radical revolt against existing concentrations of power or against the capitalist system.

As far as I can tell the book became highly popular among the so-called anti-globalization movement largely because for many of the less-informed members of that movement it's a `feel-good' piece telling them that what they're doing is important and part of an ongoing global struggle. So that, as far as I can tell, is the current state of intellectual anti-capitalist thinking. It is not something that is in any way going to influence political or economic developments in the near future.

So what is the debate that's actually going on within the anti-globalization movement? It is not an anti-capitalist debate. It's a debate about questions such as: what economic rules best reduce poverty? How do you change the processes of decision-making at the global level so that the interests of the poor are better represented? Should that representation take place only through national governments? What's the legitimate role for civil society organizations for citizen voice? What kind of role ought corporations to have? If national governments are failing to adequately regulate corporate activity what recourse do citizens and consumers have?

These are legitimate questions and, to quibble with Jerry a little bit, I think it is wrong to equate those who raise them - like Naomi Klein - with those who question capitalism itself. The protestors, by and large, are not anti-capitalist; they're not even anti-globalization for the most part. What they are is a number of people objecting to exactly the kinds of negative consequences of insufficiently-fettered market forces that Jerry talked about and that Adam Smith warned against very early on.

How is it that you go about obviating these negative side-effects? And it's really a question of: why was Marx wrong? His economics was wrong for reasons that you all understand, but politically, why was he wrong? Because - and this is something Jerry points out very carefully in his book -- societies found ways of counteracting the negative effects of the capitalist system by embedding market forces within social and political contracts.

Negotiating the terms of those contracts was a very long and bloody process. But the end result is that at the national level we now have systems in place -- national governments and civil society mechanisms - that add up to reasonably effective feedback mechanisms so that societies are able to maintain control, to some degree, over those dangerous tendencies from monopoly and concentration of power against which Adam Smith warned.

The anti-globalization movement is partly a protest against the fact that we don't have any counterparts of these mechanisms at the global level. What we have is a system of decision-making where a handful of very wealthy and powerful countries makes most of the rules for everybody else. You can argue that those rules will work in everyone's long-term interest and I know that's one of the arguments that's made. But they're certainly not seen that way by many. There are serious concerns about the degree to which those rules are compatible with other societies' desires to set for themselves their own goals. And the processes by which those rules are made are so conspicuously undemocratic and unfair as to eviscerate the legitimacy of the decisions that result no matter how good or bad those decisions may be.

How can we move forward? We don't have the option of a world government to stand as a counterpart to big business and capitalism, the way you have national governments doing at the national level. The answer has to be in part in reforms of the governing structures of international institutions, such as the IMF, so that they are seen as more broadly legitimate by the people who are affected by the decisions that are made in such places. And part of the answer has to involve developing effective channels for citizen voice and citizen participation at the global level. We have to invent new ways to be vigilant about globalization in practice.

Is it possible to invent that something new? Yes, I think it is and I think that's exactly what we're seeing with the anti-globalization movement. What we're seeing is the emergence of a whole series of transnational networks, civil society networks -- many of which are now coming out of traditional social institutions such as churches -- that are beginning to develop into something that looks like a global civil society.

It's not going to be any more coherent than national civil society, it is not going to have a singular identity, and it not going to provide for singular identities for people in the future. It's coming about for a whole series of reasons: because information technology makes it easier for people to organize across borders; because globalization itself is creating targets around which they can mobilize; because there is a huge reservoir of potential participants because of economic growth around the world - people simply have more time and leisure to participate in such kinds of movements.

Where all of this is leading us I think is to the creation of citizen movements that are an essential counterpart to capitalism at the global level. As I mentioned, we have such citizen movements already at the national level and they are widely seen as legitimate. It is much trickier at the global level because you don't have the global governmental counterpart and probably never will. But it can serve as a messy, but essentially good enough, channel for transnational democratic debate.


LOUNGANI: Thanks, Ann. And now we turn it over to the ex-anarchist, Johan Norberg. Johan's new book is called "In Defense of Global Capitalism". I've seen it referred to as Johan's little black book - it certainly has a lot of numbers.


I've been skimming it and it's a handy compendium of facts with which to confront the anti-globalizers. Johan?

Mr. Johan Norberg, Fellow, Timbro

NORBERG: Thanks for this opportunity to be the mystery guest. Given the title of my book, "In Defense of Global Capitalism," it is clear which side I am on. Capitalism is easy to defend, but hard to love.

Let's pause and reflect on some of the achievements of the last several decades:

  • Slavery, once the scourge of mankind, has been eradicated almost everywhere.
  • Women, once seen as the property of their fathers and husbands, are starting to get rights equal to those enjoyed by men.
  • Democracy has never been as widespread as it is today - for the first time in history over half of the world's population lives in democratic societies.
  • The living standards of average people in the West today is better than the living standards of our kings of a hundred years ago; and this rise in living standards is now something that is beginning to happen in many parts of the world as well.
  • As the UNDP recently pointed out, poverty reduction in the last fifty years has been faster than in the preceding five hundred years.
  • Life expectancy has increased from 46 to 64 years; infant mortality has fallen to a third of what it used to be; the extent of hunger and child labor have been cut in half.

My book argues that these achievements would not have been possible without capitalism, without the spread of markets on a scale that hadn't been seen before. Many of these successes have come about because they undermined a lot of traditional cultures and institutions, as Professor Muller has just argued, in favor of more individual choice, more human liberty and more freedom for oppressed groups generally.

Why then is capitalism difficult to love? Why is it seen as something that is bad or at best as a necessary evil? I cannot improve upon the history of ideas offered by Muller in his book and in his talk today. Instead, I would like to give some personal experiences from my meetings with people in the anti-globalization movement. One of them wrote in a web log - and I'm paraphrasing here - that "Our opponents gave facts and figures to prove their points. But, in contrast, we triumphed by using examples from reality."


Why are these examples so powerful? Because they reflect at their heart people's discomfort with a commercial culture, with a capitalist society where things constantly change, where all that is holy one day is profane the next. People are not comfortable with the process of creative destruction, with the fact that the source of our wealth is the constant discarding of old methods, of throwing away of old technologies, of closing down factories and making companies go bankrupt.

And this is a very common attitude, not only from the anti-globalization movement but also from those who are following the debates from a distance by reading the newspapers or watching television. Facts, figures, statistics - these are fine to convince economists. But this is not what makes a good newspaper story or gripping television. If a factory closes somewhere, no reporter says: "Wow, this is fantastic. In the future we will see more efficient production with fewer workers. And the people laid-off from this factory will surely end up in new sectors and in new careers, as we as a society grow richer and demand new goods." No, the attention is focused on those who have lost their jobs and the impact on the families they have to sustain.

This is one reason why capitalism is very hard to love, despite the clear evidence about the long-term gains. And this problem is only compounded when we live in a society where attention spans are shrinking constantly, where information and pictures about individual stories are available instantly. That is how we know capitalism. That is how we see foreign imports - we see the faces of our own people losing jobs, but we cannot tell the stories, at least not with the same drama, of other lives getting better, or our own lives as consumers getting better as a wider array of goods becomes available at cheaper prices.

If capitalism is to overcome this disadvantage, it needs quite a principled defense from those of us who believe in its benefits. It needs politicians who are able to explain to people why change is good, why new technologies are good, why trade liberalization is good. But this defense is not given. When the traditional left-wing forces in Europe collapsed they told their voters that they were forced to liberalize because of outside pressure; they did not say that they had embraced a liberal market economy because of the failure of central planning methods. Even Margaret Thatcher defended liberalization of the UK economy using the TINA doctrine - There Is No Alternative. You have to do this! A Swedish center-right government in the early 1990s did much the same when they explained that their reforms were the only way. They never said that this is a desirable way. Developing countries today say that they had to liberalize because of pressure form the WTO, not because trade is in their self-interest.

All of this is like threatening your kids to eat their salad or brush their teeth because a goblin will come and get them if they don't. The threats might work. The kids might eat their salad and brush their teeth, but they are not going to love this goblin that they are constantly being threatened with. They will grow up and form the anti-goblin movement.


When people get the message from politicians that they are carrying out reforms under pressure or under the diktat of international institutions rather then because the reforms are beneficial, they will of course long for someone who says: "Let's not do it. Let's find an easier way."


LOUNGANI: We have a few minutes for discussion among the panelists or interjections from the floor.

Audience at the IMF Book Forum

QUESTIONER: A couple of comments, the first about capitalism and inequality. Capitalism can actually get rid of inequality in many instances if markets do what they are supposed to. For example, in the labor market, there may be inequalities in income that are reduced by the entry of immigrants. Capitalism also offers equality of opportunity. One of the reasons that capitalism may have survived is that it offers people hope that they have the opportunity to become wealthier. The second comment is regarding the difficulty of telling positive stories about capitalism. Why can't we use the stories of South Korea and India, countries that have achieved enormous reductions in poverty by embracing capitalism, to offset some of the negative stories?

NORBERG: Exactly. And do I tell those positive stories in my book. I think if we can integrate the facts and figures with flesh-and-blood stories from all over the globe about people's lives getting better, we can make a more convincing case for capitalism.

I was recently in Vietnam where I met factory workers producing shoes for sale in the United States. They told me that ten years ago they used to walk to the factory. After three years on multinational wages, they could bike to work. Three years after that they were able to afford scooters. And now some of the first of them are able to buy a car. I think a story like this also speaks to your point about equality of opportunity. Not everyone is going to make the high wages offered by the multinational, but if people can see that anyone who works hard has the opportunity to do so, they will still be in favor of globalization.

FLORINI: Yes, I agree that there are competing stories so that we that can speak of the benefits of globalization as well as the costs -- in fact, you could say that that's what Tom Friedman does in his columns and does very well. On your first comment: I agree that capitalism can foster equality, especially equality of opportunity, but you added almost as an afterthought "if markets do what they are supposed to". That's a very big "if". And the discussion we've had today suggests that even champions of capitalism like Adam Smith would have agreed with that.

MULLER: You're right that often capitalism alleviates or eliminates existing inequalities. But it is based on having some degree of new inequalities. Historically, every great leap forward -- through technological or organizational innovation -- creates at least an initial period of greater inequality and then later for many reasons, political and others, there is a reduction of that inequality. But how much inequality is created by capitalism can easily differ from culture to culture: it's very striking that in Scandinavia or in Japan much less inequality is tolerated than in the United States.

These issues are ongoing tensions within capitalism; they're not irresolvable contradictions, but ongoing tensions that have to be managed. Ann's suggestion that transparent representative government is always going to be the solution, I'm afraid is not the case.

Take Johan's case of people in Vietnam being made better off by working in shoe factories. Well, in New Hampshire, people who were making shoes a generation ago, and two and three generations ago, are out of a job and their way of life is disappearing. Read Richard Russo's wonderful novel Empire Falls about this. For American activists, for those who are most likely to get mobilized within the American system or in any representative government system, it is the stories from New Hampshire that are going to be told and have greater resonance than the stories about people in Vietnam.

Adam Smith mentions this as a fundamental problem: that we have more empathy with those closest to us, geographically and culturally, than with people further away. And he thought it was the role of the moral philosopher and economist to cultivate that larger, more universal, more global sympathy. But representative government, even when it is working well, will often restrict creative destruction, because those who lose from the process in the short-term have the greatest incentive to tell their stories and often the greatest ability to get mobilized. So I'm not an opponent of representative government, but I just don't see it as a solution always to resolving the tensions within capitalism.

FLORINI: I think it is perfectly legitimate for the losers in a society to have a say in how society intends to buffer the effects of the destructive side of creative destruction. Without that, how are you going to have stable political system that can deal with all of the problems of concentration of power and the inevitable suffering that capitalist systems bring with them. You will not have support for capitalism itself unless you have a system of allowing voices on all sides, losers included, to be heard.

LOUNGANI: I hear cell phones going off which suggests we are close to the end of the appointed hour. Let's continue the discussion over lunch, which awaits you around the corner, but not before giving our panelists a round of applause.



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