What does the current crisis say about communism and capitalism?

BY busadmin  October 23, 2008 at 1:46 PM EDT

Question/Comment: The difference between Communism and Capitalism is one could admit that it was wrong. It seems greed is the ultimate downfall of Capitalism and ironically one of its founding precepts. With all the nationalizing going on, maybe it’s time for a third way; a hybrid if you will. Might just save us from ourselves in the future?

Paul Solman: When exactly did “Communism” admit it was wrong? I’ve never heard an ideology apologize. Gorbachev realized Soviet-style communism was losing out in a globalized economy. Once the autocrats lost their grip, the end was near.

Communism isn’t “wrong” or “right.” It just seems to be inefficient, easily commandeered by an oligarchy in the name of the people when it’s adopted at a state level (think the USSR, North Korea or even Cuba). And it may run counter to some basic human inclinations. (Think the erstwhile kibbutzes of Israel.)

Capitalism isn’t “wrong” or “right” either. It just seems to be preferable, to most folks, and an extremely productive way to organize an economy. It too, however, may run counter to some basic human inclinations – certainly in its extreme forms.

This question deserves a much longer answer and I’ll try to chip away at it in future responses. But for now, allow me to repeat an answer from back in July, to an emailer making exactly the opposite point of yours, who wrote: “ The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system. (Milton Friedman)”

To which I responded: “ Could be. But the tougher question is: what kind of capitalism? That is, how much of the cost of social organization does the collectivity have to bear? “Pure” capitalism means what, exactly? No government at all? No rules? Even libertarians believe in a minimal, so-called “night-watchman” state. Without some rules, and someone to enforce them, there’s just too great a likelihood of a Don Corleone state, with rival bands “going to the mattresses.”

So there is no such thing as “pure capitalism” (except in Ayn Rand’s books), no completely “free” market.

Here’s another problem with capitalism, which for purposes of convenience let’s define as a ‘market-driven’ system: What about the possibility that capitalism actually promotes greed?

I may have written this before, but even if so it bears repeating: all successful systems – from bacteria colonies to human economies – seem to depend on a dynamic tension between competition (‘greed’) and cooperation. An all-cooperative society, and predators crop up who can take advantage. But an all-competitive society opens the door to cooperators, who can band together for their mutual gain while the greedy are at each other’s throats. (See Robert Axelrod’s class “The Evolution of Cooperation” and Robert Frank’s “Passions within Reason” for more detail.)

In today’s environment in the US, as capitalism is currently being practiced, I guess the question I’d ask, playing off Friedman: Has greed been doing the least harm it can?”

To YOUR email, Mr. Henery, I’d add that we’re seeing a reemergence of a Third Way in the US (and much of the OECD) as we correspond, you and I – what I’ve called the Scandinavianization of America. We’ll see how far it goes.