Capitalism’s reputation has been damaged by the bankers.

All it needs is love

Capitalism’s reputation has been damaged by the bankers

Nov 15th 2014 | From the print edition / The Economist

http://www.economist.com/news/finance-and-economics/21632602-capitalisms-reputation-has-been-damaged-bankers-all-it-needs-love

WHY don’t more people love capitalism? After more than two centuries, the economic system has brought vast gains in living standards and longevity to the countries that have adopted it. But even in America, capitalism’s spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. Another recent poll found that less than half the populations of Greece, Japan and Spain had faith in free markets; support for capitalism, on average, was higher in poor countries like Bangladesh and Ghana than in the advanced world. The recent financial crisis has intensified criticism of the system, from the Occupy Wall Street movement to the support for parties of the far right and left in Europe.

Perhaps the problem is that the word itself is off-putting (it was invented by 19th century critics). Our image of a capitalist is a 19th century millowner in a top hat or a miserly plutocrat such as Montgomery Burns from “The Simpsons”. The Merriam-Webster dictionary defines a capitalist as “a person who has a lot of money, property, etc, and who uses those things to produce more money”; the Oxford dictionary defines capitalism as “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state”. Neither definition sounds very positive.

Few people would class themselves as a capitalist, or believe they had “a lot” of property or money, and few live directly off profits; most are “wage slaves”. So capitalism sounds like a system that benefits other people, rather than ourselves.

Nor does capitalism relate easily to the Christian ethic which still permeates Western societies. Jesus did not celebrate bankers; he turned the moneychangers out of the temple. His advice to a rich man was “sell all you have and give to the poor”. The role model is the good Samaritan, who selflessly helps others, rather than himself. When we raise our children, we emphasise principles of sharing and fairness; we dole out food and presents equally to each child, regardless of how well they have “performed” during the year. The most reliable complaint of any child is that a decision is “not fair”. It is hardly surprising then that in adulthood, some people see the great riches accumulated by a few and feel that is not fair either. Inequality is seen as a major problem by 56% of people in rich countries, according to the pollsters.

But there is cognitive dissonance at work. Ask people what they think about a system that gives them the right to own property and the result would be overwhelmingly favourable. Similarly, consumers have no problem appreciating the benefits of competition, eagerly seeking out the best restaurant or the latest gadget. Those options are the product of capitalism. Britons would not enjoy such a choice of mobile phones and services if the industry were still controlled by the old nationalised British Telecom.

So perhaps it is a question of terminology. We need a word that implies a system of private property and competition and makes people think of the local newsagent or market stallholder—businesses they can relate to. These people are capitalists in the sense that they make a living by putting their money at risk. But neither the business-owners concerned nor their customers think of them that way.

Terminology is not the only problem, however. In the past 30 years or so, capitalism has become associated less with businesses operating in a competitive market, and more with the banking sector. The best and the brightest of society’s graduates have flocked to investment banking. Financial capitalism is inherently less appealing. It produces not iPads, but complex structured products with obscure acronyms. And when governments and central banks are forced to step in to rescue the titans of finance, the idea of a free market also goes out the window. A system that privatises profits and nationalises losses is impossible to justify.

All this matters because voters are in an ugly mood, perhaps because they have not enjoyed real-wage growth in recent years. That marks a change from the 1980s and 1990s when advanced economies enjoyed steady economic growth, encouraging parties of the centre-left to adopt market-friendly policies.

The risk now is that voters back parties that pursue policies which damage trade and investment, and make the developed world’s problems even worse. The reverberations of the financial crisis make it hard for mainstream parties to fight back. Somehow, capitalism, for want of a better word, must be rescued from the bankers.

From the print edition: Finance and economics