In defence of economic backwardness

[Have, truth to tell, slightly extended this since first posted.]


The last generation of Communists in power, in the Soviet Union and elsewhere, suffered from a debilitating foible. They did not themselves believe in the ideology they were preaching. Their efforts were thus directed to getting around the realities their forebears had not anticipated. They thus became their own enemies, working against their own unworkable socialist principles, and in the course of their tireless if frazzled ministrations, the Berlin Wall came down.

Capitalism suffers from the same problem today. The principles of Adam Smith are not seriously believed by any of its nominal advocates. They are not even known. Nor could they be, for like Marx, Smith is not even read. I have derived pleasure, on many occasions, from pointing out to some ideological enthusiast for Capitalism, that its supposed author was refulgently opposed to joint-stock companies. Which is to say, to the form of business ownership that controls — oh, I don’t know. Ninety-five percent of the so-called “private sector” economy today?

I observed that, apart from any consideration of morality (and he was, after all, only an amateur economist, but a professional Perfesser of Moral Philosophy), Smith believed that joint-stock companies were inefficient, because essentially bureaucratic. This is inevitable when ownership is separated from management. “Growth,” or Bigness, subtly replaces profit (both mercenary and non-mercenary) as the principal aspiration.

The perfessers today believe in “the evolution of Capitalism.” I don’t believe in evolution at all. I think, for instance, that “the hidden hand,” also known as “the law of supply and demand,” is absolutely static, like all the other “laws” that seem to govern our universe. Anything that happens to be true in economics, as in any other branch of scientia, was always true and will be true ever, in the world to which we are accustomed, regardless of the language used to describe. What “evolves” is rather our hallucinatory rhetoric, whether towards or away from the plain facts of life.

Within a nice Smithian economic order there could be no mega-mergers and buyouts; there could be no “megas” for that matter; companies would rather be born, live, and die, on the human scale; with economic decision-making leading up by an irresistible subsidiarity from living, twitching, irrefutable “consumers” (or “customers as we used to call them), uncontaminated by ubiquitous “lifestyle” advertising, or other wicked goads. Companies would by necessity fully adapt to the specific needs of their localities. There could be partnerships, and inheritances; exports and imports for sure; but no “free market” in stocks, of the kind we associate with Capitalism today.

For that matter, there would be no paper money (Smith despised it), let alone electronic — designed, as such things always are, to disguise debt. The moral hazard implicit in most modern, conventional business practices would be flagged and could be prosecuted under common law; as opposed to the cat’s cradle of universalized “rules and regulations,” imposed on the small by negotiation between big government, big business, big labour, and … big media. We could dismiss “limited liability,” too, leaving owners fully accountable for their delictions, derelictions, misdemeanors, and crimes.

And of course, we would all be poorer, by any abandoned statistical measure; and much happier, too, for having extricated ourselves from the global rat-race of “creative destruction,” leading only to Hell. For yes, if one thinks them through, Smithian economics are inherently conservationist, or as they say today, “ecological.” You work with what you have, rather than with what you can “leverage.”

Often I have read these moderns mocking mediaeval ideas about usury, about their notions of supply and demand, et cetera. But as a man of the thirteenth century, I feel perfectly at home in The Wealth of Nations (1776). Florentine double-entry bookkeeping is fine with me; whereas credit cards are an abomination. There is real solid wealth, denominated in real solid things, which neither appear nor disappear overnight; and then, there is the “wealth of numbers.” Presently, it is public policy to pursue the wealth of abstract, manipulable numbers. This includes wild swinging speculation on anything that happens to be real and solid.


An old friend of mine, among my bosses in late ’seventies Bangkok — Antoine van Agtmael, genuinely admired and loved — was the genius who invented the expression “emerging markets,” to replace that downer, “developing countries.” (Which in turn had been the euphemism for “backward countries.”) It was by such creative hocus-pocus that attitudes towards “Third World” investment were dramatically changed, in the era of Thatcher and Reagan. A man of indomitably good intentions; charitable, selfless, and a brilliant merchant banker; a little leftish in his social and cultural outlook — I give Antoine’s phrase as an example of the sort of poetry that changes the world. I took pride, once, in editing a book of his astute investment “case studies.”

Thirty-six years have passed, since in my youth and naiveté I was draughting a book of my own on what is still called “development economics.” (I was a business journalist in Asia then, who did a little teaching on the side.) It seemed to me that “free enterprise” should be encouraged; that “government intervention” should be discouraged; but that the aesthetic, moral, and spiritual order in one ancient “developing country” after another was being undermined by the success, as also by the frequent failures, not only of foreign but of domestic investors. This bugged me because, like my father before me (who had worked and taught westernizing subjects in this same Third World), my well-intended efforts on behalf of “progress” were ruining everything they touched; everything I loved.

My attempt to explain this, if only to myself, ended in abject failure to answer my central question: “Why does Capitalist success make the world ugly and its people sad?”

Only now do I begin to glimpse an answer; and that part of it could be expressed in the imperative, “Let us abandon Capitalism, and go back to Adam Smith.”