The assault on laissez-faire capitalism

One of the first attacks on laissez-faire capitalism was by William Keegan, the economics editor of the Observer, who wrote that capitalism had not been entirely successful on its own. The Reagan-Thatcher era had produced a free market philosophy which caused enormous problems for deregulation, banking and financial institutions.[William Keegan, The Spectre of Communism: The Future of the World Economy After the Fall of Communism (London: Vintage Books, 1993), p. 185.] As well, the Japanese economy placed fear in the hearts of western capitalists. The Japanese capitalist system differed from the western Anglo-Saxon model by having less of an obsession with "short-termism" and the free play of financial markets.[Keegan, p. 151.] Japan protected its markets, found work for part-time employees, and maintained a sense of tradition and culture. In Keegan's mind, this was a more humane type of capitalism.

A second assault was provided by Will Hutton, the economics editor of the Guardian, who felt that the British economy was ignoring the need to fuse co-operation and competition of institutions from the financial sector to the welfare structure in order to create a successful capitalist model.[Will Hutton, The State We're In (London: Vintage Books, 1996), pp. 255-56.] Thus, the New Right in Britain had created a type of "gentlemanly capitalism," where the virtues of finances, trading, and balanced budgets were more powerful than basic investment and production.[Hutton, pp. 21-22.note] The nature of this inequality in laissez-faire capitalism had made Hutton quite sceptical.

But the arguments on the nature of laissez-faire capitalism put forth by George Soros generated the most interest. The controversial business guru was obviously not the first—and will hardly be the last—to take up the fight against laissez-faire capitalism. However, his work has had a profound effect on the way we interpret capitalism and the global economy.

George Soros and the open society model

In "The Capitalist Threat," Soros stated that the main enemy to our world was "no longer the communist but the capitalist threat." [George Soros, "The Capitalist Threat," The Atlantic Monthly, February 1997, p. 45.] Soros had long been a disciple of the "open society" model, glamorized by Karl Popper in 1945. Popper stated that the totalitarian ideologies of communism and Nazism were both based on the belief that they had reached the ultimate truth. The only way for the possible fruition of their vision was to use oppressive tactics. Popper compared this with the belief that there is no monopoly for the truth. Hence, there must be institutions in place to ensure that there will be peace, freedom of choice, and freedom of speech: in other words, the open society.

Soros was a great admirer of Popper, who was his tutor at the London School of Economics during his time there as a student. Soros admits that he was greatly influenced by Popper's writing and thinking, especially the open society model. [George Soros, Soros on Soros (New York: John Wiley & Sons, Inc., 1995), p. 33.] In 1979, Soros created the Open Society Fund to open up closed societies. Although he started in South Africa, most of his energies were spent in communist countries. Once communism collapsed in eastern Europe, Soros saw the possibility to create a universal open society. However, the West failed to act on this because of a general disillusionment with universal concepts, which included the open society.[Soros, "The Capitalist Threat," p. 47.] Yet Soros was still confident that his societal model could be used in the post-communist period.

Thus, Soros extended Popper's vision of an open society to the modern age. The problem was now "excessive individualism." [ibid. p. 48.] Basically, the pursuit of self-interest in laissez-faire capitalism has led to the loss of a common interest in society. Without a common goal, the breakdown of society is imminent. Still, Soros admitted that laissez-faire capitalism was hardly the same as a totalitarian ideology such as Nazism or communism. Totalitarianism wished to destroy the open society, while capitalism only inadvertently endangered it.

Soros felt that the doctrines of Marxism-Leninism, Nazism and now laissez-faire theory all tried to claim status as the ultimate truth with an appeal to science. Laissez-faire ideology is part of the social sciences by way of economics. It works on the equilibrium of supply and demand in the free market. Hence, the buyer and the seller create their own destinies and economic futures. Soros outlined that there is a two-way feedback mechanism called "reflexivity" which is situated between the thinking of the market participants and the important events that confront them. [ibid p. 50.] The reflexive connection recognizes the imperfect balance between an individual's understanding of the open society and his or her actual participation in the system.

Finally, Soros stated that the open society should also be open to improvement when we recognize our own fallibility in mental constructs and institutions. [ibid. p. 55.] By recognizing that basic understanding is hardly perfect, our beliefs can be moulded and shaped over time. Hence, the ultimate truth will not be the goal of each individual to attain. Since the open society is fallible by nature, a sense of commitment would exist in this imperfect social organization.

Conclusion

It is true that some people will not be as successful as others in a capitalist society. However, capitalism does provide an equal opportunity for potential success. As Milton Friedman succinctly put it, we have tried to create a "free private enterprise exchange economy," or competitive capitalism. [Milton Friedman, Capitalism and Freedom (Chicago: The University of Chicago Press, 1962), p. 13.] Competition breeds a drive for people to succeed within the confines of the free market. There is always a risk factor involved, but the risk reward is a strong motivator for most citizens.

George Soros is mistaken. Capitalism is not the new enemy of our society since the fall of communism. In fact, it is actually in-correct to say that true laissez-faire capitalism has existed in our society at all. We have always had mechanisms in place to stop the generation of any sort of unbridled capitalism. Yet I have no qualms with laissez-faire capitalism should it ever become a reality.

It remains to be seen whether society will choose unbridled capitalism, compassionate capitalism, or a subtle mix of the two theories. Whatever the final result, we must continue to support capitalism and the global economy in the twenty-first century. That would be the compassionate thing to do.