Is capitalism always corrupt?

In the light of the drip-drip of revelations over recent weeks and months about the behaviour of business leaders, particularly in the financial institutions, a number of commentators have suggested that what has been demonstrated is that unregulated capitalism will become inherently corrupt, as the instincts of the key movers and shakers in a capitalist economy are corrupt and they are only held in check through effective regulation. In fact, this thesis is not new – it was suggested in an interesting (if flawed) book by John Girling, Corruption, Capitalism and Democracy, published in 1997 by Routledge. In this the author suggested that there is an inherent contradiction, or clash, between the public service ethos of democracy and the private gain imperative of capitalism, resulting in corruption wherever the latter is not held under strong control.

It could be thought that the news over recent times gives strong credence to that argument. How can anyone justify the apparent lunacy into which financial institutions slipped for no better reason than the maintenance of bonus payments for managers; or what we have just heard about personal (but carefully disguised) loans by a bank to its chairman? Not to mention all the stuff we discovered a few years ago about Enron and WorldCom.

And yet, it is facile to suggest that corruption is somehow symptomatic of capitalism, or even of capitalism only. When the Soviet Union and its satellite states went under in the early 1990s, one of the initial things we discovered was the systematic corruption which had pervaded the upper levels of the system. Furthermore, we know that a number of countries with authoritarian but left-leaning governments (Zimbabwe being an extreme example) have demonstrated huge and often violent levels of corruption.

It seems to me that corruption is always a risk that we run, under any system of government, when there is a sustained period of untroubled economic or political development, such as a sustained boom in a market economy, or a dictatorship without any visible or effective opposition. Recent events have demonstrated the need for vigilance, but perhaps also suggest that every so often a disturbance is needed to clean out unacceptable practices and wholesale lapses of ethics. And while of course it is a disaster when a recession deprives people of jobs and security, it may at least have the side effect of pushing to the surface the  reprehensible behaviour of those who have become arrogant.

The sometimes suggested response – greater levels of regulation – is not always ideal, as its main effect tends to be to bureaucratise behaviour and inhibit initiative; but vigilance is always needed, and the determination to ensure that corruption is never accepted as one of the normal characteristics of public or private conduct. And no system can afford the complacency of a belief that it is immune to such risks.

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4 Comments on “Is capitalism always corrupt?”

  1. Jilly Says:

    It’s a matter of defining terms, isn’t it? On the one hand, ‘corruption’ in any system (economic or otherwise) implies that the system has rules and that they’re being broken. And any system with rules will have some corruption of this kind, but unless it becomes overwhelming then it isn’t necessarily a reflection on the system itself. The Madoff scandal can just about be seen as an example of this: he was actively and deliberately breaking the rules of the financial system.

    On the other hand, the concerns many people have with recent revelations about Wall Street capitalism seem to fall into a different category, whereby the actual rules of capitalism themselves are seen as being contrary to the broader rules of society. So the subprime mortgage market, AIG etc were in most cases following the ‘rules’ of contemporary capitalism, and for the most part not breaking any laws/regulations. But many people would feel that the system itself was running contrary to the interests of broader society. This, surely, is the underlying point behind calls for a return to higher levels of regulation in the money markets.

    Of course this then brings us to one of the great divides between neo-liberal and Keynesian-style economic thinking: the neo-liberals have always argued that the market is essentially an organic system, whose laws are effectively laws of nature and therefore unalterable, whereas Keynesians would insist that all economic systems are man-made and therefore subject to being ‘remade’. It’s probably fairly obvious which side of that argument I agree with!

    • Gary Roberts Says:

      Capitalism serves citizens as long as there is need for human labor. Unfortunately the need for human labor will in the not too distant future come to a complete end. Without the need for human labor what type of economy will exist?

      • It is most unlikely that demand for human labour will end, or even decline. Every technological innovation in the past has disrupted the labour market but then led to an increase in the need for labour – just different labour. Scores of writers have, for over 100 years, predicted the end of human labour; and have always turned out to be wrong.

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