Opinion: “Capitalism is a great success story.” Really, Nick?

On Monday, Nick Clegg gave a speech on responsible capitalism. This was his first real foray into the debate since it has erupted as a major talking point, even though we as a party have been arguing the need to reform capitalism before it was cool.

Before criticising capitalism, he praised it by saying this:

Capitalism may be today’s political punchbag, but let’s take a long view: it’s one of history’s great success stories. No other human innovation has driven progress  and raised living standards so consistently. Markets catalyse ideas, invention and experimentation. When they work well, they are meritocratic and liberating. And they generate the wealth to support the most vulnerable and needy in society.

Capitalism, a great success story! Really Nick? Are we talking about the same capitalism? The capitalism that so often exploited the poor to fill the pockets of the elite? The capitalism that exploited the poor so much that Labour had to introduce a minimum wage in order to help the most vulnerable and needy in society? The capitalism that created a healthcare system which leaves so many Americans without health insurance because they can’t afford it?

Nick argues that the problem isn’t too much capitalism but  that too few people have capital. Whilst in some cases that might be a problem, some of the biggest successes in capitalism have come from positions where getting capital was incredibly hard.

Mainstream opinion says you need three things in order to be successful in a capitalist system: large sums of money, the greatest minds in a particular field and a market to sell into.

Let me give you an example.

Back in the early 20th century everybody was trying to create the first controlled powered flight, one of them was Samuel Pierpont Langley. He was given $50,000 to figure out how to achieve a controlled flying machine, money was no object. He was well connected and hired the best minds of the day. The market conditions were perfect, the New York Times followed him around. Everyone was rooting for him to succeed.

Yet, we’ve not heard of Samuel Pierpont Langley. Why? Because the Wright brothers got there first. What did the Wright brothers have? Nothing, they had no capital, they used the proceeds from their shop to fund their dream. The proceeds from the shop was peanuts compared to the capital that Pierpont Langley had access to. No one on the team had a college education, not even the Wright brothers and nobody followed them around.

How did they do it? They believed in what they were doing. They believed if they could work out how to do this flying thing, they could change the world. Everyone who worked for them, believed in this too so they gave their blood, sweat and tears.

Samuel Pierpont Langley was doing it for the fame and the fortune. He quit when he found out the Wright brothers had achieved what he was trying to achieve.

Look around the world today, what is everyone looking for today? Is it to change society, to make society better or are they in pursuit of the fame and fortune?

I think when people talk about the good qualities of capitalism like innovation and experimentation; they aren’t talking about capitalism but are talking about a political system that allows human creativity to flourish. A political system that oppresses, a society that oppresses and sometimes people’s own fears stop creativity, stops experimentation, stops innovation.

We have approximately 3 million people unemployed in this country. That is 3 million minds going to waste, 3 million minds that could be innovating, sitting at home twiddling their thumbs and learning how not to be innovative. 3 million minds looking for jobs instead of innovating, creating businesses and creating jobs.

Capital and markets will never be as important as people. We never hear human capital stressed enough when it comes to the economy.

Human capital is why an open liberal society is so important because it allows people to be creative, free from excessive state interference, free from rigid societal structures, free to be creative, innovative and successful.

* Nicola Prigg is a member from Ayrshire and Arran who is standing for Ayr West in South Ayrshire in May. She blogs at priggy.wordpress.com

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35 Comments

  • Olly Neville 19th Jan '12 - 4:36pm

    Do you realise the example you gave, of the Wright Brothers achieving flight, is a great example of the Free Market providing a solution to a problem, even while Corporatist interests failed

    Do you really understand what Capitalism is, I think you are confusing it with Corporatism which is so far removed from Capitalism it hurts

    We have Corporatism, not Capitalism, by all means attack Corporatism, but don’t blame what we don’t have for out problems

  • “The capitalism that exploited the poor so much” – the poor by what standard? The worst of working people in the UK when Labour came to power were well within the highest percentiles of income in the world. And they still are. They’re also hugely better off than they were in the past. I only have to earn £14,000 to be among the richest 10% of people in the world. Even on £7,000, I’m richer than 87% of people. ( http://www.globalrichlist.com/ )

    http://www.telegraph.co.uk/news/uknews/1576933/Britons-spend-one-fifth-of-income-on-homes.html

    This is the difficulty with the word ‘capitalism’ if you don’t define it. You’re clearly using it pretty much interchangeably with exploitation. That’s not how I think of it. If what you want is the ability for people to exchange and interact voluntarily, creating a market to determine what people do and do not desire, to drive down prices by competition and form an organic system which creates real prices in a superior way to government (and is historically the only system with any real track record of doing so) then that’s my version of capitalism. What’s the better evidence-based system for unlocking potential, innovation, creativity?

    We shouldn’t be naive believers, I’m not a purist. Market solutions are not a panacea for absolutely everything. But the argument is now between actual capitalism, and capitalism (with fiddled elements). What’s the alternative?

  • mike cobley 19th Jan '12 - 5:01pm

    Ah, how predictable, Liberals confused about how to deal with capitalism. Well, its like this – in a modern democracy markets have a role to play, just as public/state provision of basic services has a role to play. Of course, the free market groupies will earnestly assure everyone that markets are the answer to everything, to which we should reply, tell that to workers in China, the Phillipines and elsewhere who are groaning under a grotesque, Dickensian oppression.

    Dont forget, either, that those serf-like workers are the kind of workers that capitalists love, and which we would be more like.

  • Malcolm Todd 19th Jan '12 - 5:32pm

    “What did the Wright brothers have? Nothing, they had no capital, they used the proceeds from their shop to fund their dream. ”

    Er — the proceeds from their shop? Their shop? Was it a socialist shop? A communitarian shop? Is capital only capital if you have more than a certain amount of it?

    I think your story just proves that rich people don’t always win. Which is good, no?

  • Cllr Steve Bradley 19th Jan '12 - 5:44pm

    Is it ever possible to have capitalism in any ‘pure’ form ? i.e. just the good bits, without the bad bits and the negative consequences ?

    I fear not. just like many thought socialism/communism looked good on paper, but was always executed atrociously. Capitalism has an in-built homing signal that will always see it eventually strive for social ills like monopoly, haves and have-nots etc. It’s in the system’s DNA.

    Capitalism as we cuirrently understand it to be – i.e. its neo-liberal form – isn’t working, and is a car crash. It fetishes ‘the market’ above all else, rather than viewing it as just a tool to achieve broader social aims ; it only places value upon things that contribute to GDP (war is therefore good, helping a neighbour out bad, as only one contributes directly to economic activity) ; it operates in a moral, ethical and environmental vacuum ; and it cares not for the conssequences upon communtiies and individuals of its market-led conclusions. As Liberalism is about empowering individuals and giving them the ‘agency’ to control their own lives in a meaningful way, neo-liberal capitalism as we know it is the complete opposite. It reduces individuals to miniscule cogs in a global economic machine, and it does the same with entire communities. Other economic models such as mutualism etc – they are much more empowering and in tune with liberal principles and ideology than neo-liberal capitalism is.

    We need to stop trying to mend an inherently flawed system and start focusing on what will take its place. A new paradigm of economic activity, trade and measurement in which individuals feel more empowered and less isolated, and where the important things in life are valued above GDP and the ‘market’ as sacrosanct.

  • John Carlisle 19th Jan '12 - 5:45pm

    Nicola,
    I think you have made some trenchant points – as have others, except Andrew on USA Healthcare. I am afraid it is capitalism thinking that gave the USA the healthcare it has, kept alive by the capitalist companies like GM etc., who paid the wealth of healthcare insurance for the employees and retirees, which eventually nearly killed the company. The question is what or who killed off the mutuals and fraternal societies that were set up to look after the sick and indigent, especially in the USA, e.g.the Odd Fellows, which is only a rump now.
    What we need to do is see work and production through a different lens. The way that Jamshed Tata saw it in Manchester in the second half of the 19th century. The very thing that horrified Engels by its dreadful impact on the workers Tata took back in a redeemed form to India.
    If you want to see so-called proper capitalism at work go to Jamshedpur, the city created by Tata to create wealth and jobs for India – not for him.

  • Simon McGrath 19th Jan '12 - 8:23pm

    I am looking forward to hearing Nicola’s reply to Andrew’s point (confirmed by wikipedia) that the failure in her example was funded with public money.

  • Mark Inskip 19th Jan '12 - 9:48pm

    @Andrew Tennant
    Yes you’re correct, Langley’s $50,000 came from the War Dept. i.e. public money

    The Wright Bros. opened a bicycle repair and sales shop in 1892 (the Wright Cycle Exchange, later the Wright Cycle Company) and began manufacturing their own bicycles in 1896. The proceeds from their shop funded their flying works.

    Pretty clear that the Wright Bros. were successful capitalists.

  • What a good set of comments! As people have said, the Wright Brothers example could serve as a textbook case of capitalist entrepreneurial risk taking!

  • “Mainstream opinion says you need three things in order to be successful in a capitalist system: large sums of money, the greatest minds in a particular field and a market to sell into.”

    How much money did Apple and Microsoft have when they set up? Not sure you can even say Bill Gates was the greatest mind in his field either

  • It’s easy to forget after 30 years of neo-liberal brainwashing that nearly all the truly transformative technologies of the last hundred years have sprung from government funded research rather than the private sector and sobering to recognise that this largely because war is the great engine of innovation.

  • Cllr Steve Bradley 20th Jan '12 - 1:08am

    War, followed by pornography, followed by gambling. The unholy trinity behind the largest percentage of much of our innovation over the last few decades….! :o)

    Ironically Labour was rather good at promoting all three….

  • John Carlisle 20th Jan '12 - 7:07am

    AndrewR and Cllr Steve – Government funded technology: if you look at what truly changed our everyday lives you would think again. The micro-chip, the mobile phone, the car, railways (neither Stephenson nor Brunel were a govt employee), the tv, Dyson, etc. etc. Not all good, perhaps; but none government.

  • John Carlisle
    Given the internet grew out the US military and government funded science shouldn’t you have sent your list of private sector innovations to LDV by letter? I’ll give you the car and the microchip but Dyson? Really? WW II alone gave us computing, nuclear technology, the jet engine and the origins of the rocket technology that sent us to the moon.

  • Malcolm Todd 20th Jan '12 - 11:02am

    “It’s easy to forget after 30 years of neo-liberal brainwashing that nearly all the truly transformative technologies of the last hundred years have sprung from government funded research rather than the private sector and sobering to recognise that this largely because war is the great engine of innovation.”

    And utterly irrelevant to the question of how we should organise the economy, society and scientific research in peacetime. The “free market” may have some appalling effects, but if the state only does better in times of all-out war it doesn’t say much for “government-funded research” being a better bet.

  • Perhaps capitalism has been successful in the same way as UK Lib Dems in government have been, politically?

  • Malcolm Todd
    I don’t actually think it’s a question of whether the state or private sector is the “best”. There is a strong co-dependency which is often passed over in discussions like this. A good example is the internet which is only possible because it is founded on open protocols and standards. The ability of companies like google and amazon to innovate on top of this platform required public bodies to create it in the first place. The internet itself is not something that could have developed within a purely capitalist society. Chris Huhne made a similar point recently about the role of regulation and standardisation to create and stimulate markets. The point about how much technology ultimately owes it’s origin to military spend (which as we know consumes a fantastic amount of money in peacetime as well as war) is simply to register a melancholy fact.

  • Cllr Steve Bradley 20th Jan '12 - 3:00pm

    John Carlisle – I wasn’t claiming that government-funded technology drives innovation. I merely listed the 3 main industries that HAVE driven much of it for the last number of decades. I didn’t clarify or refer to the extent to which they are government-funded or not.

    Though it is interesting that you seem to extract from what I wrote that there is substantial government funded porn and gambling* ;o (*I’m not counting Tessa Jowel’s parliamentary expenses and Labour’s economic policy of the last decade in that btw)….

  • Richard Swales 21st Jan '12 - 3:37pm

    It is not true to say that capitalism, by which we mean free, consensual markets, values only that which contributes to gdp. Certain pro-market politicians value this, but free markets themselves are not a system or organisation and don’t have political values. You can’t force anyone to be a buyer, but under free markets you are just as entitled to sell 3 days working time per week as you are to sell 5 days working time per week, without some komisar tut-tutting that you are letting the side down. It’s your choice, hence the name free markets. in non-free systems such as practiced in Cuba trying to grow the gdp is part of the state plan everyone has to follow.

  • robin Martlew 24th Jan '12 - 3:57pm

    There is in most columns a total confusion about what Capitalism actually is! I think it is the system that simply relies on competition for property that ‘belongs to’ and was probably produced by someone else and carries power, but precious little responsibility with it and excludes others from using it!
    I know I can bore for England on the theme ‘CAWKI (Capitalism as we know it) if unfair, inefficient, Undemocratic and unmanageable’. It is unfair because its benefits frequently don’t benefit people who have worked hard within its structure only to be discarded for no failure of their own. It is inefficient because it relies on a constant level of involuntary unemployment of people who could be adding to the choice of goods and services available, It is undemocratic because it increasingly concentrates power and wealth rather than diffusing it. I don’t think there is any way it can be seen as manageable in spite of the myriad of contradictory theories concerning its management!
    To those who declare that it is responsible for the very considerable advances in technology over the last couple of hundred years i suggest that it is probably responsible for inhibiting and distorting society equally. We can’t prove it either way because there is no way that we can evaluate what would have transpired with a better system! I concede that we don’t seem to have come up with a better system! That is what I think we should explore here!
    Capitalism is based predominantly on competition and acquisition I believe that Human Nature, or as I prefer to describe it, the Human Condition is based predominantly on cooperation and sharing. These cultures are poles apart and converting from one to the other requires a fundamental attitude change. CAWKI is not inevitable nor value free, nor natural. Freedom within CAWKI is illusory!
    We need
    to start focusing our efforts on the future, what we could be producing rather than what others have produced;
    a full employment that means everyone who can and wants to be, is employed;
    money focused on enabling people to contribute, not excluding them form contributing;
    money to reflect what people contribute and what they are entitled to withdraw;
    The Capitalist system is based on differential banking to enable it to lend money ex nihilo to people who can offer security.
    We need the banks to advance money on the basis of realistic business plans where reasonable risk is accepted by society and the banks are rewarded for the quality of their assessments and property must be maintained and used as effectively as possible.
    Where people are the centre of value, not simply discardable pawns in speculative ventures.
    It is possible!

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