The caging of capitalism

Posted on March 24, 2012 in Debates

Source: — Authors: – business/commentary/Neil Reynolds
Published Monday, Mar. 05, 2012.   Neil Reynolds

In February, a French commercial court ruled that Google Inc. broke the law when it allowed people in France to use Google Maps for free. Declaring the practice “unfair,” the court ordered the company to pay Bottin Cartographes, a French competitor, €500,000 in damages and a €15,000 fine. The court ignored the fact that Google Maps are a strategic service that enables the company to make money by giving things away. It also ignored the fact that OpenStreetMap, a wiki-based free service, has already mapped the world. (Google says it will appeal.)

We’re not talking mere predatory pricing. We’re not talking mere monopoly. We’re talking “competitive harm” – the insidious notion that every transaction, one way or another, is inherently unfair. As noted U.S. legal scholar Richard Epstein explained nearly a decade ago (in Free Markets Under Siege), competitive harm implies that every single transaction “may often leave in its wake one or more disappointed competitors who are worse off in this particular instance because of their inability to make the sale.” Hence, in all fairness, every single lost sale might qualify for compensation – by the company that makes a sale to the companies that don’t.

It has taken a century to turn capitalism from an awesome force of nature, rude, raw and rambunctious, to the subservient thing it is today. Writing more recently, Mr. Epstein described contemporary capitalism as a spent force – trending, at least, to stagnation (from Latin: swamp). In the advanced economies, growth turned sluggish (in real-dollar terms) a generation ago. Now these exhausted economies, deep in debt, struggle to crank out a single percentage point of real-dollar growth a year.

In economic terms, life should be zestier than this – not for the rich but for ordinary people. In his riveting narrative American Colossus: The Triumph of Capitalism, 1865-1900, U.S. historian H.W. Brands describes the 19th-century capitalist revolution as “the best thing ever to befall the ordinary people of America.” In this 35-year period, the country’s population grew from 40 million to 70 million. Infant mortality fell by a third. Life expectancy increased to 50 years from 43. Industrial production tripled (in real-dollar terms) and average per capita income doubled. The percentage of people living on farms fell by a half – yet the people who remained outproduced their forebears by a huge margin.

Modern technologies emerged to make life better for the masses. Electricity, telephones, phonographs, movies. Air conditioning appeared in public buildings and offices – “in 1902, lowering temperatures and tempers on the New York Stock Exchange.” Gas-powered cars, airplanes, railways. In unprecedented ways, people were on the move – across the country and around the world. In 1900, 125,000 Americans crossed oceans on their vacations. Although the number of Americans who travelled to Canada every year isn’t known, their spending is: Between 1865 and 1900, it quintupled.

In all its laissez-faire exuberance, as Mr. Brands tells it, capitalism came close to obliterating democracy in the United States, “the world’s archetype of capitalist democracy.” Breaking on the world with simultaneous revolutionary impact in 1776, Adam Smith’s Wealth of Nations and Thomas Jefferson’s Declaration of Independence defined the two primary motivating impulses of the New World: personal freedom in economics, personal liberty in government – with the two forces in relentless opposition. When the anarchist Leon Czolgosz shot president William McKinley twice in September of 1901, he did so to overthrow capitalism. He didn’t succeed – but he did bring to power the populist, progressive Theodore Roosevelt, who began the slow (and, indeed, essential) policing of capitalism.

Getting the right balance between economic and political freedoms isn’t as easy as ideological rhetoric makes it appear. The Google Map judgment suggests that pretentious political doctrine is now throttling the basic economic principles of trade and commerce – making it much harder to produce the wealth that sustains the greatest prosperity the world has ever known. As tough as he was on the great industrialists of his day, Roosevelt advised caution in putting capitalism in its place. “The captains of industry … have, on the whole, done great good to our people,” he declared. It remains to be seen whether the same will be said of the captains of state capitalism in the 21st century.

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