Highlights from The Capitalist Manifesto by Johan Norberg
Highlights from this book
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It is always popular when someone promises us the world, bailouts and free stuff. But it just does not work. Still doesn’t. There are no free lunches, and wealth has to be created before it can be distributed. Sooner or later you always run out of other people’s money, as Thatcher put it, and if you print more then sooner or later you’ll ruin its value.
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This is because the country followed the three steps of socialism, which were identified by the British economics writer Kristian Niemietz when he studied how an admiring outside world viewed countries such as the Soviet Union, China, Cuba and Venezuela:37 Step 1: The honeymoon. The strongman distributes the country’s resources and Western supporters declare triumphantly that he has shown that socialism is superior to capitalism and should be introduced everywhere, instantly. Step 2: The excuses. The honeymoon does not last for ever. Soon, the outside world receives information about how the economy doesn’t work, resources run out and problems pile up. Now the admirers become defensive and explain that the difficulties are due to bad luck, the wrong administrators ending up in the wrong places, falling commodity prices, bad weather that destroyed the crops, or sabotage from the elites or the outside world. If not for that, you would all have seen how well socialism works. (In Venezuela, for example: ‘They were unlucky with the oil price’ – despite the fact that the price in 2010 was still around six times higher than when Chávez took office. ‘It is because of US sanctions’ – even though sanctions against the oil industry were not introduced until 2019, when the collapse was already a fact.) Step 3: ‘It was not real socialism.’ In the end, it’s impossible to deny that the economy is not working, hunger is rising and people are fleeing for their lives. No one wants to be associated with the experiment any more. Now instead it is said that the country never introduced real socialism but some form of corrupt state capitalism that only appropriated the socialist brand, and it is intellectually dishonest to use that failure as evidence that socialism is not working, especially as real socialism right now is being developed elsewhere, in the hopeful country X, which you should look at instead. (At which point the foreign admirers move on to the next experiment and the process begins again from step 1.)
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Free enterprise is not primarily about efficiency or optimal use of resources. It is about opening the dams for human creativity – to let everyone participate and test their ideas and see if they work. But this is precisely why it guarantees a decent use of resources. We test more solutions and we get immediate feedback from consumers that is honest because their response is not about which project they think has the best intentions, think sounds convincing or has passed some sort of bureaucratic test, but about what they are actually willing to buy with their own money.
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Ten thousand people do not serve you coffee because they are part of a Big Coffee Plan where a coffee tsar decides who will make what, when, how and at what price. In fact, it can only happen because there is no such coffee plan. The process works because each of these ten thousand people uses their individual knowledge of what they can do and how they can do it better. A centrally placed coffee tsar would never be able to centralize all this complex knowledge. Even if he had been able to do so, the interests, skills, supplies and circumstances would have changed before he had time to send out detailed orders about who should do what.
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Profit is the reward for those who create a whole that others find more valuable than its constituent parts.
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The uniqueness of the free market is revealed every time you arrive at the counter and pay for your coffee. You say thank you, and the cashier answers with a thank-you. We hear such strange double thank-yous in all marketplaces, from the square where we buy vegetables and the restaurant when we pay the bill, to the meeting room where a contract is written with a supplier. It is not a thank-you followed by a ‘you are welcome’ or a ‘yes, sir’. It is a thank-you that is answered with a thank-you, for each party has done the other a favour. This mutual gratitude is the sign that you have created value for someone else.
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The free society is based on the fact that, in as many areas as possible, we replace the logic of the chop and the blow with the logic of the voluntary handshake. That we do not compel and command but ask, offer and negotiate. We do not dictate who should do what but let everyone test their ideas and keep the fruits of their labour if there are any. And we say no when something does not add anything to us.
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If you doubt the ability of people to adapt in times of crisis, take a look at the shelves of your local shop. Do you remember when you stockpiled cans, coffee and toilet paper when the world was closing during the first weeks of the pandemic? The food industry in particular was shaken by a perfect storm. New trade barriers were created, a large part of the workforce stayed at home while others were forbidden to cross national borders, and deliveries to the restaurant industry collapsed at the same time as demand for other food supplies soared when shoppers became preppers. The incredible thing about your shop shelves was that almost nothing happened. Through round-the-clock work to change suppliers, reallocate labour, adjust production methods and redirect transportation, the food industry managed to rebuild global supply chains in just a few weeks. It is an absolutely amazing achievement and we consumers noticed almost none of it. It was not done by any food tsar who dictated what everyone should do. It worked because it was not a centralized process. Each adjustment of the processes was based on local knowledge of what could be done in a particular place with the available raw materials and the workforce present – and what they could stop doing without creating catastrophic shortages elsewhere.
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When it comes to food deliveries, permanent employment means that workers must be very productive. They must, for example, cycle fast uphill in the rain, and the company must monitor them so that they know they are doing so. If you get the same salary no matter how fast you pedal, the slow cyclists will be thrown out. It thus turns out that some of the worst aspects of the gig economy are paradoxically the result of not having respected the flexible nature of the profession and wanting to regulate them as ordinary jobs. ‘And just like that, a simple bywork for anyone who can ride a bike, has turned into a qualified job for the strong, fast and physically fit,’ as economist Andreas Bergh puts
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In a free market, you make a profit if you have given others something they want, whatever it may be.
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‘When buying and selling are controlled by legislation, the first things to be bought and sold are legislators,’ as P. J. O’Rourke has observed.
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At any given stage, it is understandable why central banks act as they do. When a housing bubble is punctured or companies face a debt crisis, the consequences can be dire. The only problem is that the attempts to save people from the consequences of their folly is to fill the world with fools.
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Capitalism is a profit and loss system – profits when
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This means there must be something wrong with the new monopoly narrative. What that is becomes evident when you look at the extent to which the market share is concentrated in a small number of firms at different geographical levels. Then you see that market concentration increases nationally but actually decreases locally and regionally. It sounds contradictory but is two different ways of looking at the same change. If there is only one cafe in your village and suddenly a Starbucks opens, this means that the concentration decreases locally, but it increases nationally because Starbucks is already the largest cafe chain. So what looks like increased monopolism nationally may locally mean greater choice and increased competition. And that is good news because we consumers live in a local
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Was that a bit too much? Sounds like I’m idealizing corporations? As if the big bullies are just good entrepreneurs with the public interest in mind? In that case, I have not made myself clear. I know that some will be tempted to lie and deceive, and I know perfectly well that there are thieves and bandits hiding among the companies. That is why we must have free markets. Had we always been able to rely solely on their goodwill, we could have offered them monopoly power and tariff protection. It is precisely because we cannot count on their goodwill that we need to control them with free competition and consumer choice, as well as an independent legal system and free media.
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Anthropologists and archaeologists have not found a single human culture that has not in any way adorned itself. One hundred thousand years before the beauty industry told us we needed to groom and decorate ourselves, our ancestors were willing to offer everything they had and even risk their lives in battle to get coveted pigments to colour their skin. The Neanderthals had no luxury brands that manipulated them, but they still fought over the best eagle claws to make necklaces and bracelets from. Anyone who believes that consumer culture is a result of the pressure of commercial interests has a hard time explaining why people who threw off the yoke of communism immediately coveted jeans and record players. In the Taliban’s Afghanistan around the turn of the millennium, women went to underground beauty salons and painted themselves under the burqas, despite being threatened with flogging. The moment the Taliban fell in 2001, Afghans lined up to buy make-up, televisions and VCRs. Undignified, thought Western intellectuals, and ‘how depressing was it to see Afghan citizens celebrating the end of tyranny by buying consumer electronics?’ lamented one Western journalist.17 But that’s human nature for you, says archaeologist Brian Hayden, who has lived with indigenous peoples in the Middle East, the Far East, North America and Australia. It is not commercialism – it is us: ‘I can say categorically that the people of all the cultures I have come in contact with exhibit a strong desire to have the benefits of industrial goods that are available. I am convinced that the “nonmaterialistic culture” is a myth.’
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the critics must learn to understand what we know as individuals: that this is about trade-offs and there are no perfect solutions.
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Perhaps I’m wrong. Politicians and bureaucrats may in fact occasionally know better than we mere mortals, but in that case we should ask them to put their own money where their tax money is. If they are so convinced that a European search engine or ethanol from cellulose is the future, we should at least request that they put their own savings in the project before they force us to chip in. The
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This form of environmental degradation runs counter to the fundamental capitalist principle that everyone should bear the costs of their own behaviour. Polluters privatize profits (for example, from production or transport) but socialize costs (for example, through emissions that harm others, the waters they fish in or the climate we all depend on).
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Some emissions are destructive and yet have alternatives so that they can be banned outright, such as freons in refrigerators or lead in petrol, while other emissions are so central to human well-being, like the greenhouse gases that our lifestyle relies on so far, that it is better to put a price on them so that there is an incentive to reduce emissions and find alternatives. This creates difficult demarcation problems to which I cannot give any precise answers, but the principle is important and, as always, it is better to be approximately right than exactly wrong.
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The best way to encourage such development everywhere is to make people pay for the consequences of their actions. A tax on all forms of fossil fuels at the wholesale level means that the cost of them is spread to industries and consumers at the next level. It makes everyone feel their contribution to global warming, not only in their conscience but also in their wallets. It gives everyone an incentive to direct their consumption towards goods and services that create less greenhouse gases, and motivates everyone to come up with their best ideas on how to reduce CO2 in the cheapest way possible and develop new technologies that minimize emissions.
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If one claims that political opponents create human isolation and mental illness, one takes on a rather heavy burden of proof. Incredibly, such sweeping statements are only very rarely followed by attempts to document any causal link or even a correlation. Surprisingly often, a quick misreading of classical liberals is enough to prove the connection between liberalism and greed and loneliness. As if the resistance to forced relationships was based on a resistance to relationships.
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Liberalism is not about finding all life’s meaning in a shopping list, it just says that we need more meaning than can be found in a ballot paper. And that those who seek the meaning of life in collective projects that they try to enforce on everybody have less of a sense of the beautiful richness and diversity of human nature than the
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In all these areas, constructive free marketeers – and everyone else too – have an awe-inspiring to-do list. But even if we were to solve all these problems, capitalism is not always beautiful, because we humans aren’t and even our utopias are built on trade-offs. The creative destruction that constantly creates wealth and new jobs harms those who lose the old ones. When consumers control production, they will demand a lot of things that are surely illegal, immoral, fattening, addictive, vulgar or impossible. And business owners will not hesitate to satisfy them and become filthy rich and buy a stupid car. Annoyingly, a disproportionately large proportion of those who do this are probably some old classmates of yours who did not understand arithmetic and did not care about ancient literature.
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The open society guarantees nothing, in the way centralized systems can at least pretend to. It is not always a joy to live with such openness and unpredictability.
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Sometimes when I present the evidence for the world’s unique progress during the era of global capitalism, I get the response: yes, it’s good – no one is opposed to it – but why should we be happy with it? Why not make it even better? I agree. I’m not saying that’s enough. We should be proud but not content. We have begun to see what actually works. And that is a rare thing in human history. We must not take it for granted, we must make sure that it survives and spreads, precisely because we cannot be satisfied with the progress we have seen so far. What we mustn’t do is throw it all away because it is not as perfect as our fantasies. Without the sometimes problematic creative destruction that is constantly transforming our economy and technology, we will stagnate and lose the opportunity to solve the problems we will be surprised by in the future.