This post is inspired by two articles published in the Financial Times by Luke Johnson, British serial entrepreneur and Chairman of Channel 4 and the Royal Society of Arts, in which he neatly summarizes the most basic challenge facing prosperous western countries in decline. The first is titled “Capitalism is still the best system there is”, the second “Choose enterprise over the ivory tower”. Both are behind paywalls (capitalism) but may be read free by registering (incentives). They need to be read in their entirety. Here are snippets:
“Where do they think the money to pay for roads, schools, police and hospitals comes from? Do they believe that consumer innovation, technological advance and the funding for taxation emerge from the saintly public sector? Why is the profit motive seen as wicked, while working in places such as universities appears so very ethical?”
“Economic affairs are cyclical, but this generation is so prosperous that it finds the prospect of a long recession almost too much to bear. We are used to having a safe job, our own home or housing support, foreign holidays and all the rest. This munificence is only possible because free enterprise incentivises entrepreneurs to build companies… The brilliant anti-business intellectuals would solve our problems of unemployment, debt and stagnant wages by doing the opposite of the policies adopted by the world’s most buoyant economies. Meanwhile, leftwing economists suggest that the cure for government deficits is even more debt.”
“The reason academics understand entrepreneurs so poorly is that they lead lives so removed from those of most professors. There is an almost complete disconnect between the intellectual class and business founders. This alienation is a double tragedy. First, it means we don’t know enough about the psychology and character of wealth creators, which makes it harder to frame policy so as to foster more of them. Second, many of our brightest minds shun the world of start-ups, believing that they are more suited to the serenity of the university campus than the hustle of the market place.”
This blogger started his working life as an apprenticed french polisher and ran his own restoration business for nearly 3 years before going to university. Since then I’ve held research and teaching positions in 10 universities in 6 countries, sometimes for three or more years. Always my main interest was government-business relations. Everywhere I found confirmation of Johnson’s suspicion that “top professors… are just as competitive and egotistical as leaders in the worlds of commerce and finance. I’ll bet that ruthless ambition – for fame, power and even money – is just as common in lecture theaters”.
It is no surprise. The really important thing to explain, however, is the almost ubiquitous academic mentality of hostility to the market society. The concepts fell into place when I studied Max Weber and Joseph Schumpeter. My earlier experience and intuitions about the atmosphere of academic work gelled into theory when I read their sociology of intellectuals.
Weber and Schumpeter -- co-founders of social economics or economic sociology -- identified intellectuals as the source of ideological resistance to capitalism. In my last post I said there exists the possibility of a capitalist ideology in which pursuit of self interest by impersonal methods has an effect equivalent to the accidental complementarity of religious and market ethics during the first capitalist transitions. A general perception that institutions uphold everyone’s right to pursue their self-interest within boundaries that do not prevent others from doing the same is -- “in the final analysis” -- the only way in which to legitimise a vigorous return to first principles in the West and a new wave of capitalist transitions in developing countries. Ideology is the positive thing.
An ideology of capitalism requires its own “intellectual carriers”. About that, Weber was not hopeful. The theme in his writing on ideology is the intellectual’s escape from the reality of capitalism. There are three dimensions in Weber’s analysis of the intellectual’s condition.
1. He identifies the motives of ideologists whose reliance on public funds shapes their ideal or material interest. Weber attacked communitarian littérateurs who campaign for moral economics and state corporatism, and who display “blissful and profound ignorance of the nature of capitalism”. Their ideas are riddled with contradictions. Littérateurs disparage entrepreneurship and complain about the exploitation of workers while praising state protections for national corporations. They fail to see that “robber capitalists” are “tied completely to politics” while true capitalists are not. Littérateurs themselves “live off” government dispensation and subsidy. Theirs are “parasitic ideals of a stratum of prebendaries and rentiers who have the impertinence to judge the hard daily struggle of their fellow citizens who are engaged in physical and mental work against standards dreamed up at their writing-desks”. Littérateurs are blind to the fact that business, accounting, and the commercial fight for a share of the market is “intellectual work, as good as, and often better than, that done in any academic’s study”.
2. In his next more sympathetic line of attack, Weber said the intellectual “aristocracy of education” cannot be blamed for its narrow and frightened outlook in the face of material progress. After all, it is “a stratum of the population without personal interests in economics; hence it views the triumphal procession of capitalism more sceptically and criticises more sharply”. This second intellectual type, like the first, is ignorant about capitalism. Fearful intellectuals may be well intentioned, responsible, and intelligent. Our schools and universities today are full of such critical intellectuals.
3. The final characteristic of modern intellectualism has its origins in the theologian’s role of rationalising religion for the masses by interpreting a faith or set of beliefs in such a way that both the beliefs and the intellectuals achieve social relevance. Typically, suffering or good fortune came to be rationalised as something “deserved” in theodicean terms, i.e. with respect to God’s will, the existence of evil, and the doctrine of predestination. The intellectual’s function is to relate political, economic, and social realities to a meaningful cosmos. Eventually religion was shifted into the realm of the irrational and economic ethics became “this-worldly” rather than “other-worldly”. This intellectual rationalisation had far-reaching consequences for society and for the intellectual. In modern society the intellectual becomes a victim of capitalism, reduced -- in a world where religion loses all claim to rationality -- to the quasi-proletarian assembly of alternative meanings of life. In a rationalised world, economic processes “simply ‘are’ and ‘happen’ but no longer ‘signify’ anything”. So, the intellectual becomes disenchanted. Weber describes his disorientation without any irony as “progress”, the dispelling of superstition and magic, and the knowledge “that one can in principle, master all things by calculation”.
One of the consequences of this process of disenchantment is intellectual obsession with “direct and personal human relations” in modern economic and institutional life. Modern economic sociology has almost completely lost relevance because it tries to glorify personal relations and social networking in economic life. Weber would have said that today’s economic sociologists want only to sustain the intellectual’s historical role as carrier of worldviews that endow mundane activity with quasi-theological meaning. They look for communitarian and fraternal sensations, emotions, and expressiveness.
The intellectual effort to give meaning to practical activity, and the “demand that the world and the total pattern of life be subject to an order that is significant and meaningful” conflicts with the “empirical realities of the world and its institutions”. The difficulties “of conducting one’s life in the empirical world are responsible for the intellectual’s characteristic flight from the world”. Means-end calculation that is characteristic of economic life threatens the intellectual’s idealisation of life.
What are the practical consequences? Weber said: “Increased fear of the world has led to a flight from occupational pursuits in the private economy”. It is hard for the intellectual “to measure up to workaday existence”. Their “weakness is not to be able to countenance the stern seriousness of our fateful times”. Weber abhorred romantic irrationalism, pseudo-scientific relativism, and the “evasion of the plain duty of intellectual integrity, which sets in if one lacks the courage to clarify one’s own ultimate standpoint and rather facilitates this duty by feeble relative judgements”.
Schumpeter disparaged the “type of radical whose adverse verdict about capitalist civilisation rests on nothing except stupidity, ignorance or irresponsibility”. Twenty years after Weber’s death the problem of ideology and intellectualism in modern society had gone beyond trivial escapist communitarianism or simple ignorance of capitalism. Schumpeter believed the very existence of capitalism was under threat from the intellectual hostility towards it.
Critical intellectuals were a product of capitalist civilisation as were the printing press, the liberty to speak out, the cheap newspaper. Before capitalism, intellectuals survived only on flattery and subservience to patrons. Intellectuals obtained their freedom when the economic process produced a sizable and prosperous middle class and the promise of higher living standards for the working class. Capitalist development generated social legislation, political pluralism, the leisure industries, and the avenues for the expression of public opinion. The new collective patron of the intellectual was the bourgeois public.
The bourgeoisie had been ineffectual in defending the legitimacy of the system it lived by. Criticism crushed the moral authority of precapitalist institutions. Capitalism’s institutional order then required the free exchange of ideas. However, by institutionalising principles of law, administration, and representation that protect the right to criticise, the bourgeoisie rendered itself defenceless. Criticism turned against its values and property.
Schumpeter gives an unflattering sociological portrayal of groupthink, false consciousness, and obfuscation in the sector that considers itself qualified to deconstruct reality and see through the deceptions of mass society. The hostility to capitalism develops, said Schumpeter, when there are groups “whose interest it is to work up and organise resentment, to nurse it, to voice it and to lead it”. Schumpeter encountered what is now called the postmodern position, the rejection of rational refutations of the arguments against a social order on the grounds of a rejection of the very existence of rationality.
Most people derive their opinions of capitalism from the ideas of intellectuals who exercise “the power of the spoken and the written word”. Intellectuals themselves understandably regard the capitalist social order as their “raw material”, and criticism of it as their raison d’être. They “cannot help nibbling at the foundations of capitalist society” because they “live on criticism” of its institutions. Usually the intellectuals are “onlookers” with little or no responsibility for, or experience of, practical affairs of law, government administration, business, production, or even of the arts on which they pass opinion.
Relations of production in higher education explain why capitalism “educates and subsidises a vested interest in social unrest”. Intellectuals receive their training in universities; many stay on to work there. There is a structural inevitability about the production of knowledge in universities. Government and public opinion drive the expansion of higher education. The market mechanism, which limits employment in private sector industries to the quantity of necessary labour, has not been applied with equal force in higher education. The size of universities and the content of their courses tend to evolve out of all proportion to the demand for white-collar professionals. A preference for the experiential or expressive disciplines over those that provide training for the scientific or technical professions produces a disproportionate supply of courses in the humanities and social sciences. Graduates of these disciplines encounter a limited field of employment and so they often look for work in higher education, for which they are best qualified.
Relatively poor wages and working conditions, ill-preparedness for the task of teaching, self-imposed closure from alternative career paths, combined with an ever-increasing ratio of students to teachers, mean that intellectuals enter their vocation “in a thoroughly discontented frame of mind”. This “well defined group situation of a proletarian hue” explains the intellectual hostility to capitalism better than any “logical inference from outrageous facts” about the wrongs of capitalism. Scholars stand as judges with the sentence of death against any argument in capitalism’s favour. The bourgeoisie allows itself to be educated by its enemies. Of greatest concern is that since intellectuals are employed throughout government and the media, “public policy grows more and more hostile to capitalist interests, eventually so much as to refuse on principle to take account of the requirements of the capitalist engine”.
According to Friedrich Hayek, the problem of intellectual detachment is greater even than Schumpeter supposed: “An ever increasing part of the population of the Western world grow up as members of large organisations and thus as strangers to those rules of the market which have made the great open society possible. To them the market economy is largely incomprehensible; they have never practised the rules on which it rests, and its results seem to them irrational and immoral. They often see in it merely an arbitrary structure maintained by some sinister power.”
Schumpeter lamented that logical judgements do not follow from the facts. Though we have capitalism to thank for personal freedoms, ever-rising living standards, altruism in politics, institutionalised pacifism, the welfare state*, modern medicine, mass education, and consumer products like the “airplane, refrigerator, and television”, which enable happier and healthier lives, people will not necessarily feel happier or better off in capitalism. They “hate its utilitarianism and the wholesale destruction of meanings”. They resent the system that "leaves them to their own devices, free to make a mess of their lives”.
Because the free enterprise system ‘tends to automatize progress’, it is easy, from one generation to the next, to forget the reasons for that progress. Explanation of the benefits of capitalism can never be made simple enough to communicate to people who look only at the short run of profits, inefficiencies, and the instability of the economy. Capitalism produces almost everything except the human feeling that could guarantee its survival.
“Emotional attachment to the social order [is] the very thing that capitalism is unable to produce… Secular improvement that is taken for granted and coupled with individual insecurity that is acutely resented is of course the best recipe for breeding social unrest.”
Although there are many many many individual exceptions to the viewpoint put forward by Weber, Schumpeter, and Johnson, I think the generalisations do retain validity. Intellectuals may reply, of course, that they have nothing against markets and capitalism. Yet it is unusual for them to tolerate the really tough requirements of Weber’s impersonal institutions, Schumpeter’s creative destruction, or Johnson’s admonishment that western societies became too comfortable and need to relearn capitalism by prioritizing entrepreneurship above all else.
*(In the late 1940s, when Schumpeter was writing, the size of the welfare state was not yet a threat to the survival of capitalism.)