Economic Darwinism

social darwinism

The 19th Century’s Gilded Age of the Robber Barons came hot on the heels of The Origin of the Species. Little wonder that…

 “Soon, some sociologists and others were taking up words and ideas which Darwin had used to describe the biological world, and they were adopting them to their own ideas and theories about the human social world. In the late nineteenth and early twentieth centuries, these Social Darwinists took up the language of evolution to frame an understanding of the growing gulf between the rich and the poor as well as the many differences between cultures all over the world.

“The explanation they arrived at was that businessmen and others who were economically and socially successful were so because they were biologically and socially “naturally” the fittest. Conversely, they reasoned that the poor were “naturally” weak and unfit and it would be an error to allow the weak of the species to continue to breed. They believed that the dictum “survival of the fittest” (a term coined not by Charles Darwin but by sociologist Herbert Spencer) meant that only the fittest should survive.”

Social Darwinism in the Gilded Age, Kahn Academy

The result was Social Darwinism:

“The term ‘social Darwinism’ refers to the deterministic philosophy of Englishman Herbert Spencer that applied, to humans and markets, Darwinian biological and evolutionary concepts of natural selection.

“Spencer offered his philosophical defense of individualism and laissez faire in Social Statics (1851). He coined the term “survival of the fittest” in Principles of Biology (1867), arguing that human progress resulted from the triumph of superior individuals and cultures over their inferior competitors; poverty was evidence of inferiority.

“Anything that interfered with the self-improvement of superior individuals or markets was to be resisted. What came to be called “social Darwinism” was used to argue for unrestrained economic competition and against aid to the unfit poor. The state was not to hinder the strong or assist the weak, interceding only to protect individual freedom and rights. “

Capitalism and Western Civilization: Social Darwinism, National Association of Scholars

Social Darwinism has since been widely discredited in academia, but Pulitzer-prize winning economics columnist and professor of public affairs Steven Pearlstein was dismayed to find it alive and well in current hyper-competitive, zero-sum economic policy, as revealed in numerous studies showing that certain genetically inherited traits play “an outsized role in determining economic success.” The list includes intelligence, personality, height, and good lucks, all of which statistically affect income and likelihood of being favorably judged on leadership qualities. Add parental nurturing practices — such as those of the new “Meritocrat” economic class we’ve been looking at — and “whether it’s by way of the genes we inherit or the circumstances in which we are raised, the parental lottery is more important than ever in determining economic outcomes.” It’s Time To Abandon The Cruelty Of Meritocracy, The Guardian (Oct. 13, 2018).

Pearlstein concludes that the luck of the genetic and nurturing draw “must always play a significant role in who achieves economic success” and that “we must also acknowledge that there is a point beyond which the consequences of the parental lottery can never be overcome.” Disconcerted by his own findings, Pearlstein calls for remedial action:

“No matter how hard we might try to make it otherwise, there is a fundamental and irreducible level of unfairness to market competition, one that undermines the moral legitimacy of market outcomes and provides a justification for taking reasonable steps to make them more equal.

“Because of heritability and upbringing, there can never be genuine equality of opportunity. More socialist countries in Europe and Asia have gone a long way toward equalizing access to healthcare, education, nutrition, childcare and even disposable income, and yet they have not come close to eliminating the transmission of family advantage or disadvantage. Surely we should do more along those lines to equalize opportunity in the United States?”

It’s Time to Abandon the Cruelty of Meritocracy

Economics Nobel laureate Joseph E. Stiglitz offers an alternative to economic Darwinism which he calls “progressive capitalism.”

“Despite the lowest unemployment rates since the late 1960s, the American economy is failing its citizens. Some 90 percent have seen their incomes stagnate or decline in the past 30 years. This is not surprising, given that the United States has the highest level of inequality among the advanced countries and one of the lowest levels of opportunity — with the fortunes of young Americans more dependent on the income and education of their parents than elsewhere.

“But things don’t have to be that way. There is an alternative: progressive capitalism. Progressive capitalism is not an oxymoron; we can indeed channel the power of the market to serve society.”

Progressive Capitalism Is Not an Oxymoron: We can save our broken economic system from itself, New York Times (April 19, 2019)

More next time.

Corporation Nation-States [3]: Competition is King

competition is king

We’ve seen that corporations and their CEO’s are increasingly implementing socio-economic policies deemed to be “good” for their constituents and for the world at large — combining the conventional roles of philanthropy and government. That sounds altruistic, but it’s entirely in line with conventional capitalist theory, which relies on competition to achieve both outcomes, and in return asks government to keep the marketplace free of anti-competitive barriers.

This theory was evident in an article that came out as I was writing this mini-series .  What Companies Are For:  Competition, Not Corporatism, Is The Answer To Capitalism’s Problems, The Economist (Aug 22, 2019). These excerpts speak for themselves:

“Across the West, capitalism is not working as well as it should. Jobs are plentiful, but growth is sluggish, inequality is too high and the environment is suffering. You might hope that governments would enact reforms to deal with this, but politics in many places is gridlocked or unstable.

“Who, then, is going to ride to the rescue? A growing number of people think the answer is to call on big business to help fix economic and social problems. Even America’s famously ruthless bosses agree. This week more than 180 of them, including the chiefs of Walmart and JPMorgan Chase, overturned three decades of orthodoxy to pledge that their firms’ purpose was no longer to serve their owners alone, but customers, staff, suppliers and communities, too.

“The CEOs’ motives are partly tactical. They hope to pre-empt attacks on big business from the left of the Democratic Party. But the shift is also part of an upheaval in attitudes towards business happening on both sides of the Atlantic. Younger staff want to work for firms that take a stand on the moral and political questions of the day.

“However well-meaning, this new form of collective capitalism will end up doing more harm than good. It risks entrenching a class of unaccountable CEOs who lack legitimacy. And it is a threat to long-term prosperity, which is the basic condition for capitalism to succeed.

“Ever since businesses were granted limited liability in Britain and France in the 19th century, there have been arguments about what society can expect in return. In the 1950s and 1960s America and Europe experimented with managerial capitalism, in which giant firms worked with the government and unions and offered workers job security and perks.

“It is this framework that is under assault. Part of the attack is about a perceived decline in business ethics, from bankers demanding bonuses and bail-outs both at the same time, to the sale of billions of opioid pills to addicts. But the main complaint is that shareholder value produces bad economic outcomes. Publicly listed firms are accused of a list of sins, from obsessing about short-term earnings to neglecting investment, exploiting staff, depressing wages and failing to pay for the catastrophic externalities they create, in particular pollution.

“The popular and intellectual backlash against shareholder value is already altering corporate decision-making. Bosses are endorsing social causes that are popular with customers and staff. Firms are deploying capital for reasons other than efficiency… this portends a system in which big business sets and pursues broad social goals, not its narrow self-interest.

“That sounds nice, but collective capitalism suffers from two pitfalls: a lack of accountability and a lack of dynamism. Consider accountability first. It is not clear how CEOs should know what “society” wants from their companies. The chances are that politicians, campaigning groups and the CEOs themselves will decide—and that ordinary people will not have a voice.

“The second problem is dynamism. Collective capitalism leans away from change. In a dynamic system firms have to forsake at least some stakeholders: a number need to shrink in order to reallocate capital and workers from obsolete industries to new ones.

“The way to make capitalism work better for all is not to limit accountability and dynamism, but to enhance them both. This requires that the purpose of companies should be set by their owners, not executives or campaigners.

“It also requires firms to adapt to society’s changing preferences. If consumers want fair-trade coffee, they should get it. If university graduates shun unethical companies, employers will have to shape up.

“Accountability works only if there is competition. This lowers prices, boosts productivity and ensures that firms cannot long sustain abnormally high profits. Moreover it encourages companies to anticipate the changing preferences of customers, workers and regulators—for fear that a rival will get there first.

“Unfortunately, since the 1990s, consolidation has left two-thirds of industries in America more concentrated. If you cast your eye down the list of the 180 American signatories this week, many are in industries that are oligopolies, including credit cards, cable tv, drug retailing and airlines, which overcharge consumers and have abysmal reputations for customer service. Unsurprisingly, none is keen on lowering barriers to entry.

“Of course a healthy, competitive economy requires an effective government—to enforce antitrust rules, to stamp out today’s excessive lobbying and cronyism, to tackle climate change. That well-functioning polity does not exist today, but empowering the bosses of big businesses to act as an expedient substitute is not the answer. The Western world needs innovation, widely spread ownership and diverse firms that adapt fast to society’s needs. That is the really enlightened kind of capitalism.”

Culturally sensitive or not, competition is “zero sum,” which means it’s a game with winners and losers. And anyone who wants to play should remember that the house always wins. More next time.