Capitalism 2.0 requires more social capital and trust in government
Andrew McAfee doesn’t want to get rid of capitalism, he just wants to change it to address climate change and other social ills
London — If you think long and hard about the climate crisis, you may (a) get depressed and (b) agree with many activists who say the only solution to the problem is overthrowing capitalism. Or you may conclude, as Andrew McAfee does, that we don’t have the right kind of capitalism.
In his book More From Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources — and What Happens Next, McAfee, a principal research scientist at the Massachusetts Institute of Technology, focuses on digital transformation and makes a case for the “four horsemen of the optimist” — capitalism, technological progress, public awareness and responsive government.
He doesn’t deny the problems of environmental degradation and growing inequality or the harms caused in the past by colonialism, but says they have come about because we’ve let one of these horsemen overpower the others.
It is in capitalism’s nature to increase inequality, McAfee believes, and it is a responsive government’s job to rein in that excess. Similarly, capitalists are incentivised to shape regulations to maximise their profits, but it is the job of the government to ensure a fair playing field for all. (McAfee uses mostly US data to make these arguments, though he strongly believes that the four horsemen theory could also help developing countries tackle the climate crisis.)
Ultimately, McAfee argues that the system we have today shouldn’t be replaced, but that it can be made better. Capitalism is running wild because capitalists have hobbled democracy, he says. Overcoming those challenges is going to require big changes, but perhaps not the extremes suggested by some who want to overthrow the system and start with something new — especially when the clock is running out on how quickly the world needs to cut emissions.
In principle, the US is a democracy but it’s doing the exact opposite of what you’d expect if people cared about self-interestDimitri Zenghelis, researcher at the Grantham Research Institute on Climate Change at the London School of Economics
One place to start, McAfee suggests, is to increase the social capital that’s been depleted in many countries. Sociologist Robert Putnam defines social capital as “connections among individuals, social networks and the norms of reciprocity and trustworthiness that arise from them”.
In the early 1970s, about 60% of Americans said “most people can be trusted”. By 2010 only about 20% agreed, according to a report from the International Monetary Fund.
The value of social capital is not always easy to measure, but shows up in lowering what economists call “the cost of transactions”, said Dimitri Zenghelis, a researcher at the Grantham Research Institute on Climate Change at the London School of Economics. Think of it as knowing that contracts will be honoured or that you won’t get mugged on your way to work. “Clearly you can’t wave a magic wand and make society more trusting,” said Zenghelis. But it is possible for policymakers to create strong institutions or enable existing ones to do their job better.
Zenghelis goes one step further, arguing that social capital matters not just in democracies. Economies that do more on long-term problems such as climate change have higher social capital, even if the forms of capitalism and the democratic freedoms in, say, the US, Sweden, Singapore and China are quite different.
Things can go wrong, and the US is a stark example, said Zenghelis. People there “who have suffered most from a capitalistic system vote for representatives who will promote market liberalism”, he noted. Republicans in the Midwest vote for lower corporate taxes and rich Democrats in California and New York vote for raising taxes and universal healthcare. “In principle, the US is a democracy but it’s doing the exact opposite of what you’d expect if people cared about self-interest.”
The reason that’s happening, Zenghelis finds, is because in communities where social capital has been eroded “you don’t trust the government, even if government is what will provide you education for your children, clean water for your family and healthcare for those who need it”. Opposition to the use of masks or vaccines are also symptoms of the low levels of trust many people have in institutions.
Zenghelis believes that a strong government move, such as that proposed in the Green New Deal by the progressive arm of the Democratic Party, could begin the process of rebuilding social capital. The aspiration is to support cutting emissions, creating better jobs and enabling social justice, but the end goal is restoring faith in government.
Said Zenghelis, “If your political environment becomes undermined by a lack of trust, it’s much harder to address long-term issues such climate change.”
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