Capitalism for Humans
Democrats are made, not born; and so are democratic capitalists. Children, who are born tyrants and who quickly display a propensity for forming neighborhood and schoolyard aristocracies, must be trained in the arts of civility and the ethos of democratic equality. As for economics, well, anyone who has tried to help a child manage an allowance knows that saving, investment, and deferred gratification do not occur spontaneously to the untutored spirit. That democracy and the market are “learned behaviors” seems a matter of common sense.
Yet when I urge this truism on students and colleagues in the new democracies of East Central Europe, their first reaction is often incomprehension, sometimes bordering on annoyance. During the hard days of anti-Communist resistance, the dissidents in those countries used to say that they wanted a “normal society”—by which they meant civil liberties, democratic politics, and a market-based economy. Now many of the attributes of that long-sought normality are in place: real political parties, a free press, real elections following real campaigns, a growing small-business sector, investment opportunities, a stock market, and convertible currencies. Is that not, they ask, sufficient? Is it not “normality”?
Only when a friendly interlocutor presses the issue does it turn out that something does seem missing, or at least insufficiently secure. And that something involves democratic culture, or the ethic of the free society. The institutions of a free polity and a free economy can indeed endure for generations—but only if the people become democrats and democratic capitalists, over and over again. In wrestling with that fact of life, the new democracies of East Central Europe are beginning to discover that in a democracy, you never get to “normal” once and for all; the free society is an ongoing experiment in a people’s capacity for self-governance and self-restraint.
Americans are making a similar discovery—or, in our case, rediscovery. The Republican revolution of November 1994 was driven in large part by the conviction that, even amid a booming economy, American democracy was imperiled. Thus it is not difficult to find a common thread of concern running through the debates over seemingly disparate issues like welfare reform, crime, parental choice in education, affirmative action, school prayer, “gay rights,” the National Endowment for the Arts, and censorship of the Internet: the concern that America is suffering not simply from the overreaching and incompetence of the nanny state, but from a character deficit, even a virtue deficit. The worship of the great god “I” does bad things to individuals; it also turns out to have disturbing, even terrible, public consequences.
Thus in Prague and Cracow, Vilnius and Bratislava, Detroit, Los Angeles, and Washington, D.C., an intuition has begun to sharpen into an idea: culture is “prior” to politics and economics. The foundations of sound democratic politics and productive market economics rest on habits of heart and mind. At the end of a century whose intellectual hallmark has been positivism in its various guises, that is a deliciously ironic thought.
The “return to culture” has even caused an interesting intellectual ferment in the dismal science of economics. There, the in-house debate has been dominated for over a generation by anti-statist neoclassicists like Milton Friedman, Gary Becker, and George Stigler; their principal challengers have been not the moribund Marxists or the exhausted Keynesians but neomercantilist proponents of a state-led “industrial policy” like James Fallows, Laura D’Andrea Tyson, Chalmers Johnson, Clyde Prestowitz, et al. Because the contest between these two schools has had an impact on such mediagenic political matters as international trade policy, their debates may seem to occupy the cutting edge. But while the numbers-crunchers lob volleys of statistics back and forth, an intriguingly complex moral argument for, and about, capitalism has been redefining the frontiers, and even the nature, of economic thought.
This trend first became visible in the early 80’s, when the Catholic scholar Michael Novak published The Spirit of Democratic Capitalism at approximately the same time that the Lutheran theologian Robert Benne challenged liberal Protestantism’s romance with socialism in The Ethic of Capitalism: A Moral Reassessment. In the mid-80’s, Peter L. Berger, the distinguished sociologist of religion, launched the Institute for the Study of Economic Culture at Boston University, which has subsequently produced pathbreaking work on the socioeconomic impact of Latin American Pentecostalism and the complex interaction of Islam and capitalism in several East Asian settings.
Then there was Centesimus Annus, the 1991 encyclical of Pope John Paul II that set a decisively new course by abandoning the attempt to define a “Catholic third way” between socialism and capitalism. The institutional arguments, John Paul II seemed to suggest, are over: if, under modern conditions, you want a free society that protects the basic rights of persons while advancing the common good, you choose a democratic polity and a market-based economy. The really interesting and urgent questions have to do with the vitality of the moral-cultural system that channels the energies of democracy and the market so that they serve the ends of human flourishing.
Novak, Benne, Berger, and John Paul share a profound interest in Christian theology: To more hard-boiled analysts, this makes them suspect witnesses, even special-pleaders. But now comes an elaborately empirical and cross-cultural argument about “the improbable power of culture in the making of economic society.” And its author is none other than the relentlessly provocative Francis Fukuyama, who in the summer of 1989 notoriously proposed in the National Interest that we had reached the “end of history.”
It takes a certain chutzpah to announce the end of history. Yet with impressive stubbornness, Fukuyama has declined to back off the claim that democratic capitalism is now the only game in town, so to speak. Or, as he puts it today, “the world’s advanced countries have no alternative model of political and economic organization other than democratic capitalism to which they can aspire.” In this sense, “history,” understood as “a broad evolution of human societies advancing toward a final goal,” is over: which raises the question, now what?
In his 1989 essay, Fukuyama lamented that things would be rather dull on the far side of history. The “worldwide ideological struggle [against Communism] that had called forth daring, courage, imagination, and idealism” would be succeeded by something far less energizing—“the endless solving of technical problems, environmental concerns, and the satisfaction of sophisticated consumer demands.” It was a depressing prospect, and it struck me and others as the least persuasive element of the Fukuyama proposition. For “history” was, and is, more than a matter of political and economic institutions. History is painting, sculpture, and architecture; theology and ethics and religious ritual; poetry, literature, music, and dance; the pattern of relationships between men and women, parents and children, the old and the young.
Now, in Trust: The Social Virtues and the Creation of Prosperity,1 Fukuyama has come to agree that there is life after history, after all. The end of history does not mean “an end to society’s challenges.” Moreover, the primary threats to democratic capitalist society cannot be met by recourse to the mechanisms of the democratic polity—which is to say, by “ambitious social engineering.” Rather, the “post-historical” testing of democratic capitalism is taking place outside electoral politics, and outside the marketplace, too. The results will be determined in the arena of civil society, “a complex welter of intermediate institutions, including businesses, voluntary associations, educational institutions, clubs, unions, media, charities, and churches,” of which the most crucial is the family.
Fukuyama’s refined position begins with a brisk critique of the claim that economics is an independent variable whose peculiar laws are unaffected by the surrounding culture. On the contrary, he argues, the economy is a crucial arena of human sociability. The “rational-actor” model favored by economists is insufficient because it accounts for only one (albeit important) dimension of economic activity. The same human being who pursues his individual interests also craves fellowship in common enterprises. Indeed, Fukuyama goes so far as to suggest that the well-ordered contemporary workplace, with its emphasis on teamwork, initiative, and devolved decision-making, can help “moderate and overcome” the anomie that is inherent in modern life.
Trust then proceeds to explore how the structures of economic life are shaped by distinctive cultural norms and habits—in China, Italy, France, Korea, Japan, Germany, and the U.S. These detailed case studies provide in turn the empirical basis for Fukuyama’s major proposal: that the level of “trust” in a society or nation—“the expectation that arises within a community of regular, honest, and cooperative behavior, based on commonly shared norms”—is the key variable determining its capacity to compete in the modern world.
Fukuyama agrees with Novak and John Paul II that human capital, in the form of imagination and creativity, is the natural resource today. But he gives a rich empirical texture to the theologians’ claim by showing, through his case studies, that the critical form of human capital is social capital, or the “ability of people to work together for common purposes in groups and organizations.” And the most important kind of social capital, in turn, is what he terms “spontaneous sociability”: the ability “to form new associations and to cooperate within the terms of reference they establish.” Thus, according to Fukuyama, societies with a high capacity for spontaneous sociability—the United States, Japan, and Germany—enjoy decidedly lower social and economic “transaction costs,” and hence a distinct comparative advantage, over “low-trust” societies like Italy, France, and China, where the state has to compensate for the incapacities of civil society.
The forms through which “spontaneous sociability” is institutionalized will of course differ from society to society. But the crucial point about any free society is that the effective functioning of the market and of democracy does not and cannot depend solely on rational actors making decisions about optimizing their personal advantage. In fact, things may work the other way around. As Fukuyama writes:
If the institutions of democracy and capitalism are to work properly, they must coexist with certain premodern cultural habits that ensure their proper functioning. Law, contract, and economic rationality provide a necessary but not sufficient basis for both the stability and prosperity of post-industrial societies; they must as well be leavened with reciprocity, moral obligation, duty toward community, and trust, which are based in habit rather than rational calculation. The latter are not anachronisms in a modern society but rather the sine qua non of the latter’s success.
In other words, efficiency so prized by economists is itself one by-product of preexisting moral communities.
Fully one-third of Trust involves a comparative study of modernizing Asian economies and societies, analyzing the cultural and historical roots of their relative capacities for spontaneous sociability. Amid the healthy diversity of the many “Asian miracles,” Fukuyama discerns “two rival economic cultures arising . . . one Japanese and the other Chinese.” The two share a number of traits: a respect for education, a work ethic, and a willingness to give the state a large role in shaping the course of economic development. But there are dramatic differences in “sociability” among Asian societies, and especially between “low-trust” China and “high-trust” Japan. Those differences (among others) help account for the markedly different positions of Japan and China in the world marketplace.
Fukuyama’s stress on Japan’s social capital—“the greatest degree of spontaneous sociability among contemporary nations”—cuts decisively against the views of proponents of a Western “industrial policy” for whom MITI, the Japanese Ministry of International Trade and Industry, is an omnipotent genie whose arcane machinations Americans would do well to emulate. Aspects of Fukuyama’s own analysis are surely debatable, but there is something refreshing and mind-clearing about his insistence that, even in the case of Japan, culture, not governmental action, is the key to understanding relative national performance.
That same focus leads to another provocation, namely, Fukuyama’s disinclination to join the rush onto the China bandwagon. Fukuyama gives China due credit for its amazing economic performance over the past decade. But he also raises sharp questions about the future of this particular miracle. Will China’s “lack of a spontaneous tendency toward large organizations” (itself a by-product of Chinese familism) make it difficult to create major strategic industries where scale is a crucial factor in success? Can a country without stable property rights and a reliable code of commercial law continue to boom along ad infinitum?
Then there are the politics of a post-Deng China. Given the “sociability” deficit in Chinese culture, the state will surely continue to be a major player in the economy. But can China produce “political stability born out of a basic legitimacy of its political institutions”? Not under Communism; but perhaps not after, either. For, as Fukuyama notes, it is not at all certain that “China’s political institutions will survive the enormous socioeconomic pressures created by its headlong industrialization, or whether there will even be a unitary state by the 21st century.” Neither instability nor politically driven economic planning nor civil war would seem to be optimum conditions for lengthening the run of the “Chinese miracle.”2
And what about us? Fukuyama’s welcome skepticism about China is paralleled by his bracing challenge to liberal fashions in American historiography and political theory. The United States, he argues, is not, was not, and never can be merely a political-legal system, a republic of procedures. Rather, the American experiment has worked to the degree it has because a morally assertive cultural tradition, originally sectarian-Protestant, evolved into a “broadly-accessible identity” for all Americans, thus creating the conditions both for economically useful social capital and for democratically essential civil society.
Fukuyama insists that the United States has never been a radically “individualistic” society. Sectarian Protestantism itself combined two strands: individualism, understood in terms of the believer’s unmediated relation to God, was tempered socially by a revivalist-driven proclivity for forming strong communities built around shared moral codes. As for the Founders, they drew, to be sure, on a form of liberal political theory that emphasized individual rights; and Americans have always been more temperamentally anti-statist than Europeans (not to speak of Asians). But anti-statism is not the same thing as anti-communitarianism.
The modern hierarchical business organization was, after all, pioneered in the United States. And that is no surprise, for the peculiar American genius has always been for organizing things, from quilting bees and barn-raisings to General Electric and Little League. Moreover, America’s historic accomplishment was to create a rich associational life among ethnically, religiously, and, latterly, racially diverse peoples. It was the dynamic interplay between individualistic and communitarian tendencies that produced a society skilled in what Tocqueville called the “art of association.”
But America’s social assets, Fukuyama warns, are now declining: “Just as its savings rate has been too low to replace physical plant and infrastructure adequately, so [the American] replenishment of social capital has lagged in recent decades.” Today’s cultural crisis is thus a crisis of trust, caused by the breakdown of mediating institutions under the combined assault of an absolutist individualism (the philosophy of the imperial autonomous Self), on the one hand, and the nanny state, on the other. America, in short, is suffering, from a “vanishing middle.”
Why have the voluntary associations of the “middle” begun to erode? In part because of the forces of “creative destruction” which the economist Joseph Schumpeter correctly defined as intrinsic to capitalism. But as Fukuyama notes, creative destruction has been going on from the beginning of American society. Moreover, capitalist dynamism can create communities as well as destroy them:
During the so-called “decade of greed” of the 1980’s, when some American corporations were ruthlessly laying off workers and undermining communities, many other American corporations were simultaneously introducing lean production, work teams, incentive systems requiring evaluation in small groups, quality circles, and a host of other workplace innovations. The aim of these innovations was to break down the walls of isolation created by the . . . mass-production factory and the job-control unionism it had spawned. The enterprises that submitted to the logic of these changes became simultaneously more productive and more community-oriented.
No, the root causes of the “vanishing middle” must lie elsewhere. Fukuyama identifies them as follows: liberal reform policies that (deliberately or unintentionally) broke up poor inner-city communities; the expansion of the welfare state and of the rewards it gives to behaviors that lead to the collapse of family structures; and, perhaps most importantly, the rise of a “rights” culture which “dignifies with high moral purpose what often amounts to low private interests or desires.”
How might Americans begin to go about recreating the “middle” and replenishing our fund of social capital? Fukuyama has a number of specific suggestions, touching particularly on issues of civic education; but his basic point is that no such reconstruction is possible on libertarian premises. Yes, the government must be gotten out of the way, for government can rarely repair what it has destroyed (like the urban underclass family). But there are authorities other than the government to which Americans have traditionally bound themselves. And that “ability to obey communal authority,” Fukuyama argues, has been and remains the “key to the success” of American society.
Fukuyama’s empirical and cross-cultural studies lead to what liberals (in both the old-fashioned and post-60’s senses of the term) may regard as a paradoxical conclusion: if you universalize liberal individualism, extending its premises to all spheres of life, liberal institutions (including the market) will eventually malfunction, and then liberal democratic society will itself decay. Self-government cannot endure without self-restraint on the part of citizens, any more than the market can endure without deferred gratification on the part of investors and consumers. Untethered from other moral goods, liberty deteriorates into license; liberty must be transformed into ordered liberty, and the most effective engine for doing that is a citizenry regulating itself from within according to a shared public “language of good and evil.”
Such is Francis Fukuyama’s “take” on life after history, and it seems to me a persuasive reading of the circumstances of new and old democracies alike. In at least one direction, however, Fukuyama’s argument might be pushed farther.
Postulating the “end of history” in 1989, Fukuyama was rather tone-deaf to religion as a factor in “post-historical” society. Now, he seems to have developed an appreciation for the social utility of religious conviction, citing historian William H. McNeill to the effect that “moral communities of fellow believers are necessary for social well-being.” Religion, in this view, ought not be too public or too assertive; but a strong argument can be made for “tolerance of religion as a source of culture.”
But this seems at once too indulgent of the elite culture’s allergy to public religion and—more important—insufficiently appreciative of the crucial role that religious conviction plays in legitimating the institutions of American democracy today. If the key variable in successful modern societies is their level of generalized social trust, and if that trust is built on a foundation of common moral norms (or a common “language of good and evil”), then it is self-defeating in the American context to declare the primary source of those norms—namely, biblical religion—unfit for public consumption. Fukuyama rightly points out that disestablishment has been very good for religion in America. But when disestablishment means the installation of state-mandated secularism as a national ideology, further damage is wrought to that “middle” which has been the moral-cultural strength of the American experiment.
The liberal democratic experiment depends for an account of its validity on understandings that it does not itself generate; democracy cannot legitimate itself by itself. And as Fukuyama writes, the linchpin of the whole legitimating enterprise is the building of trust around common norms. Those norms, he continues, “can be about deep ‘value’ questions like the nature of God or justice, but they also encompass secular norms like professional standards and codes of behavior.” The latter surely have their place in the free society. But it seems plain to this observer, at least, that common understandings of the nature of God and justice provide a more secure foundation for trust than, say, the Hippocratic Oath or the code of conduct of the Washington, D.C. bar association.
Beyond the question of religion’s utility there is also the not-inconsequential matter of truth. The moral truths about the human person on which liberal democracy has been based are now under assault from East Asian autocrats, Islamic activists, the world’s remaining Communists, and Western academic deconstructionists and multiculturalists.3 Some of the critics argue that these moral claims are, in fact, false; others, that Jefferson’s “self-evident truths” may be true for Americans, but not necessarily for everyone else. From either direction, though, the challenge is basic and the stakes are very high. For to concede either of these arguments is to leave the field to a moral relativism that is ultimately corrosive of social trust and, eventually, of the democratic experiment.
This is not to say that an explicitly Judeo-Christian account of the democratic prospect is the only possible vehicle for publicly addressing America’s crisis of trust. Indeed, given the enduring plurality (not to mention feistiness) of America’s religious communities and the requirements of a legitimate “disestablishmentarianism,” the best goal would seem to be what the Catholic thinker John Courtney Murray used to describe as a “religiously-informed public philosophy”: a public language of good and evil shaped by biblical understandings, but translated into an ecumenical and interreligious discourse.
In any event, the replenishment of American social capital in what Gertrude Himmelfarb has called the “remoralization of society” is unlikely to happen if the public role of religious conviction is reduced to merely functional terms. Life after history will have to engage not only questions of good and evil, but questions of truth and falsehood. And it will have to engage them in ways that strengthen rather than shred the fabric of democratic civility. Which is to say that life after history will be anything but dull.
1 Free Press, 457 pp., $25.00.
2 For a fuller discussion of China's political condition, see “Deterring China” by Arthur Waldron, beginning on p. 17.—Ed.
3 See my article, “Are Human Rights Still Universal?,” COMMENTARY, January 1995.