‘Toxic Assumptions’ makes good points, marred by untested claims
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Austrian-born American economist Joseph Schumpeter once famously argued that capitalism owes its vitality to what he called “creative destruction.”
This term refers to the process whereby new technologies erode the position of established market leaders, thus paving the way for a new economic landscape dominated by emerging businesses.
Capitalism, therefore, can be seen as a relentlessly churning system, constantly adapting to the latest fads in technology, ideas and markets.
Of course, Schumpeter also predicted the ultimate doom of capitalism, because capitalist societies are subject to “perennial gales” of destruction that wipe away fortunes and prepare the way for the inevitable rise of socialism.
Schumpeter is not the first doomsayer when it comes to capitalism. Ever since this system first became understood, it has been dogged by criticisms across the intellectual spectrum — on one hand are left-leaning thinkers like Marx, while on the opposite end are reformers like Keynes.
However, the objections leveled against capitalism point to the very factors which seem to have made it so advanced and resilient. After every crisis, capitalism appears to have an uncanny ability to rejuvenate itself and emerge stronger than ever before.
Nevertheless, the long tradition of scrutiny continues in Eve Poole’s book “Capitalism’s Toxic Assumptions.”
Like many before her, Poole identifies several factors perceived to be detrimental to the foundations of the system. Altogether, seven assumptions about capitalism are deemed “toxic” in her book.
Competition vs cooperation
For example, the author dispels the myth that competition is central to the functioning of a market economy.
Theoretically, customers can get the best deal as competition between businesses drives down prices of goods and services.
Moreover, competition isn’t restricted to businesses only. It also exists between buyers and sellers. They are pitted against each other in the form of haggling over prices.
But this doesn’t have to be a zero-sum game, said Poole, because we tend to forget that the buyer-seller relationship has a role to play in such transactions. Good rapport with the seller is likely to lead to a discount.
The author thus notes that although the principle of competition is important, it is not necessarily the lifeblood of capitalism. Instead, in areas where competition doesn’t work, cooperation could come into play.
Her explanation of why cooperation should prevail in certain cases has a feminist ring. Over the last few centuries men have dominated economic activity, so the orthodox way of doing business is inevitably colored by male perceptions of the world. According to Poole, men’s biology drives them to respond to the perception of threat by fighting until they win.
By contrast, women are generally more pliant and willing to cooperate. This argument is implausible, to say the least. Anyone who’s been exposed to the business world knows that many female executives are not always gentle bridge-builders. Some are just as driven, as aggressive and as over-caffeinated as their male counterparts.
The author’s belief in the virtues of cooperation is also misplaced to a certain extent. History is filled with stories of businesses working in cahoots to monopolize markets, fix prices and keep out smaller players.
Common interests, rather than competition, defines such relationship. And in the end, it’s consumers who suffer.
The author also raised doubts about such assumptions as “the invisible hand” and utilitarianism. Her scrutiny is nothing new. For decades, experts have cast doubt on “the invisible hand” — a metaphor for the supposed natural forces guiding an economy toward the maximization of gains — and its role in maintaining market order. What’s more, so much of human behavior is completely irrational, making the very notion that people act in pursuit of maximizing utility little more than a myth.
Clout of shareholders
What I did find interesting and insightful about the book, though, was its repudiation of the supposed supremacy of shareholders and the limited liability model.
Poole is spot on when she writes that the increasing clout of shareholders has prompted CEOs and managers to focus excessively on generating returns for investors. At the same time the concept of the shareholder has become increasingly complicated as automated trading accounts for an ever growing share of stock-market transactions, says Poole.
Meanwhile, the limited liability model is also under threat due to the priority often given to shareholders’ interests. Unconditionally showered generosity on shareholders substantially contradicts the idea that “shareholders assume all the risks in a company.” As a result, many shareholders don’t have to bear the brunt of losses should their investments turn sour.
While academia and the public are both well aware of all the above-mentioned assumptions, and attempts are often made to reform the capitalist system, such measures, in Poole’s view, are either bogged down in messy regulatory wrangling, or are derailed by business leaders invested in the capitalist status quo.
Poole makes an earnest case that as more women break the glass ceiling and ascend to the top positions in the corporate world, things will change for the better, for their gentleness will help soften the harsh, compromise-averse logic of men. But judging from the capitalist reality that we currently inhabit, there may be a limit to what greater flexibility and cooperation can achieve. As much as I would love to be proven wrong, I nevertheless remain skeptical of Poole’s take on purifying capitalism of its deadly sins.
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