Deepak Lal distils arguments from his recent book, "Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-first Century." Lal is the James S. Coleman Professor of International Development Studies.
This article was first published in UCLA Today.
By Deepak Lal
Capitalism is a globalizing force. An ancient process associated with the rise and fall of empires, it has brought unprecedented prosperity to the world. Yet it is opposed by two major groups. The first are cultural nationalists in the Third World, who fear the westernization it may bring. And the second are the "New Dirigistes" in the West — the latest in a long historical line of people who favor massive governmental intervention in the economy and who bear the ancient hatred of capitalism on their sleeves.
One reason why capitalism continues to be hated is that it is a system of "creative destruction" wrought by entrepreneurs who enjoy taking risks and seeking novelty. In ancient times, merchant-capitalists were, at best, tolerated as a necessary evil. It was only when they gained social and political acceptability in the West that capitalism emerged as an economic institution, leading to what might be called the "Great Divergence between the West and the Rest."
The phenomenon resulted from a papal revolution in the 11th century that changed the West's "material" beliefs by putting the Church above the State and, through the resulting church-state, created the legal and administrative infrastructure required by a full-fledged market economy.
This revolution was preceded and precipitated by an earlier 6th-century "family" revolution that transformed the West's "cosmological" beliefs from the communalism of Eurasia to individualism, particularly in the domestic domain of sex and marriage. To counter this threat, the Church created a fierce "guilt culture," which provided the West's moral moorings until the Darwinian and Freudian revolutions destroyed its bases.
These twin revolutions have cast a long shadow. Ever since Romanticism revolted against the Enlightenment, capitalism has been attacked for moral and aesthetic reasons. Its opponents see globalization as a Faustian pact, whereby prosperity is bought by losing one's soul.
The New Dirigistes, unlike their 19th-century predecessors, can no longer appeal to a socialist utopia to provide a middle way between the creative destruction of capitalism and the settled way of life of their agrarian past. They now seek to humanize capitalism through regulation as well as social and moral paternalism.
Eurasia's wounded civilizations have had three responses to the Western imperial impact. The first was to accept Western material beliefs while keeping their own cosmological beliefs (Meiji Japan). The second was to reject modernization for fear of westernization (Gandhi and the Islamists). The third was to find a middle way between tradition and modernity through some form of socialism: the extreme Enlightenment version followed by Stalinist Russia and Maoist China, or the gentler Fabian version of Nehruvian India.
The failure of the third response has at last led India and China to follow the Japanese path by recognizing that globalizing capitalism offers them prosperity without destroying their souls. This leaves the Islamists and the New Dirigistes, who still hate globalizing capitalism for atavistic reasons.