Socio-capitalism, an umbrella ideology

Is convergence old or new? We’ve heard the word being used so often in the context of the digital age, that we’ve forgotten it was invented as far back as the 1960s by Dutch economist Jan Tinbergen. Tinbergen predicted that the sharp systemic divergence between capitalism and communism would melt away with the rise of industrial society.

How right he was. Well before the fall of the Berlin Wall, the state grew to gigantic proportions in the capitalist west while the communists started allowing private capital to accumulate. The rise of China in the 1980s only confirmed this marriage of markets and social conscience. Looking back over the last 30 years, the defining economic event was not the fall of the Berlin Wall, but the defiance of gravity by Wall Street. The disappearance of the Wall changed the course of global politics; the near collapse of Wall Street last year put an end to the illusion that capitalism had somehow won over communism.

It hadn’t. What has finally won is the concept of socio-capitalism — a non-utopian convergence of both ideas. With hindsight, it’s clear why neither capitalism nor communism kayoed the other.

Capitalism was a jet engine propelled by the stone-age ideology of greed. It got elevated to the level of social philosophy by the likes of Milton Friedman, among others. Communism, on the other hand, was a more modern ideology hitched to a bullock-cart state engine.

The surprising thing about both capitalism and communism is not their apparent divergence, but their utopianism. Both shared similar end-visions: Communism saw the state withering away at some point. Capitalist ideologues give the state a position of irrelevance in their scheme of things.

With the spread of globalisation, when corporations became bigger than many states, it seemed as if the state would indeed become a mere law-and-order appendage of capitalism. The fall of Wall Street in the 2008 meltdown showed why the state was still relevant. The US and Europe poured trillions of dollars and euros to save their financial systems, effectively nationalising them.

While some banks in the US are in the process of returning Uncle Sam’s money, the point is they could not have survived without his helping hand. The state is not going to wither anytime soon.
So where does socio-capitalism come in? The term is a broad catchall housing several varieties of capitalism — varying combos of socialist or authoritarian ideas. Whether it is the US, or China or India, socio-capitalism starts with the recognition that we need the markets to help growth, but we also need the state as a countervailing power to correct poor market outcomes.

Socio-capitalism’s defining characteristic is its flexibility: it can vary from one end of the world to the other. In the US, it’s more capitalism, less socialism, and loads of democracy. In Europe, especially Scandinavia, the state has an overwhelming presence in the welfare arena, even as it is formally capitalist. In China, we have an authoritarian version of socio-capitalism with a small whiff of political freedom; in India we have an inefficient mix of markets, dirigisme, and democracy.

The exact ingredients of socio-capitalism depend on the stage of development a country is in. Samuel Huntington, writing on the Political Order in Changing Societies, notes that authoritarianism plays a key role in the modernising process of an economy or polity because many vested interests (often the landed peasantry) have to be put down before capital can be channelled efficiently.

From the former Soviet Union to the Asian tigers to China, no developing country has modernised economically without a streak of authoritarian rule. India is the lone exception to this rule, but even India has taken radical economic steps only during spells of authoritarian rule (the 1976 emergency, which helped the country overcome the 1974 Opec price hikes). The fear of external default in the 1990s helped Narasimha Rao dismantle excessive state regulation that was strangling growth.

Socio-capitalism is the wave of the future precisely because it is non-doctrinaire and can change shape depending on the exact political or economic challenge a country is facing. If the markets have taken you down an abyss, the state will step in. If the hand of the state is too powerful, capitalists will lobby, bribe and commandeer the state machinery for its purposes (as in India). Socio-capitalism is a broad umbrella under which any state can huddle.