Younger generations are growing increasingly sceptical of capitalism and enamoured with socialism. Are they blaming the right people, though?
The view that Western capitalism isn’t working for the majority, who are getting poorer as the rich get richer, is so commonly believed that for most people, it goes without saying.
This has consequences around the world, but also in South African discussions about the kind of political economy we should like to see in South Africa, once we’ve thrown off the shackles of the ANC.
I’m from Generation X. I grew up during the Cold War. I remember Mutually Assured Destruction. I read reports about the Union of Soviet Socialist Republics (USSR) that featured bread queues, ten-year waiting lists for awful little Trabant or Lada cars, and the yearning for freedom represented by Western pop music and fashion. I saw photographs of the polluted industrial wastelands of Eastern Europe when the Iron Curtain fell. I remember Lech Wałęsa and the Solidarity trade union of Poland, which throughout my teenage years fought against authoritarian socialism and communist occupation. I remember the gaunt faces and drab clothes of long-suffering East-Germans as they streamed into West Berlin in 1989.
I dabbled briefly with socialist thought as a student (although I didn’t inhale), but I soon realised that if socialism wasn’t damned because of its record of abject failure, famine and death, it was damned because it didn’t make any sense. (Last year, I wrote an article about socialism as explained by socialists themselves to illustrate just how ludicrous an idea it is.)
Generations X, Y and Z
The oldest members of Generation Y (millennials) were eight when the Berlin Wall fell, and ten when the USSR was dissolved in 1991. For Generation Z (zoomers) and Generation Alpha, the fall of communism and the great failures of socialism are ancient history.
To them, socialism is an ideology that promises fairness and equality and humanity. What’s not to like?
Their willingness to believe these promises isn’t tainted by their own experiences of 20th century socialism, or by the images beamed from failed socialist experiments.
The few socialist experiments that still continue – like North Korea, the Republic of Congo, Venezuela, Cuba, Mozambique or Angola – are outliers in faraway places, about which they know little, which they ignore, or which they glibly explain away.
By contrast, they look at the problems they experience, and associate it with the hegemony of Western-style liberal capitalist democracies.
Leaning socialist
Overseas, younger generations (Y and Z) are leaning socialist.
The Guardian reports that in the UK, ‘[n]early eight out of 10 of young Britons blame capitalism for the housing crisis and two-thirds want to live under a socialist economic system’.
The US youth are less comfortable with socialism, but still, 43% of both millennials and zoomers attach negative connotations to the word ‘capitalism’. One youngster told Vice that ‘being solidly leftist is the norm,’ while ‘it’s much more stigmatised to say you’re a capitalist, in my experience’.
A deeper dive into the polling reveals that a binary analysis of the political leanings of especially young Americans is perhaps too simplistic. Bloomberg reported in 2022 that ‘[b]eneath a left-leaning veneer, they continue to believe in the capitalist verities of competition, individual responsibility and earned success’.
The discontent of younger generations has far more to do with perceived failures of the capitalist status quo. They believe the rich have become richer much faster than the working masses have improved their lot. They also believe that they are relatively worse off than older generations were at the same stage of life.
Whether these complaints are valid depends much on what you measure and how you measure it.
On the one hand, younger generations certainly have far more than they think they have. Technology has dramatically improved their lives, by comparison with the lives of their elders. Life might seem more expensive, but you also get much more, and much better, stuff for your money.
Modern houses are better, modern cars are safer and cleaner, modern food is safer and more diverse, modern products in general are far advanced from their equivalents decades ago, if equivalents even existed.
Rigged economy
Still, many people feel that the economy is rigged against them, and that is because it is. However, capitalists aren’t doing the rigging. Governments are.
Although inflationary monetary policy has been a problem ever since John Maynard Keynes gave governments academic cover for it, the money printers really began to go brrrr during the 2007 financial crisis. (And don’t go blaming that on bankers, or on the free-market economists who saw it coming.)
Most of that money was pumped into the banking sector at the top, by means of central bank lending. In turn, most of the money the banks received from the central bank was lent out to companies or wealthy customers. They, in their turn, invested that money in assets such as stocks and housing.
This is why the owners of assets benefited to a far greater degree from government intervention in the market, first to ameliorate the financial crisis, and later to cushion the pandemic blow.
Asset price inflation, and eventually, consumer price inflation, is largely caused by the inflationary monetary policies, such as low interest rates and quantitative easing, of governments and central banks.
To point at capitalism for the effects of state intervention in the market is to misplace blame.
Student debt
Many younger people, especially in the US, are concerned that they are burdened by student debt. Most student debt, however, is issued by the government. The government doesn’t particularly care what people study, and will gladly fund courses of study in all sorts of commercially unviable fields.
When those students graduate and then find they’re not qualified to do much more than serve coffee or pack bags at convenience stores, or that there simply is no demand for the fascinating speciality in which they are now experts, they discover they cannot repay their student debt.
A secondary effect of federal student loan funding is that educational institutions can increase their fees to mop up all the extra cash injected into the system.
And then they blame capitalism. In a capitalist market, companies would fund the education of people who study what the labour market actually needs, and educational institutions would compete aggressively to land those students, including by offering competitive fees.
Housing crisis
In the housing market, too, the complaints that young people cannot afford to buy houses, and that there is a ‘housing crisis’ is not the fault of capitalism, at all – although it is arguably the fault of the rich.
If house prices are too high, that can be for a number of reasons.
Perhaps buyers have too much money, which is an effect of inflationary monetary policy (money printing), discussed earlier.
A more basic explanation is simply that demand outstrips supply. Any first-year economics student can tell you that the effect of tight supply is rising prices.
And why is supply so tight? Again, government is to blame. Several policies play into this. One is rent control. If you limit what landlords can charge, landlords aren’t going to look after existing housing stock, and developers aren’t going to develop more stock.
Another is zoning. Many established towns and cities actively discourage building new housing stock. There are laws that prohibit owners from building higher-density housing on their existing properties. There are laws that require the maintenance of a certain ‘character’ or ‘aesthetic’ in neighbourhoods. There are laws that require community approval of new building projects. There are laws that dictate expensive standards for houses. There are environmental laws that protect undeveloped land from being developed.
In most cities or towns it is extremely hard to create new housing stock near where people work and play, and it is often hard or expensive to build even at some distance from centres of activity.
If you can’t build new houses, then it stands to reason that house prices are going to be out of the reach of younger people who have yet to build up capital of their own.
In general, it isn’t capitalism per se that causes these problems, but state intervention in the capitalist system.
South Africa
In South Africa, too, the argument that Western-style capitalism hasn’t delivered on its promise is deeply flawed.
Here, too, government intervention is the cause of the majority, if not all, of our economic problems. The government created state monopolies. The government ran them into the ground.
Worse, the government created private monopolies or cartels, by limiting the number of individuals or companies it permits to operate in various sectors, like casinos or telecommunications firms or doctors.
The government demanded that companies reserve a large slice of their capital for politically connected cronies, and pay a premium for products to politically connected middlemen, and then wondered why everything got expensive.
The government made it difficult, risky and expensive to hire people, and empowered unions to extort both the government and the private sector, and then wondered why unemployment skyrocketed.
The government created an impenetrable thicket of regulations for industry, and established civil services and regulators incapable of facilitating permissions and approvals in a timely and efficient manner, and then stood amazed as ‘state-led’ growth failed to materialise.
The government facilitated the corruption of its officials and the theft of vast amounts of money from tax coffers, and then grumbled that it didn’t have enough budget to offer decent education and healthcare.
Western-style capitalism
It is true that the present economic system has not served South Africans well, but that system is not ‘Western-style capitalism’. Nor was the system under the National Party, back in apartheid days, a system of free-market capitalism.
That system, too, was one of heavy-handed interventions in the market, broad prohibitions on doing business, and expensive programmes to benefit the white working class.
The younger generations of the West are right to be upset about the economic system under which they live. It doesn’t benefit them, and unfairly benefits their elders.
The younger generations of South Africans are even more justified at being upset about the economic system under which they live. It doesn’t benefit them, and unfairly benefits only a wealthy elite.
But they’re wrong to point the finger at capitalism. The cause of most, if not all, of the economic problems they face is government intervention in the market. These problems can rarely be solved by more government intervention.
Western-style capitalism has been extraordinarily successful by many measures. That success is measurable on virtually every metric of living standards you can possibly think up.
If you live in a liberal, capitalist democracy, there is overwhelming evidence that you are richer, healthier, better fed, better educated, and even more humane than ever before, and that this is the best possible time to be alive.
Government intervention
Where it has failed, it has failed because of largely well-intended but frequently ill-conceived government interventions. To the extent that fingers need to be pointed, they need to be pointed at governments.
Advocating for an economic system that increases our reliance upon the benevolence, effectiveness and efficiency of government, in the face of daily confirmation that governments keep making the same mistakes, is foolhardy.
Capitalism hasn’t failed the younger generations, but their governments did.
[Image: Young people protest against capitalism during the US election campaign of 2020. Reproduced under a Creative Commons licence.]
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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