Economic Theory

Book review: “The Capitalist Manifesto: Why the Global Free Market Will Save the World” by Johan Norberg (Part 2)

…continued from Part 1


Chapter 4 addresses the old Marxist idea that wealth must be built on exploitation, but also some of the more recent literature on inequality, such as Thomas Piketty’s Capital in the Twenty-First Century and The Spirit Level by Kate Pickett and Richard Wilkinson.

In market economies, people do not get rich by exploiting others. They get rich because they offer something that lots of people are prepared to pay for. Left-wing celebrity authors like Michael Moore and Bernie Sanders understand that perfectly well when it comes to their own book sales, but they are not capable of extending that logic to entrepreneurial activities.

Norberg is not a Randian: he does not see the super-rich as heroic individuals. He defends the process that allows people to get rich by taking risks, having foresight and patience, and putting innovative business ideas into practice, not the individuals themselves. There is a lot of churn at the top. Only a minority of the people in the Forbes Rich List are primarily there because of inherited wealth, and if past trends are anything to go by, very few of those will stay there for much longer.

That said: there are rich people who owe their fortunes, in large part, to government favours, such as bailouts, protectionism or loose monetary policy. Defenders of the market economy can call this out without sounding like the mirror image of their opponents (i.e. “Real capitalism has never been tried”).

Chapter 5 picks up another perennial Marxist theme: the idea that capitalism supposedly leads to greater and greater industry concentration over time. One can see why every generation falls for this canard anew. At any given time, there are companies that occupy market-dominant positions in some sectors, and at any given time, their position may look unassailable, resulting in an illusion of permanence. The best antidote to worrying too much about market concentration, though, is to read an article from 20 or 30 years ago that was worrying about the same thing. This is because a lot of the behemoths of yesteryear have since faded into obscurity. Norberg refers us back to a passage in In Defence of Global Capitalism which discussed Nokia – remember them? Remember IBM, Kodak, Blockbuster, Motorola, Yahoo!, AltaVista, MSN Search, or Myspace? Meanwhile, the Big Tech companies that everyone panics about today are all fairly recent creations (which is why In Defence of Global Capitalism did not even mention them yet).

Sure, some large companies stay large for a long time. About one in ten of the biggest American companies were already big in the 1950s. But the ones that do have to periodically reinvent themselves to stay ahead of the curve. Past success does not, in itself, beget ongoing success. Today’s big companies succeed overall, but even they have had a string of failed product launches.

Industrial policy, adressed in chapter 6, is another bad idea that has come back into fashion since In Defence of Global Capitalism. Mariana Mazzucato, the guru of this style of thinking, has become one of today’s “rock star economists”.

But the argument for industrial policy is severely flawed. Mazzucato singles out a few examples of successful products that were initially developed with some form of state support. She then tells a – seemingly coherent – story around them, in which far-sighted state bureaucrats make great things happen, while private sector entrepreneurs only chase the quick buck. Her version of the story is disputed, and some of the people involved remember things differently – but that’s not even the point. The point is that if you accept Mazzucato’s logic, you could equally claim that writing books makes you rich, and then cite George R.R. Martin, E.L. James, J.K. Rowling, Dan Brown and Stephen King as evidence. What you have to do, of course, is compare average incomes among writers to average incomes in realistically attainable comparable professions. Similarly, if we want to evaluate activist industrial policies, we have to look at their overall track record, compared to the most likely alternative policies. If we do it that way, the results look a lot less impressive.

If there is one thing those of us on the pro-globalisation side were wrong about 20 years ago (and in chapter 7, Norberg is very open about that), it was our belief that freer trade and freer markets would lead to the spread of Western liberal values, and Western-style liberal democracies. In China, this has clearly not happened. Under Xi Jinping, China has gone into reverse, both in terms of economic and political liberty.

However, none of this means that economic nationalists, who seek to decouple Western economies from China, are right.

Where matters of national security are concerned, even Norberg is willing to make an exception to his free-trade absolutism. You would not want to outsource sensitive matters to a company that is ultimately controlled by the Communist Party of China. But on the whole, an economically isolated China could well be more dangerous to the West than an economically integrated one.

One of the weirder phenomena of the past five years or so was the rise of a new wave of militant, anti-capitalist eco-movements: the Greta Thunberg movement, Extinction Rebellion, Just Stop Oil, and their various offshoots and counterparts in other countries. It is weird because it happened after the environmentalist side had already won the debate on climate change. There is near-unanimous cross-party support for an ambitious climate change agenda, and that agenda, far from being “Blah blah blah”, has already been actively pursued for a long time.

On green issues, anti-capitalists are as wrong as they are about everything else. As Norberg shows in chapter 8, market economies can and do address environmental problems very effectively.

All in all, the slightly older Norberg skewers the bad of ideas of the 2020s as effectively as the young Norberg skewered the bad idea of the early 2000s. The occasional flashbacks to the earlier book make the new one a particular good read, because they add a broader perspective, while also showing how bad ideas have morphed and mutated over the past two decades.

On that note: I’m looking forward to reviewing Norberg’s future book Why We’re Still Right – And Why We’re Still Not Winning in 2043.



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Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

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