Another Perspective

Socialist Capitalists

Introducing "cosmocrats," capitalists who do not see the point of defending capitalism -- and they're not even French.

By 5.10.04

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It's not easy to explain the anti-globalization movement's attraction or its successes. Much of the writing on the movement's growth, ideology, and influence veers into impenetrable thickets of post-modern theory (e.g., Naomi Klein's indigestible No Logo), so non-stoned readers often find it tough sledding, and give up. But that may be an altogether unfortunate response.

One reason for the anti-globalizers' effectiveness is that corporations often simply roll over in the face of activists' onslaught. For example, this past January, Citigroup, the global financial powerhouse, surrendered to a four-year campaign by the anti-globalization Rainforest Action Network (RAN). This long-running protest included banner hangings, boycott threats, and other media stunts.

In exchange for an end to the campaign, Citigroup promised to "promote higher environmental standards through its business practices," particularly in the areas of "endangered ecosystems, illegal logging, ecologically sustainable development, and climate change." Translation: Citigroup will no longer help finance projects that environmentalists don't like.

RAN Executive Director Michael Brune was ecstatic: "We cannot overstate the importance of changing such a vast enterprise and look forward to working together with Citigroup in the coming years."

And the Citicorp scenario is that it is all too typical of modern business. Why do today's capitalists lack the stomach for fighting the RANs of the world? In A Future Perfect: The Challenge and Promise of Globalization, John Micklethwait and Adrian Wooldridge, both correspondents for The Economist, address a major aspect of this question: the nature of corporate management.

The Economist scribblers examine the rise of a class they call the "cosmocrats" -- individuals endowed with the technical skills, financial acumen, and social capital necessary to make economic globalization work who form the managerial "officer-class" of multinational companies. The picture they paint is not one of beauty because, as smart as they are, and as credentialed as they are, this new managerial elite has clay-colored Guccis.

The cosmocrats lack a group consciousness and they play the game of politics in a clumsy, heavy-footed fashion. Indeed, politics "seems to put them off," note Micklethwait and Wooldridge. These young execs spend most of their youth studying for high-powered degrees and then enhancing their education with work experience abroad. As a result, they have little inclination to learn how to counter the drawn-out political and public relations games, which draw on local prejudices, at which the anti-globalization movement is so expert.

These men and women are capitalists who, to put it bluntly, do not see the point of defending capitalism. As Micklethwait and Wooldridge archly observe, "if there is ever to be a great battle about globalization, then the people one might have expected to form the heart of the defense will probably be on a plane somewhere," off on a business trip.

ENTER THE LATE GREAT economist Joseph Schumpeter (1883-1950). In Capitalism, Socialism and Democracy, he predicted the rise of a class like the cosmocrats -- a capitalist elite without an emotional or intellectual attachment to capitalism. Schumpeter notes that the role of entrepreneurs changes as capitalism evolves.

To illustrate: Imagine an entrepreneur who founds a successful company. By taking intelligent risks, he keeps the company growing at a rapid pace. Ironically, however, the larger the corporation gets, the more it takes on "bureaucratic" characteristics. Our hypothetical company eventually becomes so bureaucratic that it "ousts the entrepreneur," the traditional hero of the capitalist system, from his leadership role.

And who takes the entrepreneur's place? A manager. Visionaries who make daring bets on the future are replaced with technocrats who pride themselves on providing stable, cautious leadership. The managers may work in the same companies founded by the entrepreneurs, but they lack the founders' commitment to the enterprise. As a result, Schumpeter theorized, the managers' "moral allegiance" to capitalism would be weak.

Viewed from Schumpeter's analysis, the cosmocrats seem less like the clueless geeks that Micklethwait and Wooldridge humorously describe. Rather, according to their own training in managerial cost-benefit calculations, they may believe it is simply cheaper to throw the occasional bone to the anti-globalizers than to fight them. Antagonizing the protesters by painting them as enemies of the free-market system, and dealing with the subsequent negative media storm, may seem too costly a response.

The rise of the cosmocrats goes a long way toward explaining the frequency of episodes like Citigroup's surrender, and illustrates the relevance of Schumpeter's analysis today. This practitioner of the dismal science still has many sobering things to tell us about capitalism and where it may be headed.

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About the Author

Neil Hrab is the Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute, in Washington, D.C.