Capitalism in the Eyes of Capitalists

“It is horrible to think that the world could one day be filled with nothing but those little cogs, little men clinging to little jobs and striving towards bigger ones - a state of affairs which is to be seen once more, as in the Egyptian records, playing an ever-increasing part in the spirit of our present administrative systems, and especially of its offspring, the students. This passion for bureaucracy... is enough to drive one to despair.” - Max Weber

This is mainly a wake up call and a challenge to Egyptians or Middle Easterners who believe in the success of capitalism in the region. Make no mistake; this is not an attempt to convert you to a certain political or economic ideology. Rather this is a confrontation between the ability of the country/region you live in to accommodate the modern understanding of capitalism. The inability of capitalism to survive in the region will be illustrated through an examination of the work of Max Weber. Weber is important to the discussion for two reasons; firstly, in many ways he thought capitalism was the most rational economic system. As a result, capitalism can be viewed through the eyes of someone who both believed in it and analysed its rise. Secondly, Weber’s work is a landmark in humanities from sociology to economics and law. His theories inspired the understanding of policy makers to shape societies and cultures into ideal forms or standard types that are “conducive” to capitalism.

Before we delve into the simple arguments going forward; it is important to loosely define the principles of capitalism an Egyptian capitalist would believe in. The capitalist would often point you to the first pages of an American sociology book that has a picture of a janitor’s daughter who is now wealthy and successful despite her father’s misfortune. This example illustrates two things about the belief in capitalism. Firstly, that people are free to make decisions that could change their lives. Secondly, hard work provides efficiency and in a “private” and a “free market” those hard working individuals would rise. This line of thought is supplemented by the existence of many competitors in a competitive and free market with easy entry and exit procedures for businesses. There are many criticisms to these assumptions; however, the argument here does not engage with capitalism in action; it engages with the preconditions of capitalism.

Underclassmen economics and business students learn that an important rule and an assumption for capitalism is the “rule of law”. Some of the questions that should arise at this point should be. What does this law include? What type of law is this? In Weber’s view for the market to exist; law must exist first. It is also true that Weber thought capitalism can only exist in Europe because a “special” law existed there. The rule of law is a precondition to the market, that has survived until this day and age. This understanding entailed the construction of three types of law; Weber examined the legal systems in the Middle East, China, India and Europe. This construction was necessary to understand the best type of law to promote/support capitalism. It will involve a lengthy discussion to highlight a multitude of types and their positive relationship to the rise of capitalism. Instead those legal types are best simplified by the political types they gain their legitimacy from; traditional, charismatic and legal “domination”. Traditional rules rely on old customs or religion as basis for law. While a charismatic leader type involves a strong will and personality to be framed as a “savior” and is capable of constructing laws in accordance to his/her view. The latter which was categorized as necessary for capitalism, it depends on strict rules and procedures and a belief in the legal process itself. In a way this last type was created for capitalism.

The problem in the region arises due to the conflicting laws that exist concurrently; this region does not lack the “rule of law” if anything, there is an abundance of law competing for the allegiance of individuals. There is customary laws attached to each location in the Middle East, hovering over custom is a wide variety of religions. A simple illustrative example on the effect of this competition would be interest on loans; while it is allowed by certain religious schools; however, there are plenty of people despite the religious approval who deem it to be irreligious. In fact an academic argument that I do not entirely agree with blames the historical “failure” of capitalism on the religious illegitimacy of usury. The issue with the “rule of law” is that it does not magically materialize when texts change. The fact that cronyism (Corruption/Bribery) thrived under both Sadat and Mubarak is indicative that changes in investment laws for example, are not automatically going to enhance the “free” market. Nor will people abandon their faith for the sake of a better investment opportunity. In fact as recognized by Weber; a significant part strengthening the allegiance to laws stems from psychological conditioning and by coercion.

It is important to understand that while Weber supported capitalism, he was not an apologist to neither its consequences nor to the certain conditions necessary aside from law for capitalism to succeed. An important feature of the law necessary for capitalism is dependency on formal rules and deviating away from a “substantive” criteria. To put this “formalism” in simpler terms, if you steal because you are about to die; you will receive a similar punishment to someone who steals to vacation in St. Tropez. This is highlighted by Weber in the following passage:

“Formal justice guarantees the maximum freedom for the interested parties to represent their formal legal interests. But because of the unequal distribution of economic power, which the system of formal justice legalizes, this very freedom must time and again produce consequences which are contrary to religious ethics or political expediency.”

To be very clear this “substantive” argument has limits and could be abused. For example in religious or traditional systems, crimes of honor against girls receive a lesser punishment just as the thief who steals for survival will receive a lesser punishment. While Weber rejected the absolute centrality of “Marxian historical materialism”; he did believe that it constituted an important aspect for capitalism’s success, or more simply; a person needs money to make money. This is extremely relevant in our context mainly due to the consistent lack of funds from tourism or FDI. This region does not lack creativity, passion, nor talent to accomplish great feats; what it does lack is means; it lacks the promises of capitalism that never materialised or had materialised in the forms of factories that pollute the environment and foreign investors who funnel profits to foreign banks.

This article does not push the argument that this region for any reason is “backwards” for its inability to accommodate capitalism. Rather the aim is to provoke a discussion on how to manage resource allocations. If anything; aspects of capitalism have led to a constant increase in inequality and irreversible damage to the environment. It is perhaps best that capitalism did not succeed in the region.

David M. Trubek, Max Weber On Law and the Rise of Capitalism, 1972 Wis. L. Rev. 720 1972

Chantal Thomas, Max Weber, Talcott Parsons and the Sociology of Legal Reform: A Reassessment with Implications for Law and Development, 15 Minn. J. Int’l L. 383 (2006): read only pp. 383-402.