Outgoing Chinese Prime Minister Wen Jiabao today added his voice (not for the first time) to those warning against rising inequality as a threat to China’s development. Imbalances in economic growth he warned were threatening the success of the economy. “We must make ensuring and improving people’s wellbeing the starting point and goal of all the government’s work, give entire priority to it and strive to strengthen social development,” he added. It is a common refrain, and one that goes to the root of modern statecraft.
The battle between communism and capitalism that dominated the twentieth century was often expressed in terms of equality. Communism offered most hope for the weakest in society, for the downtrodden, for the less well off. While communists celebrated their optimistic vision of what the world should be like, capitalists sneered, venting a a cynical realism that inequality was a fact of life, so we’d better get used to it. Of course, Capitalism only succeeded with the emergence of the welfare state, as a counter balance to the excesses of inequality that Capitalism inevitably wrought. And Chinese communism only survived 1989 and Tiananmen Square by embracing capitalism and the market, albeit within state control.
Zizek captures it well in his First as Tragedy, Then as Farce. In his section on Capitalism with Asian values (p. 131ff), he refers to Deng Xioping‘s visit to Singapore who innovated the concept. What happened at this crucial moment, more than twenty five years ago, was that just as the Berlin Wall came down and Capitalism celebrated its triumph, the link between democracy and capitalism was broken. This was a momentous event, that went al the way back to the French Revolution. Two hundred years – almost exactly! – of unfettered and the seemingly choreographed evolution of capitalism and democracy, to the point of becoming a western liberal tradition, was sundered in that historical moment.
Today, we see it in the anachronisms and curiosities of our age. In democracies, we feel disempowerment, disenfranchisement. Large corporations look like governments, and cartels run major sectors of the economy. Elites are resurgent (did they ever go away?), just as democracy tried prima facie to crush them. The walls of social immobility are being rebuilt in a semi-feudal model. There are the lords and the serfs, and there is no longer a middle class. Sometimes we call them the working poor. At UN level, the process of Development was seen as being in lock step with Democratization, and while that was an overtly (if unstated) political and anti-communist objective during the Cold War, it persisted with perhaps more benign force after 1989. Where stands democracy now? Is the democratization of Africa a legitimate goal for the betterment of its people? Would the people of Greece agree? Argentina? It’s not so clear – and the alternatives that have been tried appear unpalatable. But from a position where democracy was seen as the least worst option, many are taking the view now that democracy really is a pretty bad option.
State Legitimacy 
As the writer of the post you cite to demonstrate that “Capitalism only succeeded with the emergence of the welfare state,” I would like to make it clear that I did not make that argument in my original article. A great deal of the economic growth that came about through the emergence of capitalism occurred before the creation of an extensive “safety net.”
Perhaps not, but yours is a useful post for considering the domain – thank you for that! Also, I’m not sure hyper-linking in a blog serves the same function as a footnote in an academic paper – it’s a little more, well, liberal; there’s a different standard.
In relation to the substantive point – do you think Capitalism would have succeeded without some mechanism to offset the excesses of its inherent inequality? Would the revolutionary zeal of the 1960s in particular (extend the concept of civil rights into development rights, and you start to get the picture) have brought down the system? Maybe it did – maybe we just used the same language to describe the new system that emerged as did the old.
No problem, I’m happy to help. As for the durability of capitalism, I would say that pretty much every social, political, and economic order imaginable is vulnerable to upheaval to some extent. Due to the vicissitudes of the business cycle and the prevalence of beliefs such as “capitalism begets greed,” capitalism is certainly prone to heavy criticism and revolutionary movements.
Really, the question is how to define “success.” If success for an economic system means generating economic growth, then I would label capitalism (even without a redistributive mechanism) an overwhelming and unprecedented success. If you add additional qualifications for success, such as “growth but with a post-taxes/transfers Gini coefficient of less than .250,” then you may have a different view regarding the success of capitalism.
If success means self-perpetuation, then capitalism has a somewhat mixed record. Most countries now have at least a somewhat capitalist economic system, but very few have a near-pure capitalist/free-market system. Forgive me if I’m wrong, but I think you’re using “success” in this regard. If that’s the case, I would agree that for social and political reasons, some minimal “safety net” was required for the capitalism system to endure, particularly in the second half of the twentieth century.
Why? This is an off-the-cuff suggestion, but my guess is that the dramatic rise in living standards that came about through capitalism changed people’s expectations. Instead of most people being (and expecting to be) mired in poverty, most people had some degree of wealth, even if it was unequal. Societies such as the United States have grown to expect a level of material wealth that was very uncommon prior to the rise of capitalism. If these new basic living standard expectations are not met (even during recessions, or after the failure of a business) through some kind of “safety net,” public discontent with the capitalist system may grow enough to endanger it.
Now, whether this train of thought naturally leads to believing in the necessity for an extensive modern American welfare state (let alone some of the welfare states seen in European social democracies) is another question entirely.