{"id":257,"date":"2012-11-21T17:56:14","date_gmt":"2012-11-21T17:56:14","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=257"},"modified":"2012-11-21T17:56:14","modified_gmt":"2012-11-21T17:56:14","slug":"the-culture-of-capitalism-and-bric-investing","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=257","title":{"rendered":"The Culture of Capitalism and BRIC Investing"},"content":{"rendered":"<p>Important insights for investors are to be found in historian Joyce Appleby\u2019s thoughtful and informative book <strong>The Relentless Revolution: A History of Capitalism<\/strong>.\u00a0 She agrees with Max Weber\u2019s observation that \u201cA man does not by nature wish to earn more and more money, but simply to live as he is accustomed to live and to earn as much as is necessary for that purpose.\u201d\u00a0 Which is what people in traditional societies have done for millennia.\u00a0 They rely on tried and true methods of production, but are fated to endure periodic famines and plagues.<\/p>\n<p>Appleby sets out to explain why this old order gave way to modern capitalism, which she defines as \u201ca system of individual investments in the production of marketable goods,\u201d animated by the \u201cimperative of private investors to turn a profit.\u201d\u00a0 Her key premise is that the development of capitalism was <strong>not a natural or inevitable process<\/strong> but rather was the result of factors and forces that came together at a specific time and place \u2013 England in the 17<sup>th<\/sup> and 18<sup>th<\/sup> centuries.\u00a0 They included:<\/p>\n<ul>\n<li>The protestant reformation of the 16<sup>th<\/sup> century.\u00a0 As Max Weber argued, Protestants viewed worldly success as evidence of salvation and therefore pursued it with dogged, systematic determination. Prominent English industrialists tended to be Protestants, frequently Quakers.\u00a0 In France, protestant Huegenots were typically more capitalistic than Catholics. (Interestingly, these same modern-minded groups led the drive to abolish slavery.)<\/li>\n<li>The gradual modernization of agriculture in the Netherlands and later England created food surpluses, which freed up labor for non-agricultural activities while creating stronger demand for manufactures.\u00a0 In contrast to France, England did not suffer a serious famine after the mid-17<sup>th<\/sup> century, though chronic hunger continued to torment the poor.<\/li>\n<li>The colonization of the New World by Europeans had two important effects.\u00a0 Big profits in both Britain\u2019s horrific slave trade (centered in Liverpool and London) and Caribbean sugar production generated ample risk capital.\u00a0 Meanwhile, by the eighteenth century North America was a large, affluent, fast-growing market for English manufactures; this fostered the \u201cdivision of labor\u201d heralded by Adam Smith in <strong>The Wealth of Nations<\/strong>.\u00a0 Particularly after 1740 or so, enormous shipments of \u201cdry goods\u201d were shipped in the spring and autumn from London, Bristol and later Liverpool to merchants in Philadelphia, New York, and other ports; they in turn sold them to retailers and artisans throughout North America.\u00a0 Note that booming colonial markets supported an impressive expansion of British manufacturing <strong>before<\/strong> it was mechanized during the \u201cindustrial revolution.\u201d<\/li>\n<li>As an island nation with a single giant capital city, Britain was a more accessible and integrated market than other large countries in Europe.\u00a0 Most parts of England had fairly good access to the ocean, and many aristocrats spent part of the year in London&#8211;the seat of government, commerce, and finance.<\/li>\n<li>Scientific advances during the 18<sup>th<\/sup> century enlightenment were instrumental in certain technological breakthroughs, such as the steam engine.<\/li>\n<\/ul>\n<p>Other places &#8212;\u00a0 13<sup>th<\/sup> century Venice, 15<sup>th<\/sup> century Florence, 17<sup>th<\/sup> century Holland\u2013 shared some of these characteristics and became thriving centers of finance and commerce.\u00a0 But they never developed the transformative \u201cculture of capitalism\u201d that turned England, Germany and the U.S. into industrial giants over the course of the 19<sup>th<\/sup> century.<\/p>\n<p><strong>Why Should Investors Care?<\/strong><\/p>\n<p>For one thing, the notion that capitalism is a historically contingent cultural construct is subversive of conventional economic analysis, which naively assumes that people are naturally profit maximizers.\u00a0 In the real world, some people are, others aren\u2019t.\u00a0 Nations that place a lower priority on rapid economic growth, with its attendant unpleasant side effects such as social turbulence and high income inequality, will grow more slowly. \u00a0Look at Western Europe:\u00a0 Yes, the single currency was a very dumb and destructive idea, but Europe\u2019s economic growth problems go well beyond that to a visceral aversion to capitalism. \u00a0In the U.S., Texas creates more jobs than other large states not primarily because of oil and gas (which California and New York also have) but rather because it has a far more <em>laissez faire<\/em> political economy.<\/p>\n<p>All this has special relevance to investors in emerging markets.\u00a0 I claim no expertise here, but it is obvious that, to varying degrees in each of the BRIC countries (Brazil, Russia, India, China), the \u201cculture of capitalism\u201d must contend with potent countervailing traditions, institutions, and cultural impulses &#8212; government corruption, uncertain\u00a0 property rights, excessive regulation, autocratic leaders, etc.\u00a0 All of which make investing in emerging markets rather risky.\u00a0 One reason why I like U.S. multinationals is that they participate in the growth of a diverse array of emerging markets, but without the risks attendant to actually being headquartered there.<\/p>\n<p>Not that the U.S. is immune from anti-capitalistic impulses.\u00a0 The very affluence of the U.S. has given rise to powerful interest groups in government, universities, foundations, etc. that are insulated from market forces and committed to aggressive intervention in the private economy.\u00a0 As we saw in the 1970s and are seeing today, such \u201creforms,\u201d however well-intentioned they may be, can impede growth, reduce living standards, and increase poverty.<\/p>\n<p>Copyright Thomas Doerflinger 2012.\u00a0 All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Important insights for investors are to be found in historian Joyce Appleby\u2019s thoughtful and informative book The Relentless Revolution: A History of Capitalism.\u00a0 She agrees with Max Weber\u2019s observation that \u201cA man does not by nature wish to earn more &hellip; <a href=\"https:\/\/www.wallstreetandkstreet.com\/?p=257\">Continue reading <span class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[59,58,60],"class_list":["post-257","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-emerging-market-investing","tag-history-of-capitalism","tag-joyce-appleby"],"_links":{"self":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/257","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=257"}],"version-history":[{"count":2,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/257\/revisions"}],"predecessor-version":[{"id":259,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/257\/revisions\/259"}],"wp:attachment":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=257"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=257"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=257"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}