Can Capitalism Survive?

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literacy in democratic societies. Almost everybody is better off than his father or grandfather, but that is not enough for literate people; they perceive that others are doing even better, and so they want more. And they often use their votes to support candidates who promise to get it for them. Thus one of the toughest long-range questions for democratic societies is just how much inequality will be—and can be—tolerated.

Philosophers of capitalism defend inequality on two grounds. Economist Friedrich A. Hayek, a Nobel Laureate, argues persuasively that the only alternative to the market's unequal apportionment of rewards is distribution of income on the basis of each person's moral worth—and who could possibly judge that fairly? Pragmatically, many theorists contend that inequality is necessary to reward with high income the initiative that produces economic growth. They add that growth makes the poor if not nearly equal to the rich, at least better off than they would be in a stagnant economy that distributed wealth equally. According to Economist Otto Eckstein's summary: "Some injustice is inescapable if the system is to perform."

Among many educated young people in capitalist countries, Maoist China is popular because its communes have created the world's closest approach to true income equality, though at the price of numbing regimentation. The only way to reach total economic equality is at the expense of freedom (see TIME ESSAY), but the U.S. has more inequality than seems necessary for a dynamic economy. Any attempt even to reduce significantly the gap between income classes raises the unanswerable question of just how much inequality is necessary to provide incentive. A significant effort to redistribute income would provoke fierce resistance from politically powerful groups that rank statistically in the upper classes but do not consider themselves at all rich (in the U.S. a $30,000 pretax annual income puts a family into the top 5%, a $15,000 income in the top 21%).

Much of the demand for greater equality is really a protest against the injustices that a capitalist society could perfectly well remedy—while remaining capitalist. The greatest need is to improve the lot of the poor, and for that purpose nothing can replace a resumption of noninflationary growth. But special help, more than they get now, will be needed by the underclass of citizens who cannot find a secure place in the market economy: reservation Indians and welfare mothers, among others. For them, society should provide some form of guaranteed income, an idea endorsed in the past by such conservatives as Richard Nixon and Milton Friedman. Conservatives note that it is better to give special help to problem groups than to pump up the whole economy and propel inflation.

Relations with Poor Countries

Largely because the colonial powers were capitalist, many peoples of the Third World harbor bitter resentments against capitalism and have chosen socialism for their economies. In quite a few cases, this has retarded their development. For example, Daniel P. Moynihan, former U.S. Ambassador to India, points out that in 1947, the year of its independence, socialist-leaning India produced 1.2 million tons of steel, or slightly more than Japan. In 1973, capitalist Japan poured 119 million tons of steel—or more than 17 times India's