The Price of Civilization
It is more in sorrow than in anger that I venture to comment on "Batali-gate." I'm a fan of celebrity chef Mario Batali, so I was very disappointed when he seemingly compared bankers to Hitler and Stalin. Batali is famous, among other things, for running gourmet Manhattan restaurants whose customers naturally include many bankers. Who else did he think was going out to dinner at places like this? So the bankers quickly mounted a boycott, cancelling their reservations en masse at Babbo and Del Posto, and Batali was forced to issue an apology.
To be fair, Batali's point seems to have been that Time magazine should select bankers as its "Person of the Year" because they had the most significant effect on the world, even if it was negative, just as Time had previously selected the two dictators even though they also had a negative effect on the world. So it wasn't quite a direct comparison. But in these days of anti-banker incitement, with anarchist lynch mobs attempting to seize bank executives in self-styled "citizen's arrests," you would think he would be more cautious about vilifying his customers.
This story would be very much "Dog Bites Man," except that it raises some interesting questions about why so many who benefit from capitalism insist on biting the hand that feeds them.
That Batali sympathizes with the anti-Wall Street left is not a surprise. Though he is a businessman (and quite a successful one, as part-owner of a string of high-end restaurants and an Italy-themed gourmet grocery store), Batali is also a chef, which in today's world makes him a kind of artist, so he clearly identifies himself as part of the New York cultural elite. And New York cultural elites express vaguely leftist views for the same reason that bankers go to work in a suit and tie: it is expected of them, and it would probably hurt them professionally if they didn't.
Nor is it a surprise that these elites are hypocrites, railing against capitalism while they profit from it. The whole concept of a "celebrity chef" is inconceivable in a world without the top 1% who are so hated by the Wall Street Occupiers. In Batali's case, the hypocrisy is doubly acute, because his signature style is the simple, rustic cuisine developed by peasants in quaint little Italian villages, which he then sells in fancy Manhattan restaurants at $145 a plate. But Batali is no different in this respect from the middle-class college kids down in Zuccotti Park, who camp out in their North Face tents and blog about it on their MacBooks before slipping out to Mickey D's for a clean bathroom and some McNuggets.
The interesting question about all of this is: why? Why do even the anti-capitalists rely so thoroughly on the products and institutions of capitalism? They do it because they have no choice. Capitalism is how human beings live and function. The alternative, as history shows, is not some other system but the collapse of all economic activity.
Take Mario Batali. He is a chef of unusual talent with a distinctive vision. But to work and grow and share that vision with the world, he had to be able to incorporate, bring in a business partner (Wall Street trader-turned-restaurateur Joe Bastianich), and raise money from investors. So why does he want to deny that same opportunity to others?
Capitalism is the system that must be used by anyone who wants to accomplish something and get things done, and even where it has to work against and outside of the law, capitalism still struggles to find some kind of foothold. A long and important article in Foreign Policy indicates that this underground capitalism, the global black market, has grown into a vast $10 trillion "shadow superpower," or what author Robert Neuwirth calls the "alternative economic universe of System D.
System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of "l'economie de la débrouillardise." Or, sweetened for street use, "Systeme D." This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy.
Note that this global black market is one of world's largest employers: "half the workers of the world-close to 1.8 billion people-[are] working in System D: off the books, in jobs that were neither registered nor regulated, getting paid in cash, and, most often, avoiding income taxes." Which means that half of the world is working under an economic system that is a kind of hybrid of pure laissez-faire capitalism and anarchy.
But if this is capitalism, it is at best a primitive form of capitalism, and the brilliant Peruvian economist Hernando de Soto explains the cost that corrupt and statist countries pay for forcing private economic activity to go underground.
The theme of de Soto's work is the connection between the rule of law and capitalism: the fact that wealth cannot become capital without a system that recognizes and enforces property rights. In much of the world, such protections exist in theory, but as de Soto has demonstrated again and again, the process of legally registering property or forming a corporation is prohibitively expensive and time-consuming. This leaves the vast majority of the population outside the protection of the law, and that is what prevents the System D entrepreneurs from using their homes or businesses as a basis to expand.
De Soto explains how this applies to the uprising in Tunisia, triggered when a System D fruit vendor set himself on fire after being shut down by corrupt police.
According to his mother and his sister, his goal was to accumulate capital to grow his business. But this was impossible as we discovered when we investigated the records and the laws he had to comply with.
To get credit to buy the truck he so needed, he needed to demonstrate he had some kind of legally recognized collateral. The only legal collateral he had access to was the family house in SidiBouzid. However, he had never been able to record a deed in the property registry, an indispensable requirement for using the house as a guarantee. Compliance requires 499 days of red tape at a cost of $2,976.
To create a legal enterprise he would have had to establish a small sole proprietorship. This would require taking 55 administrative steps during 142 days and spending some $3,233 (12 times Bouazizi's monthly net income, not including maintenance and exit costs). Even if he had found the money and the time to create a sole proprietorship firm the law did not enable him to pool resources by bringing in new partners, limit liability to protect his family's assets, and eventually, issue shares and stocks to capture new investment.
Let's take this a step farther. Suppose an entrepreneur were allowed to borrow against his assets, incorporate, issue shares, and grow to create a large company. He might then expand further by seeking out foreign direct investment. But those investors might not take the plunge unless they are able to limit their risk by repackaging loans to sell on the secondary market and hedging them with derivatives and credit default swaps. And that take us back to the whole network of big banks and international finance and those guys in suits and ties who used to make deals over dinner at Del Posto and who will now go somewhere else.
In short, if modern capitalism didn't exist, it would be necessary to invent it, and where it doesn't exist, they do try to invent it. That includes bringing in the bankers and their complex financial instruments. To prosper, a country must make it possible for wealth to become capital, along with all of the institutions for raising, managing, and distributing capital.
International banking and finance are necessary for First World prosperity and for turning Manhattan into a giant playground complete with gourmet grocery stores and restaurants where you can pay lots of money for a really outstanding plate of ragu Bolognese. It's a marvelously civilized way to live, and bankers' profits are part of its price.
We have been told recently that we should learn to love paying a third of our money in taxes, because this is "the price of civilization." It's a dubious assertion, to say the least, when you consider how little of this money actually goes to providing law and order and how much goes to feed the bloated and bankrupt welfare state. But isn't international banking and finance, for all of its turbulence, even more essential for the vast and complex networks of trade that feed our civilization?
The fashionable anti-capitalists among New York's cultural elite will someday have to acknowledge the truth that bankers' profits are the price of civilization.