Capitalism Requires Impartial Law, Competition, and Broad Opportunity

Ross Levine makes a narrower case than a blanket defense of whatever is called capitalism. Market-based capitalism, in his definition, combines primarily private ownership of firms with production and prices determined in competitive markets rather than by state direction. Its essential safeguards are contestable markets and a rule of law applied impartially to politically and economically powerful people as well as everyone else.

The rule of law is not a decorative addition to the market. Levine treats it as a precondition for market exchange: law must limit theft, fraud, and predation, so that people can make economic choices without having to submit to arbitrary force. A buyer must be able to reject an offer; a producer must be able to compete without an incumbent resorting to violence or political favoritism; contracts must be enforceable. In that setting, the way to get ahead is through persuasion—offering something another person values and leaving that person free to accept it, reject it, or choose an alternative.

That framework assigns the state an indispensable role. It must uphold law and order, enforce contracts, and provide common defense. It may also need to act where market prices fail to reflect social costs or where valuable activity cannot capture enough of its broader return. But the same state that protects a market system can become the machinery through which market competition is displaced by favoritism.

Steven Davis stresses that neither he nor Levine is arguing for no state, or necessarily even a minimal state. The question is not whether government acts, but whether its action sustains a competitive order or turns economic advancement into a political contest.

Pollution is Levine’s central example of a case in which public action can correct a price rather than replace a market. He calls pollution a situation in which “prices lie.” Someone may buy or produce something that damages other people’s health without bearing the full cost of that damage. If a polluting product harms others, its private price does not reflect its social consequences. A market-oriented response, in his formulation, is to make the decision-maker pay those broader costs.

Basic research is a different case. It may provide foundations for vaccines, national defense, and other improvements in living standards, while generating benefits that private researchers cannot readily capture. Government subsidy can therefore be warranted. Davis adds patents, public health, university and national-laboratory research, and common defense as further areas in which public action may have a legitimate role.

The operational distinction is between rules and corrections that allow decentralized exchange to work better, and discretionary protection that changes who succeeds and why. A state can enforce contracts, constrain harmful spillovers, support activity with broad uncaptured benefits, and provide goods such as defense. It can also confer special regulations, protections, exemptions, or favors on particular firms and groups. The latter route is what Levine means to exclude from the ideal of market-based capitalism.

In a crony system, firms can advance through political connections and government-granted protections. In more state-directed forms of capitalism, technocrats, bureaucrats, and politicians take a heavy role in economic decisions. Levine’s objection is not simply that such systems contain more government. They alter the route to wealth and power: talent is redirected from discovering how to serve customers toward maneuvering for political favor.

The case Levine advances is explicitly comparative: market-based capitalism is not perfect, but he argues that no alternative has come close in its capacity to produce prosperity and freedom.

Ross Levine points first to migration. He says that people moving across borders overwhelmingly go toward market-based capitalist systems, where they see greater freedom and economic opportunity. He also points to China’s liberalization in the late 1970s and early 1980s, which he says accompanied a reduction in extreme poverty of about 800 million people, and to India’s greater liberalization within a market system, which he says saw about 300 million people rise out of poverty.

For Levine, reductions in deprivation on that scale are moral achievements as well as economic ones. They enlarge people’s ability to choose, support their families, and direct their own lives.

Steven Davis reinforces the comparison with the gap between East and West Germany when the two countries reunited, when East Germans were poorer on average; with North and South Korea as contrasting systems; and with the longer economic history of the United States. The United States, he says, has been far from the ideal Levine describes, but generally closer to market-based capitalism than many other societies. It has also been a rich, innovative large country and a source of substantial material progress.

Neither speaker treats existing societies as pure instances of the model. Davis describes market-based capitalism as an aspiration, much as a country may hold political ideals while repeatedly falling short of them. The relevant comparison is not between a flawless market order and imperfect reality. It is between systems in which competition and impartial law have meaningful room to operate and systems in which economic decisions are more heavily directed or politically allocated.

The freedom associated with the former is historically unusual, in their view. Davis emphasizes how rare it is for people to have substantial latitude to make choices, pursue their interests, and try to improve their families’ circumstances without being directed by political authority or confined to a single provider. The system’s imperfections do not erase that rarity; they make the conditions that sustain it worth defending.

The economic and moral case for market-based capitalism turns on how people pursue wealth, power, and security. Ross Levine argues that competition and impartial law direct self-interest toward serving other people. In a system where political protection is the route to success, talent will focus on winning political favor. In a system where firms must meet willing customers in contestable markets, producers have reason to find a better product, a less expensive method, or a more useful service.

In Levine’s formulation, the route to advancement is persuasion: one must offer something another person wants, while that person remains free to say yes, no, or choose an alternative. The moral content of this arrangement does not rest on a claim that every market participant is benevolent. It rests on the fact that self-interested people have reason to serve others if they want to advance.

The ability to say no is central to the argument. Formal freedom alone is insufficient. A person may be legally free to refuse a job, Levine says, but that freedom is thin if there is no alternative employment. Competition supplies alternatives. It gives consumers a meaningful option to reject an offer, workers a possibility of seeking another employer, and businesses a chance to turn elsewhere rather than accept a single provider’s terms.

Steven Davis expresses a closely related view in the language of coercion. Outside settings such as the family, he argues, voluntary exchange is the only way to allocate resources at scale without coercion. The state necessarily exercises coercive power at some level: it taxes, enforces laws, and supplies security and defense. The institutional question is whether the economy itself maximizes or minimizes the scope of coercion.

For Davis, competitive markets governed by law widen the space for noncoercive allocation. A seller cannot command a buyer. An employer cannot own a worker. An incumbent cannot simply force an upstart out of business for offering lower prices. Law limits fraud and predation; competition supplies alternatives; exchange becomes voluntary in a practical rather than merely formal sense.

Levine accepts that framing but puts greater emphasis on service. A market system does not depend on everyone acting out of good spirit. People can seek their own advancement, yet competition makes it useful for them to advance by meeting someone else’s needs. Davis connects the point to Adam Smith’s view that benevolence matters but cannot be the foundation of a large, complex society: “Benevolence is scarce.” A competitive system instead makes service a durable channel through which self-interest can operate.

Competitive markets do not require a central authority to identify every useful improvement before it occurs. Ross Levine describes a process in which millions of people pursue different ideas, observe changing circumstances, and try to improve products, services, and production methods. Each person is attempting to better his or her own condition, but in a competitive system does so by finding something that others will value.

The information involved is both vast and particular. Levine’s examples range from ordinary consumer choices—whether someone wants a sweet drink with sugar or artificial sweetener, caffeine or none, one flavor rather than another—to improvements in vaccines, medicines, and dental care. A small improvement can matter if it gives people a reason to choose one provider over another. The resulting advance does not require a single actor to know every preference or predict every successful innovation.

Steven Davis says many people, including some economists, struggle with this feature of a properly structured market economy: nobody plans the overall pattern, yet prosperity, freedom, and the scope for improving one’s life can continue to expand. The claim is not that markets mechanically produce good outcomes under any rules. It is that rule of law and room for competition allow decentralized experimentation to operate.

Levine invokes Adam Smith’s criticism of “planners,” whom Smith described as subject to “innumerable delusions” about their ability to identify strategically important firms and industries. Davis links the concern to Friedrich Hayek’s “fatal conceit”: the belief that central direction can master the complexity of the information and incentives that shape an economy.

The point, as Levine presents it, is principally one of knowledge and complexity. The relevant information includes innumerable localized preferences, opportunities, costs, and technical possibilities. It is difficult for a central entity to determine in advance which experiments will improve people’s lives. Competitive pressures instead give many people reason to act on the information available to them, test different approaches, and discover what people value.

This does not eliminate the need for public institutions. They may enforce the rules of exchange and address costs or benefits that prices fail to capture. But efforts to direct particular firms, industries, or investments confront the same dispersed-knowledge problem that makes decentralized discovery valuable in the first place.

Material improvement does not exhaust the moral case. Ross Levine says that conditions over the last couple of centuries have become much better in important respects: living standards have risen, and people have access to cleaner water, better food, vaccines, and other gains. But he argues that people also care deeply about whether they are held in esteem, whether they have dignity, and where they stand relative to others in society.

That concern is not, in Levine’s formulation, displaced by aggregate prosperity. If people do not view a system as fair to a reasonable degree, he warns, they may tear it down. He later adds that people do care about relative positions as a matter of fact, and that growing differences in outcomes combined with growing differences in opportunity can produce a population that does not trust the system.

Steven Davis agrees that this is the largest moral challenge to a market-based capitalist system, but he gives less weight to relative rank itself. He says he is not personally offended simply because another person earns 10 or 100 times as much. His concern is the opportunity available at the beginning of life, especially for children who start at a disadvantage.

For Davis, the sharpest moral failure is a society that does not equip people with the skills, safety, and educational environment needed to participate constructively. He includes schools in that concern: a child cannot learn much if the child must worry about being beaten up during recess. In that sense, formal access to a market is inadequate. People need conditions that allow them to develop the capacity to use that access.

The distinction is real. Levine argues that dignity, esteem, and relative standing have independent importance and can shape public confidence in the system. Davis places his policy and moral emphasis on the starting line rather than on disparities in eventual position. He does not think equal chances are attainable, but argues that people should have a reasonable chance to better themselves, improve their lives, and contribute.

They converge on the policy priority despite the difference in emphasis. Levine agrees that opportunity is more important and that public policy is likely to be most productive when it brings more people to the starting line. Davis adds that widening opportunity has both moral and economic value: people who can contribute constructively benefit themselves, while broader participation supports growth, tax revenues, and the society around them.

Levine is wary of pursuing the income distribution directly. Efforts to alter outcomes, he argues, can create another array of privileges and favoritism, further distorting the system. A focus on opportunity aims instead at what both speakers identify as the deeper problem: whether people can enter the competitive order with enough safety, skills, and practical capacity to participate in it.

Ross Levine directs his closing warning at both progressives and populists. Their policies differ, he says, but each set increasingly emphasizes a state role in allocating resources and opportunities. That move, in his view, can bring greater favoritism and exemptions—and with them, erosion of economic prosperity, freedom from coercion, and moral well-being.

“The work of a free people right now,” Levine says, “is to return to embracing market-based capitalism.” In context, that is not a call to disregard pollution, poverty, public goods, education, public health, national defense, or the need for an effective state. His account depends on public capacity: laws must be enforced, contracts upheld, predation constrained, and market failures addressed where they are genuine.

The warning is about the form government intervention takes. Correcting a social cost, supporting activity with broad public benefits, or providing common defense differs from allocating advantage through exemptions and protections. The former can support the conditions for voluntary exchange; the latter can make political access the ordinary route to economic success.

Steven Davis frames the institutional standard in complementary terms. Public authority should uphold law, address genuine failures, and help more people gain a real chance to participate. Yet the wider order should leave people able to refuse, choose, compete, and improve their position by persuasion rather than coercion or political privilege.