How Capitalism Will Save Us (6 page)

I
s capitalism moral? The question has been debated for generations. But it has more relevance today than ever in the wake of the recent financial crisis and recession.

Capitalism’s critics insist that evidence of its “immorality” is everywhere—from the collapse of Enron in the early 2000s to the “predatory lending” that helped bring on the subprime-mortgage meltdown and subsequent recession to investment adviser Bernard Madoff’s mammoth $50 billion Ponzi scheme that wiped out personal and institutional fortunes around the globe. These and other events, they say, demonstrate that the free market is a winner-take-all jungle, a place where the most ferocious and dishonest triumph, where nice guys finish last, where greed rules and people get ahead by exploiting others.

No doubt there can be bad behavior in a capitalist system. There is bad behavior in any society. However, when viewed as a
system
, capitalism is more moral than any and all alternatives.

Capitalism has produced the world’s highest standard of living by promoting the moral values of cooperation, democracy, and free choice. Nobel Prize-winning economist and noted free-market advocate Milton Friedman frequently made the point that capitalism’s foremost historic contribution has been its moral influence.

As we started to discuss in the introduction to this book, capitalism is not about selfishness, but about the needs and wants of others. Former U.S. ambassador, noted theologian, and author Michael Novak makes this point:

Adam Smith explained in his classic work
The Wealth of Nations
that the exchange of goods and services in a market takes place only if both sides benefit. Such mutually beneficial exchanges, multiplied by the hundreds of millions, form what Smith referred to as “the invisible hand.” The classic example of the pencil illustrates how these exchanges spontaneously allocate resources in a way that benefits more and more people.

To see the benefits of the Invisible Hand, one need only look around at the profusion of entrepreneurial businesses in most American communities. The vast array of goods and services generated by our vibrant democratic capitalist economy is unequaled: from 24-hour gyms and copy centers to supermarkets with countless varieties of food to even day spas in airports. The open markets of democratic capitalism meet needs that people don’t even realize they had. Who ever would have imagined, for example, that we would need social networking sites such as Facebook? Or that you’d want to get a massage at an airport? Millions of Americans—and people around the world—now use Facebook and other similar sites every day, and they benefit from an Internet industry that began in the United States.

Free markets don’t just meet the needs of the majority. If there’s something people want or need, entrepreneurs in an open market will figure out a way to provide it—from size 22 shoes to hard-to-find spare parts for home appliances.

Since the emergence of democratic capitalism in the last three hundred years, humankind has made more advances—in incomes, standard
of living, social mobility, and longevity—than in all the previous centuries put together.

Those who buy into capitalism’s bad rap fail to see the moral significance of democratic capitalism’s ability to provide for people’s material well-being. And yet, would anyone question the
immorality
of regimes such as Venezuela, North Korea, and the former Soviet Union, where restrictions on personal and economic freedom have caused citizens to suffer extreme deprivation, food shortages, and even famine?

Democratic capitalism is moral precisely because it gives people the greatest latitude to meet their needs and desires by serving those of their fellow citizens. Through doing so, it generates broad-based prosperity.

Many people today have forgotten that, for centuries, China was technologically ahead of Europe in metallurgy and shipbuilding. Both Europe and China, for example, developed the compass. But Europeans were the first to use it in navigating and exploring the earth. Why? Because Europe had a religious belief in the necessity of progress that eventually became a key underpinning of capitalism.

Milton Friedman wrote that capitalism is about being “free to choose.”
²
That’s why free markets have caused people around the world to move in the direction of democracy. Michael Novak has observed: “Every democracy on earth that really does protect the human rights of its individual citizens is based, in fact, upon a free capitalist economy. Empirically speaking, there is not a single contrary case.”
³

Free markets are about people expressing their desires, saying yes or no to a product or service by essentially voting with their money. Economist Walter Williams has written that, in contrast to state-dominated societies, capitalism respects “the sanctity of the individual” and is “rooted in voluntary relationships rather than force and coercion.”
⁴

In a democratic capitalist economy, people interact in networks of cooperation that teach discipline and moral lessons—from the importance of showing up for work and handling money responsibly to the value of teamwork. Americans take capitalism’s moral ethos for granted. Cynics may ridicule chirpy fast-food servers who greet them with “Have a nice day.” But this etiquette reflects an emphasis on meeting the needs of others that is not present in other societies.

For example, twenty years after the fall of the Soviet Union, visitors to Russia still complain about the sullen customer service. That’s because
Russia’s formerly communist society was run by a repressive government that controlled all resources and imposed its agenda on citizens. People had to accept what they got, take it or leave it. The idea of freely meeting people’s needs—and being polite to them—in an open market was largely alien to this culture.

Russians are only now learning customer-service values from Western businesses like McDonald’s that have managed to gain a foothold in the country’s difficult business environment. The story is often told that when McDonald’s started in Russia twenty years ago, company trainers had to overcome the famously dour attitude of service personnel whose attitude was “We’ve got the hamburgers. The customers don’t.”
⁵

The value capitalism places on meeting the needs of others doesn’t stop with the marketplace. It has made America a more charitable nation. No citizens give more of their income and time than the American people. According to New York University professor Claire Gaudiani, the U.S. gives twice as much as the next most charitable country—about $300 billion each year. This generosity extends throughout all income levels and is not limited to domestic charities. Americans have sent hundreds of millions of dollars overseas to help those in need after natural disasters ranging from the Burmese cyclone to the Asian Tsunami.

To fully appreciate the morality of democratic capitalism, it helps to have lived in other societies. Author and human rights activist Ayaan Hirsi Ali was born in Somalia, spent time in Saudi Arabia, and later lived in the Netherlands, where she served as a member of parliament. She now lives in the United States. Having experienced a repressive terror state, a Middle Eastern feudal society, and a European social welfare system, she believes that the moral standards of American free enterprise “are far higher than those of history’s other great powers.”

Why? Because, she says, democratic capitalism is a “meritocracy” that offers people the greatest opportunity to pursue their own goals, to innovate and excel, both in their business lives and at home in their communities. Not only does Ali believe democratic capitalism to be more moral than the oppressive systems of the former Soviet Union, prereform China, and Saudi Arabia. She writes that it is also superior to the welfare states of Western Europe, whose statist economies “corrode” individual responsibility by encouraging dependency.

Ali believes that the innovation and open exchange of ideas that take place in democratic capitalism make people more likely to seek remedies to social problems. For example, she says, moral debates about issues such as pollution are conducted mainly in free-market societies. And in her experience capitalism’s entrepreneurs solve problems more efficiently than the bureaucrats of any government.

Ali readily acknowledges that our system of democratic capitalism is far from perfect—“There are many wealthy, decadent, and vapid people in America.” However, she warns that the quest for moral perfection in a society can itself have immoral consequences:

We wholeheartedly agree.

G
reed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary
spirit. Greed, in all of its forms—greed for life, for money, knowledge—has marked the upward surge of mankind.”

That’s how Gordon Gekko, the iconic Wall Street financier in the 1980s film
Wall Street
, famously—and cynically—summed up a widespread view of the free market economy—a place where all economic transactions, for good and ill, occur because of greed, the darker side of human nature.

Modeled on the notorious corporate raiders of the 1980s, Gekko was a fictional character. But his belief is shared by numerous individuals who see capitalism as immoral and based on greed.

Those who equate capitalism with greed will sometimes quote from the eighteenth-century Adam Smith classic
The Wealth of Nations:
“Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens.”

True, Adam Smith’s brewer and baker give you dinner for a self-interested reason: they want your money. But self-interest isn’t greed.

One of the seven deadly sins, greed means taking too much of something that you may not rightfully deserve. That is what Bernard Madoff was accused of doing, and that is why he went to jail. But his behavior, like that of any criminal, is an exception. People don’t get ahead in a democratic capitalist economy by taking what they don’t deserve. They may for a while, but, as the story of Bernard Madoff shows, sooner or later they pay the price.

Most of the transactions that take place every day in free markets are actually based on the opposite of greed: millions of people exchange goods and services in mutually beneficial transactions based on verbal promises or written agreements, cooperating with one another in “webs of trust.”

We rely on this trust each day: The knowledge that the overwhelming majority of customers will pay. Or that we will get a paycheck from our employer every two weeks. Or that the dry cleaners will return our clothing cleaner than it was before. Without this kind of reliability and predictability, our economy couldn’t function.