The Morality of the Market
The market economy has triumphed virtually everywhere -- and has come to be reviled virtually everywhere. Critics, including more than a few economists, charge that capitalism creates gross inequality, inflicts environmental destruction, and undermines democracy. Nothing could be further from the truth. The market economy is the most just and humane economic system yet conceived.
A sophisticated market economy works better than any other economic arrangement that has ever existed. After two centuries of unprecedented economic advance, and especially since the collapse of the Soviet Union and China’s transition to capitalism, it is hard to argue anything else.
Yet the victory of the market model is detested almost everywhere. Critics grudgingly concede that capitalism may work better than any plausible alternative, but they insist it remains a wicked system, one that rewards immoral behavior — greed, ruthlessness, and indifference to the fate of others — and produces immoral outcomes, namely widening inequality.
This view is most stridently expressed by the anti-globalization left. But a similar, if more subtle, critique has emerged among economists themselves, some of whom even decry capitalism as inherently inhumane and in need of a "human face." It is easy to agree that a market economy requires a supporting system of laws and regulations. It is also easy to accept the desirability of government-sponsored programs of social welfare, provided these are kept within manageable bounds. But the claim that the market economy is immoral is nonsense.
The market economy rests on and encourages valuable moral qualities; provides unprecedented opportunities for people to engage in altruistic activities; underpins individual freedom and democracy; and has created societies that are, in all significant respects, less unequal than the traditional hierarchies that preceded them. In short, capitalism is the most inherently just economic system that humankind has ever devised.
It is true that market economies neither create, nor reward, saints. But consider the virtuous behavior that capitalism fosters: trustworthiness, reliability, individual initiative, civility, self-reliance, and self-restraint. These qualities are, critics correctly note, placed in the service of self-interest. Since people are, with few exceptions, self-interested, that should be neither surprising nor shocking.
Yet people are also not completely self-interested. Prosperous market economies generate a vast number of attractive opportunities for those who are not motivated by wealth alone. People can seek employment with non-governmental organizations or charities. They can work in the public sector, as doctors, teachers, or police officers. They can teach the iniquities of capitalism in schools and universities. Those who make a great deal of money can use it for any purpose they wish. They can give it away, for example. Quite a few have.
In the advanced market economies, people care deeply about eliminating pain and injustice and ensuring the welfare of fellow humans and, more recently, animals. This concern exists because a rich, liberal society places enormous emphasis on the health and well-being of the individual. Life is no longer nasty, brutish, and short; rather, it is gentle, kind, and long, and more precious than before.
The savage punishments and casual indignities of two centuries ago are no longer acceptable to civilized people. Nor are slavery and serfdom, both of which were rendered obsolete and immoral under the capitalist system. Militarists, extreme nationalists, communists, and fascists — the anti-liberals — brought these horrors back, if only temporarily. And it is no accident that the creeds that brought them back were fiercely anti-individualistic and anti-market.
Yet another example of changed sensibilities is environmentalism. The environmental catastrophes caused by supposedly benevolent state socialist economies are well documented. The market economy has largely avoided such disasters. That is because prosperous people tend to care more about the environment in which they live than those who are condemned to squalor.
Moreover, only liberal democracy makes it possible for concerns about the environment to be routinely aired and addressed. It affords environmentalists the right to pursue their agendas and to raise money in support of their goals. It segregates the public and private sectors, which enables government to regulate business. And because information is widely disseminated in a free society, companies must adhere to environmental standards if they hope to maintain their reputations.
One of the more insidious charges now leveled against the market economy is that it undermines individual liberty and subverts democracy. In her book No Logo: Taking Aim at the Brand Bullies, acclaimed anti-globalization campaigner Naomi Klein lapses into paranoia and delusion when she writes of "corporate space as a fascist state where we all salute the logo and have little opportunity for criticism because our newspapers, television stations, Internet servers, streets and retail spaces are all controlled by multinational corporate interests."
In reality, a competitive market economy is a necessary condition for democracy. The bedrock of a market economy is, as the 17th-century philosopher John Locke argued, the right of individuals to own and use property freely, subject to reasonable legal constraints. In turn, the right to own and use property freely gave rise to ideas about political liberty and the rule of law.
Secure property rights require stable, durable governments interested in the long-term health of their countries. As the late economist Mancur Olson observed, "The only societies where individual rights to property and contract are confidently expected to last across generations are the securely democratic societies." But sustained democracy requires the rule of law: The system can only endure if those in power accept free speech and political competition and abide by the results of elections. The rule of law came about as a means of facilitating commerce; in this sense, capitalism provides the basis for democracy, not vice versa.
A planned economy, by contrast, will always go hand-in-hand with tyranny. Vaclav Havel, erstwhile dissident and later president of the Czech Republic, has pointed out that a government that controls the economy will inevitably also control the civic life of a nation. True, some countries have proved the reverse: They have market economies but not democracy nor civil and human rights. But even if all nations with market economies are not (yet) democratic, all democracies have market economies. As the distinguished Hungarian economist Janos Kornai notes, "There has been no country with a democratic political sphere, past or present, whose economy has not been dominated by private ownership and market coordination."
The market supports democracy in another way — through growth. When per capita output rises, a society’s condition can be described as "positive sum" — every person in that society can become better off. This outcome makes politics relatively easy to manage. In a static society, however, a "zero-sum" condition prevails: If anyone is to receive more, someone else must receive less. It is a safe bet that if environmentalists imposed a zero-economic growth agenda on a country, that country would swiftly become authoritarian.
And far from stifling democracy, as Klein and her cohorts contend, the market economy manufactures political dissent with unparalleled efficiency. As the Austrian economist Joseph Schumpeter argued in Capitalism, Socialism, and Democracy, liberal democracies are the only societies that create their own opposition. Only in a market economy would the wealthy give large sums of money to universities, despite the contempt that many professors and students express for capitalism and the affluent. Only in a market economy could books and newspaper articles condemning the rich and powerful be published and promoted with such success.
Indeed, for all her jeremiads against capitalism, multinationals, and global brands, Klein appears to have done quite well by the market economy. Under no other system could her book have become such an international sensation. Her complaints about media conglomeration ring somewhat hollow considering what a media darling she has become. It could even be said that No Logo is now a brand of its own. The market economy does not merely support its critics; it embraces them.
The Great Leveler
Inequality is considered the scourge of capitalism. Yes, the rewards in market economies are far from equally distributed. However, all complex societies with elaborate divisions of labor are unequal. Those countries with market economies are not only the least unequal, but the inequality they generate is the least harmful. In agrarian kingdoms and feudal societies, kings and lords could seize at will the labor, possessions, and even the lives of subjects, serfs, and slaves. Perhaps the most unequal societies of all were the state-socialist and national-socialist regimes of the 20th century. When, on a whim, Chinese leader Mao Zedong initiated the Great Leap Forward in the late 1950s, some 20 million people died. The irony is that such tyranny was justified by the alleged depredations of capitalism. To eliminate market-driven inequality, all power was concentrated in the hands of the state; the result was an infinitely more unjust distribution of wealth that benefited those who controlled the economy.
It is fashionable now to claim that the market economy has produced staggering global inequality. Disparity in the global distribution of household incomes did increase progressively from the early 19th century to around 1965. But this trend must be properly understood. The proportion of the world’s population living on the margins of subsistence — that is, on an income of $1 per day — has actually decreased from more than 80 percent in 1820 to around 20 percent today, despite a roughly six-fold increase in world population.
Moreover, the rise in global inequality was not caused by increased inequality within countries but increased inequality among them. This gap reflects the success of those countries that embraced capitalism and the failure of those that did not. Likewise, the reduction in global inequality that has apparently occurred in the past two decades reflects the successful introduction of dynamic market economies in China and, to a lesser extent, in India.
In all that matters-the ability to define one’s aspirations and to enjoy the full rights and protections of citizenship-modern liberal democracies are uniquely equal. Wealthy people have more influence in a democracy than the working class. But compared to the power wielded by the affluent in traditional, hierarchical societies, the influence of today’s wealthy is tightly circumscribed.
No millionaire or corporation can flout the law, as a number of scoundrels discovered in 2002. Even Microsoft’s Bill Gates, the world’s wealthiest person according to Forbes, discovered he could not ignore the low-paid lawyers of the Department of Justice when they went after Microsoft’s monopolistic abuses. In a competitive market economy subject to the rule of law, Gates can support politicians but not coerce them; cajole customers but not compel them; and control the destiny of his company but not the lives of the people he employs. Gates is neither a tyrant nor an overlord. He is simply a citizen, entrepreneur, investor, and philanthropist.
The liberal market economy is morally imperfect, not least because it reflects the tastes, desires, and motivations of imperfect human beings. A market economy satisfies the desires of the majority more than the tastes of a refined minority. It rewards the hustler more than the sage. It rests on the power of self-interest more than universal benevolence. The relentless tirades against capitalism come from dreamers who compare it with an ideal system that has never existed and from intellectuals who resent their modest status in a society where wealth and prestige are gained by satisfying the wants of ordinary people. It is not the market that is immoral but the sloppy and self-indulgent arguments and attitudes of its critics.