In an election season poised to set new records for voter fatigue, we’ve seen a lot of negativity about major American institutions, including business. Skepticism about free trade and globalization seems especially strong. At times like these, we need to step back and consider whether the American public should feel good about capitalism. Is it really a praiseworthy system, or just the least bad arrangement we’ve found so far for conducting our lives and allocating resources?
In a new study published by the Competitive Enterprise Institute, I argue that the strongest case for the morality of capitalism lies in its voluntary nature and its synthesis of two of mankind’s most virtuous and important traits—self-interest and empathy. Both of those traits are essential to success in the business world. Self-interest motivates us to advance our goals as efficiently as possible, while our empathetic nature encourages us to understand and recognize the viewpoints of others.
Furthermore, the entity that embodies capitalism in the market, the corporation, hones and enhances these virtues through a vast array of mutually beneficial exchanges. Those exchanges in turn enable other types of interactions beyond the realm of business, leading to friendships and other cooperative relationships that strengthen civil society. The corporation is a cooperative venture whose managers must consider the values and desires of everyone in their community—customers, employees, suppliers, investors, and neighbors.
Capitalism not only makes people wealthier, it also advances other important values such as fairness, justice, and opportunity. Failure to make that moral case leaves business leaders and their companies vulnerable to attack by anti-market critics, office-seeking demagogues, and overzealous government regulators.
Many managers and directors can well articulate the quality of their products and services, but far fewer can ably describe the self-organizing nature of the market and the institutions essential to its survival. A firm’s long-term viability requires being able to operate in an open and competitive environment. Given the political threats to such an environment, a spirited, morally grounded defense of capitalism is essential for sustained success.
The economist Deirdre McCloskey refers to capitalism’s achievements as the “Great Enrichment”—a historically unprecedented increase in living standards from the 1750s through today. How did it happen?
As commerce reduced transaction costs, it facilitated social contacts between craftsmen and engineers, making society’s dispersed and localized knowledge more widely accessible. Localized reservoirs of knowledge—long locked into separate pools by class barriers and the ruling classes’ disdain of commerce—flowed together, engendering new ideas and innovations. The resulting combinations led to ever more exchanges and exponential growth.
During the early part of the Great Enrichment, the public recognized the magnitude of the improvement in their living standards. Thus, the public perception of merchants was generally positive. As the greater wealth made possible by capitalism spread throughout society, however, a large middle class emerged, and with it an increasingly powerful group of intellectuals hostile to “vulgar” commerce and capitalism.
Much of that hostility was based on envy. Regarding their contemporaries in the world of trade, deep thinkers at universities often seem to ask themselves, “If we’re so smart, why are they so rich?” Their opposition was reinforced by their own self-interest, since a politicized economy offers more opportunities for theorists with big ideas to direct society, rather than serve consumer interests. Ignorance also was a factor—intellectuals rarely work in the for-profit world, and thus have little experience to temper their hostility.
Negative cultural narratives about commerce—from the early 20th century muckrakers to the Michael Moores and Naomi Kleins of today—have eroded support for free markets. Overly burdensome regulations are slowing or blocking innovation, capitalism’s lifeblood. All of this puts the gains of the last centuries in peril, and threatens to return us to the steady-state stagnation of the past.
In order to counteract that hostility, business leaders must regain the pride, confidence, and knowledge needed to stand proud. They need to learn to express how capitalism advances a virtuous, moral society. Apologetic approaches will not work. You get no applause for doing less of a bad thing until you have first garnered moral legitimacy for your core role in society.
The genius of the market is that it enables a wide array of individuals, groups, and associations to organize spontaneously to advance their various interests in a way that yields win-win arrangements for all involved. The Great Enrichment is capitalism’s greatest triumph. It needs defending.
Originally posted to Forbes.