Despite what David Brooks thinks, it is not true that Barack Obama has forced Mitt Romney into a debate about the morality of capitalism. Too bad. But with Bain, LIBOR, and offshoring all in the campaign mix, it's just possible that that the debate might happen. If we manage to have it, a few points should come into focus.
First, there are some good moral defenses of capitalism. They appeal to freedom, dignity, responsibility, and humanitarianism.
Second, these arguments are weakest as defenses of the kind of finance capitalism that Bain Capital and much of Wall Street practice these days. This hyper-capitalism borrows the traditional defenses of the system, but it doesn't much deserve their support.
Third, all the good defenses of capitalism are equivocal. They don't say that it produces the best imaginable world, but that, all things considered, it's the best we can do. This is the basis for a mixed economy of intelligent regulation, a strong public sector, and responsible capitalism. How to create that balance should be the question, not a for-or-against punching contest between blow-up caricatures.
Why a moral conversation? Why not just talk about the economists' go-to, efficiency? Well, partly because efficiency is itself a value, not a neutral and objective principle, and partly because, as Brooks admits in the New York Times today, it isn't enough. I will come back to it.
So, what are the moral defenses of capitalism? They belong to a tradition that goes back to Adam Smith and earlier.
1. Freedom. This has always been the first appeal. Smith called "natural liberty" the power to buy and sell, take or leave a job, make a deal with whomever you like. This was urgent for Smith because he saw markets as the best of three ways to organize economic life, the others being feudal hierarchy and slavery. Those alternatives assigned people to work based on unequal status and obligation, while markets let them sort themselves by choice. Today it is part of the American ideal to be able to start a business, a new career, or a new life, by pulling up stakes and trying something new. People who complain about the regimented life in, for instance, Cuba, talk about lacking this kind of freedom,
But freedom to design and market complex derivatives instruments, do proprietary trading with little oversight, or make opportunistic raids on temporarily weak companies does not necessarily promote this value. As conservatives are generally better than liberals at remembering, freedom needs to be limited to maintain social order and security -- including security against financial crisis and predatory market practices.
Also, freedom is at least a two-part thing: it can be limited by someone's preventing you from making the choice you want -- which happens a lot in Cuba -- or by economic circumstances' denying you any attractive alternatives -- which happens to plenty of people in the United States. Capitalism is generally good at protecting the first aspect of freedom, but mixed on the second. That's part of the reason good education, labor regulation, health care, and other aspects of security have been core parts of North Atlantic models, from the relatively libertarian U.S. to the relatively socialist Sweden. These are compromises from the point of view of dogmatic capitalism, but -- if they are done competently -- they are gains from the point of view of promoting freedom.
2. Dignity. Adam Smith thought markets promoted a kind of community that people should aspire to have: one based on mutual respect for others' talent, energy, and hard work. Anyone who has worked with, or been, a craftsperson, tradesman, or professional with a small practice has some idea of what this is about. These relationships are not the love of a family or the solidarity of a band of firefighting volunteers; but neither are they the selfish stratagems of heartless, caricatured capitalism.
Finance capitalism helps create an economy that is pretty far from Smith's ideal. People who have worked for Bain-style outfits talk in private about firing low-level employees of newly acquired companies at random, with a keystroke, because eliminating every third person on the payroll was a cheaper way of improving short-term profits (before unloading the company) than looking into each one's performance. I might not believe it if I had not heard it first-hand (and on background).
These grotesque incidents aside, the last fifteen years of finance capitalism have hardly been about producing respectful bonds among competent, hard-working people. They have mostly rewarded esoteric cleverness, the knack for taking advantage of tiny margins and subtle loopholes, and -- it is more and more clear -- political connections, not least the kind that can be purchased. This kind of capitalism is at best devoid of any concern for the individuals whose jobs and businesses it upends.
Respectful, mutual relations, where people have some sense of getting what they have earned, do best in moderately stable and secure economies. There has to be room for innovation and competition, but the constant churn of speculative finance and consolidating mega-companies has actually reduced the share of Americans who own their own businesses -- the paradigm of capitalism dignity.
3. Responsibility. Giving people what they earn, and not what they don't, is close to the core of American economic culture. Our capitalism is always defined against people who take advantage of some system to get what they don't deserve -- for instance, gaming disability benefits, enjoying a subsidy or a coddled union job. The sentiment is just as intelligible as resentment of sneaky Wall Street traders and those who fool around all their lives with inherited wealth. Since, psychologically, most people compare themselves with those down the street or in the next income bracket, rather than remoter contrasts, these responses should not be surprising.
The problem is that our finance capitalism doesn't reliably reward hard work and talent. It does so pretty much to the extent that it secures freedom (because you can't take responsibility for what you never had the opportunity to do) and dignity (which, in this context, means "how it feels when people appreciate your responsibility"). Like the other values, this is a double-edged blade, defending markets against some alternatives on the one hand, but showing their shortcomings on the other.
4. Humanitarianism. The real appeal of efficiency, the touchstone capitalism value, is that it fulfills more human needs and wants with the limited resources we have. Drawn in crayon strokes, the general theory of market efficiency is that every transaction is mutually beneficial (or else it wouldn't happen), which adds up to a vast system of mutual benefit. Wasted money ultimately comes out of someone's pocket, someone's education, someone's health care. If we lavished our money on idle social programs and failed collective quests (the wars in Iraq and Afghanistan come to mind), the cost would come in lives unsaved and needs unserved.
Again, finance capitalism is not exactly a poster baby for humanitarian efficiency. As mentioned, it often makes profit out of what amounts to complicated accounting tricks -- even when the tricks don't include manipulating the numbers or trading on inside information. Wall Street does not generally produce better medicines, prosthetic limbs, or good schools. If Bain Capital had, we would have heard about it before now. Private, profit-seeking companies do produce these things -- though not so much schools; but whether the constant churn and speculative pressure that finance capitalism puts on the whole economy really improves these processes is open to debate. It is especially unsure considering the humanitarian cost of speculation-driven crises like the one whose effects we are still feeling, and which, despite the lull in bad news from Europe, may not be over yet.
As anyone who has made it to week two of an introductory economics class knows, even steel-and-brick capitalism doesn't automatically produce efficiency. Often the best way to make money is by unloading costs on other people. Polluting industries know this, which is why they try to avoid environmental regulation. Consumer finance companies know it too, which is why people who have worked for efficiency specialists like Bain Capital and McKinsey talk -- again, on background -- about designing deposit, lending, and checking fees that will maximize credit-card companies' take from poor and unsophisticated clients. This is why an "efficient" economy that serves real humanitarian needs must have intelligent regulation to direct creativity in ways that produce actual benefit.
5. Dispersing Power: One of the better arguments against heavy regulation, and especially against political control of the economy, is the power it concentrates in one set of decision-makers. Dispersing control of the economy among many holders of capital spreads around this power.
The consideration on the other side is that capitalism also concentrates power, by concentrating wealth, and can turn that wealth back into political power through the kinds of corruption that are now constitutionally protected as First Amendment "free speech." Finance capitalism, with its huge concentration of rewards at the top of the income scale, is especially bad on this count.
Dispersing power is not so much a way of achieving a good thing as of avoiding evils, and in that case it is best not to imagine that either side of the balance is altogether good. This brings us to a different kind of general defense:
6. Pragmatism/Lesser Evil: When the utopian arguments of market fundamentalists are exhausted, capitalism does pretty well by fallback that it is the "least worst" system available. "What else you got?" is a reasonable response to critics, at least when the topic is what to do next. (It's also important to be able to have a clear discussion about the harms and benefits of our economic system, regardless of immediate practicality; but that's a different topic.) Pointing to the anarchists of the Occupy encampments is not much of an answer, and the authoritarian socialist regimes of Eastern Europe failed their people pretty badly even when not violating basic principles of democracy and human rights.
But, again, defending a lesser evil is very different from praising a prefect good. There is no reason that accepting the lesser-evil argument should mean embracing market fundamentalism or the excesses of finance capitalism.
The only serious lesser-evil capitalism is a mixed economy, intelligently regulated to reward real entrepreneurs and responsible managers while discouraging predators and opportunists. Yes, these are moral terms, and there will be debates about how to define them, but if we are going to have a moral argument about capitalism, we will have to have to use them, or words like them. The discussion has to be about how to secure freedom, dignity, responsibility, and humanitarian efficiency, given the dangers of concentrated power and the limited cogency of any alternatives. That is where any debate should point.
The deepest concern about the way American capitalism has developed in the last fifteen years is that it has concentrated so much wealth and power in a few hands -- and arguably the wrong ones -- that it has become a major barrier to intelligent public conversation about its own strengths and limits, and about the direction reform should take. Supreme Court decisions protecting wealth as speech make this worse, but money collects political power in any case, especially when money benefits so much from absent, weak, or misplaced regulations. The right-wing attack on government itself has both polluted the debate and weakened governing institutions, making it hard to stage a useful conversation and maybe even harder to act on intelligent judgments about reform.
Since Teddy Roosevelt, the steady refrain of American reformers has been that, in a complex society and economy, unrestrained markets cannot do the good that early Americans expected from them, and which market fundamentalists still expect. Reformers have looked for ways to pursue such uncontroversial values as freedom, dignity, and humanitarian efficiency in a world that demands regulation and a healthy balance of public and private effort. Their reforms have come from coalitions of politicians, professionals, policy thinkers, and enlightened businessmen like Warren Buffett and the Gates family. If our mix of inequality and ideology has disabled us from creating another generation of reform, that would be the strongest and saddest case against American capitalism.
Prove it.. where's the proof? This country has been the most prosperous in world history.. we've proven that freedom is the ONLY real solution to a successful society. The more interference by govt. the more prosperity is hindered. Regulations are necessary.. but those who do not appreciate and value REAL freedoms abuse the need and that's why this country, at this time, is not more successful.. why we cannot recover from this horrible economy.. the sooner Obama and the liberals are out of office the sooner we can get back to a TRUE America.. preserving freedoms and liberty.
False. Effective reglulation is to prevent violence against neighbors in the single-minded pursuit of profit. Environmental regulations do not exist because someone supposes their values to be superior, but to protect the rights of the rest of us to breath clean air, drink clean water and enjoy life without harm from pollutants that would make us sick.
"Often the best way to make money is by unloading costs on other people. Polluting industries know this, which is why they try to avoid environmental regulation. Consumer finance companies know it too, which is why people who have worked for efficiency specialists like Bain Capital and McKinsey talk -- again, on background -- about designing deposit, lending, and checking fees that will maximize credit-card companies' take from poor and unsophisticated clients. This is why an "efficient" economy that serves real humanitarian needs must have intelligent regulation to direct creativity in ways that produce actual benefit."
Capitalism without regulation is like a society without laws. The strong would prey on the weak and chaos would spread.
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I would say that this business model while ingenious in one sense is also anti-capitalism.
Business cannot be relied upon to police themselves with public interest/cutomers at heart, it's been proven over and over again.
Let me put it another way.
Picture this: Two maps of the 50 states. The first map has LED lights showing the location of Congressional and Senatorial offices distributed throughout the US. (They exist already) The second map would show all the LED lights as they are today, concentrated in Washington. Which map do you think would best reflects our desire for representative government? It's a no-brainer.
We hear that "Washington is the problem." I would modify that statement and say this...."BEING in Washington is the problem." Richard Lugar just found out what happens when you are in Washington too long.
The benefits to the people would be numerous. The benefits to lobbyist would be greatly reduced....that's why it will never happen and that's why we will continue to have government by racketeers.
"The unrestrained passions of men are not only homicidal, but suicidal."
Still as true now as it was in the early 19th Century...
Obama's latest rant about how business owners "didn't build" their businesses is a prime example. I guess I just woke up 20 years ago and someone gave me my business? I guess I just imagined all those years of working 7 days a week and 20 hour days? I guess I just work 48 hours straight a few times a year now because it's fun? If I didn't build this - WHO DID?
These flirtations with Marxism from the DNC faithful have turned me away from the party. I've loved the DNC and supported it with my hard EARNED money for decades. We used to have Democrats who weren't communists. Bill Clinton is not a communist.
For those malcontented and disaffected by the current business cycle, and are looking over the fence at Marxism - just remember those paradises - the USSR and Cuba.
Attributing words to someone they didn't use (you really need to hear the actual quote from Obama's speech, not Limbaugh's edit).
Imagining that your business doesn't depend - in any way - on the contributions of others.
And throwing in a healthy dose of "marxism" just for the heck of it.
Congratulations on getting every single recent Republican economic talking point into one paragraph!
By the way, quit pretending you're a "moderate", or a former Democrat. You're a Republican. Be brave enough to admit it...
If you click on my name, you can read everything I've ever written here. Then instead of making a fool of yourself with conjecture, you'd at least know what you're talking about.
Capitalism is completely moral because it allows one to profit from one's own work.
Yes, I did hear the Obama speech, and was completely disgusted by it. My firm was started with ONE employee - ME. Have others helped? YES, and they were WELL PAID FOR IT with my money that I earned.
This is not the DNC I've supported my entire life. I'm sorry. I'm out.
“The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.
“So we say to ourselves, ever since the founding of this country, you know what, there are some things we do better together. That’s how we funded the GI Bill. That’s how we created the middle class. That’s how we built the Golden Gate Bridge or the Hoover Dam. That’s how we invented the Internet. That’s how we sent a man to the moon. We rise or fall together as one nation and as one people, and that’s the reason I’m running for president – because I still believe in that idea. You’re not on your own, we’re in this together.”
http://abcnews.go.com/blogs/politics/2012/07/did-obama-say-if-youve-got-a-business-you-didnt-build-that/
Nor does business have any reason to feel that ''we are in this together''. His NLRB star-chamber moves against BOEING. His EPA, against coal plants and the industry at-large, throwing thousands of Americans into an unemployment line. The KEYSTONE ''compromise'', the allowance of one middle section of the line to be built, with neither a start or a finish. Obamacare has proven to be a complicated mess which leaves businesses at all levels confused and unsure. His BAIN attacks on Romney are good for partisan red meat, but what of his own administration, packed full of job-offshoring CEOs starting just with GEs Immelt? [or Obamas own investment portfolios which include dividends from offshored Chinese companies].
Thus business , especially using his comments as mere icing on the cake, has every reason to feel suspicious of Obamas protean attitudes, Americans, worried that Obama is hiding an Imperial presidency beneath a thin layer of FDR-style populism. Still others, pointing to the failure of government AND business, with one city after another tumbling into insolvency, see under Obama, the ''Californiacation'' of America.
I've read the entire speech, and heard most of it. This was not a decision I took lightly.
The man has absolutely no respect for people like me.
Libertarians blaming government for the failures of Capitalism is like an arsonist blaming the firefighters for the burning building.
"Give all the Skittles to the schoolyard bully." is not a sound standard for economic policy.
The "innovation" touted as an attribute of Capitalism serves only to increase addict consumerism. Capitalists purposely inhibit cures for disease, earth-saving technology and advanced education for the masses because it doesn't produce as high of yields that make them rich and powerful.
"The trouble with Capitalism is sooner or later you run out of working people's money.". We're at the point now where all the wealth and power has been moved from working people to the "investor class". The Feudalists (Reagan epublicans) and the Fascists (Clinton Democrats) once had a common enemy - organized labor. Now that they've neutered worker's rights, they're fighting eachother over the spoils of slavery.
To say Socialism plays even the slightest role in politics or media today is absurd and blatantly dishonest. Americans haven't had even a taste of Socialism since 1980. By the way...
...how has life been since then?