The relationship between national prosperity and economic freedom
Source: Fraser Institute, Economic Freedom of the World: 2011 Annual Report
Antithesis: stakeholder theory
“In almost every corner of the earth, people are living longer and their lives are more prosperous, more pleasant and more peaceful. Capitalism – a much maligned beast in recent years – is coursing through the world, driving profound changes for the better, especially when allied to technological advances, urbanisation and good governance.” Ian Birrell
EVEN THE SEVEREST CRITICS of capitalism recognise that markets have an extraordinary capacity to enrich the world. Wherever the combination of property rights, open capital markets, long-term funding and entrepreneurial activity has been found, the result has been an unparalleled growth in prosperity. Friedrich Hayek, an economist and Nobel laureate, even claimed that most people alive in the world today owe their very existence to the productivity that markets enable:
We owe not only our prosperity, but our capacity to maintain a population as large as that to which the Western world has grown, to obeying certain traditional rules or morals, essentially the rules of property and family, whose functions we have never understood, which people dislike because they do not understand their function, and against which the great revolutionary movements of our time, socialism and communism, are directed.
Why, then, does capitalism get such a bad press? Why is it generally seen to be based on immoral motives, such as greed and selfishness, and to lead to immoral outcomes, such as materialism and inequality? Why do so many intellectuals affect to tolerate it but not to praise it?
The relationship between national prosperity and economic freedom
Source: Fraser Institute, Economic Freedom of the World: 2011 Annual Report
First, those who berate the imperfections of capitalism point to the present-day gap between the rich and the poor as evidence of the malign effects of “the law of the jungle”. But a fairer comparison would be between the poor of today and the averagely well-off in earlier times. Martin Wolf, an economics commentator, writes:
All complex societies are unequal. In all societies people (generally men) seek power and authority over others. But, among sophisticated societies with an elaborate division of labour, societies with market economies have been the least unequal and the inequality they generate has been the least harmful.
In the things that really matter, such as living our lives as we choose and possessing the same legal rights as everyone else, capitalist societies are the most egalitarian in history. In a liberal democracy, no single individual, however wealthy or illustrious or powerful, exerts anything like the degree of influence over other people that is exerted by the ruling elite in an authoritarian society.
Second, those aspects of capitalism that people abhor are those aspects of human nature that are generally found to be unattractive. In other words, markets act as a mirror to the human race. The television programmes that people choose to watch, the newspapers that they choose to read, the retail stores that they choose to patronise and the merchandise that they choose to buy simply reflect the tastes and preferences of human beings. It is true that markets are much better at satisfying the needs and wants of the majority than the idiosyncratic desires of small minorities, just as they are much better at rewarding hard work and enterprise than, say, fostering the virtues of love and altruism. This is because markets, like democracy, place their trust in people to make their own choices in their own interests. Those who despair at the choices that ordinary mortals make under conditions of freedom are betraying their own disdainful attitude towards humanity as a whole.
Except where markets have enabled dominant suppliers to restrict choice and abuse their power, the profit motive is neither more nor less moral than the “wage motive” or the “price motive” or indeed the “happiness motive”. In a market, each of us is trying to lead our own life in our own way – but without harming others’ attempts to do likewise. Wanting the best for ourselves can be achieved in a market economy only by engaging with others in mutually beneficial transactions that also happen to serve their wanting the best for themselves.
Finally, without the economic freedom that only markets can create, morality is meaningless. If a choice is not freely made, it cannot be endowed with moral quality. Forcing people to be virtuous is neither virtuous in itself nor can its results be described as virtuous.