I was at a discussion yesterday on the merits of moral capitalism and while listening to the presenter, tried to figure out what really are negative perceptions of capitalism all about. The discussion focused on the moral aspects of doing business, the value systems and religious underpinnings of capitalism. When we got to the famous quote by Adam Smith who in his Wealth of Nations said that it is not out of the goodness of a baker’s heart that we get a loaf of bread on our table, it occurred to me that there are some discrepancies in the views that opponents of capitalism hold.
The major one of those is the division between small and big business. When asked about their negative perceptions, most critics of capitalism would more likely than not point toward big multinational corporations as the “bad face” of business. However, hardly anyone would regard small business in the same manner – on the contrary, small business is more likely to be called “good.” Conceptually, however, is there a difference between the two? Firms are voluntary organizations of people (employees and customers) and function much in the same way regardless of size of geographical location. They provide goods and services to customers who demand those goods and services and are willing to pay for them. In that sense, is there a difference between a small vendor selling baked goods made by his wife on the streets of a city and a company selling automobiles in dozens of countries across the globe? Is profit made by a small vendor considered “good” while profit made by a large corporation considered “bad?” There are certainly such sentiments out there.
This leads me to believe that people disagree over the prices more than they disagree over the morality of capitalism. But where is that line drawn? When does a company, an entrepreneurial idea, cross from the “good” side to the “bad” side of capitalism? Is it when instead of 2 employees you grow to having 50 employees? Is it when you go from making $10 on a $100 investment to making $10,000,000 on a $100,000,000 investment (note percentages are the same)? Now, I must note that there are good companies and there are bad companies, or, to be more precise, (in the words of Milton Friedman who puts emphasis on people who run companies not legal documents that turn networks of people into firms) there are good people and there are bad people. But saying this is completely different than saying capitalism is inherently bad or immoral.
Taking an inside-out approach to capitalism based on individuals and their interaction rather than a macro approach to it yeilds completely different outcomes. As Pete Boettke, an economics professor at George Mason University, has pointed out, individuals have what Adam Smith correctly identified “the propensity to truck, barter, and exchange” as well as a propensity to “rape, pillage and plunder.” How to “steer human interaction in favor of the truck, barter and exchange direction as opposed to the rape, pillage and plunder” is the central question of this debate on morality of capitalism. In that regard, more attention should be paid to the enabling environments within which business operates including legal and regulatory systems, environments, cultures, codes of conduct, and, what we have come to call, institutions.
Of course, I am just scratching the surface, and there are a lot more issues that play into this debate. Comments welcome.
Published Date: March 02, 2006