A recent NY Times OpEd by Nicholas Kristof observes that: “Just as Communists managed to destroy Communism, capitalists are discrediting capitalism.”
“A Pew Research Center poll in December found that only 50 percent of Americans reacted positively to the term capitalism, while 40 percent reacted negatively. Among Americans ages 18 to 29, more had a negative view of capitalism than a positive view, the survey found. Those young Americans actually viewed socialism more positively than capitalism. In other words, America’s grasping capitalists are turning young Americans into socialists.”
Kristof’s OpEd references a very interesting survey by Edelman, a global public relations firm which has been publishing an annual Trust Barometer for over ten years. Their 2011 Trust Barometer notes that “Trust Plunges in the United States While Resilient across the Globe.”
“Trust in business saw a two-point global increase, surging in Brazil, rising in Germany, and holding steady in China and India. The United States was the outlier, as trust dropped across all institutions - business, government, NGOs, and media. U.S. trust in business fell by eight points to 46 percent - placing the world’s largest economic power within five points of last-place Russia - and decreased in government by six points to 40 percent, putting the U.S. among the bottom four countries with the least trust in government. In the Trust composite score, an average of a country’s trust in all four institutions, the U.S. also fell to fourth from the bottom, while three years ago, it was in the top four.”
Over the last few weeks we have heard the term vulture capitalism used in national public debates, not by members of the Occupy Wall Street movement, but by arch-conservative politicians. Are we seeing the emergence of a New Populism where the people, - whether the Tea Party on the right or Occupy Wall Street on the left, - are rising up against the elites, - the rich and powerful who have gotten the US into such a mess?
If I may borrow Winston Churchill’s famous quote about democracy: “Capitalism is the worst form of economic system except for all those others that have been tried from time to time.” And, just like democratically elected politicians are often the ones giving democracy its biggest black eyes, capitalists, - business executives and financiers as well as politicians, - are often the ones most responsible for the sharp decrease in trust in business and government that is so discrediting capitalism.
What is the essence of capitalism? To some, capitalism implies minimal government regulation, few social services, and very low taxes. I believe that such extreme forms of laissez-faire capitalism are as bad as extreme forms of state capitalism or communism.
Adam Smith, the 18th century Scottish philosopher, is generally considered the father of free market, free trade capitalism. His most famous work, The Wealth of Nations, published in 1776, is regarded as the first modern work of economics. He is also well known for his famous metaphor of the invisible hand - “the free market, while appearing chaotic and unrestrained, is actually guided to produce the right results by this so-called invisible hand.”
He believed that our actions are guided by self-interest. But, Smith, a deeply religious man, also believed that our actions are guided by sympathy, the human ability to have strong feelings of concern for another person with no regard for financial returns. His second major work, The Theory of Moral Sentiments being with the following assertion:
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”
In an excellent 2009 Financial Times opinion piece, Adam Smith’s Market Never Stood Alone, Harvard economics professor and 1998 Nobel Prize winner Amartya Sen invokes Adam Smith as he considers the future of capitalism after the financial crisis:
“What exactly is capitalism?,” he asks. “The standard definition seems to take reliance on markets for economic transactions as a necessary qualification for an economy to be seen as capitalist. In a similar way, dependence on the profit motive, and on individual entitlements based on private ownership, are seen as archetypal features of capitalism. However, if these are necessary requirements, are the economic systems we currently have, for example, in Europe and America, genuinely capitalist? All the affluent countries in the world – those in Europe, as well as the US, Canada, Japan, Singapore, South Korea, Taiwan, Australia and others – have depended for some time on transactions that occur largely outside the markets, such as unemployment benefits, public pensions and other features of social security, and the public provision of school education and healthcare.”
Professor Sen observes that in affluent countries, where it has been most successful, capitalism is pragmatic, not ideologically pure, and that this pragmatism goes back to the days of Adam Smith.
“It is often overlooked that Smith did not take the pure market mechanism to be a free-standing performer of excellence, nor did he take the profit motive to be all that is needed . . . People seek trade because of self-interest - nothing more is needed, as Smith discussed in a statement that has been quoted again and again explaining why bakers, brewers, butchers and consumers seek trade. However an economy needs other values and commitments such as mutual trust and confidence to work efficiently.”
As I was researching what respected business leaders have to say about capitalism, I came across the writings and speeches of Walter Wriston, chairman and CEO of Citibank from 1967 to 1984, and widely regarded as one of the most influential bankers of his generation. In his 1986 book, Risk and Other Four-Letter Words, Wriston writes:
“ . . . it is necessary to recall that there are still only two basic models of human organization: the authoritarian in its many guises, and the democratic. In its simplest terms: power from the top down or the bottom up. That thread of political evolution is inextricably linked with economic theory and practice in the nations of the world.
“ . . .The political concepts we imported from England happily coincided with the economic ideas of Adam Smith and together they provided the basis for the remarkable growth of the American nation in the nineteenth century. By coincidence, Smith's Inquiry into the Nature and Causes of the Wealth of Nations was published in Scotland in the same year as our Declaration of Independence was proclaimed in Philadelphia.”
“ . . . He viewed the dawn of the Industrial Age and grasped its potentials while the conventional wisdom of his era was still wedded to restrictive mercantile principles. Smith sensed, long before others, that free markets could unlock a torrent of economic expansion leading to a better life for all, in stark contrast to the static mercantilist partnership of state and business that set limits for products, production, prices, and profits and distributed the benefits to a favored few. Though a devoutly religious man, Adam Smith was a pragmatist who had few illusions about his fellow man's altruistic instincts. His opinion of businessmen was particularly realistic, . . .”
“The truth is that the Father of Capitalism did not have a high opinion of capitalists. What he understood was that multitudes of human beings pursuing their own best interest will ultimately produce a sort of common denominator from which we all have a chance of getting the best available deal at the moment. This state of affairs also has a way of liberating a great deal of human energy, directing it toward finding better or cheaper ways of doing things. He also understood that the diffusion of power, both political and economic, could and would create the conditions for human freedom and economic innovation. All power, no matter how derived, either from the bottom up or the top down, can be arbitrary. Only in the multiplicity of power is there safety.”
Capitalism, like democracy, works best when approached from a pragmatic, balanced point of view. On one side is the fierce competition and self-interest inherent in open, free markets. On the other is the mutual trust and sympathy found in well functioning, stable societies. When the proper checks and balances are in place, things work relatively smoothly. When ideology becomes prominent, whether from the right or the left, we get the sharp decrease in trust that we now see all around us, and which makes it so hard to get anything done. Let us hope that, as in previous such tumultous periods, our economic and political systems will self-adjust and rescue capitalism from the excesses that have so damaged its reputation in recent years.