capitalism – Houghton STAR

While I agree with Joe Gilligan’s point that free market capitalism has benefitted society through encouraging innovation and thereby increasing the wealth and living standards for societies as a whole, it is not immediately apparent whether these accomplishments classify capitalism as good and just. The statistic that Americans have a higher median income and standard of living than Swedes merely demonstrates that free market capitalism, as compared to socialism, may be a more effective route to materialist ends. In order to take the next step and assert that capitalism is then good, one would need to assume that maximal wealth is the good to be pursued by an economic system. However, this would be to assume what capitalism already asserts: that the ultimate goal is maximization of profit. In order to avoid circular reasoning, the goodness of capitalism cannot be analyzed on the basis of resulting wealth. Fulfillment of materialist objectives, such as the effective production of goods and the increase of societal wealth, is a significant merit for an economic system, but does not provide adequate basis for qualifying capitalism as good and just. The standards of what is good and just for an economic system should be defined in ethical rather than purely economic terms.

The traditional ethical defense of capitalism is on the basis of freedom. According to Amartya Sen in Development as Freedom, while efficiency and the ability to improve living standards are important reasons to maintain free markets, “the more immediate case for the freedom of market transaction lies in the basic importance of that freedom itself.” Though we might dispute how freedom should be defined or realized, most of us probably agree that freedom is intrinsically valuable, and the promotion of freedom is an acceptable basis for asserting that free market capitalism is “good.”

The issue to be explored, then, is to what extent the theoretical good of free market capitalism—freedom—is actually realized in capitalist societies. In this context, the attainment of individual freedom will also be my criteria for measuring whether the system is just.

Perhaps the issue of greatest concern for individual freedom in capitalist societies is immense (and growing) wealth and income disparity. The Gini coefficient, which measures the income inequality within a particular group, has risen enormously within countries with capitalist systems over the past quarter-century. Since China began capitalist market reforms in 1979, its baseline standard of living has increased considerably, but its Gini coefficient has increased from about 28 points (marking relatively equal economic distribution) in 1991 to over 47 points (marking gross inequality) in 2012.

While economic inequality is not necessarily inherently unjust, it may still pose a significant barrier to individual freedom, thereby perpetuating injustice. Individuals with less money have less freedom to act in various areas of life, for instance to access education or healthcare. Individuals with less money also have less power to influence what happens in society. This is particularly true in circumstances where wealth may literally buy political influence, a common occurrence in countries such as China. To the extent that the gross economic inequality associated with capitalism limits freedom, it is unjust.

Defenders of capitalism might respond by suggesting that the underlying structure of capitalism is just, however, because it rewards individual effort and achievement with economic success. But basing economic justice solely on individual effort mistakenly assumes that individuals begin on level playing fields with equal capabilities to succeed. A recent World Bank study showed that 80% of variability in a person’s income is accounted for by country of birth and parental income level. The remaining 20% is primarily affected by sex, race, and other variables over which persons have no control; individual effort has a very small impact on economic success. Even in capitalist societies where there might be a stronger relationship between effort and success than exists globally, there is no question that factors over which an individual has no control significantly influence his or her life success or lack thereof, economic and otherwise. Although capitalism is structured individualistically, in reality, the “individuals” who take part in capitalism are shaped by communities.

So am I suggesting that free market capitalism is not good and just? Perhaps this is not the most relevant question. When evaluating capitalism, we must consider it in relation to alternate economic systems. Other systems might come closer to the ideal of the good and the just in some regards, but there are always tradeoffs. While free market capitalism cannot be unqualifiedly characterized as good and just, it may still be the best alternative. However, we must be careful to recognize the limitations of capitalism so that we can be open to pursuit of the good and just through whatever measures may be most effective rather than limiting ourselves to a single framework.

Two Views: Is free-market capitalism good and just?

Each day we participate in the most just and free market system in the world. The iPhone we bought to talk to friends, the Pepsi we drank to keep us awake to study, the paycheck from work, are an integrative part of the free market. Dinesh D’Souza, former President of The King’s College noted free market “capitalism satisfied the Christian demand for an institution that channels selfish human desire toward the betterment of society.”

Author Michael Novak documents the origin of free enterprise to the Catholic’s creation of Canon Law, which led to a common market and law system by establishing “jurisdictions of empire, nation, chartered city, guild [for] merchants, and entrepreneurs. It also provided local and regional arbitrators, jurists, negotiators, and judges. Now gears for windmills, harnesses for beasts of burden, ocean-going ship rudders, eyeglasses, and ironwork” were invented with the free flow of trade and ideas. Later the “Protestant Work Ethic” would bring ferocity for free markets documented in Max Weber’s 1905 book, The Protestant Ethics and the Spirit of Capitalism. Book critic Tom Butler-Bowdon states Weber makes a compelling argument that Protestants made free markets worthy and morally just because “of the spirit of progress; the love of hard work for its own sake; the orderliness, punctuality and honesty; and the belief in a higher calling.”

As history tells us, the free enterprise system has been the catalyst for the greatest strides in innovation, social mobility, and the standard of living. In a free enterprise system, allocation of goods through trade is not an exploitation of buyers by sellers, rather a mutual agreement of value between two consenting parties. However, many of today’s liberal-progressives argue free enterprise is unethical resulting in a mal-distribution of wealth. They claim markets cause the rich to get richer and the poor to get poorer. However, history has shown societies prospered from free market expansion which created a better standard of living for all income classes. When President Kennedy cut taxes for the upper class the economy blossomed. Kennedy remarked, “A rising tide lifts all boats.” According to economist Arthur Laffer, the US’s “purchasing power of the median income family rose to $54,061 in 2004, an $8,228 real increase since 1980. The middle class is not disappearing…it is getting richer.” The poor have also benefited from these booms. A Treasury study on income mobility in the US from 1996 to 2004 found the bottom 20% of wage earners experienced a 109% (inflation adjusted) increase in income.

Critics of free enterprise often cite Sweden as a model of how socialism can work. Having a mother from Sweden and having visited many times, I know Sweden is a lovely country, but if Sweden is socialism’s best argument, then the cases against socialism are many. It is true Sweden has relatively no poverty. On the other hand, economist Milton Friedman noted, “That is interesting because in America, among Scandinavians, we have no poverty either.” Likewise less than 7% of Swedes and Swedish Americans live in poverty. However, the similarities end there considering how wealthy American Swedes are compared to their Swedish counterparts. A Swede’s average income per year is $36,600 while an American Swede’s average income per year is $56,900 according to author Kevin Williamson. A typical Swedish family would live in an 800 square foot apartment and own one car, while a typical Swedish-American family would own a 3000 square foot home and own two cars.

In addition, according to Socialism by Williamson, Sweden’s GDP per capita was 20% higher than that of the US in 1980, but in 2001 not only was the US’s GDP per capita higher, it was higher by an overwhelming 56%. Sweden also has more social rigidity than the US. Ironically, America is more egalitarian than Sweden. While income may be more equally distributed in Sweden, the US has distributed wealth more equally. Income and wealth are correlated in the US by high paying careers or entrepreneurship. In Sweden you are more likely wealthy because you inherited it.

The free enterprise system has benefited all economic classes and mankind’s leap in innovation, social mobility, and our standard of living. On the other hand, collectivist societies have stifled innovation, while creating a rigid social mobility, driving down a lower standard of living. President Ronald Reagan once said, “Socialists ignore the side of man that is the spirit. They can provide you shelter, fill your belly with bacon and beans, treat you when you’re ill, all the things guaranteed to a prisoner or a slave. They don’t understand that we also dream.” Similarly, Timothy 1:7 states, “For God hath not given us the spirit of fear; but of power, and of love, and of a sound mind.” The choice is clear. We must continue to dream.