Being a business major in this day and age carries a sort of stigma with it. Amid the news of corporate scandals, embezzlement and greed, I am constantly met with the skepticism of my fellow students once I tell them my course of study. I am not surprised or angered by this cynicism. In fact, one of my biggest fears about entering the business world is being put into a position where I may be asked to compromise my moral integrity and how I would behave under certain pressures. It is no wonder that people have been calling into a question the very capitalist system under which businesses operate. Leftist filmmaker Michael Moore even went as far as to call capitalism “evil” in his 2009 documentary, “Capitalism: A Love Story.”
However, this assessment of capitalism is largely unfair. Adam Smith, the father of modern capitalism, famously noted, “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest.” Most people will agree that it is rational to act in their own interest. Everybody works to put food on his table and clothes on his back, but in doing so he is making a larger contribution to society as a whole. For example, Google is a profit-making entity that has made its services so invaluable to the general public that it has become a verb in our regular vocabulary. The creators of Google did not make the Web site out of benevolence, but out of their desire to make a profit.
Moreover, people often pursue higher education in order to advance their own interests, but in doing so benefit society by becoming doctors, engineers and scientists. Capitalism acts as the vehicle by which individual achievements are rewarded.
No other system in history has been as successful in fostering innovation and human progress. In the past few centuries that the market system has been allowed to thrive, humanity has made more advancement than it did in the entire preceding millennium.
What has allowed capitalism to be so successful is the concept of natural rights: namely life, liberty, property and the pursuit of happiness. Let us examine the latter two concepts. Enlightenment philosopher John Locke wrote, “Every man has a property in his own person. This nobody has a right to, but himself.”
While this might seem like common sense to the reader, it has been demonstrated continually that societies that do not value individual accomplishment also do not affirm the right to property. For example, before capitalism was adopted, the dominant system was feudalism. Under feudalism, wealthy aristocrats owned a majority of the property and the entire purpose of the commoner, or a serf, was to provide service to his lord.
A serf did not own personal property and was not allowed to pursue any higher ends. Moreover, under Communist systems, one’s property is capable of being nationalized at any time by the whim of the state. Under Nazi Germany, property was searched and seized by the fascist regime on a regular basis. The right to property is the very basis of both Capitalism and of free society in general.
The other unique right is that of “the pursuit of happiness.” It is in this respect that Capitalism differs most strongly from feudalism. Under a feudal system, serfs were relegated to a near-slave status, from which they could never escape. No matter how hard they worked, they were only entitled to the same level of benefits from their lord, which, subsequently, encouraged serfs to do the minimum amount of work required. They did not have the right to pursue higher goals or advance in society.
This is ultimately why feudalism collapsed. Since workers had no intrinsic motivation to be successful, all innovation was stunted. The majority of the wealth in a lord’s household came from warfare rather than economic competition; many lives were lost just so people could maintain a minimum standard of living. Therefore, the concept that each individual has the right and responsibility to pursue his own ends is both logical and moral. An individual who is acting in order to better himself as opposed to his lord will ultimately be able to contribute more to society as a whole. Knowing that working harder will help to advance one’s own goals will encourage the individual to be more productive and innovative.
However, acting in self-interest does not give one license to act unethically. Ethical behavior and transparency are necessary in order for capitalism to be successful. Unfortunately, the major issue afflicting business today is that consumers and investors do not have access to the same information that the managers have; unethical managers have chosen not to disclose the information to their stakeholders or present it in a deceptive way.
Furthermore, many managers have been acting unethically in order to achieve short-term goals, without looking at long-term consequences. These actions are ultimately self-defeating because they damage firm’s reputations, and hurting the stakeholders ultimately hurts the firm.
Capitalism is a moral system, which has unfortunately been exploited by some immoral people. Acting unethically is counter-productive to a firm’s success, but selfish people motivated by short-term gains may ignore this fact.
Therefore, it is necessary to create controls (both internal and external) in order to curtail these behaviors, with the bare minimum of necessary government intervention.
Too much intervention slows innovation and gives firms negative incentives to act, whereas too little intervention allows unethical people to exploit the system. That being said, a free state cannot exist without free markets. It is both necessary and moral to allow people to pursue self-interest.