Knowledge is the new black.
28 July 2017 00:44 (South Africa)
Opinionista Ivo Vegter

Is capitalism 'greedy and inhumane'?

  • Ivo Vegter
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

In the wake of last week’s column pointing out that solving the world’s environmental and human welfare problems aren’t to blame on capitalism, but would benefit from less cronyism and more free markets, I was called a “soldier of capitalism”, defending “greed and inhumanity”. Well, then.

It’s a catch-all insult slung across partisan lines. Socialists are convinced capitalists are greedy and inhumane, and vice versa. Both sides can point, at the very least, to anecdotal evidence that they’re right.

For evidence that capitalism (which I defended last week) is greedy and inhumane, one only has to look at the excesses of retail credit providers, escalating healthcare costs, rapacious telecoms fees, Enron, tax shelters, bank bailouts and exploited workers.

For evidence that socialism is greedy and inhumane, one just needs to look at Venezuela. The subsidised price of petrol, which costs the state oil company $15 billion a year and for 20 years has stood at $0.01 (because who isn’t greedy for cheap fuel?) is about to rise by 6,000%. It has the largest proven reserves of oil in the world, but the shop shelves are empty. Inflation is expected to hit 720% this year, and the economy is shrinking by 10% per year. The embattled president Nicolás Maduro and former president Hugo Chávez were both outspoken socialists, handing out cheap petrol and free housing in return for votes. But none of this socialist excess has kept the country from the brink of economic disaster, or made daily life any more tolerable for its citizens.

Of course, it is possible to blame Venezuela’s troubles on “economic warfare” by capitalist countries. I’d consider that a weak excuse, given the country’s history of nationalising foreign assets. Conversely, I would blame many of the perceived excesses of capitalism on government interference in the economy, whether it is by bailing out failing banks, restricting competition to cronyist cartels, manipulating the supply and price of credit, over-regulating healthcare, and even protecting consumers.

The truth might hurt a little. If it’s greed you’re worried about, neither side can really claim the moral high ground. The vast majority of people are “greedy”, if that is how you choose to describe self-interest. Whether you’re a socialist, a cleric, a volunteer, or a dyed-in-the-wool capitalist, everyone looks out for number one. Who will refuse a pay increase when offered? And if money does not motivate you – because you feel you have enough – aren’t you motivated instead by other self-centred emotions, such as generosity, piety or self-actualisation? And who is to deny you the satisfaction you gain from such actions?

By my standards, the average civil servant’s package, even at municipal level, makes them pretty darn rich. They get to have regular income, fancy cars and subsidised houses, a decent medical aid, adequate pension plan, and comprehensive home insurance, none of which I enjoy. Compared to them, I’m poor. But by the standards of many other South Africans, I am well off, even though I earn fairly little, drive a 17-year-old car, and own no property. So where would you draw the line between legitimate self-interest and greed?

Pro tip: you can’t. There is no such line. Self-interest is what drives every one of us. The poor are interested in the daily necessities of life: enough to eat, a roof over their heads, education for their children, and a little leisure time to rest in between. The middle class is likely to be concerned with maintaining the value of their homes, being able to eat out once in a while, paying for two cars, and affording private schooling and medical care. The upper class probably worries about the value of the companies they run or in which they invest, whether competitors are poaching customers or staff, and whether the taxman is being paid as little as is legally possible. And crime is not restricted to any of these classes. Whether it’s robbery, insurance fraud, or corporate embezzlement, crimes born of greed occur at all strata of society.

The underlying motive is identical for everyone. Rejecting capitalism will not change this. In a socialist system, people will continue to seek to improve their circumstances, but they’ll have to rely on the patronage of the state to do so. If opportunities for self-improvement and entrepreneurialism are denied, people will turn to bribery, corruption, fraud and theft, to get what they need.

Witness those in our government who preach the virtues of communism, or celebrate the socialist values of the National Democratic Revolution. Did you see any of them being modestly dressed when they arrived at the opening of Parliament? Do any of them lack luxury houses, luxury cars, luxury restaurant meals, luxury clothes, luxury watches, and luxury “business” trips overseas? Are any of them even remotely modest or humble in the face of an economy in tatters and millions of poor people who have been under-served for as long as they can remember?

The big difference is the means by which greed is contained and moderated in the economy. While nobody would deny an entrepreneur a big payday, if their hard work and innovation pays off, we would all look very differently upon someone who gains millions from fraud or theft. So the first thing we need is the rule of law.

The second factor is to ensure there are consequences for excess. If a director at a company signs a contract with a friend or family member, hoping to skim cream off the top, there are shareholders who can vote them out and bring criminal charges or civil lawsuits. Even if they don’t, there are competitors who do not incur such losses, and will benefit by comparison.

This is far from a perfect system, but it is a whole lot better than a world in which government bureaucrats get to decide who wins contracts, who gets a licence to operate in a particular business, and how that business should be conducted. Almost always, when the excesses of capitalism seem extreme, they involve actions that are illegal, exploit government regulations, or benefit from a special relationship with government. For a short list of fraud and corruption scandals that directly or indirectly involved government, look no further than this A to Z list by blogger Kevin King. Clearly, entrusting politicians with economic power is not a panacea. On the contrary, it tends to give them political power, too, and power that is not checked by competition is apt to be abused to satisfy the self-interest – or greed – of favoured cronies.

Before calling capitalism inhumane, one not only has to consider the dismal record of socialism and communism around the world. It is important to recognise the great benefits that capitalism has brought. Before the 19th century, life expectancy worldwide fluctuated between 30 and 40 years. Today, we live twice as long. We are also healthier, wealthier and happier, thanks to free markets and capitalism. We have access to electric light, refrigeration, time-saving household appliances, life-saving medical science and rapid personal transport

Extreme poverty, which once was the norm for the vast majority of people, now affects less than 10% of the world population. Food has become abundant and inexpensive, by comparison with the past. We enjoy a vast range of high-quality foods that previous generations, even in rich countries, could only dream about.

There is also ample evidence that economic freedom has many benefits, and is positively correlated with most measures of human welbeing. Perhaps the term needs to be explicitly defined, to distinguish it from the sort of crony-capitalism or state-capitalism that is so easily abused: “Economic freedom is a composite that attempts to characterise the degree to which an economy is a market economy—that is, the degree to which it entails the possibility of entering into voluntary contracts within the framework of a stable and predictable rule of law that upholds contracts and protects private property, with a limited degree of interventionism in the form of government ownership, regulations, and taxes.”

In a free capitalist economy, every product or service that is created and sold, is sold for the benefit of someone else. However subjective their perception of benefit might be, capitalist agriculture, manufacturing and trade must serve customers to survive. This makes it inherently beneficial to society at large. However, it also does not crowd out people’s natural impulse for altruism and kindness. Many capitalist organisations, besides generating tax revenue, engage in charity or corporate social responsibility, under pressure from their employees and customers. None prohibit generosity. After all, corporations are composed of people just like you and me.

Self-interest is what motivates people to work and compete with each other to produce just the right kinds of goods and services to satisfy the needs and wants of customer. One does not have to celebrate greed or selfishness, á la Ayn Rand. It only needs to be recognised that greed is universal, and affects every system of economic organisation. It is human nature, and it cannot be wished away.

The great danger of socialism is that there is no safeguard against the abuse of centralised political and economic power to satisfy the greed of politicians, their cronies, or supporters. The result is poverty and, indeed, inhumanity. The great virtue of capitalism is that it is self-limiting, and harnesses human nature – including greed – to better produce the material needs of society. At its heart, it is the most human, and humane, economic system ever devised. DM

  • Ivo Vegter
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

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