Modern capitalism: Where lies its genius?

(First of two parts)

The capitalist ideology is founded on private or corporate ownership of capital goods and where products, prices, and the distribution of goods are determined mainly by competition in a free market.

In effect, society’s means of production are not held by government but by private persons (distinct from cooperative-owned or state-owned capital goods) who have the prerogative over their productive use. And this prerogative provides the incentive to maximize profit and fire off material progress which is said to be the upside of capitalism.

However, it is the same prerogative that provides the downside: the temptation to exploit and yield to man’s baser desires for inordinate wealth accumulation.

Hence, the thinking that wealth accumulation and worship of the bottom line is the central principle of capitalism; and the enforcement of private property rights is sine qua non for success. That explains capitalism’s predilection for liberal political order where property ownership is protected and exchanges are free from government intervention.

Idealism, pride, fame

Capitalism is said to have been coined in the mid-19th century when the first Industrial Revolution was in full swing. Individual innovators were creating new inventions to better people’s welfare. While motivated partly by profit, “more significant was the romance of patriotism, technology and the desire for fame.”

In a famous example, writes professor Gregory Clark of the University of California, the miner’s safety lamp which greatly expanded the coal seams in which miners could work was developed as a humanitarian venture by Sir Humphry Davy, inventor-chemist. He refused to take any profit from the innovation. However, he did squabble furiously and selfishly with George Stephenson, the Father of Railways, as to who deserved the glory of the innovation. A sterling stroke of policy where self-interest served the wider interest.

“The first hundred years of the Industrial Revolution produced extraordinarily little in terms of profits for the inventors who created the modern world. Even most of the innovators whose names we know—James Hargreaves, Samuel Crompton, Edmond Cartwright (change-makers in the spinning industry which ushered in the factory system)—gained little,” says Clark.

Clearly, wealth creators at the heart of the industrial revolution “depended as much on idealism, pride of craft, and sense of social usefulness as they did on the desire to make money”—reflective of that early Anglo-American value system when puritan ethics (the belief and practices of rigorous moral code and religious rules) was alive in the early capitalist period.

And value-creation was regarded a moral act: an article of belief linking human activity to the biblical concept of stewardship which, in the gospel of creation, means the responsible management of “God’s holdings” entrusted to man’s care, and for which he will make an accounting one day of how faithful he was to the rules during his limited existence.

The mention of “stewardship” raises the point that we all play a role connected to something more than ourselves—to a web of relationships where economics, work and faith intersect—an interdependency that demands relational responsibility.

Coincidentally, today’s deadly COVID-19 pandemic dramati­zes that interdependency. Could this pandemic be the crucible to test our moral compass in a play that looks like a rehearsal of a terrifying crisis?

Capitalistic drift

But do those deep structures of moral values and beliefs that drove the capitalist ideology in its early advocacy years (which became the negation of communism) still hold, or have drifted with the onslaught of globalization?

There is no denying that capitalism has brought material progress to the world. We have seen much miracles in new inventions—from nuclear energy, to bio-nanotechnology and more!

But what from the moral sphere of socioeconomic affairs, from the art of peaceful, fair and beneficent human relationships?

Has capitalism kept faith with the value system of the pioneers … “doing well by doing good” as the pilgrim Quakers put it? Are the communities where capitalism makes its fortune better off today?—i.e., a lot more peaceful, wholesome, undecayed and secure? Or are more exploited, polluted and stressed out with mushrooming shantytowns or urban slums? Would today’s global wealth distribution be redemptive of capitalism? Or will it be its own embarrassment?

The global inequality of wealth distribution has been a universal issue in years. The top richest 9 percent owns more than 85 percent of the world’s wealth, while the poorest 70 percent own just about 3 percent of the global wealth. (Source: Suesse 2017 Global Wealth Report).

This implies that the world’s top richest households possess more than what the 70 percent of the world’s poorest (approximately 3.47 billion people) have. This financial inequality translates to worldwide social inequity, creating dehumanizing social conditions.

As Bill Gates puts it, “while the world is comparatively getting better, it’s not getting better for everyone. The great advances in the world (in science, technology and medicine which have brought us to a high point in human welfare) have often aggravated the global inequities. The least needy gets the most improvement, and the most needy gets the least.”

“There are roughly over a billion people in the world who don’t get enough food, who don’t have clean drinking water, who don’t have electricity—the things that we take for granted. Diseases like malaria that kill over a million people a year get far less attention than drugs to help with baldness.”

Yet today’s capitalism goes unfettered in its profit maximization drive, oblivious of “the external cost in terms of pollution, environmental de­s­truction, depleted natural resources and climate change—lowering the quality of life of the majority in the affected areas who have done the least to cause it!”

Profit is king

Has the value-empty discipline of economics (“reconstructed in the academic cloister describing wealth creation after they were accomplished elsewhere by persons sans the discipline”), undermined the puritan ethics embedded in the early industrial revolution “which upholds goodness and worthiness as things worthwhile in themselves?”

Or has the raging competition between rival cultures of capitalism, set to naught business ethics altogether? For competition can be double-edged, depending on the moral compass of who applies it. It may bring out the best in products and the worst in people, says David Sarnoff, founder of RCA.

For example, while competition spurs innovation to improve products, it also lures competitors to break moral values and collude to limit markets leading to oligopoly, or use their power to “rig the system” by creating barriers to entry (“like donating to officials sponsoring laws that benefit their industry.”) Eventually embracing pseudo-competition—undercutting product innovation and service improvement—to maximize profit as the “be all!”

“In today’s business world,” notes “Soul of Business” author Tom Chappell, “the right move” is weighed only according to how well it maximizes profits. If using cheap materials increases profit, if polluting the air and rivers increases profit, if squeezing wages or laying off loyal hard-working employees increases profit, then so be it.

By today’s norm, “Profit is King!” But is this where the genius of capitalism should excel? INQ

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP. The author is management and development finance consultant; Past President & Advisory Council member of the Government Association of CPAs; past Director of PICPA; and former senior officer of Land Bank of the Philippines. Feedback at [email protected]. For previous articles, please visit map.org.ph