Can Capitalism Save the World?

Can Capitalism Save the World?
by Patrick Ercolano
Steve Forbes looked every inch the battered capitalist. Before an audience of 300 at his June appearance in the Johns Hopkins Carey Business School’s “Leaders + Legends” lecture series, the media mogul and former presidential candidate opened by mentioning the back surgery he had undergone weeks earlier. Thus, he explained, the large, uncomfortable-looking brace around his neck.

“I just want to show you,” he deadpanned, “I’m feeling the pain of what the economy is going through.”

The recent period of worldwide economic discomfort is hardly the first time the free-market system has been the target of dark humor and derision. And yet, Forbes argued, despite the “ill repute” in which capitalism is sometimes held, it remains “a moral system. It has been the best poverty fighter in human history, the best system that allows for innovation and invention and creativity.”

The case for the virtues of capitalism has been made before. Perhaps it was made most famously by Adam Smith when, more than 200 years ago, he wrote in The Wealth of Nations of the “invisible hand” by which even the most self-interested businessman benefits society because his products are tuned to society’s desires—even if such a benefit was not his intention. “By pursuing his own interest,” Smith wrote of the 18th-century capitalist, “he frequently promotes that of the society more effectually than when he really intends to promote it.”

A moral philosopher by training, Smith still couldn’t help but have doubts about this modern system of commerce and investment that had begun to emerge in Western Europe a century earlier, observes one expert on the history of capitalism. “Adam Smith hated the idea that there was this intrinsic materialism in what he would have called economic growth—people buying trinkets and baubles,” says Joyce Appleby, professor emerita of history at UCLA and author of The Relentless Revolution: A History of Capitalism (W.W. Norton, 2010). “But he thought that the new way was so much better than the [pre-industrial] age in which you had no economic progress and people were indolent and the aristocrats and royals who guided society were rapacious and warlike. Smith thought it was worth the moral trade-off.”

The tension within the trade-off between the positive and negative effects of the free market is captured in 20th-century economist Joseph Schumpeter’s well-known phrase “creative destruction.” As the Austrian-born Schumpeter saw it, capitalism “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Old industries, old lifestyles, and old cultures are reduced to ash, but from the ash heap grow new industries, lifestyles, cultures. The old order’s pain gives rise to the new order’s prosperity.

And often prosperity is accompanied by another kind of pain, as in the slavery, sweatshops, low wages, monopolies, and environmental degradation associated with economic successes over the centuries. Appleby notes this pattern in The Relentless Revolution, writing, “One cannot celebrate the benefits of the capitalist system without taking account of the disastrous adventures and human malevolence that this wealth-generating system has made possible and sometimes actually encouraged. … ‘Can the globe sustain these capitalist successes?’ has become an urgent question.”

Despite such misgivings, Appleby says she maintains a firm belief in the capitalist system, mainly for two reasons: the freedom it grants individuals to pursue their entrepreneurial dreams, and the creation of wealth that spawns the capital that fuels innovation upon innovation. The difficulty, she states in her book, is to have a thriving system that includes “the moral base of capitalism, which depends upon men and women’s meeting obligations, managing resources prudently, valuing hard work, and treating others fairly.”

Some businesspeople have begun to recognize the necessity of this moral base. They are taking a more visible, more active hand in a social-minded capitalism, consciously creating products and services that turn a profit while also benefiting humanity. Altruism is part of the motivation. But so is the belief that the global marketplace will provide greater profits for businesses if more of the globe’s inhabitants are carrying expendable cash. To these entrepreneurs, capitalism is a positive force, and success is impossible in a failed society.

http://carey.jhu.edu/one/2010/fall/can-capitalism-save-the-world/