Capitalism is the only moral economic system ever to grace the world

Capitalism is the only moral economic system to grace the world. It is the only moral system because it is based on individual rights and freedoms.

Andile Khumalo wrote for Business Day (Capitalism needs to find its conscience, 22/07/2018) that there needs to be a shift towards a capitalism that puts “society rather than profit at the heart of decision-making and action by business”. But, the moral justification for capitalism does not lie in what it brings about ‘for society’; its moral justification is that it is premised on the concept of individual rights.

I define the concepts, capitalism, free enterprise, economic freedom and free markets to mean voluntary exchange between individuals, free of third-party intervention. Voluntarism and the absence of force or fraud underpin these interactions. As Ayn Rand wrote, “In a capitalist society, all human relationships are voluntary.” (Capitalism: The Unknown Ideal) The various levels of state control and regulations we have in South Africa mean that we do not have capitalism but a mixture of freedom and force.

Mr Khumalo uses the phrase “inclusive capitalism.” This is an anti-concept because it conflates capitalism with being non-inclusive. Capitalism occurs when two people voluntarily trade with each other, when there is no force or fraud present; which means both parties either accept or decline the trade. If I want to trade my money with someone else for his service or product, I am free to do so.

The problem we have in South Africa is that we have a mixed economy. When the state is so large and interferes in so much of our lives, the only way for companies to ‘compete’ is to seek favours from the state to cut down their competition. For instance, MultiChoice asking for Netflix to be regulated. We have too little freedom – businesses have to navigate wave upon wave of regulation. If they find a gap in the form of a government favour, they take it. Regulations also entrench bigger businesses by making it more expensive and onerous for new, smaller, competitors to enter the market.

By providing goods and services, and, hopefully, making a profit in the process, companies provide an indispensable service to society. When I buy something from someone else, I believe that I am receiving more value than the money I am giving in exchange, which is why I engage in trade in the first place. A business is moral when it engages in its primary goal, which is to make a profit. It is, in the final analysis, the consumers who, by voting with their feet, decide whether a business should exist or not. In a free society, that business is free to maximise its profit as much as it can, provided it does not engage in force or fraud, because in that way it is providing the best product or service it can to attract customers.

Mr Khumalo claims the inequality gap is a disturbing feature of “classic capitalism”. Because someone is rich, does not mean he made his wealth at the expense of someone else. Before it became accepted that it is moral for people to trade voluntarily, wealth was ‘made’ through force, and whoever had the most power could indeed take from others. In the modern world, unless proven otherwise, people who are richer did not take their wealth from a large global wealth pie – they made it through providing goods and services people wanted, and trading with people who wanted to trade with them. In a free, competitive marketplace, businesses have to compete with one another to win the ‘vote’ of the customer; the customer votes for one company over another when he decides to buy from that particular company.

As Yaron Brook recently said, inequality is not a bug of capitalism, but rather a feature. When inequality between people is the result of voluntary interactions, it ought to be praised. When people are able to build businesses and make a profit, thereby improving their own lives through voluntary trade with others, we ought to praise, not condemn, them.

Mr Khumalo writes, “The captains of capitalism – big corporates and wealthy individuals – are being found engaging in corruption and dubious business practices that seek to prioritise profit at the expense of society”. When accusing anyone of a crime, we need to provide evidence; it is flawed logic to equate businesses that engage in corruption with those who conduct their business openly. Furthermore, the fact that a business makes a profit does not mean that the profit was made at the expense of society. Honest business, providing goods and services people want, better than anyone else, is the path to wealth – not cheating customers!

Any business owner who curries favour with government does not deserve the honour of being called a capitalist. If we find and expose corruption and fraud, the people responsible ought to be held accountable.

Mr Khumalo points to the 2010 BP oil spill and recent deaths in mining in South Africa as examples of companies maximising profit over society. Where an employee is harmed in his work for a company, and it can be proven that the company was negligent, it is only right that the company be condemned and held accountable. Nothing in the concept of voluntary exchange entails individuals and businesses not being held accountable; it is to their own selfish benefit if they conduct their affairs in a manner that is most beneficial to their employees and customers. It is my fervent hope that we will see deregulation so that businesses that engage in unethical behaviours can no longer seek government bailouts or protection and will be forced out of business due to lack of customers.

More and stronger regulations are not the answer for a free enterprise economy. Larger businesses will try to circumvent excessive regulation through government favour or will opt to move elsewhere to a friendlier environment, resulting in job losses here. Businesses that interact openly with their employees and customers are engaged in a moral activity, no matter how ‘large’ the profit they make. That profit is theirs to make, they do not take it from anyone else. The legitimacy of voluntary exchange can be found in its very foundation: the sanctity of individual rights.

Chris Hattingh is a Researcher at the Free Market Foundation

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